-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MoVjDebClcrqdRW1fXMnKN6LC/+oizGfhFuc3wjttG0iK1c9fx4vEo7S6gLHIYJH kmsl6TTatMilDMxRoNB8WQ== 0000950152-02-002415.txt : 20020415 0000950152-02-002415.hdr.sgml : 20020415 ACCESSION NUMBER: 0000950152-02-002415 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020327 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST CITIZENS BANC CORP /OH CENTRAL INDEX KEY: 0000944745 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 341558688 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-25980 FILM NUMBER: 02588265 BUSINESS ADDRESS: STREET 1: 100 EAST WATER ST STREET 2: P O BOX 5016 CITY: SANDUSKY STATE: OH ZIP: 44870 BUSINESS PHONE: 4196254121 MAIL ADDRESS: STREET 1: 100 EAST WATER ST STREET 2: P O BOX 5016 CITY: SANDUSKY STATE: OH ZIP: 44870 10-K405 1 l92971ae10-k405.txt FIRST CITIZENS BANC CORP 10-K405/12-31-2001 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 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 (IRS Employer incorporation or organization Identification No.) 100 East Water Street, Sandusky, Ohio 44870 - ------------------------------------------------- ---------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) Registrant's telephone number, including area code (419) 625-4121 ----------------------------------
Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, No par value -------------------------- (Title of Class) 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 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 registrant's 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. [X] The aggregate market value of the voting stock held by nonaffiliates of the registrant based upon the closing market price as of January 31, 2002 was $71,719,872. As of January 31, 2002, there were 4,077,619 shares of no par value common stock issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrants 2001 Annual Report to Shareholders are incorporated by reference into Parts I, II and IV of this Form 10K. Portions of the registrant's Proxy Statement, to be dated approximately March 15, 2002, are incorporated by reference into Part III of this Form 10K.
INDEX PART I Item 1. Description of Business....................................................... 1 Item 2. Description of Properties..................................................... 14 Item 3. Legal Proceedings............................................................. 14 Item 4. Submission of Matters to a Vote of Security Holders........................... 14 PART II Item 5. Market for Registrant's Common Equity and Related Shareholder Matters......................................................... 14 Item 6. Selected Financial Data....................................................... 14 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation.................................................... 15 Item 7a. Quantitative and Qualitative Disclosures About Market Risk.................... 15 Item 8. Financial Statements and Supplementary Data................................... 15 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................................... 15 PART III Item 10. Directors and Executive Officers of the Registrant............................ 15 Item 11. Executive Compensation........................................................ 15 Item 12. Security Ownership of Certain Beneficial Owners and Management................ 15 Item 13. Certain Relationships and Related Transactions................................ 15 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.............. 16 Signatures.............................................................................. 17
PART I ITEM 1. BUSINESS (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-Leech-Bliley Act of 1999 (GLB Act), as amended. The Corporation's office is located at 100 East Water Street, Sandusky, Ohio. The Corporation had total consolidated assets of $487,671 at December 31, 2001. FCBC and its subsidiaries are referred to together as the Corporation. THE CITIZENS BANKING COMPANY (Citizens), owned by the Corporation 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 under its current name. 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 three branch banking offices in Perkins Township (Sandusky, Ohio), one branch banking office in Berlin Heights, Ohio, one branch banking office in Huron, Ohio and one Loan Production office in Port Clinton, Ohio. This subsidiary accounts for 60% of the Corporation's consolidated assets at December 31, 2001. THE FARMERS STATE BANK (Farmers), acquired by the Corporation in 1999, was organized and chartered under the laws of the State of Ohio in 1916. Farmers is an insured bank under the Federal Deposit Insurance Act. Farmers maintains its main office at 102 South Kibler Street, New Washington, Ohio and operates branch offices in Willard, Ohio and the Ohio villages of Chatfield, Tiro, Richwood and Green Camp. Farmers accounts for 26% of the Corporation's consolidated assets at December 31, 2001. THE CASTALIA BANKING COMPANY (Castalia), owned by the Corporation since 1990, was organized and chartered under the laws of the State of Ohio in 1907. Castalia is an insured bank under the Federal Deposit Insurance Act. Castalia operates from one location, 208 South Washington Street, Castalia, Ohio. Castalia, Ohio is located approximately 10 miles from Sandusky, Ohio. Castalia accounts for 10% of the Corporation's consolidated assets at December 31, 2001. SCC RESOURCES INC. (SCC) was organized under the laws of the State of Ohio. Begun as a joint venture of three local Sandusky, Ohio banks in 1966, SCC provides item-processing services for financial institutions, including the Banks, and other nonrelated entities. The Corporation acquired total ownership of SCC in February 1993. On June 19, 1999, SCC entered into an agreement with Jack Henry & Associates, Inc. (JHA) to sell all of their contracts for providing data processing services to community banks. JHA agreed to pay SCC a fee based upon annual net revenue under a new JHA contract for each bank that signed a five-year contract with JHA by January 31, 2000. This subsidiary accounts for less than one percent of the Corporation's consolidated assets as of December 31, 2001. R. A. REYNOLDS APPRAISAL SERVICE, INC. (Reynolds), owned by the Corporation since 1993, was organized under the laws of the State of Ohio in September 1993. Reynolds provides real estate appraisal services, for lending purposes, to the Banks and to other financial institutions. Reynolds accounts for less than one percent of the Corporation's consolidated assets as of December 31, 2001. MR. MONEY FINANCE COMPANY (Mr. Money) was formed in year 2001 to provide consumer-lending products to customers who may not qualify for conventional commercial bank lending products. Mr. Money has its main office in Sandusky, Ohio and an office in Norwalk, Ohio. Loans for Mr. Money come from direct consumer lending to customers, acquisition of loans from brokers and from home improvement contractors and automobile dealerships. The primary focus of lending for Mr. Money is in the mortgage and home improvement type of credits. Mr. Money accounts for less than three percent of the Corporation's consolidated assets as of December 31, 2001. - -------------------------------------------------------------------------------- 1 FIRST CITIZENS TITLE INSURANCE AGENCY INC. (Title Agency) has been formed to provide customers with a seamless mortgage product with improved service. Assets of the Title Agency are not significant. FIRST CITIZENS INSURANCE AGENCY INC, (Insurance Agency) was formed to allow the Corporation to participate in commission revenue generated through its third party insurance agreement. Assets of the Insurance Agency are not significant. On November 1, 2001, the Company signed a letter of intent to acquire Independent Community Banc Corp. ("ICBC"), headquartered in Norwalk, Ohio. The shareholders of ICBC will receive 1.7 shares of First Citizens Banc Corp stock for each share of ICBC stock. The merger will be a tax-free exchange of common shares and will be accounted for as a purchase transaction. At December 31, 2001, ICBC reported total assets of $135,701 shareholders' equity of $11,998 and net income of $1,104. The merger is subject to shareholders and regulatory approval and is expected to be consummated in April, 2002. (b) Financial Information About Industry Segments --------------------------------------------- FCBC is a bank financial holding company. Through the three subsidiary banks, the Corporation is primarily engaged in the business of commercial banking, which accounts for substantially all of its revenue, operating income and assets. Reference is made to the statistical information regarding the Corporation included elsewhere herein and to items of this Form 10-K for financial information about the Corporation's banking business. (c) Narrative Description of Business ---------------------------------- General ------- The Corporation's primary business is incidental to the three subsidiary banks. Citizens, Farmers and Castalia, located in Erie, Crawford, Huron, Union, Marion, Richland and Ottawa Counties, Ohio, conduct a general banking business that involves collecting customer deposits, making loans and purchasing securities. The subsidiary banks do not operate a trust department. Interest and fees on loans accounted for 70% of total revenue for 2001 and 67% of total revenue for 2000. The primary focus of lending is real estate mortgages. Residential real estate mortgages comprised 61% of the total loan portfolio in 2001 and 63% of the total loan portfolio in 2000. Citizens', Farmers' and Castalia's loan portfolios do not include any foreign-based loans, loans to lesser-developed countries or loans to FCBC. On a parent company only basis, FCBC's main source of funds is the receipt of dividends paid by its subsidiaries, principally the Banks. The ability of the Banks 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, each Bank 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. Earnings have been sufficient to support asset growth at the Banks and at the same time provide funds to FCBC for shareholder dividends. The Corporation's business is not seasonal, nor is it dependent on a single or small group of customers. In the opinion of management, the Corporation does not have exposure to material costs associated with environmental hazardous waste cleanup. - -------------------------------------------------------------------------------- 2 Competition ------------ The primary market area for Citizens, Farmers and Castalia is Erie and Crawford counties. A secondary market includes portions of Huron, Union, Marion, Richland and Ottawa counties. Citizens, Farmers and Castalia are operated as independent commercial banks in their respective market area. Traditional financial service competition for the Banks consists of large regional financial institutions, community banks, thrifts and credit unions operating within the Corporation's market area. A growing nontraditional source of competition for loan and deposit dollars comes from captive auto finance companies, mortgage banking companies, internet banks, brokerage companies, insurance companies and direct mutual funds. Employees --------- FCBC has no employees. The subsidiary companies employ approximately 212 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 bank 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 required to file periodic reports regarding its operations and any additional information that the Federal Reserve Board may require. 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 substantially all the assets of any bank, acquiring direct or indirect ownership or control of more than 5% of the voting shares of a bank or merging or consolidating with another bank holding company. GLB ACT. In November, 1999 the Gramm-Leach-Bliley Act of 1999 (GLB Act) went into effect making substantial revisions to statutory restrictions separating banking activities from other financial activities. Under the GLB Act, bank holding companies that are well-capitalized, well-managed and have at least a satisfactory Community Reinvestment Act rating can elect to become "financial holding companies." Financial holding companies may engage in or acquire companies that engage in a broad range of financial services which were previously not permitted, such as insurance underwriting, securities underwriting and distribution. FCBC registered as a financial company in 2000. The GLB Act adopts a system of functional regulation under which the Federal Reserve Board is designated as the umbrella regulator for financial holding companies, but financial holding company affiliates are principally regulated by functional regulators such as the FDIC for state nonmember bank affiliates, the Securities Exchange Commission for securities affiliates and state insurance regulators for insurance affiliates. - -------------------------------------------------------------------------------- 3 The GLB Act contains extensive provisions on a customer's right to privacy of non-public personal information. Under these provisions, a financial institution must provide to its customers the institution's policies and procedures regarding the handling of customer's 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. FCBC and its subsidiaries are also subject to certain state laws that deal with the use and distribution of non-public personal information. INTERSTATE BANKING AND BRANCHING. Prior to enactment of the Interstate Banking and branch Efficiency Act of 1995, neither FCBC nor its subsidiaries could acquire banks outside Ohio, unless the laws of the state in which the target bank was located specifically authorized the transaction. The Interstate Banking and Branch Efficiency Act has eased restrictions on interstate expansion and consolidation of banking operations by, among other things: (i) permitting interstate bank acquisitions regardless of host state laws, (ii) permitting interstate merger of banks unless specific states have opted out of this provision and (iii) permitting banks to establish new branches outside the state provided the law of the host state specifically allows interstate bank branching. FDIC. The Federal Deposit Insurance Corporation ("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 FCBC's bank subsidiaries are subject to the deposit insurance assessments of the Bank Insurance Fund of the FDIC. Under the FDIC's 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 banks, after first giving the institution's 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. CAPITAL GUIDELINES. The Federal Reserve Board has adopted risk-based capital guidelines to evaluate the adequacy of capital of bank holding companies and state member banks. The guidelines involve a process of assigning various risk weights to different classes of assets, then evaluating the sum of the risk-weighted balance sheet structure against the holding company's capital base. Failure to meet capital guidelines could subject a banking institution to various penalties, including termination of FDIC deposit insurance. Both FCBC and its subsidiary Banks had risk-based capital ratios above minimum requirements at December 31, 2001. 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 marketing areas describing the depositary institution's efforts to assist in its community's 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. - -------------------------------------------------------------------------------- 4 Regulation of Bank Subsidiaries ------------------------------- In addition to regulation of FCBC, FCBC's banking subsidiaries are subject to federal regulation regarding such matters as reserves, limitations on the nature and amount of loans and investments, issuance or retirement of their own securities, limitations on the payment of dividends and other aspects of banking operations. As Ohio chartered banks, all three of FCBC's banking subsidiaries, Citizens, Castalia and Farmers, are supervised and regulated by the State of Ohio Department of Commerce, Division of Financial Institutions. In addition, Citizens and Castalia are members of the Federal Reserve System. All three banks are subject to periodic examinations by the State of Ohio Department of Commerce, Division of Financial Institutions and Citizens and Castalia are additionally subject to periodic examinations by the Federal Reserve Board. These examinations are designed primarily for the protection of the depositors of the banks and not for their shareholders. In addition, Mr. Money is supervised and regulated by, and is subject to periodic examinations by, the State of Ohio Department of Commerce, Division of Financial Institutions. The deposits of Citizens, Castalia and Farmers are insured by the Bank Insurance Fund of the FDIC, and all three entities are subject to the Federal Deposit Insurance Act. Farmers is subject to periodic examinations by the FDIC. Pursuant to the Financial Institutions Reform, Recovery and Enforcement Act of 1989, a subsidiary of a financial holding company may be required to reimburse the FDIC for any loss incurred due to the default of another FDIC insured subsidiary of the financial holding company or for FDIC assistance provided to such a subsidiary in danger of default. Effect of Government Monetary Policy ------------------------------------ The earnings of the Banks 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 the Banks, and are expected to continue to do so in the future. Future Regulatory Uncertainty ----------------------------- Federal regulation of financial institutions changes regularly and is the subject of constant legislative debate. Further regulations may arise from the events of September 11, 2001, such as the USA Patriot Act of 2001 which grants law enforcement officials greater powers over financial institutions to combat terrorism and money laundering. As a result, FCBC cannot forecast how federal regulation of financial institutions may change in the future or its impact on FCBC's operations. - -------------------------------------------------------------------------------- 5 (d) Financial Information About Foreign and Domestic Operations and Export ---------------------------------------------------------------------- Sales ----- The Corporation does not have any offices located in a foreign country, nor do they have any foreign assets, liabilities, or related income and expense for the years presented. (e) Statistical Information ------------------------ The following section contains certain financial disclosures related to the Registrant as required under the Securities and Exchange Commission's Industry Guide 3, "Statistical Disclosures by Bank Holding Companies", or a specific reference as to the location of the required disclosures in the Registrant's 2001 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, 2001, 2000 and 1999 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 Management's Discussion and Analysis of Financial Condition and Results of Operations of the Registrant's 2001 Annual Report to Shareholders and is incorporated into this Item I by reference. II. Investment Portfolio The following table sets forth the carrying amount of securities at December 31.
2001 2000 1999 ---- ---- ---- (Dollars in thousands) AVAILABLE FOR SALE U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 55,362 $ 48,029 $ 63,224 Corporate Bonds 4,618 5,413 13,012 Obligations of states and political subdivisions (1) 38,551 43,919 52,606 Other securities, including mortgage-backed securities (1) 15,056 18,153 21,413 ----------- ----------- ----------- Total $ 113,587 $ 115,514 $ 150,255 =========== =========== =========== HELD TO MATURITY Obligations of states and political subdivisions (1) $ 78 $ 155 $ 232 Other securities, including mortgage-backed securities (1) 61 123 174 ----------- ----------- ----------- Total $ 139 $ 278 $ 406 =========== =========== ===========
(1) The Corporation has no securities of an "issuer" where the aggregate carrying value of such securities exceeded ten percent of shareholders' equity. - -------------------------------------------------------------------------------- 6 The following tables set forth the maturities of securities at December 31, 2001 and the weighted average yields of such securities. Maturities are reported based on stated maturities and do not reflect principal prepayment assumptions.
Maturing ----------------------------------------------------------------- After one After five Within but within but within one year five years ten years -------- ---------- --------- Amount Yield Amount Yield Amount Yield ------ ----- ------ ----- ------ ----- (Dollars in thousands) AVAILABLE FOR SALE (4) U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 30,596 4.49% $ 24,766 5.60% $ -- Obligations of states and political subdivisions (1) 7,821 4.57 23,934 4.54 6,796 4.59% Other securities (2) 2,109 5.83 2,509 5.12 -- ---------- ---------- --------- Total $ 40,526 4.57% $ 51,209 5.08% $ 6,796 4.59% ========== ========== ========= HELD TO MATURITY Obligations of states and political subdivisions (1) $ 78 4.54% Other securities (3) ---------- Total $ 78 4.54% ===========
(1) Weighted average yields on nontaxable obligations have been computed based on actual yields stated on the security. (2) Excludes $9,243 of mortgage-backed securities and $5,813 of equity securities. (3) Excludes $61 of mortgage-backed securities. (4) The weighted average yield has been computed using the historical amortized cost for available-for-sale securities. - -------------------------------------------------------------------------------- 7 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.
2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- (Dollars in thousands) Commercial and agricultural $ 26,708 $ 26,416 $ 26,077 $ 24,140 $ 26,657 Commercial real estate 70,616 60,546 48,301 53,804 49,428 Residential real estate 204,496 217,344 178,876 173,789 183,031 Real estate construction 9,402 9,684 4,482 3,493 3,923 Consumer 23,100 29,509 28,106 27,490 28,759 Leases 435 590 392 589 736 Credit card and other 2,315 2,979 3,576 1,426 1,694 ------------ ------------- ------------ ------------ ------------ $ 337,072 $ 347,068 $ 289,810 $ 284,731 $ 294,228 ============ ============= ============ ============ ============
Commercial loans are those made for commercial, industrial and professional purposes to sole proprietorships, partnerships, corporations and other business enterprises. Agricultural loans are for financing agricultural production, including all costs associated with growing crops or raising livestock. These 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% as in the case of certain stocks, to 90% in the case of collateralizing with a savings or time deposit account. Unsecured credit relies 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 security interest in real property and secured wholly or substantially by that lien on real property. Commercial real estate mortgage loans generally maintain a loan-to-value ratio of 75% or less. Residential real estate mortgage loans are made predicated on security interest in real property and secured wholly or substantially by that lien 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 Corporation due to the nature of the collateral being less susceptible to sudden changes in value. Real estate construction loans are for the construction of new buildings or additions to existing buildings. Generally, these loans are secured by one- to four-family real estate. The Corporation controls disbursements. Consumer loans are made to individuals for household, family and other personal expenditures. These 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 value limits on secured credits and aggressive collection efforts. The collectibility of consumer loans is influenced by local and national economic conditions. - -------------------------------------------------------------------------------- 8 Credit card loans are made as a convenience to existing customers of the Corporation. All such loans are made on an unsecured basis, lines over $5,000 require documentation on the financial strength of the borrower. As unsecured credit, they pose the greatest credit risk to the Corporation. Letters of credit represent extensions of credit granted in the normal course of business, which are not reflected in the Corporation's consolidated financial statements. As of December 31, 2001 and 2000, the Corporation was contingently liable for $888 and $339 of letters of credit. In addition, the Corporation 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, 2001 and 2000, the Corporation had commitments to extend credit in the aggregate amounts of approximately $43,833 and $32,734. Of these amounts, $36,828 and $28,170 represented lines of credit and construction loans, and $7,005 and $4,564 represented credit card commitments. Such amounts represent the portion of total commitments that had not been used by customers as of December 31, 2001 and 2000. Maturities and Sensitivities of Loans to Changes in Interest Rates - ------------------------------------------------------------------ The following table shows the amount of commercial and agricultural, commercial real estate and real estate construction loans outstanding as of December 31, 2001, 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 ----------------------------------------------------------------- After one Within but within After one year five years five years Total -------- ---------- ---------- ----- (Dollars in thousands) Commercial and agricultural $ 11,224 $ 11,343 $ 4,141 $ 26,708 Commercial real estate 5,848 14,995 49,773 70,616 Real estate construction 2,183 1,755 5,464 9,402 ------------ ------------- ------------ ------------ $ 19,255 $ 28,093 $ 59,378 $ 106,726 ============ ============= ============ ============ Interest Sensitivity ----------------------------- Fixed Variable rate rate ---- ---- (Dollars in thousands) Due after one but within five years $ 21,796 $ 6,297 Due after five years 9,399 49,979 ------------ ------------- $ 31,195 $ 56,276 ============ =============
The preceding maturity information is based on contract terms at December 31, 2001 and does not include any possible "rollover" at maturity date. In the normal course of business, the Corporation considers and acts on the borrower's request for renewal of loans at maturity. Evaluation of such requests includes a review of the borrower's credit history, the collateral securing the loan and the purpose for such request. - -------------------------------------------------------------------------------- 9 Risk Elements - ------------- The following table presents information concerning the amount of loans at December 31 that contain certain risk elements.
2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- (Dollars in thousands) Loans accounted for on a nonaccrual basis (1) $ 2,413 $ 1,368 $ 1,682 $ 1,693 $ 1,969 Loans contractually past due 90 days or more as to principal or interest payments (2) 2,818 558 834 1,235 1,717 Loans whose terms have been renegotiated to provide a reduction or deferral of interest or principal because of a deterioration in the financial position of the borrower (3) 467 634 693 305 308 ---------- --------- --------- --------- --------- Total $ 5,698 $ 2,560 $ 3,209 $ 3,233 $ 3,994 ========== ========= ========= ========= ========= Impaired loans included in above totals $ 1,973 $ 2,778 $ 994 $ 1,196 $ 864 Impaired loans not included in above totals 1,592 2,374 3,166 2,963 3,571 ---------- --------- --------- --------- --------- Total impaired loans $ 3,565 $ 5,152 $ 4,160 $ 4,159 $ 4,435 ========== ========= ========= ========= =========
There are no loans as of December 31, 2001, other than those disclosed above, where known information about possible 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 are 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, 2001. (1) Loans are placed on nonaccrual status when doubt exists as to the collectibility of the loan, including any accrued interest. With a few immaterial exceptions, commercial and agricultural, 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. Credit card loans are charged-off before reaching 120 days of delinquency. Once a loan is placed on nonaccrual, interest is then 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 ninety days or more as to principal or interest payments. Interest income recognition associated with impaired loans was as follows.
2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- Interest income on impaired loans, including interest income recognized on a cash basis $ 184 $ 344 $ 320 $ 273 $ 227 ========== ========== ========== ========= ========== Interest income on impaired loans recognized on a cash basis $ 184 $ 344 $ 320 $ 273 $ 182 ========== ========== ========== ========= ==========
There were no foreign outstandings for any period presented. No concentrations of loans exceeded 10% of total loans. - -------------------------------------------------------------------------------- 10 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.
2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- (Dollars in thousands) Daily average amount of loans, net of unearned income $ 346,696 $ 314,071 $ 284,080 $ 288,108 $ 280,141 ========= ========= ========= ========= ========= Allowance for possible loan losses at beginning of year $ 4,107 $ 4,274 $ 4,567 $ 4,707 $ 3,935 Loan charge-offs: Commercial and agricultural and commercial real estate 987 612 63 134 53 Real estate mortgage 29 166 95 40 70 Real estate construction -- -- -- -- -- Consumer 392 447 581 490 387 Leases -- -- -- -- -- Credit card and other 52 46 49 61 47 --------- --------- --------- --------- --------- $ 1,460 1,271 788 725 557 Recoveries of loans previously Charged-off: Commercial and agricultural and commercial real estate 249 75 29 32 48 Real estate mortgage 68 57 13 31 2 Real estate construction -- -- -- -- -- Consumer 52 148 170 133 132 Leases 21 -- -- -- -- Credit card and other 25 17 17 27 18 --------- --------- --------- --------- --------- 415 297 229 223 200 --------- --------- --------- --------- --------- Net charge-offs (1) (1,045) (974) (559) (502) (357) Provision for loan losses (2) 1,803 807 266 362 1,129 --------- --------- --------- --------- --------- Allowance for loan losses at end of year $ 4,865 $ 4,107 $ 4,274 $ 4,567 $ 4,707 ========= ========= ========= ========= ========= Allowance for loan losses as a percent of loans at year-end 1.45% 1.19% 1.48% 1.60% 1.60% ========= ========= ========= ========= ========= Ratio of net charge-offs during the year to average loans outstanding .30% .31% .20% .17% .13% ========= ========= ========= ========= =========
(1) The amount of net charge-offs fluctuates from year to year due to factors relating to the condition of the general economy and specific business segments. (2) The determination of the balance of the allowance for loan losses is based on an analysis of the loan portfolio and reflects an amount that, in management's judgment, is adequate to provide for probable loan losses. Such analysis is based on a review of specific loans, the character of the loan portfolio, current economic conditions, past loan loss experience and such other factors as management believes require current recognition in estimating probable loan losses. - -------------------------------------------------------------------------------- 11 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.
2001 2000 ---- ---- Percentage Percentage of loans to of loans to (Dollars in thousands) Allowance total loans Allowance total loans --------- ----------- --------- ----------- Commercial and agricultural $ 223 7.9% $ 316 7.8% Commercial real estate 1,116 21.0 969 17.4 Real estate mortgage 1,313 60.8 1,439 62.6 Real estate construction 17 2.8 12 2.8 Consumer 347 6.9 327 8.5 Credit card and other 7 0.5 8 0.8 Leases 46 0.1 -- 0.1 Unallocated 1,796 1,036 --------- --------- --------- --------- $ 4,865 100.0% $ 4,107 100.0% ========= ========= ========= ========= 1999 ---- Percentage of loans to Allowance total loans --------- ----------- Commercial and agricultural $ 531 9.0% Commercial real estate 152 16.7 Real estate mortgage 1,447 61.7 Real estate construction -- 1.6 Consumer 544 9.7 Credit card and other 12 1.2 Leases 23 0.1 Unallocated 1,565 -- --------- --------- $ 4,274 100.0% ========= ========= 1998 1997 ---- ---- Percentage Percentage of loans to of loans to Allowance total loans Allowance total loans --------- ----------- --------- ----------- Commercial and agricultural and commercial real estate $ 932 27.4% $ 768 25.9% Real estate mortgage 1,202 61.0 1,509 62.2 Real estate construction -- 1.2 -- 1.3 Consumer 784 9.7 377 9.8 Credit card and other 22 0.5 15 0.6 Leases 24 0.2 29 0.2 Unallocated 1,603 -- 2,009 --------- --------- --------- --------- $ 4,567 100.0% $ 4,707 100.0% ========= ========= ========= =========
The corporation started classifying loans differently in 1999 and did not restate 1998 and 1997 due to information not being available. - -------------------------------------------------------------------------------- 12 Deposits - -------- The average daily amount of deposits (all in domestic offices) and average rates paid on such deposits is summarized for the years indicated.
2001 2000 1999 ------------------------ -------------------------- --------------------------- Average Average Average Average Average Average balance rate paid balance rate paid balance rate paid ------- --------- ------- --------- ------- --------- (Dollars in thousands) Noninterest-bearing demand deposits $ 45,048 N/A $ 44,270 N/A $ 39,123 N/A Interest-bearing demand deposits 56,769 1.47% 58,612 2.71% 49,189 1.36% Savings, including Money Market deposit accounts 106,002 3.16 109,316 2.56 115,057 2.78 Certificates of deposit, including IRAs 204,566 4.72 188,723 5.19 206,296 5.01 ------------ ------------ ------------ $ 412,385 $ 400,921 $ 409,665 ============ ============ ============
Maturities of certificates of deposits and individual retirement accounts of $100,000 or more outstanding at December 31, 2001 are summarized as follows.
Individual Certificates Retirement of Deposits Accounts Total ----------- -------- ----- (Dollars in thousands) 3 months or less $ 21,293 $ 736 $ 22,029 Over 3 through 6 months 13,939 243 14,182 Over 6 through 12 months 10,965 235 11,200 Over 12 months 3,688 1,015 4,703 ----------- ---------- ----------- $ 49,885 $ 2,229 $ 52,113 =========== ========== ===========
Short-term Borrowings - --------------------- See Note 8 to the consolidated financial statements (located at page 35 of the Annual Report to Shareholders) and "Distribution of Assets, Liabilities and Shareholders' Equity, Interest Rates and Interest Differential" (located at pages 11 and 12 of the Annual Report to Shareholders) for the statistical disclosures for short-term borrowings for 2001, 2000 and 1999. Return on Equity and Assets - --------------------------- Information required by this section is incorporated by reference to the information appearing under the caption "Five-Year Selected Consolidated Financial Data" located on page 1 and 2 of First Citizens Banc Corp's Annual Report to Shareholders. - -------------------------------------------------------------------------------- 13 ITEM 2. PROPERTIES FCBC neither owns nor leases any properties. Citizens maintains its main office at 100 East Water Street, Sandusky, Ohio, which is also the office of FCBC. Citizens also owns and operates three branch banking offices in Perkins Township (Sandusky, Ohio), branch banking office in the Ohio communities of Berlin Heights and Huron, and a loan production office in Port Clinton, Ohio. Farmers maintains its main office at 102 South Kibler Street, New Washington, Ohio. Farmers also owns and operates a branch banking office in the Ohio communities of Willard, Chatfield, Tiro, Richwood and Green Camp. Castalia owns its main office located at 208 South Washington Street, Castalia, Ohio. SCC owns its processing center located at 1845 Superior Street, Sandusky, Ohio. Reynolds leases offices in downtown Sandusky, Ohio. Mr. Money leases two properties, one in Sandusky and the other in Norwalk, Ohio. FCBC has three wholly-owned subsidiary banks, a wholly-owned item processing company subsidiary, a wholly owned finance company and a wholly-owned real estate appraisal company subsidiary. ITEM 3. LEGAL PROCEEDINGS The Corporation's management is aware of no pending or threatened litigation in which the Corporation faces potential loss or exposure that will materially affect the consolidated financial statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted during the fourth quarter of the fiscal year covered by this report to a vote of security holders through the solicitation of proxies or otherwise. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Information required by this section is incorporated by reference to the information appearing under the caption "Common Stock and Stockholder Matters" located on page 2 and 3 of First Citizens Banc Corp's Annual Report to Shareholders. ITEM 6. SELECTED FINANCIAL DATA Information required by this section is incorporated by reference to the information appearing under the caption "Five-Year Selected Consolidated Financial Data" located on page 1 and 2 of First Citizens Banc Corp's Annual Report to Shareholders. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION - AS OF DECEMBER 31, 2001 AND DECEMBER 31, 2000 AND FOR THE YEARS ENDING DECEMBER 31, 2001, 2000 AND 1999 "Management's Discussion and Analysis if Financial Condition and Results of Operations" appears on pages 4 through 15 of First Citizens Banc Corp's 2001 Annual Report to Shareholders and is incorporated herein by reference. - -------------------------------------------------------------------------------- 14 ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Quantitative and Qualitative Disclosures About Market Risk is incorporated herein by reference to pages 15 through 17 of First Citizens Banc Corp's 2001 Annual Report to Shareholders. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA First Citizens Banc Corp's Report of Independent Auditors and Consolidated Financial Statements and accompanying notes are listed below and are incorporated herein by reference to First Citizens Banc Corp's 2001 Annual Report to Shareholders (Exhibit 13, pages 18 through 45). The supplementary financial information specified by Item 302 of Regulation S-K, selected quarterly financial data, is included in Note 18 - "Quarterly Financial Data (Unaudited)" to the consolidated financial statements found on page 46. Report of Independent Auditors Consolidated Balance Sheets December 31, 2001 and 2000 Consolidated Statements of Income For the three years ended December 31, 2001 Consolidated Statements of Changes in Shareholders' Equity For the three years ended December 31, 2001 Consolidated Statements of Cash Flows For the three years ended December 31, 2001 Notes to Consolidated Financial Statements ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The Corporation has had no disagreements with the independent accountants on matters of accounting principles or financial statement disclosure required to be reported under this item. PART III Information relating to the following items in included in First Citizens Banc Corp's Proxy statement and Notice of Annual Meeting of Shareholders to be held Tuesday, April 16, 2002, ("2001 Proxy Statement") dated March 15, 2002, filed with the Commission on Form DEF 14-A, pursuant to Section 14(A) of the Securities Exchange Act of 1934 and is incorporated by reference into this Form 10-K Annual Report (Exhibit 22). ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ITEM 11. EXECUTIVE COMPENSATION ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------------------------------------------------------------------------------- 15 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) DOCUMENTS FILED AS A PART OF THE REPORT 1 FINANCIAL STATEMENTS. The following financial statements, together with the applicable report of independent auditors, can be located under Item 8 and filed as Exhibit 13 of this Form 10-K. 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. 3 EXHIBITS (2) Agreement and Plan of Merger dated as of November 1, 2001 between First Citizens Banc Corp and Independent Community Banc Corp. (filed as Exhibit 2 to the Registration Statement on Form S-4 filed on December 14, 2001 and incorporated herein by reference.) (3)(i) Articles of Incorporation, as amended, of First Citizens Banc Corp are incorporated by reference to First Citizens Banc Corp's Form 10-K for the year ended December 31, 2000, filed on March 24, 2001. (3)(ii) Code of Regulations of First Citizens Banc Corp is incorporated by reference to First Citizens Banc Corp's Form 10-K for the year ended December 31, 2000, filed on March 24, 2001. (4) Certificate for Registrant's Common Stock is incorporated by reference to First Citizens Banc Corp's Form 10-K for the year ended December 31, 2000, filed on March 24, 2001. (11) Statement regarding earnings per share is included in Note 1 to the Consolidated Financial Statements and can be located under Item 8 and filed as Exhibit 13 of this Form 10-K. (13) First Citizens Banc Corp 2001 Annual Report to Shareholders (b) REPORTS ON FORM 8-K. The Company filed a Form 8-K on November 1, 2001 to announce the signing of a definitive agreement to merge with Independent Community Banc Corp. - -------------------------------------------------------------------------------- 16 SIGNATURES 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/ David A. Voight ----------------------------------------------------------------------------- David A. Voight, President (Principal Executive Officer) By /s/ James O. Miller ----------------------------------------------------------------------------- James O. Miller, Executive Vice President (Principal Financial Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on March 27, 2002 by the following persons (including a majority of the Board of Directors of the Registrant) in the capacities indicated: /s/ Lowell W. Leech /s/ David A. Voight - --------------------------------- ------------------------------ Lowell W. Leech David A. Voight Chairman of the Board President, Director /s/ John L. Bacon /s/ Dean S. Lucal - --------------------------------- ------------------------------ John L. Bacon Dean S. Lucal Director Director /s/ Robert L. Bordner /s/ W. Patrick Murray - --------------------------------- ------------------------------ Robert L. Bordner W. Patrick Murray Director Director /s/ Mary Lee G. Close /s/ George L. Mylander - --------------------------------- ------------------------------ Mary Lee G. Close George L. Mylander Director Director /s/ Blythe A. Friedley /s/ Paul H. Pheiffer - --------------------------------- ------------------------------ Blythe A. Friedley Paul H. Pheiffer Director Director /s/ Richard B. Fuller /s/ Richard O. Wagner - --------------------------------- ------------------------------ Richard B. Fuller Richard O. Wagner Director Director /s/ H. Lowell Hoffman, M.D. - --------------------------------- H. Lowell Hoffman, M.D. Director - -------------------------------------------------------------------------------- 17 EX-13 3 l92971aex13.txt EXHIBIT 13 Exhibit 13 [LOGO] First Citizens Banc Corp Financial Services Annual Report 2001 First Citizens Banc Corp 100 East Water Street, Sandusky, Ohio 44870-2514 Dear Shareholder: Events of the world in 2001 produced tremendous challenges for the political and economic leaders of nations everywhere. All of us have been devastated by the September 11 catastrophe, and our hearts go out to all of those closely affected by those events. The economy of the United States, not to mention the world, has been greatly influenced by all of these happenings, and the banking industry has obviously not been immune to the fallout created by these events. Ican report to you that your directors and officers have worked diligently to meet the challenges faced in this early part of the twenty-first century, and I believe we are successfully meeting them. I am happy to report to you that, absent the special charge which I will detail for you, First Citizens' earnings for 2001 were $1.46 compared to $1.39 in 2000. An increase during these trying economic times would be impressive. However, in light of economic events and the challenges facing some of our customers, it was the opinion of your management that an additional sum of approximately $1,000,000 should be added to the reserve for loan losses during the fourth quarter of 2001. We believe that this increase in reserve was prudent based on an increase in non-performing loans experienced by two of our affiliates. While actual net loss experience has not significantly changed for the holding company, it was our opinion that such an increase in reserves was necessary and should be made. With this addition to the reserves being made, earnings per share for 2001 were reduced to $1.30 compared to the 2000 earnings of $1.39. While this added reserve resulted in a reduction in net earnings, First Citizens maintained a dividend payout of $1.24 per share, which was the same dividend as was paid in 2000. This dividend amounts to a 5.45% return on our year-end closing price of $22.75 per share. We are proud of our dividend record and want to assure you it is a continuing priority. During 2002, we expect to consider increasing the portion of the total yearly dividends that is paid out as regular quarterly dividends. Interest margins in the banking industry were under intense pressure during 2001. I am happy to report to you that we at First Citizens Banc Corp were able to maintain our historical levels while resisting competitive pressures to enter into fixed rate lending, which would have negative effects on interest margins when rates move higher. For 2002, we are optimistic about maintaining interest margins, primarily because of decreasing cost of funds at Farmers State Bank and the very attractive net interest margins that Mr. Money is generating. Non-interest income continues to be a priority. The affiliated banks of First Citizens have recently added a new service called Check Protect, which has been well received by our customers. We are projecting this service could generate added income of $500,000 annually. The generation of fee income through the sale of residential real estate mortgages also continues. In addition to the significant fee income these sales generated in 2001, the sale of mortgages allows us to utilize more of our deposit dollars for commercial lending. The shared commissions that we receive from affiliations with companies that provide investment products, title insurance, and consumer and commercial insurance also increases our non-interest income. The missing piece in opportunities for non-interest income has been trust services. With the merger of Citizens Affiliated companies of First Citizens Banc Corp The Citizens Banking Company The Castalia Banking Company The Farmers State Bank Mr. Money Finance Company R.A. Reynolds Appraisal Service, Inc. SCCResources, Inc. National Bank of Norwalk scheduled to close April 1, 2002, First Citizens will acquire a trust operation that will serve all affiliates. We are excited by this opportunity and intend to make the expansion of trust services a high priority. At the same time we have been working to increase revenues; attracting and retaining qualified employees while controlling overhead costs has always been a challenge. It continues to be a challenge today. I want to report to you that a major step in our efforts in this area has been the introduction of incentive pay for our employees. A portion of the compensation for the customer contact employees is derived from the revenue generated by new and additional products provided to our customers We believe our incentive pay plan has been well received by our employees. We continue to look for ways to minimize increases in operating costs while still providing the best possible service. As mentioned last year, outsourcing of technical needs allows our customers to have the best resources available in areas such as data processing, ATM, and internet services without a major fixed investment in technology that can become outdated quickly. The partnership with Citizens National Bank should allow us to spread fixed costs over higher revenues, thus helping profitability. This has allowed First Citizens Banc Corp to pay a fair price to the shareholders of Independent Community Banc Corp. (Citizens National Bank) and yet be assured all the shareholders of First Citizens Banc Corp will benefit. We could not invest in the future, pursue acquisition opportunities, or investigate sources of non-interest revenue were it not for the solid core earnings of the banking affiliates. We continue to be pleased with this performance:
Net Interest Non-Interest Non-Interest Core Earnings Earnings (000) Earnings (000) Expense (000) (000) -------------- -------------- ------------- ------------- 1999 17,927 2,474 12,652 7,749 2000 18,195 3,197 12,847 8,544 2001 18,760 3,694 13,381 9,074
Looking forward to 2002 and beyond, there are significant challenges created by the economy and the interest rate environments; however, we are optimistic about the earnings potential of First Citizens Banc Corp. It is our belief that all the pieces are in place to complete the transition from a local community bank to a financial services provider with offices in communities in six contiguous counties in north central Ohio. The Board of Directors and management appreciate your support and as always, are very interested in your questions, comments and suggestions. Very truly yours, /s/ David A. Voight David A. Voight President [PHOTOS] Five Year Consolidated Financial Summary
2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- Earnings Net Income (000) $ 5,293 $ 5,692 $ 6,063 $ 5,761 $ 4,441 Per Common Share(1) Earnings $ 1.30 $ 1.39 $ 1.43 $ 1.35 $ 1.04 Book Value 11.94 11.72 11.58 12.61 12.01 Dividends Paid 1.24 1.24 1.15 1.11 1.07 Balances Assets (millions) $ 487.7 $ 489.3 $ 472.2 $ 508.9 $ 484.1 Deposits (millions) 410.2 392.0 403.2 417.9 402.2 Net Loans (millions) 331.3 342.0 284.4 278.8 287.7 Shareholders' Equity (millions) 48.7 47.9 48.2 53.7 51.2 Performance Ratios Return on Average Assets 1.06% 1.19% 1.24% 1.18% 0.95% Return on Average Equity 10.65 12.09 11.58 10.95 8.75 Equity Capital Ratio 9.99 9.80 10.21 10.56 10.58 Net Loans to Deposit Ratio 80.78 87.25 70.55 66.71 71.53 Loss Allowance to Total Loans 1.45 1.19 1.48 1.60 1.60
(1) Per share data has been adjusted for a 300%stock split paid in April 1996 and the business combination with Farmers State Bank in April 1998. Dividends paid reflect the historical amounts paid by First Citizens Banc Corp.First Citizens Banc Corp ANNUAL REPORT CONTENTS Five -Year Selected Consolidated Financial Data ............................. 1 Common Stock and Stockholder Matters ........................................ 2 General Development of Business ............................................. 3 Management's Discussion and Analysis of Financial Condition and Results of Operations ................................................. 4 Quantitative and Qualitative Disclosures About Market Risk .................. 15 Financial Statements Report of Independent Auditors ......................................... 18 Consolidated Balance Sheets ............................................ 19 Consolidated Statements of Income ...................................... 20 Consolidated Statements of Changes in Shareholders' Equity ............. 21 Consolidated Statement of Cash Flows ................................... 23 Notes to Consolidated Financial Statements ............................. 25
FIVE-YEAR SELECTED CONSOLIDATED FINANCIAL DATA (Dollars in thousands, except per share data) Year ended December 31, ------------------------------------------------------------- 2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- Statements of income: Total interest income $ 35,348 $ 34,190 $ 33,067 $ 34,204 $ 33,649 Total interest expense 15,453 15,756 15,130 17,295 16,675 ---------- ---------- ---------- ---------- ---------- Net interest income 19,895 18,434 17,937 16,909 16,974 Provision for loan losses 1,803 807 266 362 1,129 ---------- ---------- ---------- ---------- ---------- Net interest income after provision for loan losses 18,092 17,627 17,671 16,547 15,845 Security gains (losses) (1) 863 1,080 1,602 575 107 Other noninterest income 5,254 4,583 3,927 5,651 4,238 ---------- ---------- ---------- ---------- ---------- Total noninterest income 6,117 5,663 5,529 6,226 4,345 Total noninterest expense 16,933 15,466 14,771 14,679 14,190 ---------- ---------- ---------- ---------- ---------- Income before federal income taxes 7,276 7,824 8,429 8,094 6,000 Federal income tax expense 1,983 2,132 2,366 2,333 1,559 ---------- ---------- ---------- ---------- ---------- Net income $ 5,293 $ 5,692 $ 6,063 $ 5,761 $ 4,441 ========== ========== ========== ========== ========== Per share of common stock: Net income $ 1.30 $ 1.39 $ 1.43 $ 1.35 $ 1.04 Dividends 1.24 1.24 1.15 1.11 1.07 Book value 11.94 11.72 11.58 12.61 12.01 Average common shares outstanding 4,082,879 4,107,269 4,242,546 4,263,401 4,263,401 Year-end balances: Loans, net $ 331,347 $ 341,982 $ 284,446 $ 278,782 $ 287,738 Securities 113,726 115,792 150,661 172,763 143,954 Total assets 487,671 489,259 472,220 508,889 484,118 Deposits 410,178 391,968 403,160 417,899 402,183 Borrowings 25,842 46,153 18,000 30,576 25,643 Shareholders' equity 48,727 47,925 48,195 53,741 51,199
A copy of Form 10-K, as filed with the Securities and Exchange Commission, will be furnished, free of charge, to shareholders, upon written request to the Secretary of First Citizens Banc Corp, 100 East Water Street, Sandusky, Ohio 44870. - -------------------------------------------------------------------------------- 1
Year ended December 31, ------------------------------------------------------------------------ 2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- Average balances: Loans, net $ 342,443 $ 309,878 $ 279,649 $ 283,433 $ 276,508 Securities 114,072 135,129 163,134 155,715 151,245 Total assets 499,109 476,874 487,242 487,710 469,760 Deposits 412,385 400,921 409,665 403,488 389,065 Borrowings 33,321 26,541 20,525 26,805 25,808 Shareholders' equity 49,693 47,062 52,347 52,595 50,760 Selected ratios: Net yield on average interest- earning assets 4.28% 4.09% 3.89% 3.69% 3.84% Return on average total assets 1.06 1.19 1.24 1.18 .95 Return on average shareholders' equity 0.65 12.09 11.58 10.95 8.75 Average shareholders' equity as a percent of average total assets 9.96 9.87 10.74 10.78 10.81 Net loan charge-offs as a percent of average loans .30 .31 .20 .17 .13 Allowance for loan losses as a percent of loans at year-end 1.45 1.19 1.48 1.60 1.60 Shareholders' equity as a percent of total year-end assets 10.00 9.80 10.21 10.56 10.58
(1) Partial recoveries of $0, $10, $10, $25 and $214 were received in 2001, 2000, 1999, 1998 and 1997 for securities that were written off in prior periods. COMMON STOCK AND STOCKHOLDER MATTERS The Corporation is publicly traded on the Nasdaq Stock market under the symbol FCZA. The brokerage firms of Everen Securities, Merrill Lynch and McDonald & Company handle the sale and purchase of the Corporation's stock. However, such firms are not "market makers" of such stock since they do not purchase and hold for investment purposes any such shares. Information below is the range of sale prices as reported by the brokerage firms.
2001 - ------------------------------------------------------------------------------------------------------------------- First Quarter Second Quarter Third Quarter Fourth Quarter ------------- -------------- ------------- -------------- $20.45 to $21.30 $19.25 to $19.89 $23.04 to $23.50 $22.00 to $22.62
2000 - ------------------------------------------------------------------------------------------------------------------- First Quarter Second Quarter Third Quarter Fourth Quarter ------------- -------------- ------------- -------------- $28.00 to $25.00 $22.85 to $23.00 $19.75 to $20.10 $19.00 to $19.83
The Corporation has no outstanding options or warrants to purchase shares of its common stock or securities convertible into shares of common stock. - -------------------------------------------------------------------------------- 2 The number of holders of record of the Corporation's common stock at December 31, 2001 was 853. Dividends per share declared by the Corporation on common stock were as follows. 2001 2000 ---- ---- February $ .18 $ .17 May .18 .17 August .18 .17 November .70 .73 --------- ------- $ 1.24 $ 1.24 ======== ======= GENERAL DEVELOPMENT OF BUSINESS Dollars in thousands, except for per share data 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 Graham-Leech-Bliley Act of 1999 (GLB Act), as amended. The Corporation's office is located at 100 East Water Street, Sandusky, Ohio. The Corporation had total consolidated assets of $487,671 at December 31, 2001. FCBC and its subsidiaries are referred to together as the Corporation. THE CITIZENS BANKING COMPANY (Citizens), owned by the Corporation 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 under its current name. 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 three branch banking offices in Perkins Township (Sandusky, Ohio), one branch banking office in Berlin Heights, Ohio, one branch banking office in Huron, Ohio and one Loan Production office in Port Clinton, Ohio. This subsidiary accounts for 60% of the Corporation's consolidated assets at December 31, 2001. THE FARMERS STATE BANK (Farmers), acquired by the Corporation in 1998, was organized and chartered under the laws of the State of Ohio in 1916. Farmers is an insured bank under the Federal Deposit Insurance Act. Farmers maintains its main office at 102 South Kibler Street, New Washington, Ohio and operates branch offices in Willard, Ohio and the Ohio villages of Chatfield, Tiro, Richwood and Green Camp. Farmers accounts for 26% of the Corporation's consolidated assets at December 31, 2001. THE CASTALIA BANKING COMPANY (Castalia), owned by the Corporation since 1990, was organized and chartered under the laws of the State of Ohio in 1907. Castalia is an insured bank under the Federal Deposit Insurance Act. Castalia operates from one location, 208 South Washington Street, Castalia, Ohio. Castalia, Ohio is located approximately 10 miles from Sandusky, Ohio. Castalia accounts for 10% of the Corporation's consolidated assets at December 31, 2001. SCC RESOURCES INC. (SCC) was organized under the laws of the State of Ohio. Begun as a joint venture of three local Sandusky, Ohio banks in 1966, SCC provides item-processing services for financial institutions, including the Banks, and other nonrelated entities. The Corporation acquired total ownership of SCC in February 1993. On June 19, 1998, SCC entered into an agreement with Jack Henry & Associates, Inc. (JHA) to sell all of their contracts for providing data processing services to community banks. JHA agreed to pay SCC a fee based upon annual net revenue under a new JHA contract for each bank that signed a five-year contract with JHA by January 31, 1999. This subsidiary accounts for less than one percent of the Corporation's consolidated assets as of December 31, 2001. - -------------------------------------------------------------------------------- 3 R. A. REYNOLDS APPRAISAL SERVICE, INC. (Reynolds), owned by the Corporation since 1993, was organized under the laws of the State of Ohio in September 1993. Reynolds provides real estate appraisal services, for lending purposes, to the Banks and to other financial institutions. Reynolds accounts for less than one percent of the Corporation's consolidated assets as of December 31, 2001. MR. MONEY FINANCE COMPANY (Mr. Money) was formed in year 2000 to provide consumer-lending products to customers who may not qualify for conventional commercial bank lending products. Mr. Money has its main office in Sandusky, Ohio and an office in Norwalk, Ohio. Loans for Mr. Money come from direct consumer lending to customers, acquisition of loans from brokers and from home improvement contractors and automobile dealerships. The primary focus of lending for Mr. Money is in the mortgage and home improvement type of credits. Mr. Money accounts for less than three percent of the Corporation's consolidated assets as of December 31, 2001. FIRST CITIZENS TITLE INSURANCE AGENCY INC. (Title Agency) has been formed to provide customers with a seamless mortgage product with improved service. Assets of the Title Agency are not significant. FIRST CITIZENS INSURANCE AGENCY INC, (Insurance Agency) was formed to allow the Corporation to participate in commission revenue generated through its third party insurance agreement. Assets of the Insurance Agency are not significant. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION - AS OF DECEMBER 31, 2001 AND DECEMBER 31, 2000 AND FOR THE YEARS ENDING DECEMBER 31, 2001, 2000 AND 1999 (Dollars in thousands, except per share data) GENERAL The following paragraphs more fully discuss the significant highlights, changes and trends as they relate to the Corporation's financial condition, results of operations, liquidity and capital resources as of December 31, 2001 and 2000, and during the three-year period ended December 31, 2001. This discussion should be read in conjunction with the consolidated financial statements and notes to consolidated financial statements, which are included elsewhere in this report. FORWARD-LOOKING STATEMENTS When used in this discussion or future filings by the Corporation with the Securities and Exchange Commission, 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 affect 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 is not aware of any trends, events or uncertainties that will have or are reasonably likely to have a material effect on its liquidity, capital resources or operations except as discussed herein. The Corporation is not aware of any current recommendations by regulatory authorities that would have such effect if implemented. - -------------------------------------------------------------------------------- 4 The Corporation does not undertake, and specifically disclaims, any obligation to publicly release the result of any revisions that may be made to any forward-looking statements to reflect occurrence of anticipated or unanticipated events or circumstances after the date of such statements. FINANCIAL CONDITION At December 31, 2001, total assets were $487,671 compared to $489,259 at December 31, 2000. Net loans decreased $10,635, or 3.1% from 2000 to 2001. Commercial and agricultural loans increased $292, or 1.1% from 2000 to total $26,708. Commercial real estate loans increased $10,070, or 16.6% in 2001. Residential real estate loans decreased by $12,848, or 5.9% from 2000 to 2001 to total $204,496. Consumer loans decreased $6,409, or 21.7% over 2000 to total $23,100. Credit card and other loans, which include overdraft protection (ODP) lines of credit, decreased $664 from 2000 to total $2,315. In 2001, due to declining interest rates, the demand for residential real estate loans continued to shift to our fixed rate loan products. As the demand for fixed-rate loans increased, FCBC started to retain fewer loans and sell more loans in the secondary market. At December 31, 2001 FCBC serviced 173 mortgage loans that have been sold to other investors. In 2001, management continued its recent emphasis on increasing its Corporations share of the local market for commercial and commercial real estate loans through additional calling and marketing efforts. These lending relationships generally offer more attractive returns than residential loans and also offer opportunities for attracting larger balance deposit relationships. However, the shift in loan portfolio mix from residential real estate to commercial oriented loans will increase FCBC's exposure to credit risk. Both year-end and average 2001 deposit balances increased from 2000. Average deposit balances for 2001 were $412,385 compared to $400,921 for 2000, an increase of $11,464, or 2.9%. The overall growth in deposits has occurred despite the dramatic decline in interest rates that transpired during 2001. Recent declines in the stock market have prompted some investors to seek financial institution deposit products. Noninterest-bearing deposits averaged $45,048 for 2001 compared to less risky $44,270 for 2000, increasing $778, or 1.8%. Savings, NOW, and MMIA accounts averaged $162,771 for 2001 compared to $167,928 for 2000. Average time deposits increased $15,843 to total an average balance of $204,566 for 2001. $11,901 of the increase in time deposits was a result of increased public deposits. The growth in deposits allowed FCBC to eliminate its federal funds purchased balance of $20,000 at December 31, 2000. Borrowings from the Federal Home Loan Bank of Cincinnati decreased from $1,400 at December 31, 2000 to $811 at December 31, 2001. This decrease of $589 was a result of scheduled paydowns. The Corporation had no new advances from the Federal Home Loan Bank in 2001. FCBC incurred debt during 2000 in the amount of $10,600 to fund loans originated by the finance company, Mr. Money. FCBC increased the amount to $14,000 during 2001 to help fund the growth in the finance company. Note 9 in the consolidated financial statements provides details regarding the note arrangement. The Banks offer repurchase agreements in the form of sweep accounts to commercial checking account customers. At December 31, 2001, total repurchase agreements in the form of sweep accounts totaled $10,311. This compares to $12,946 at December 31, 2000. United States Treasury Notes maintained under the Banks' control are pledged as collateral for the repurchase agreements. Securities decreased $2,066, or 1.8% from $115,792 on December 31, 2000 to $113,726 on December 31, 2001. Municipal securities available for sale decreased 12.2% from 2000 to 2001. Other securities decreased $3,097, or 17.1% from 2000 to 2001. Securities decreased due to sales of equity securities and principal paydowns of mortgage-backed securities and maturities of municipal securities offset by purchases of primarily U.S. Treasury securities and Obligations of U.S. Government Agencies. - -------------------------------------------------------------------------------- 5 Securities held to maturity at December 31, 2001 had unrealized gains of approximately $4. Since management intends to hold this portion of the portfolio to maturity, the unrealized gains have no impact on operations of the Corporation. Securities available for sale had an estimated fair value at December 31, 2001 of $113,587. This fair value includes unrealized gains of approximately $2,375 and unrealized losses of approximately $36. Net unrealized gain of $2,339 was an increase over net unrealized gains of $1,320 at December 31, 2000. The increase in market values is due to the decline in interest rates during 2001. Mortgage-backed securities totaled $9,304 at December 31, 2001 and none are considered unusual or "high risk" securities as defined by regulating authorities. Of this total, $2,727 are pass-through securities issued by the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC); $6,556 are collateralized mortgage obligations (CMOs) and real estate mortgage investment conduits (REMICs) issued by FNMA and FHLMC; and $21 are privately issued and are collateralized by mortgage-backed securities issued or guaranteed by FNMA, FHLMC, or Government National Mortgage Association (GNMA). The average interest rate of the portfolio at December 31, 2001 was 5.64%. Also, 1.2% of the December 31, 2001 portfolio is floating rate securities adjusting at least quarterly. The average maturity at December 31, 2001 was approximately 1.27 years. The Corporation has not invested in any derivative securities. Total shareholders' equity increased $802, or 1.7% during 2001 to $48,727. The ratio of total shareholders' equity to total assets was 10.0% in 2001 and 9.8% in 2000. The increase in shareholders' equity was caused primarily by an increase in fair value of securities available for sale. As part of an ongoing strategy to leverage the balance sheet and increase return on equity, FCBC has for the past several years followed a practice of paying out substantially all of its earnings in the form of cash dividends to shareholders. RESULTS OF OPERATIONS The operating results of the Corporation are affected by general economic conditions, the monetary and fiscal policies of federal agencies and the regulatory policies of agencies that regulate financial institutions. The Corporation's cost of funds is influenced by interest rates on competing investments and general market rates of interest. Lending activities are influenced by the demand for real estate loans, and other types of loans, which in turn is affected by the interest rates at which such loans are made, general economic conditions and the availability of funds for lending activities. The Corporation's net income primarily depends on its net interest income, which is the difference between the interest income earned on interest-earning assets, such as loans and securities, and interest expense incurred on interest-bearing liabilities, such as deposits and borrowings. The level of net interest income is dependent on the interest rate environment and the volume and composition of interest-earning assets and interest-bearing liabilities. Net income is also affected by provisions for loan losses, service charges, gains on the sale of assets, other income, noninterest expense and income taxes. COMPARISON OF RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2001 AND DECEMBER 31, 2000 NET INCOME The Corporation's net income for the year ended December 31, 2001 was $5,293 compared to $5,692 for the year ended December 31, 2000, a decrease of $399, or 7.0%. The decrease in net income was the result of the items discussed in the following sections. - -------------------------------------------------------------------------------- 6 NET INTEREST INCOME Net interest income for 2001 was $19,895, an increase of $1,461, or 7.9% from 2000. The change in the net interest income for 2001 was the net result of an increase in interest income of $1,158 and a decrease in interest expense of $303. Total interest income increased $1,158, or 3.4% for 2001. This increase in interest income can be attributed to an increase in the average interest-earning assets from $450,520 to $472,965 from 2000 to 2001. The effects of the increase in average interest-earning assets were partially offset by a decrease in the rate on earning assets from 7.59% in 2000 to 7.47% in 2001. Total interest expense decreased $303, or 1.9% for 2001. The decrease in interest expense can be attributed to a decrease in the rate on interest-bearing liabilities from 4.11% in 2000 to 3.86% in 2001. An increase in average interest-bearing liabilities from $383,192 to $400,658, or $17,466 from 2000 to 2001, offset some of the decrease due to rate. The decline in the yield on interest earning assets and interest-bearing liabilities is reflective of the decline in interest rates that occurred during 2001 when the Federal Reserve Bank decreased short term interest rates eleven times dropping the federal funds rate from 6.5% to 1.75%. Refer to "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 Rate" for further analysis of the impact of changes in interest-bearing assets and liabilities on the Corporation's net interest income. PROVISION AND ALLOWANCE FOR LOAN LOSSES The following table contains information relating to the provision for loan losses, activity in and analysis of the allowance for loan losses for the three-year period ended December 31, 2001.
As of and for the year ended December 31, ----------------------------------------- 2001 2000 1999 ---- ---- ---- Net loan charge-offs $ 1,045 974 $ 559 Provision for loan losses charged to expense 1,803 807 266 Net loan charge-offs as a percent of average outstanding loans .30% .31% .20% Allowance for loan losses $ 4,865 $ 4,107 $ 4,274 Allowance for loan losses as a percent of year-end outstanding loans 1.45% 1.19% 1.48% Allowance for loan losses as a percent of impaired loans 136.47 79.72 102.74 Impaired loans $ 3,565 $ 5,152 $ 4,160 Impaired loans as a percent of gross year-end loans 1.06% 1.48% 1.44% Nonaccrual and 90 days or more past due loans as a percent of gross year-end loans 1.56 .55 .87
The Corporation's policy is to maintain the allowance for loan losses at a level to provide for probable incurred losses. Management's periodic evaluation of the adequacy of the allowance is based on past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the - -------------------------------------------------------------------------------- 7 borrower's ability to repay, the estimated value of any underlying collateral and current economic conditions. The provision for loan losses increased by $996 in 2001 from $807 in 2000 to $1,803 in 2001. The increase is largely due to the increased size of Mr. Money's loan portfolio, increased charge-offs and increased non-performing loans. Efforts are continually made to examine both the level and mix of the reserve by loan type as well as the overall level of the reserve. Management specifically evaluates loans that are impaired, or graded as substandard or doubtful by the internal grading function for estimates of loss. Other pools of loans are evaluated for loss using historical experience and consideration of changes in delinquency trends and portfolio composition. Management analyzes commercial and commercial real estate loans on an individual basis and classifies a loan as impaired when an analysis of the borrower's operating results and financial condition indicates that underlying cash flows are not adequate to meet its debt service requirements. Often this is associated with a delay or shortfall in payments of 90 days or more. Smaller-balance homogeneous loans are evaluated for impairment in total. Such loans include residential first mortgage loans secured by one- to four-family residences, residential construction loans and consumer automobile, boat, home equity and credit card loans. In addition, loans held for sale and leases are excluded from consideration as impaired. Loans are generally moved to nonaccrual status when 90 days or more past due. These loans are also often considered impaired. Impaired loans, or portions thereof, are charged-off when deemed uncollectible. NONINTEREST INCOME Noninterest income totaled $6,117 in 2001 compared to $5,663 in 2000, an increase of 8.0% The more significant items contributing to this change is as follows. During 2001, the Corporation recognized gains from calls of securities of $7 and net gains of $856 from the sales of securities available for sale, of which the majority was from the sales of equity securities at Farmers. The Corporation decided to take advantage of significant increases in the market values and sell the remaining portion of the portfolio. In 2000, security gains totaled $1,080, also primarily from the role of equity securities at Farmers. Due to the decline in interest rates, customers' demand for fixed-rate loans increased which resulted in substantially more secondary market loan sales. Net gains were $438 for 2001 compared to a net loss of $31 in 2000. Other noninterest income totaled $1,844 in 2001 compared to $1,714 in 2000. Increases in other noninterest income are a result of additional products and services introduced to generate noninterest income including brokerage and insurance commissions. NONINTEREST EXPENSE Noninterest expense totaled $16,933 in 2001, an increase of $1,467, or 9.5% over 2000. The following discussion highlights the significant items that resulted in increases or decreases in the components of noninterest expense. - -------------------------------------------------------------------------------- 8 Salaries, wages and benefits totaled $7,763 in 2001 compared to $7,110 in 2000 for an increase of $653. The two primary reasons for the change in salaries and benefits lie with Mr. Money and Citizens. Mr. Money, a new consumer finance company, which existed for only part of 2000, increased salaries and benefits by $230 while Citizens salaries and benefits increased $371. Citizens increase was mainly due to commissions for selling new products. State of Ohio Franchise taxes were $759 in 2001 compared to $552 in 2000. The franchise taxes are based on the capital positions of the Banks. 2000 included refunds from prior years. Professional fees represent legal, audit and outside consulting fees paid by the Corporation. Professional fees totaled $719 in 2001 compared to $600 in 2000. The overall increase is due to services related to legal expenses at Farmers and consulting fees at Mr. Money. Other operating expenses totaled $4,638 in 2001 compared to $4,214 in 2000. Increased expenditures in advertising, marketing, and employee education and training in customer service and cross selling make up the increase in 2001. INCOME TAX EXPENSE Income before federal income taxes amounted to $7,276 in 2001 and $7,824 in 2000. The Corporation's effective income tax rate was 27.3% in 2001 compared to 27.2% in 2000. COMPARISON OF RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000 AND DECEMBER 31, 1999 NET INCOME The Corporation's net income for the year ended December 31, 2000 was $5,692 compared to $6,063 for the year ended December 31, 1999, a decrease of $371, or 6.1%. The decrease in net income was the result of the items discussed in the following sections. NET INTEREST INCOME Net interest income for 2000 was $18,434, an increase of $497 or 2.8% from 1999. The change in net interest income for 2000 was the net result of an increase in interest income of $1,123 and an increase in interest expense of $626. Total interest income increased $1,123, or 3.4% for 2000. This increase in interest income can be attributed to an increase in the rate on earning assets from 7.16% in 1999 to 7.59% in 2000. The effects of the increase in rate were partially offset by a decrease in the average interest-earning assets from $464,278 to $450,520 from 1999 to 2000. Total interest expense increased $626, or 4.1% for 2000. The increase in interest expense can be attributed to an increase in the rate on interest-bearing liabilities from 3.87% in 1999 to 4.11% in 2000. A decrease in average interest-bearing liabilities from $391,067 to $383,192, or $7,875 from 1999 to 2000, offset some of the increase due to rate. Refer to "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 Rate" for further analysis of the impact of changes in interest-bearing assets and liabilities on the Corporation's net interest income. - -------------------------------------------------------------------------------- 9 PROVISION AND ALLOWANCE FOR LOAN LOSSES The provision for loan losses increased by $541 in 2000 from $266 in 1999 to $807 in 2000. The increase is largely due to the increased size of the loan portfolio and increased charge-offs. Efforts are continually made to examine both the level and mix of the reserve by loan type as well as the overall level of the reserve. Management specifically evaluates loans that are impaired, or graded as doubtful by the internal grading function for estimates of loss. Other pools of loans are evaluated for loss using historical experience and consideration of changes in delinquency trends and portfolio composition. NONINTEREST INCOME Noninterest income totaled $5,663 in 2000 compared to $5,529 in 1999. Income from the data processing and computer services division totaled $1,124 for 2000, a 7.6% decrease over 1999 income of $1,216. The loss in revenue is related to the sale of SCC Resources' data processing contracts to Jack Henry & Associates, Inc. (JHA). As the banks serviced by SCC Resources converted processing to JHA, the revenue stream associated with their data processing ended. SCC Resources still provides item-processing services for 10 financial institutions plus the three subsidiary banks. Service charges on deposit accounts totaled $1,776 in 2000, an increase of $723, or 68.7% over 1999 income of $1,053. Additional services and account features have been introduced to generate increased noninterest income from the deposit accounts of the Banks. In addition, the Banks began to review service charges on all products and services to ensure reasonable compensation for the services provided. Some of the fee changes were in place by the end of 1999, with the remaining changes scheduled for completion by the first quarter of 2000. During 2000, the Corporation recognized gains of $1,070 from the sales of securities available for sale, of which the majority was from the sales of equity securities at Farmers. The Corporation decided to take advantage of significant increases in the market values and sell a portion of the portfolio. At December 31, 2000 the fair market value of Farmers' equity portfolio totaled $1,615 with an amortized cost of $596. Other noninterest income totaled $1,714 in 2000 compared to $1,461 in 1999. Increases in other noninterest income are a result of additional products and services introduced to generate noninterest income including brokerage and insurance commissions. NONINTEREST EXPENSE Noninterest expense totaled $15,466 in 2000, an increase of $695, or 4.7% over 1999. The following discussion highlights the significant items that resulted in increases or decreases in the components of noninterest expense. Salaries, wages and benefits totaled $7,110 in 2000 compared to $6,908 in 1999, for an increase of $202. The two primary reasons for the change in salaries and benefits lie with Mr. Money and Farmers. Mr. Money, a new consumer finance company in 2000, increased salaries and benefits by $362 while Farmers salaries and benefits decreased $137. Farmers salary decreased as a result of reduced staffing needs. Net occupancy expense totaled $847 in 2000 compared to $754 in 1999. Equipment expense totaled $1,104 in 2000 compared to $865 in 1999. Increases were due to the addition of Mr. Money and improved technology to enhance customer service. Professional fees represent legal, audit and outside consulting fees paid by the Corporation. Professional fees totaled $600 in 2000 compared to $896 in 1999. The overall decrease in professional fees is due to the absence of fees associated with the review of operating efficiency and the data processing systems conversion undertaken in 1999. - -------------------------------------------------------------------------------- 10 Data processing expense was $710 in 2000 and relates to data processing services provided by JHA. In 1999, this expense totaled $465. In 1999, SCC Resources provided this service to the Banks for a portion of the year. This expense would have been reflected in salaries, wages and benefits, net occupancy expense and equipment expense while the data processing service was provided by SCC Resources. Other operating expenses totaled $4,214 in 2000 compared to $3,960 in 1999. Increased expenditures in advertising, marketing, and employee education and training in customer service and cross selling make up the increase in 2000. INCOME TAX EXPENSE Income before federal income taxes amounted to $7,824 in 2000 and $8,429 in 1999. The Corporation's effective income tax rate was 27.2% in 2000 compared to 28.1% in 1999. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY, INTEREST RATES AND INTEREST DIFFERENTIAL The following table sets forth, for the years ended December 31, 2001, 2000 and 1999, the distribution of assets, including interest amounts and average rates of major categories of interest-earning assets and interest-bearing liabilities (Dollars in thousands):
2001 2000 1999 ------------------------------------- ------------------------------- ------------------------------- Average Yield/ Average Yield/ Average Yield/ Assets balance Interest rate balance Interest rate balance Interest rate - ------ --------- --------- --------- --------- --------- ------ --------- ---------- ----- Interest-earning assets: Loans (1)(2)(3) $ 346,696 $ 28,908 8.34% $ 314,071 $ 26,645 8.48% $ 284,080 $ 23,408 8.24% Taxable securities (4) 72,856 4,345 6.13 91,107 5,352 5.94 115,240 6,645 5.87 Nontaxable Securities (4)(5) 41,216 1,702 4.18 44,022 2,118 4.79 47,894 2,306 4.89 Federal funds sold 11,013 360 3.27 741 41 5.53 12,770 627 4.91 Interest-bearing deposits in other banks 1,184 33 2.79 579 34 5.87 4,294 81 1.89 --------- --------- --------- --------- --------- --------- Total interest-earning assets 472,965 35,348 7.47 450,520 34,190 7.59 464,278 33,067 7.16 --------- --------- --------- Noninterest-earning assets: Cash and due from financial institutions 15,696 14,290 11,538 Premises and equipment, net 7,217 7,302 7,311 Accrued interest receivable 3,821 3,741 3,723 Intangible assets 1,716 2,043 2,379 Other assets 1,947 3,171 2,444 Less allowance for loan losses (4,253) (4,193) (4,431) --------- --------- --------- Total $ 499,109 $ 476,874 $ 487,242 ========= ========= =========
(1) For purposes of these computations, the daily average loan amounts outstanding are net of unearned income and include loans held for sale. (2) Included in loan interest income are loan fees of $994 in 2001, $792 in 2000 and $782 in 1999. (3) Nonaccrual loans are included in loan totals and do not have a material impact on the analysis presented. (4) Average balance is computed using the carrying value of securities. The average yield has been computed using the historical amortized cost average balance for available-for-sale securities. (5) Interest income is reported on a historical basis without tax-equivalent adjustment. - -------------------------------------------------------------------------------- 11 DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY, INTEREST RATES AND INTEREST DIFFERENTIAL (CONTINUED) The following table sets forth, for the years ended December 31, 2001, 2000 and 1999, the distribution of liabilities and shareholders' equity, including interest amounts and average rates of major categories of interest-earning assets and interest-bearing liabilities (Dollars in thousands):
2001 2000 1999 -------------------------------- ------------------------------ ------------------------------- Liabilities and Average Yield/ Average Yield/ Average Yield/ Shareholders' Equity balance Interest rate balance Interest rate balance Interest rate - -------------------- -------- -------- ------ -------- -------- ------ -------- -------- ------- Interest-bearing liabilities: Savings and interest- bearing demand accounts $162,771 $ 4,189 2.57% $167,928 $ 4,394 2.62% $164,246 $ 3,868 2.36% Certificates of deposit 204,566 9,668 4.73 188,723 9,801 5.19 206,296 10,329 5.01 Federal Home Loan Bank advances 1,127 66 5.86 1,701 96 5.64 4,348 254 5.84 Securities sold under repurchase agreements 13,078 395 3.02 8,668 389 4.49 15,044 625 4.15 Federal funds purchased 4,493 141 3.14 12,666 808 6.38 Note payable 13,655 962 7.05 2,523 209 8.28 U.S. Treasury demand notes payable 968 32 3.31 983 59 6.00 1,133 54 4.77 -------- -------- -------- -------- -------- -------- Total interest- bearing liabilities 400,658 15,453 3.86 383,192 15,756 4.11 391,067 15,130 3.87 -------- -------- -------- -------- -------- -------- Noninterest-bearing liabilities: Demand deposits 45,048 44,270 39,123 Other liabilities 3,710 2,349 4,705 -------- -------- -------- 48,758 46,619 43,828 Shareholders' equity 49,693 47,062 52,347 -------- -------- -------- Total $499,109 $476,874 $487,242 ======== ======== ======== Net interest income $ 19,895 $ 18,434 $ 17,937 ======== ======== ======== Net yield on interest- earning assets 4.28% 4.09% 3.89% ==== ==== ====
- -------------------------------------------------------------------------------- 12 CHANGES IN INTEREST INCOME AND INTEREST EXPENSE RESULTING FROM CHANGES IN VOLUME AND CHANGES IN RATE The following table sets forth, for the periods indicated, a summary of the changes in interest income and interest expense resulting from changes in volume and changes in rate.
2001 compared to 2000 2000 compared to 1999 Increase (decrease) Increase (decrease) due to (1) due to (1) ----------------------------- ----------------------------- Volume Rate Net Volume Rate Net ------- ------- ------- ------- ------- ------- (Dollars in thousands) Interest income: Loans $ 2,715 $ (452) $ 2,263 $ 2,528 $ 709 $ 3,237 Taxable securities (1,064) 57 (1,007) (1,300) 7 (1,293) Nontaxable securities (151) (265) (416) (152) (36) (188) Federal funds sold 322 (3) 319 (657) 71 (586) Interest-bearing deposits in other banks 23 (24) (1) (113) 66 (47) ------- ------- ------- ------- ------- ------- Total interest- earning assets $ 1,845 $ (687) $ 1,158 $ 306 $ 817 $ 1,123 ======= ======= ======= ======= ======= ======= Interest expense: Savings and interest- bearing demand accounts $ (133) $ (72) $ (205) $ 88 $ 438 $ 526 Certificates of deposit 787 (920) (133) (903) 375 (528) Federal Home Loan Bank borrowings (33) 3 (30) (150) (8) (158) Securities sold under repurchase agreements 159 (153) 6 (283) 47 (236) Federal funds purchased (373) (294) (667) 808 -- 808 Note payable 789 (36) 753 209 -- 209 U.S. Treasury demand notes payable (1) (26) (27) (8) 13 5 ------- ------- ------- ------- ------- ------- Total interest- bearing liabilities $ 1,195 $(1,498) $ (303) $ (239) $ 865 $ 626 ======= ======= ======= ======= ======= ======= Net interest income $ 650 $ 811 $ 1,461 $ 545 $ (48) $ 497 ======= ======= ======= ======= ======= =======
(1) The change in interest income and interest expense due to changes in both volume and rate, which cannot be segregated, has been allocated proportionately to the change due to volume and the change due to rate. - -------------------------------------------------------------------------------- 13 LIQUIDITY AND CAPITAL RESOURCES The Banks maintain a conservative liquidity position evidenced by approximately $113,587, or 23.3% of total assets in securities available for sale. The Consolidated Statements of Cash Flows contained in the consolidated financial statements detail the Corporation's cash flows from operating activities resulting from net earnings. Cash from operations for 2001 was $4,580. This includes net income of $5,293 plus net adjustments of $(713) to reconcile net earnings to net cash provided by operations. Cash from investing activities was $6,177 in 2001 that includes security purchases and increases in federal funds partially offset by maturities, prepayments and sales of securities and a decrease in loans. Cash from financing activities in 2001 totaled $(7,265). This includes the increase in deposits, repayments of FHLB borrowings, the payments of dividends and a decrease in other borrowings. Cash from operating and investing activities was more than cash used by financing activities by $3,492, which resulted in an increase in cash and cash equivalents to $19,227. Future loan demand of the Banks can be funded by increases in deposit accounts, proceeds from payments on existing loans, the maturity of securities and the sale of securities classified as available for sale. Additional sources of funds may also come from borrowing in the federal funds market and/or borrowing from the Federal Home Loan Bank. Future loan demand of Mr. Money can be funded by proceeds from payments on existing loans, sales of existing loans on the secondary market as well as borrowings from affiliates or other institutions. On a separate entity basis, the Corporation's primary source of funds is dividends paid primarily by the subsidiary Banks. The ability of the Banks to pay dividends is subject to limitations under various laws and regulations, and to prudent and sound banking principles. Generally, subject to applicable minimum capital requirements, the Banks may declare a dividend without the approval of the State of Ohio Department of Commerce, Division of Financial Institutions, provided the total dividends in a calendar year do not exceed the total of its profits for that year combined with its retained profits for the two preceding years. In 2001, Citizens paid dividends of $5,760 to the Corporation. Also in 2001, Farmers paid a special $2,250 dividend to the Corporation with the approval of the State of Ohio Department of Commerce, Division of Financial Institutions. Also in 2001, Castalia paid a special $890 dividend to the Corporation. This dividend was paid with the approval of the State of Ohio Division of Financial Institutions and the Federal Reserve Bank. The purpose of these dividends was to accumulate cash at the Corporation to be used for general corporate purposes including the possible repurchase of its common stock. The amount of unrestricted dividends available to be paid by the Banks to the Corporation was approximately $667 at December 31, 2001. Management believes the future earnings of the Banks will be sufficient to support anticipated asset growth at the Banks and provide funds to the Corporation to continue dividends at their current level. CAPITAL ADEQUACY The Corporation's policy is, and always has been, to maintain its capital levels above the minimum regulatory standards. Under the regulatory capital standards, total capital has been defined as tier I (core) capital and tier II (supplementary) capital. The Corporation's tier I capital includes shareholders' equity (net of unrealized security gains) and tier II capital includes the allowance for possible loan losses. The definition of risk-adjusted assets has also been modified to include items both on and off the balance sheet. Each item is then assigned a risk weight or risk adjustment factor to determine ratios of capital to risk adjusted assets. The standards require that total capital (tier I plus tier II) be a minimum of 8% of risk-adjusted assets, with at least 4% being in tier I capital. The Corporation's ratios as of December 31, 2001 and 2000 were 16.0% and 15.3% respectively for total capital, and 14.7% and 14.1% respectively for tier I capital. - -------------------------------------------------------------------------------- 14 Additionally, the Federal Reserve Board has adopted minimum leverage-capital ratios. These standards were established to supplement the previously issued risk based capital standards. The leverage ratio standards use the existing tier I capital definition but the ratio is applied to average total assets instead of risk-adjusted assets. The standards require that tier I capital be a minimum of 4% of total average assets for high rated entities such as the Corporation. The Corporation's leverage ratio was 9.1% and 9.3% at December 31, 2001 and 2000. EFFECTS OF INFLATION The Corporation's balance sheet is typical of financial institutions and reflects a net positive monetary position whereby monetary assets exceed monetary liabilities. Monetary assets and liabilities are those which can be converted to a fixed number of dollars and include cash assets, securities, loans, money market instruments, deposits and borrowed funds. During periods of inflation, a net positive monetary position may result in an overall decline in purchasing power of an entity. No clear evidence exists of a relationship between the purchasing power of an entity's net positive monetary position and its future earnings. Moreover, the Corporation's ability to preserve the purchasing power of its net positive monetary position will be partly influenced by the effectiveness of its asset/liability management program. Management does not believe that the effect of inflation on its nonmonetary assets (primarily bank premises and equipment) is material as such assets are not held for resale and significant disposals are not anticipated. FAIR VALUE OF FINANCIAL INSTRUMENTS The Corporation disclosed the estimated fair value of its financial instruments at December 31, 2001 and 2000 in Note 15 to the consolidated financial statements. The fair value of the Corporation's financial instruments generally increased relative to their carrying values in 2001 as a result of a decrease in the general level of longer-term interest rates. The fair value of loans at December 31, 2001 was 102.9% of the carrying value compared to 98.7% at December 31, 2000. The fair value of deposits at December 31, 2001 was 101.2% of the carrying value, compared to 101.5% at December 31, 2000. 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. All of the Corporation's transactions are denominated in U.S. dollars with no specific foreign exchange exposure. Interest-rate risk (IRR) is the exposure of a banking organization's financial condition to adverse movements in interest rates. Accepting this risk can be an important source of profitability and shareholder value. However, excessive levels of IRR can pose a significant threat to the Corporation's earnings and capital base. Accordingly, effective risk management that maintains IRR at prudent levels is essential to the Corporation's safety and soundness. Evaluating a financial institution's exposure to changes in interest rates includes assessing both the adequacy of the management process used to control IRR and the organization's quantitative level of exposure. When assessing the IRR management process, the Corporation seeks to ensure that appropriate policies, procedures, management information systems and internal controls are in place to maintain IRR at prudent levels with consistency and continuity. Evaluating the quantitative level of IRR exposure requires the Corporation to assess the existing and potential future effects of changes in interest rates on its consolidated financial condition, including capital adequacy, earnings, liquidity and, where appropriate, asset quality. - -------------------------------------------------------------------------------- 15 The Federal Reserve Board, together with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, adopted a Joint Agency Policy Statement on interest-rate risk, effective June 26, 1996. The policy statement provides guidance to examiners and bankers on sound practices for managing interest-rate risk, which will form the basis for ongoing evaluation of the adequacy of interest-rate risk management at supervised institutions. The policy statement also outlines fundamental elements of sound management that have been identified in prior Federal Reserve guidance and discusses the importance of these elements in the context of managing interest-rate risk. Specifically, the guidance emphasizes the need for active board of director and senior management oversight and a comprehensive risk-management process that effectively identifies, measures, and controls interest-rate risk. Financial institutions derive their income primarily from the excess of interest collected over interest paid. The rates of interest an institution earns on its assets and owes on its liabilities generally are established contractually for a period of time. Since market interest rates change over time, an institution is exposed to lower profit margins (or losses) if it cannot adapt to interest-rate changes. For example, assume that an institution's assets carry intermediate- or long-term fixed rates and that those assets were funded with short-term liabilities. If market interest rates rise by the time the short-term liabilities must be refinanced, the increase in the institution's interest expense on its liabilities may not be sufficiently offset if assets continue to earn at the long-term fixed rates. Accordingly, an institution's profits could decrease on existing assets because the institution will have either lower net interest income or, possibly, net interest expense. Similar risks exist when assets are subject to contractual interest-rate ceilings, or rate sensitive assets are funded by longer-term, fixed-rate liabilities in a decreasing-rate environment. Several techniques may be used by an institution to minimize interest-rate risk. One approach used by the Corporation is to periodically analyze its assets and liabilities and make future financing and investment decisions based on payment streams, interest rates, contractual maturities, and estimated sensitivity to actual or potential changes in market interest rates. Such activities fall under the broad definition of asset/liability management. The Corporation's primary asset/liability management technique is the measurement of the Corporation's asset/liability gap, that is, the difference between the cash flow amounts of interest sensitive assets and liabilities that will be refinanced (or repriced) during a given period. For example, if the asset amount to be repriced exceeds the corresponding liability amount for a certain day, month, year, or longer period, the institution is in an asset sensitive gap position. In this situation, net interest income would increase if market interest rates rose or decrease if market interest rates fell. If, alternatively, more liabilities than assets will reprice, the institution is in a liability sensitive position. Accordingly, net interest income would decline when rates rose and increase when rates fell. Also, these examples assume that interest rate changes for assets and liabilities are of the same magnitude, whereas actual interest rate changes generally differ in magnitude for assets and liabilities. Several ways an institution can manage interest-rate risk include selling existing assets or repaying certain liabilities; matching repricing periods for new assets and liabilities, for example, by shortening terms of new loans or securities; and hedging existing assets, liabilities, or anticipated transactions. An institution might also invest in more complex financial instruments intended to hedge or otherwise change interest-rate risk. Interest rate swaps, futures contracts, options on futures, and other such derivative financial instruments often are used for this purpose. Because these instruments are sensitive to interest rate changes, they require management expertise to be effective. Financial institutions are also subject to prepayment risk in falling rate environments. For example, mortgage loans and other financial assets may be prepaid by a debtor so that the debtor may refund its obligations at new, lower rates. The Corporation has not purchased derivative financial instruments in the past and does not intend to purchase such instruments in the near future. Prepayments of assets carrying higher rates reduce the Corporation's interest income and overall asset yields. A large portion of an institution's liabilities may be short term or due on demand, while most of its assets may be invested in long term loans or securities. Accordingly, the Corporation seeks to have in place sources of cash to meet short-term demands. These funds can be obtained by increasing deposits, borrowing, or selling assets. Also, FHLB advances and wholesale borrowings may also be used as important sources of liquidity for the Corporation. - -------------------------------------------------------------------------------- 16 The following table provides information about the Corporation's financial instruments that are sensitive to changes in interest rates as of December 31, 2001 and 2000, based on certain prepayment and account decay assumptions that management believes are reasonable. The Corporation had no derivative financial instruments or trading portfolio as of December 31, 2001 or 2000. Expected maturity date values for interest-bearing core deposits were calculated based on estimates of the period over which the deposits would be outstanding. From a risk management perspective, the Corporation believes that repricing dates for adjustable-rate instruments, as opposed to expected maturity dates, may be a more relevant measure in analyzing the value of such instruments. The Corporation's borrowings were tabulated by contractual maturity dates and without regard to any conversion or repricing dates. ----------------------------------------------------------------------- NET PORTFOLIO VALUE - DECEMBER 31, 2001 CHANGE IN RATES $ AMOUNT $ CHANGE % CHANGE -------- -------- -------- +200 bp $ 42,491 $ (9,621) (18)% +100 bp 47,743 (4,369) (8)% Base 52,112 - - -100 bp 56,594 4,482 9% -200 bp 60,239 8,127 16% ----------------------------------------------------------------------- NET PORTFOLIO VALUE - DECEMBER 31, 2000 CHANGE IN RATES $ AMOUNT $ CHANGE % CHANGE -------- -------- -------- +200 bp $ 31,947 $(10,915) (25)% +100 bp 37,235 (5,627) (13)% Base 42,862 - - -100 bp 48,523 5,661 13% -200 bp 53,550 10,668 25% The reduction in the relative change in net portfolio value from 2000 to 2001, given the assumed immediate change in interest rates is primarily a result of two factors. First, the reduction in long-term interest rates during 2001 served to increase the base level of net portfolio value due to the corresponding increase in the fair value of loans and investments. In addition, the majority of new loans originated in 2001 have interest rate adjustment features, which lessens the impact of future rate changes. - -------------------------------------------------------------------------------- 17 [LOGO: CROW CHIZEK] REPORT OF INDEPENDENT AUDITORS Shareholders and Board of Directors First Citizens Banc Corp Sandusky, Ohio We have audited the accompanying consolidated balance sheets of First Citizens Banc Corp as of December 31, 2001 and 2000, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of First Citizens Banc Corp as of December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. /s/ Crowe, Chizek and Company LLP Crowe, Chizek and Company LLP Columbus, Ohio February 1, 2002 - -------------------------------------------------------------------------------- 18
FIRST CITIZENS BANC CORP CONSOLIDATED BALANCE SHEETS December 31, 2001 and 2000 (In thousands, except share data) - -------------------------------------------------------------------------------- 2001 2000 --------- --------- ASSETS Cash and due from financial institutions $ 19,227 $ 15,735 Federal funds sold 6,025 -- Interest-bearing deposits -- 51 Securities available for sale 113,587 115,514 Securities held to maturity (Estimated fair values of $143 in 2001 and $278 in 2000) 139 278 Loans held for sale 2,307 571 Loans, net 331,347 341,982 Premises and equipment, net 7,003 7,221 Accrued interest receivable 3,883 4,063 Intangible assets 1,543 1,869 Other assets 2,610 1,975 --------- --------- Total assets $ 487,671 $ 489,259 ========= ========= LIABILITIES Deposits Noninterest-bearing $ 44,612 $ 42,306 Interest-bearing 365,566 349,662 --------- --------- Total deposits 410,178 391,968 Federal Home Loan Bank advances 811 1,400 Securities sold under repurchase agreements 10,311 12,946 U.S. Treasury interest-bearing demand note payable 720 1,207 Federal funds purchased -- 20,000 Note payable 14,000 10,600 Accrued expenses and other liabilities 2,924 3,213 --------- --------- Total liabilities 438,944 441,334 --------- --------- SHAREHOLDERS' EQUITY Common stock, no par value, 10,000,000 shares authorized, 4,263,401 shares issued 23,258 23,258 Retained earnings 28,844 28,614 Treasury stock, 180,782 and 175,782 shares at cost (4,919) (4,818) Accumulated other comprehensive income 1,544 871 --------- --------- Total shareholders' equity 48,727 47,925 --------- --------- Total liabilities and shareholders' equity $ 487,671 $ 489,259 ========= =========
- -------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. 19
FIRST CITIZENS BANC CORP CONSOLIDATED STATEMENTS OF INCOME Years ended December 31, 2001, 2000 and 1999 (In thousands, except per share data) - -------------------------------------------------------------------------------- 2001 2000 1999 -------- -------- -------- Interest and dividend income Loans, including fees $ 28,908 $ 26,645 $ 23,408 Taxable securities 4,345 5,352 6,645 Tax-exempt securities 1,702 2,118 2,306 Federal funds sold 360 41 627 Other 33 34 81 -------- -------- -------- 35,348 34,190 33,067 Interest expense Deposits 13,857 14,195 14,197 Federal Home Loan Bank advances 66 96 254 Other 1,530 1,465 679 -------- -------- -------- 15,453 15,756 15,130 -------- -------- -------- Net interest income 19,895 18,434 17,937 Provision for loan losses 1,803 807 266 -------- -------- -------- Net interest income after provision for loan losses 18,092 17,627 17,671 -------- -------- -------- Noninterest income Computer center item processing fees 1,173 1,124 1,216 Service charges 1,799 1,776 1,053 Net gains on sale of securities 863 1,080 1,602 Net gains (loss) on sale of loans 438 (31) 197 Other 1,844 1,714 1,461 -------- -------- -------- 6,117 5,663 5,529 Noninterest expense Salaries, wages and benefits 7,763 7,110 6,908 Net occupancy expense 882 847 754 Equipment expense 1,110 1,104 865 State franchise tax 759 552 587 Professional services 719 600 896 Amortization of intangible assets 326 329 336 Contracted data processing 736 710 465 Other operating expenses 4,638 4,214 3,960 -------- -------- -------- 16,933 15,466 14,771 -------- -------- -------- Income before income taxes 7,276 7,824 8,429 Income tax expense 1,983 2,132 2,366 -------- -------- -------- Net income $ 5,293 $ 5,692 $ 6,063 ======== ======== ======== Earnings per common share $ 1.30 $ 1.39 $ 1.43 ======== ======== ========
- -------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. 20 FIRST CITIZENS BANC CORP CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Years ended December 31, 2001, 2000 and 1999 (In thousands, except share and per share data) - --------------------------------------------------------------------------------
Accumulated Other Total Common Stock Retained Treasury Comprehensive Shareholders' Shares Amount Earnings Stock Income Equity ---------- ---------- ---------- ---------- ------------- ------------ Balance, January 1, 1999 4,263,401 $ 23,258 $ 26,811 $ -- $ 3,672 $ 53,741 Comprehensive income: Net income 6,063 6,063 Change in unrealized gain (loss) on securities available for sale, net of reclassification and tax effects (3,868) (3,868) ---------- Total comprehensive income 2,195 Cash dividends ($1.15 per share) (4,864) (4,864) Purchase of treasury stock (100,586) (2,877) (2,877) ---------- ---------- ---------- ---------- ---------- ---------- Balance, December 31, 1999 4,162,815 23,258 28,010 (2,877) (196) 48,195 Comprehensive income: Net income 5,692 5,692 Change in unrealized gain (loss) on securities available for sale, net of reclassification and tax effects 1,067 1,067 ---------- Total comprehensive income 6,759 Cash dividends ($1.24 per share) (5,088) (5,088) Purchase of treasury stock (75,196) (1,941) (1,941) ---------- ---------- ---------- ---------- ---------- ---------- Balance, December 31, 2000 4,087,619 23,258 28,614 (4,818) 871 47,925
- -------------------------------------------------------------------------------- (Continued) 21 FIRST CITIZENS BANC CORP CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Continued) Years ended December 31, 2001, 2000 and 1999 (In thousands, except share and per share data) - --------------------------------------------------------------------------------
Accumulated Other Total Common Stock Retained Treasury Comprehensive Shareholders' Shares Amount Earnings Stock Income Equity ---------- ---------- ---------- ---------- ------------- -------------- Balance, December 31, 2000 4,087,619 $ 23,258 $ 28,614 $ (4,818) $ 871 $ 47,925 Comprehensive income: Net income 5,293 5,293 Change in unrealized gain (loss) on securities available for sale, net of reclassification and tax effects 673 673 ---------- Total comprehensive income 5,966 Cash dividends ($1.24 per share) (5,063) (5,063) Purchase of treasury stock (5,000) (101) (101) ---------- ---------- ---------- ---------- ---------- ---------- Balance, December 31, 2001 4,082,619 $ 23,258 $ 28,844 $ (4,919) $ 1,544 $ 48,727 ========== ========== ========== ========== ========== ==========
- -------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. 22 FIRST CITIZENS BANC CORP CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 2001, 2000 and 1999 - --------------------------------------------------------------------------------
2001 2000 1999 -------- -------- -------- Cash flows from operating activities Net income $ 5,293 $ 5,692 $ 6,063 Adjustments to reconcile net income to net cash from operating activities Security amortization, net of accretion 457 372 645 Depreciation 851 975 889 Amortization of intangible assets 326 329 336 Net realized (gain) on sales of securities (863) (1,080) (1,602) FHLB stock dividends (351) (317) (287) Provision for loan losses 1,803 807 266 Loans originated for sale (15,420) (2,392) (10,041) Proceeds from sale of loans 13,412 1,869 10,167 (Gain) loss on sale of loans (438) 31 (197) Deferred income taxes (38) 90 (395) Change in Net deferred loan fees (109) (21) (163) Accrued interest receivable 180 (383) 37 Other assets (273) (169) 2,605 Accrued interest, taxes and other expenses (250) 233 (981) -------- -------- -------- Net cash from operating activities 4,580 6,036 7,342 Cash flows from investing activities Securities available for sale Maturities, prepayments and calls 37,097 31,100 34,044 Purchases (34,845) (4,336) (24,509) Sales 1,452 10,619 7,547 Securities held to maturity Maturities, prepayments and calls 139 128 403 Loan originations, net of loan payments 8,941 (48,841) (5,767) Loans purchased -- (7,364) -- Proceeds from the sale of assets -- -- 26 Property and equipment expenditures (633) (738) (1,423) Change in federal funds sold (6,025) 4,600 15,350 Maturity of interest bearing deposit 51 -- 197 -------- -------- -------- Net cash from investing activities 6,177 (14,832) 25,868
- -------------------------------------------------------------------------------- (Continued) 23 FIRST CITIZENS BANC CORP CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) Years ended December 31, 2001, 2000 and 1999 - --------------------------------------------------------------------------------
2001 2000 1999 -------- -------- -------- Cash flows from financing activities Change in deposits 18,210 (11,192) (14,739) Repayment of Federal Home Loan Bank borrowings (589) (559) (11,275) Change in securities sold under repurchase agreements (2,635) (29) (3,394) Change in U.S. Treasury interest-bearing notes payable (487) (1,859) 2,094 Change in note payable 3,400 10,600 -- Change in federal funds purchased (20,000) 20,000 -- Cash dividends paid (5,063) (5,088) (4,864) Purchase of treasury stock (101) (1,941) (2,877) -------- -------- -------- Net cash from financing activities (7,265) 9,932 (35,055) -------- -------- -------- Net change in cash and cash equivalents 3,492 1,136 (1,845) Cash and cash equivalents at beginning of year 15,735 14,599 16,444 -------- -------- -------- Cash and cash equivalents at end of year $ 19,227 $ 15,735 $ 14,599 ======== ======== ======== Supplemental cash flow information: Interest paid $ 15,651 $ 16,207 $ 15,505 Income taxes paid 1,913 1,605 2,718 Supplemental non-cash disclosures: Transfer of loans held for sale to portfolio $ -- $ 2,138 $ --
- -------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. 24 FIRST CITIZENS BANC CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001, 2000 and 1999 (Amounts in thousands, except share data) - -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following is a summary of the accounting policies adopted by First Citizens Banc Corp, which have a significant effect on the financial statements. CONSOLIDATION POLICY: The consolidated financial statements include the accounts of First Citizens Banc Corp (FCBC) and its wholly-owned subsidiaries, The Citizens Banking Company (Citizens), The Farmers State Bank (Farmers), The Castalia Banking Company (Castalia), SCC Resources, Inc. (SCC), R. A. Reynolds Appraisal Service, Inc. (Reynolds), Mr. Money Finance Company (Mr. Money), First Citizens Title Insurance Agency, and First Citizens Insurance Agency, together referred to as the Corporation. Intercompany balances and transactions are eliminated in consolidation. NATURE OF OPERATIONS: The Corporation provides financial services through its offices in the Ohio counties of Erie, Huron, Crawford, Marion, Ottawa, Richland and Union. Its primary deposit products are checking, savings, and term certificate accounts, and its primary lending products are residential mortgage, commercial, and installment loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets and real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. Real estate loans are secured by both residential and commercial real estate. Other financial instruments that potentially represent concentrations of credit risk include deposit accounts in other financial institutions. In 2001, SCC provided item processing for 10 financial institutions in addition to the three subsidiary banks. SCC accounted for less than 3.0% of the Corporation's total revenues. Reynolds provides real estate appraisal services for lending purposes to the subsidiary banks and other financial institutions. Reynolds accounts for less than 1.0% of total Corporation revenues. Mr. Money, which began operations in 2000 provides consumer finance and real estate loans that the Banks would not normally provide to B and C credits at a rate commensurate with the risk and accounted for approximately 5.0% of the Corporation's total revenue. In September 2000 the Corporation formed two new affiliates; First Citizens Title Insurance Agency Inc. and First Citizens Insurance Agency Inc. First Citizens Title Insurance Agency has been formed to provide customers with a seamless mortgage product with improved service. First Citizens Insurance Agency Inc. was formed to allow the Corporation to participate in commission revenue generated through its third party insurance agreement. Insurance commission revenue is less than 1% of total revenue for the period ended December 31, 2001. USE OF ESTIMATES: To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the 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. CASH: Cash and cash equivalents include cash on hand and demand deposits with financial institutions. Net cash flows are reported for federal funds purchased or sold, customer loan transactions, deposit transactions, securities sold under agreements to repurchase and other short-term borrowings. SECURITIES: Securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Securities are classified as available for sale when they might be sold before maturity. Securities available for sale are carried at fair value, with - -------------------------------------------------------------------------------- (Continued) 25 FIRST CITIZENS BANC CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001, 2000 and 1999 (Amounts in thousands, except share data) - -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) unrealized holding gains and losses reported in other comprehensive income. Other securities such as Federal Home Loan Bank stock are carried at cost. Interest income includes amortization of purchase premium or discount. Gains and losses on sales are based on the amortized cost of the security sold. Securities are written down to fair value when a decline in fair value is not temporary. LOANS: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of unearned interest, deferred loan fees and costs, and an allowance for loan losses. Loans held for sale are reported at the lower of cost or market, on an aggregate basis. Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the loan term. Interest income is not reported when full loan repayment is in doubt, typically when the loan is impaired or payments are past due over 90 days (180 days for residential mortgages). Payments received on such loans are reported as principal reductions. ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is a valuation allowance for probable incurred credit losses, increased by the provision for loan losses and decreased by charge-offs less recoveries. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management's judgment, should be charged-off. A loan is impaired when full payment under the loan terms is not expected. Impairment is evaluated in total for smaller-balance loans of similar nature such as residential mortgage, consumer, and credit card loans, and on an individual loan basis for other loans. If a loan is impaired, a portion of the allowance is allocated so the loan is reported, net, at the present value of estimated future cash flows using the loan's existing rate or at the fair value of collateral if repayment is expected solely from the collateral. PREMISES AND EQUIPMENT: Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed using both accelerated and straight-line methods over the estimated useful life of the asset. OTHER REAL ESTATE: Other real estate acquired through or instead of loan foreclosure is initially recorded at fair value when acquired, establishing a new cost basis. Any reduction from carrying value of the related loan to fair value at the time of acquisition is accounted for as a loan loss. Any subsequent reduction in fair value is recognized in a valuation allowance by a charge to income. Other real estate owned included in other assets totaled approximately $145 at December 31, 2001 and $89 at December 31, 2000. SERVICING RIGHTS: Servicing rights are recognized as assets for the allocated value of retained servicing rights on loans sold. Servicing rights are expensed in proportion to, and over the period of, estimated net servicing revenues. Impairment is evaluated based on the fair value of the rights, using groupings of the underlying loans as to interest rates and then, secondarily, as to geographic and prepayment characteristics. Fair value is determined using prices for similar assets with similar characteristics, when - -------------------------------------------------------------------------------- (Continued) 26 FIRST CITIZENS BANC CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001, 2000 and 1999 (Amounts in thousands, except share data) - -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) available, or based upon discounted cash flows using market-based assumptions. Any impairment of a grouping is reported as a valuation allowance. INTANGIBLE ASSETS: Amounts, as reported on the consolidated balance sheets, represent goodwill that arose from the purchase of Castalia in 1990 and core deposit intangibles that arose from the purchase of two branch offices and assumption of related deposits in 1997. Goodwill is being amortized on the straight-line method over 15 years and core deposit intangibles are being amortized on the straight-line method over 12 years. At December 31, 2001, the remaining balances of goodwill and core deposit intangibles totaled $672 and $871. At December 31, 2000, the remaining balances of goodwill and core deposit intangibles totaled $873 and $996. LONG-TERM ASSETS: These assets are reviewed for impairment when events indicate their carrying amounts may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at discounted amounts. REPURCHASE AGREEMENTS: Substantially all repurchase agreement liabilities represent amounts advanced by various customers. Securities are pledged to cover these liabilities, which are not covered by federal deposit insurance. INCOME TAXES: 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. RETIREMENT PLANS: The Corporation sponsors a noncontributory defined benefit retirement plan for all full-time employees who have attained the age of 20 1/2 and have a minimum of six months of service. Pension expense is the net of service and interest cost, return on plan assets and amortization of gains and losses not immediately recognized. Accrued pension costs are funded to the extent deductible for federal income tax purposes. The Corporation also provides a savings and retirement 401(k) plan for all eligible employees who elect to participate. The decision to make contributions to the plan, which represents a match of a portion of the salary deferred by participants, is made annually by the Board of Directors. Such contributions are funded as they are accrued. STOCK OPTIONS: A plan was approved by shareholders on April 18, 2000 that reserves 225,000 shares for granting options. As of December 31, 2001 no options had been granted. - -------------------------------------------------------------------------------- (Continued) 27 FIRST CITIZENS BANC CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001, 2000 and 1999 (Amounts in thousands, except share data) - -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) FINANCIAL INSTRUMENTS: Financial instruments include off-balance-sheet credit instruments, such as commitments to make loans and standby letters of credit, issued to meet customer-financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded. COMPREHENSIVE INCOME: Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on securities available for sale, which are also recognized as a separate component of shareholders' equity. NEW ACCOUNTING PRONOUNCEMENTS: A new accounting standard requires all business combinations to be recorded using the purchase method of accounting for any transaction initiated after June 30, 2001. Under the purchase method, all identifiable tangible and intangible assets and liabilities of the acquired company must be recorded at fair value at date of acquisition, and the excess of cost over fair value of net assets acquired is recorded as goodwill. Identifiable intangible assets must be separated from goodwill. Identifiable intangible assets with finite useful lives will be amortized under the new standard, whereas goodwill, both amounts previously recorded and future amounts purchased, will cease being amortized starting 2002. Annual impairment testing will be required for goodwill with impairment being recorded if the carrying amount of goodwill exceeds its implied fair value. Adoption of this standard on January 1, 2002 will result in lower amortization expense of $202. LOSS CONTINGENCIES: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements. DIVIDEND RESTRICTION: Banking regulations require maintaining certain capital levels and may limit the dividends paid by the Banks to FCBC or by FCBC to shareholders. FAIR VALUE OF FINANCIAL INSTRUMENTS: Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect these estimates. - -------------------------------------------------------------------------------- (Continued) 28 FIRST CITIZENS BANC CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001, 2000 and 1999 (Amounts in thousands, except share data) - -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) EARNINGS PER COMMON SHARE: Basic earnings per share are computed based on the weighted average number of common shares outstanding during the period. Basic weighted average common shares outstanding totaled 4,082,879 in 2001, 4,107,269 in 2000 and 4,242,546 in 1999. The Corporation has no potentially dilutive common shares. operating segments: While the Corporation's chief decision-makers monitor the revenue streams of the various Corporation products and services, the identifiable segments are not material and operations are managed and financial performance is evaluated on a Corporation-wide basis. Accordingly, all of the Corporation's financial service operations are considered by management to be aggregated in one reportable operating segment. financial statement presentation: Certain items in the 2000 and 1999 financial statements have been reclassified to correspond with the 2001 presentation. - -------------------------------------------------------------------------------- (Continued) 29 FIRST CITIZENS BANC CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001, 2000 and 1999 (Amounts in thousands, except share data) - -------------------------------------------------------------------------------- NOTE 2 - SECURITIES Year-end securities are as follows.
2 0 0 1 ----------------------- ---------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- -------- AVAILABLE FOR SALE U.S. Treasury securities and obligations of U.S. government agencies $ 54,106 $ 1,263 $ (7) $ 55,362 Corporate bonds 4,567 59 (8) 4,618 Obligations of state and political subdivisions 37,627 931 (7) 38,551 Other securities, including mortgage- backed and equity securities 14,948 122 (14) 15,056 -------- -------- -------- -------- Total securities available for sale $111,248 $ 2,375 $ (36) $113,587 ======== ======== ======== ======== HELD TO MATURITY Obligations of state and political subdivisions $ 78 $ 2 $ -- $ 80 Other securities, including mortgage- backed securities 61 2 -- 63 -------- -------- -------- -------- Total securities held to maturity $ 139 $ 4 $ -- $ 143 ======== ======== ======== ========
2 0 0 0 ----------------------- ---------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- -------- AVAILABLE FOR SALE U.S. Treasury securities and obligations of U.S. government agencies $ 47,834 $ 325 $ (130) $ 48,029 Corporate bonds 5,630 9 (226) 5,413 Obligations of state and political subdivisions 43,500 516 (97) 43,919 Other securities, including mortgage- backed and equity securities 17,230 1,024 (101) 18,153 -------- -------- -------- -------- Total securities available for sale $114,194 $ 1,874 $ (554) $115,514 ======== ======== ======== ======== HELD TO MATURITY Obligations of state and political subdivisions $ 155 $ 1 $ -- $ 156 Other securities, including mortgage- backed securities 123 -- (1) 122 -------- -------- -------- -------- Total securities held to maturity $ 278 $ 1 $ (1) $ 278 ======== ======== ======== ========
- -------------------------------------------------------------------------------- (Continued) 30 FIRST CITIZENS BANC CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001, 2000 and 1999 (Amounts in thousands, except share data) - -------------------------------------------------------------------------------- NOTE 2 - SECURITIES (Continued) The contractual maturities of securities at year-end 2001 were as follows. Securities not due at a single maturity date, primarily mortgage-backed securities and equity securities, are shown separately.
Held to maturity Available for sale ----------------- ------------------ Amortized Fair Amortized Fair Cost Value Cost Value --------- -------- --------- -------- Due in one year or less $ 78 $ 80 $ 40,052 $ 40,526 Due from one to five years -- -- 49,581 51,209 Due from five to ten years -- -- 6,667 6,796 Due after ten years -- -- -- -- Mortgage-backed 61 63 9,135 9,243 Equity securities -- -- 5,813 5,813 -------- -------- -------- -------- Total $ 139 $ 143 $111,248 $113,587 ======== ======== ======== ========
During 1995, management concluded that one of its investments, Tower Healthcare Receivables Corp., had no market value. Therefore, the Corporation eliminated the remaining carrying value of the bonds, which was $226 after cash payments received during 1995. These securities had previously been written down by $700 when Towers Financial Corp. (parent company) filed bankruptcy in 1993. The Corporation received $0, $10 and $10 in recoveries from Tower Financial Corp. in 2001, 2000 and 1999. Proceeds from sales of securities, gross realized gains and gross realized losses were as follows.
2001 2000 1999 ---- ---- ---- Sale proceeds $1,452 $ 856 $7,547 Gross realized gains 856 1,070 1,586 Gross realized losses -- -- 3 Gains from securities called or settled by the issuer 7 -- 9
Securities with a carrying value of $71,106 and $58,088 were pledged as of December 31, 2001 and 2000, to secure public deposits and other deposits and liabilities as required or permitted by law. - -------------------------------------------------------------------------------- (Continued) 31 FIRST CITIZENS BANC CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001, 2000 and 1999 (Amounts in thousands, except share data) - -------------------------------------------------------------------------------- NOTE 3 - LOANS Loans at year-end were as follows.
2001 2000 ---- ---- Commercial and agricultural $ 26,708 $ 26,416 Commercial real estate 70,616 60,546 Residential real estate 204,496 217,344 Real estate construction 9,402 9,684 Consumer 23,100 29,509 Credit card and other 2,315 2,979 Leases 435 590 --------- --------- Total loans 337,072 347,068 Allowance for loan losses (4,865) (4,107) Net deferred loan fees (848) (957) Unearned interest (12) (22) --------- --------- Net loans $ 331,347 $ 341,982 ========= =========
Loans to directors and executive officers, including their immediate families and companies in which they are principal owners during 2001 were as follows.
Balance - January 1, 2001 $ 7,384 New loans and advances 2,729 Repayments (2,824) Effect of changes in related parties (249) ------- Balance - December 31, 2001 $ 7,040 =======
NOTE 4 - ALLOWANCE FOR LOAN LOSSES A summary of the activity in the allowance for loan losses was as follows.
2001 2000 1999 ---- ---- ---- Balance - January 1 $ 4,107 $ 4,274 $ 4,567 Provision for loan losses 1,803 807 266 Loans charged-off (1,460) (1,271) (788) Recoveries 415 297 229 ------- ------- ------- Balance - December 31 $ 4,865 $ 4,107 $ 4,274 ======= ======= =======
- -------------------------------------------------------------------------------- (Continued) 32 FIRST CITIZENS BANC CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001, 2000 and 1999 (Amounts in thousands, except share data) - -------------------------------------------------------------------------------- NOTE 4 - ALLOWANCE FOR LOAN LOSSES (Continued) Impaired loans were as follows.
2001 2000 ---- ---- Year-end loans with no allocated allowance for loan losses $ -- $ -- Year-end loans with allocated allowance for loan losses 3,565 5,152 Amount of allowance for loan losses allocated 648 1,179
2001 2000 1999 ---- ---- ---- Average balance of impaired loans during year $3,107 $4,296 $4,118 Interest income recognized during impairment 184 344 320 Interest income recognized on a cash basis 184 344 320
Nonperforming loans were as follows.
2001 2000 ---- ---- Loans past due over 90 days still on accrual $2,818 $ 558 Nonaccrual loans 2,413 1,368
Nonperforming loans include some loans that are classified as impaired, and smaller balance homogeneous loans, such as residential mortgage and consumer loans, that are collectively evaluated for impairment. NOTE 5 - PREMISES AND EQUIPMENT Year-end premises and equipment were as follows.
2001 2000 ---- ---- Land and improvements $ 807 $ 807 Buildings and improvements 8,015 7,881 Furniture and equipment 7,267 6,768 -------- -------- Total 16,089 15,456 Accumulated depreciation (9,086) (8,235) -------- -------- Premises and equipment, net $ 7,003 $ 7,221 ======== ========
The Corporation has no material future lease commitments. - -------------------------------------------------------------------------------- (Continued) 33 FIRST CITIZENS BANC CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001, 2000 and 1999 (Amounts in thousands, except share data) - -------------------------------------------------------------------------------- NOTE 6 - INTEREST-BEARING DEPOSITS Interest-bearing deposits as of December 31, 2001 and 2000 were as follows.
2001 2000 ---- ---- Demand $ 53,798 $ 55,001 Statement and passbook savings 112,680 103,290 Certificates of deposit: In excess of $100,000 49,885 33,816 Other 128,267 136,167 Individual Retirement Accounts 20,936 21,388 -------- -------- Total $365,566 $349,662 ======== ========
Scheduled maturities of certificates of deposit at December 31, 2001 were as follows.
2002 $147,275 2003 16,062 2004 11,162 2005 3,310 2006 343 -------- Total $178,152 ========
NOTE 7 - FEDERAL HOME LOAN BANK BORROWINGS The Corporation has fixed-rate mortgage-matched advances from the Federal Home Loan Bank. Mortgage-matched advances are utilized to fund specific fixed-rate loans with certain prepayment of principal permitted without penalty. At December 31, 2001 and 2000, Federal Home Loan Bank borrowings were as follows.
2001 2000 ---- ---- 5.80 percent secured note $ 149 $ 268 5.60 percent secured note 395 690 5.55 percent secured note 267 442 ------ ------ $ 811 $1,400 ====== ======
- -------------------------------------------------------------------------------- (Continued) 34 FIRST CITIZENS BANC CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001, 2000 and 1999 (Amounts in thousands, except share data) - -------------------------------------------------------------------------------- NOTE 7 - FEDERAL HOME LOAN BANK BORROWINGS (Continued) The notes outstanding at December 31, 2001 had required annual principal payments as follows.
2002 $628 2003 183 ---- $811 ====
In addition to the borrowing, the Corporation has outstanding letters of credit with the Federal Home Loan Bank totaling $13,300 at year end 2001 used for pledging against public funds. Federal Home Loan Bank borrowings and the letters of credit are collateralized by Federal Home Loan Bank stock and by $19,087 and $2,100 of residential mortgage loans under a blanket lien arrangement at year-end 2001 and 2000. The Corporation has a $33 million cash management advance line of credit with the Federal Home Loan Bank. No advances were outstanding on this line as of December 31, 2001. NOTE 8 - OTHER BORROWINGS Information concerning securities sold under agreements to repurchase and treasury tax and loan deposits was as follows.
2001 2000 ---- ---- Average balance during the year $14,046 $ 9,651 Average interest rate during the year 3.04% 4.64% Maximum month-end balance during the year 17,206 14,153
Securities underlying repurchase agreements at year-end were as follows.
2001 2000 ---- ---- Carrying value of securities $14,000 $17,743 Fair Value 14,000 17,743
NOTE 9 - NOTE PAYABLE FCBC has an unsecured line of credit with Bank One that had a balance of $14,000 and $10,600 at December 31, 2001 and 2000. The line of credit has a maturity date of July 31, 2002 and the interest payments are tied to LIBOR or prime. The maximum amount of the line of credit is $15,000 at December 31, 2001. - -------------------------------------------------------------------------------- (Continued) 35 FIRST CITIZENS BANC CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001, 2000 and 1999 (Amounts in thousands, except share data) - -------------------------------------------------------------------------------- NOTE 10 - INCOME TAXES Income tax expense was as follows.
2001 2000 1999 ---- ---- ---- Current $ 2,021 $ 2,042 $ 2,761 Deferred (38) 90 (395) ------- ------- ------- Income tax expense $ 1,983 $ 2,132 $ 2,366 ======= ======= =======
Effective tax rates differ from the statutory federal income tax rate of 34% due to the following.
2001 2000 1999 ---- ---- ---- Income taxes computed at the statutory federal tax rate $ 2,474 $ 2,660 $ 2,866 Add (subtract) tax effect of Nontaxable interest income, net of nondeductible interest expense (503) (626) (676) Dividends received deduction (9) (14) (6) Amortization of goodwill 68 68 68 Nondeductible reorganization costs -- 2 -- Other (47) 42 114 ------- ------- ------- Income tax expense $ 1,983 $ 2,132 $ 2,366 ======= ======= =======
Tax expense attributable to security gains totaled $294, $367 and $545 in 2001, 2000 and 1999. Year-end deferred tax assets and liabilities were due to the following.
2001 2000 ---- ---- Allowance for loan losses $ 1,282 $ 1,024 Deferred loan fees 232 268 Other 154 120 ------- ------- Deferred tax asset 1,668 1,412 ------- ------- Tax depreciation in excess of book depreciation (328) (312) Discount accretion on securities (33) (24) Pension costs (118) (22) Undistributed equity earnings of computer center (391) (396) Federal Home Loan Bank stock dividends (674) (566) Unrealized gain on securities available for sale (795) (448) Leases (10) (6) Other (96) (106) ------- ------- Deferred tax liability (2,445) (1,880) ------- ------- Net deferred tax asset (liability) $ (777) $ (468) ======= =======
- -------------------------------------------------------------------------------- (Continued) 36 FIRST CITIZENS BANC CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001, 2000 and 1999 (Amounts in thousands, except share data) - -------------------------------------------------------------------------------- NOTE 11 - RETIREMENT PLANS The Corporation sponsors a savings and retirement 401(k) plan, which covers all employees who meet certain eligibility requirements and who choose to participate in the plan. The matching contribution to the 401(k) plan was $58, $64 and $68 in 2001, 2000 and 1999. The Corporation and its subsidiaries also sponsor a pension plan which is a noncontributory defined benefit retirement plan for all employees who have attained the age of 20 1/2, completed six months of service and work 1,000 or more hours per year. Annual payments, subject to the maximum amount deductible for federal income tax purposes, are made to a pension trust fund. Information about the pension plan was as follows.
2001 2000 ---- ---- Change in benefit obligation: Beginning benefit obligation $ 3,595 $ 3,630 Service cost 238 281 Interest cost 275 270 Actuarial (gain) loss 140 (359) Benefits paid (90) (194) Expenses paid (47) (33) ------- ------- Ending benefit obligation 4,111 3,595 Change in plan assets, at fair value: Beginning plan assets 3,901 3,755 Actual return (246) 248 Employer contribution 384 125 Benefits paid (90) (194) Expenses paid (47) (33) ------- ------- Ending plan assets 3,902 3,901 ------- ------- Funded status (209) 306 Unrecognized net actuarial loss 826 92 Unrecognized prior service cost 77 90 Unrecognized net transition asset at January 1, 1989 being recognized over 17 years (337) (416) ------- ------- Prepaid benefit cost $ 357 $ 72 ======= =======
- -------------------------------------------------------------------------------- (Continued) 37 FIRST CITIZENS BANC CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001, 2000 and 1999 (Amounts in thousands, except share data) - -------------------------------------------------------------------------------- NOTE 11 - RETIREMENT PLANS (Continued) The components of pension expense and related actuarial assumptions were as follows.
2001 2000 1999 ---- ---- ---- Service cost $ 238 $ 281 $ 284 Interest cost 276 270 249 Expected return on plan assets 293 (215) (355) Net amortization and deferral (707) (189) (21) ----- ----- ----- Net $ 100 $ 147 $ 157 ===== ===== ===== Discount rate on benefit obligation 7.28% 7.83% 7.64% Long-term rate of return on plan assets 9.00 9.00 9.00 Rate of compensation increase 4.00 4.00 4.00
NOTE 12 - 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 customer-financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and 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 the commitment. The contractual amount of financial instruments with off-balance-sheet risk was as follows at year-end.
2001 2000 ---- ---- Commitments to extend credit: Lines of credit and construction loans $36,828 $28,170 Credit cards 7,005 4,564 Letters of credit 888 339 ------- ------- $44,721 $33,073 ======= =======
Commitments to make loans are generally made for a period of one year or less. Fixed-rate loan commitments totaled $7,277 and had interest rates ranging from 4.75% to 10.00% at December 31, 2001. Fixed-rate loan commitments totaled $6,064 and had interest rates ranging from 5.00% to 12.50% at December 31, 2000. Maturities extend up to 30 years. - -------------------------------------------------------------------------------- (Continued) 38 FIRST CITIZENS BANC CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001, 2000 and 1999 (Amounts in thousands, except share data) - -------------------------------------------------------------------------------- NOTE 12 - COMMITMENTS, CONTINGENCIES AND OFF-BALANCE-SHEET RISK (Continued) The subsidiary Banks are required to maintain certain daily reserve balances on hand in accordance with Federal Reserve Board requirements. The average reserve balance maintained in accordance with such requirements at December 31, 2001 and 2000 approximated $4,670 and $4,148. NOTE 13 - CAPITAL REQUIREMENTS AND RESTRICTION ON RETAINED EARNINGS The Corporation and the subsidiary Banks are subject to regulatory capital requirements administered by the federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classification are also subject to qualitative judgments by the regulators. Failure to meet capital requirements can initiate regulatory action. Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. The Corporation and the Banks were well capitalized at December 31, 2001 and 2000. No conditions or events have occurred since the last notification from regulators that management believes has changed the Corporation's or the Banks' classification. - -------------------------------------------------------------------------------- (Continued) 39 FIRST CITIZENS BANC CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001, 2000 and 1999 (Amounts in thousands, except share data) - -------------------------------------------------------------------------------- NOTE 13 - CAPITAL REQUIREMENTS AND RESTRICTION ON RETAINED EARNINGS (Continued) At December 31, 2001 and 2000, the Corporation's and the Banks' actual capital levels and minimum required levels were as follows.
To Be Well Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions ------ ----------------- ----------------- Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- (Dollars in Millions) 2001 Total capital to risk- weighted assets Consolidated $ 49.5 16.0% $ 24.8 8.0% $ 31.0 10.0% Citizens 24.2 13.0 14.8 8.0 18.6 10.0 Castalia 5.5 17.3 2.6 8.0 3.2 10.0 Farmers 14.2 17.5 6.5 8.0 8.1 10.0 Tier I (Core) capital to risk- weighted assets Consolidated 45.6 14.7 12.4 4.0 18.6 6.0 Citizens 21.9 11.8 7.4 4.0 11.1 6.0 Castalia 5.1 16.0 1.3 4.0 1.9 6.0 Farmers 13.2 16.3 3.2 4.0 4.9 6.0 Tier I (Core) capital to average assets Consolidated 45.6 9.1 20.0 4.0 25.0 5.0 Citizens 21.9 7.2 12.2 4.0 15.3 5.0 Castalia 5.1 10.4 2.0 4.0 2.5 5.0 Farmers 13.2 9.8 5.4 4.0 6.7 5.0
- -------------------------------------------------------------------------------- (Continued) 40 FIRST CITIZENS BANC CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001, 2000 and 1999 (Amounts in thousands, except share data) - -------------------------------------------------------------------------------- NOTE 13 - CAPITAL REQUIREMENTS AND RESTRICTION ON RETAINED EARNINGS (Continued)
To Be Well Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions ------ ----------------- ----------------- Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- (Dollars in Millions) 2000 Total capital to risk- weighted assets Consolidated $ 49.2 15.3% $ 25.7 8.0% $ 32.1 10.0% Citizens 25.7 13.6 15.2 8.0 18.9 10.0 Castalia 5.5 17.5 2.5 8.0 3.1 10.0 Farmers 15.6 19.6 6.4 8.0 8.0 10.0 Tier I (Core) capital to risk- weighted assets Consolidated 45.2 14.1 12.8 4.0 19.2 6.0 Citizens 23.2 12.3 7.6 4.0 11.4 6.0 Castalia 5.1 16.3 1.3 4.0 1.9 6.0 Farmers 14.1 17.7 3.2 4.0 4.8 6.0 Tier I (Core) capital to average assets Consolidated 45.2 9.3 19.5 4.0 24.4 5.0 Citizens 23.2 8.0 11.7 4.0 14.6 5.0 Castalia 5.1 10.7 1.9 4.0 2.4 5.0 Farmers 14.1 10.4 5.5 4.0 6.8 5.0
FCBC's primary source of funds for paying dividends to its shareholders and for operating expenses is dividends received from the Banks. Payment of dividends by the Banks to FCBC is subject to restrictions by their regulatory agencies. These restrictions generally limit dividends to the current and prior two years retained earnings as defined by the regulations. In addition, dividends may not reduce capital levels below minimum regulatory requirements. Under the most restrictive of these requirements, the Corporation estimates that retained earnings available for payment of dividends by the Banks to FCBC approximates $667 and $3,221 at December 31, 2001 and 2000. - -------------------------------------------------------------------------------- (Continued) 41 FIRST CITIZENS BANC CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001, 2000 and 1999 (Amounts in thousands, except share data) - -------------------------------------------------------------------------------- NOTE 14- PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION Condensed financial information of FCBC follows.
CONDENSED BALANCE SHEETS 2001 2000 ---- ---- Assets: Cash $ 3,012 $ 737 Securities available for sale 456 456 Investment in bank subsidiaries 43,289 45,299 Investment in nonbank subsidiaries 2,706 1,881 Note receivable from Mr. Money 13,500 10,600 Other assets 682 264 -------- -------- Total assets $ 63,645 $ 59,237 ======== ======== Liabilities and Shareholders' Equity: Deferred income taxes and other liabilities $ 918 $ 712 Note payable 14,000 10,600 Common stock 23,258 23,258 Retained earnings 28,844 28,614 Treasury Stock (4,919) (4,818) Accumulated other comprehensive income (loss) 1,544 871 -------- -------- Total liabilities and shareholders' equity $ 63,645 $ 59,237 ======== ========
CONDENSED STATEMENTS OF INCOME 2001 2000 1999 ---- ---- ---- Dividends from bank subsidiaries $ 8,900 $ 6,060 $ 3,541 Other income 797 499 25 Other expense, net (1,115) (643) (533) ------- ------- ------- Earnings before equity in undistributed net earnings of subsidiaries 8,582 5,916 3,033 (Distributions in excess of earnings of subsidiaries) / equity in undistributed net earnings of subsidiaries (3,289) (224) 3,030 ------- ------- ------- Net income $ 5,293 $ 5,692 $ 6,063 ======= ======= =======
- -------------------------------------------------------------------------------- (Continued) 42 FIRST CITIZENS BANC CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001, 2000 and 1999 (Amounts in thousands, except share data) - -------------------------------------------------------------------------------- NOTE 14- PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (Continued)
CONDENSED STATEMENTS OF CASH FLOWS 2001 2000 1999 ---- ---- ---- Operating activities: Net income $ 5,293 $ 5,692 $ 6,063 Adjustment to reconcile net income to net cash provided by operating activities: Change in other assets and other liabilities (1,643) (437) 275 Distributions in excess of/(equity in undistributed) net earnings of subsidiaries 3,289 224 (3,030) -------- -------- -------- Net cash from operating activities 6,939 5,479 3,308 -------- -------- -------- Investing activities: Purchase of securities -- (67) (389) Change in loan to subsidiary (2,900) (10,600) 300 -------- -------- -------- Net cash from investing activities (2,900) (10,667) (89) -------- -------- -------- Financing activities: Change in note payable 3,400 10,600 -- Cash paid for treasury stock (101) (1,941) (2,877) Cash dividends paid (5,063) (5,088) (4,864) -------- -------- -------- Net cash from financing activities (1,764) 3,571 (7,741) -------- -------- -------- Net change in cash and cash equivalents 2,275 (1,617) (4,522) Cash and cash equivalents at beginning of year 737 2,354 6,876 -------- -------- -------- Cash and cash equivalents at end of year $ 3,012 $ 737 $ 2,354 ======== ======== ========
- -------------------------------------------------------------------------------- (Continued) 43 FIRST CITIZENS BANC CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001, 2000 and 1999 (Amounts in thousands, except share data) - -------------------------------------------------------------------------------- NOTE 15 - FAIR VALUES OF FINANCIAL INSTRUMENTS The carrying amount and estimated fair values of financial instruments were as follows.
December 31, 2001 December 31, 2000 ----------------- ----------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value ------ ---------- ------ ---------- Financial assets: Cash and due from banks $ 19,227 $ 19,227 $ 15,735 $ 15,735 Federal funds sold 6,025 6,025 -- -- Interest-bearing deposits -- -- 51 51 Securities available for sale 113,587 113,587 115,514 115,514 Securities held to maturity 139 143 278 278 Loans held for sale 2,307 2,307 571 571 Loans, net of allowance for loan losses 331,347 340,784 341,982 337,491 Accrued interest receivable 3,883 3,883 4,063 4,063 Financial liabilities: Deposits (410,178) (412,421) (391,968) (397,765) Federal Home Loan Bank borrowings (811) (809) (1,400) (1,394) U.S. Treasury interest-bearing demand note payable (720) (720) (1,207) (1,207) Securities sold under repurchase agreements (10,311) (10,311) (12,946) (12,946) Federal funds purchased -- -- (20,000) (20,000) Note payable (14,000) (14,000) (10,600) (10,600) Accrued interest payable (885) (885) (1,083) (1,083)
The estimated fair value approximates carrying amount for all items except those described below. Estimated fair value for securities is based on quoted market values for the individual securities or for equivalent securities. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the cash flow analysis or underlying collateral values. Fair value of loans held for sale is based on market quotes. Fair value of debt is based on current rates for similar financing. The fair value of off-balance-sheet items is based on the current fees or cost that would be charged to enter into or terminate such arrangements and are considered nominal. - -------------------------------------------------------------------------------- (Continued) 44 FIRST CITIZENS BANC CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001, 2000 and 1999 (Amounts in thousands, except share data) - -------------------------------------------------------------------------------- NOTE 16 - OTHER COMPREHENSIVE INCOME (LOSS) Other comprehensive income (loss) components and related taxes were as follows.
2001 2000 1999 ---- ---- ---- Unrealized holding gains and (losses) on available for sale securities $ 1,882 $ 2,697 $(4,259) Reclassification adjustments for (gains) and losses later recognized in income (863) (1,080) (1,602) ------- ------- ------- Net unrealized gains and losses 1,019 1,617 (5,861) Tax effect (346) (550) 1,993 ------- ------- ------- Other comprehensive income (loss) $ 673 $ 1,067 $(3,868) ======= ======= =======
NOTE 17 - PROPOSED ACQUISITION On November 1, 2001, the Company signed a letter of intent to acquire Independent Community Banc Corp. ("ICBC"), headquartered in Norwalk, Ohio. The shareholders of ICBC will receive 1.7 shares of First Citizens Banc Corp. stock for each share of ICBC stock. The merger will be a tax-free exchange of common shares and will be accounted for as a purchase transaction. At December 31, 2001, ICBC reported total assets of $135,701, shareholders' equity of $11,998 and net income of $1,104. The merger is subject to shareholder and regulatory approval and is expected to be consummated in April, 2002. NOTE 18 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Interest Net Interest Net Earnings per Income Income Income Common Share ------ ------ ------ ------------ 2001 First quarter $9,163 $4,865 $1,181 $ .29 Second quarter 9,054 4,930 1,160 .28 Third quarter 8,924 5,056 1,504 .37 Fourth quarter 8,207 5,044 1,448 .36 2000 First quarter $8,045 $4,425 $1,305 $ .32 Second quarter 8,385 4,585 1,264 .31 Third quarter 8,750 4,712 1,236 .30 Fourth quarter 9,010 4,712 1,887 .46
- -------------------------------------------------------------------------------- 45 FIRST CITIZENS BANC CORP
Directors: John L. Bacon W. Patrick Murray - ---------- Chairman Emeritus Attorney, Murray &Murray Company, L.P.A. Mack Iron Works Company George L. Mylander Robert L. Bordner Retired Educator and City Official President Chairman, Firelands Regional Medical Center Herald Printing Company Paul H. Pheiffer Mary Lee G. Close Chairman Sandusky Bay Development Company Blythe A. Friedley Owner/President Robert L. Ransom Friedley &Co. Insurance Agency Ransom Funeral Home Richard B. Fuller David H. Strack, D.D.S. Retired H. Lowell Hoffman, M.D. David A. Voight Lowell W. Leech President, First Citizens Banc Corp Chairman of the Board President, Chief Executive Officer First Citizens Banc Corp The Citizens Banking Company The Citizens Banking Company The Castalia Banking Company Richard O. Wagner Dean S. Lucal Attorney, Buckingham, Lucal, McGookey & Zeiher, L.P.A.
Officers: Lowell W. Leech Donna J. Dalferro - --------- Chairman of the Board Vice President and Secretary David A. Voight Karen S. Rutger President & CEO Vice President Human Resources James O. Miller Douglas A. Greulich Executive Vice President Investment Officer/Cashier LeRoy C. Link Michael E. Powell Senior Vice President Human Resources Administrator Todd A. Michel Brenda R. Leal Senior Vice President, Controller Risk Manager Charles C. Riesterer Vicky L. Doski Senior Vice President Compliance/CRA Officer
DIRECTORS OF AFFILIATED COMPANIES The Farmers State Bank - -------------------------------------------------------------------------------- Robert L. Bordner Jay R. Pressler Chairman, Chief Executive Officer President, The Farmers State Bank Herald Printing Co. Dorothy L. Robey Ronald E. Dentinger Chairman of the Board Manager, Country Star Co-op The Farmers State Bank Blythe A. Friedley William G. Sheaffer Owner/President Senior Vice President Friedley & Co. Insurance Agency The Farmers State Bank Dean S. Lucal David A. Voight Attorney, Buckingham, Lucal, President, First Citizens Banc Corp McGookey & Zeiher, L.P.A. Gerald B. Wurm Richard A. Niedermier Owner/President Owner, Niedermier Sunoco Wurm's Woodworking Co. Robert M. Obringer President, Studer-Obringer Construction Co. Mr. Money Finance Company - -------------------------------------------------------------------------------- Richard B. Fuller James L. Nabors II President Dean S. Lucal Excalibur Mortgage & Loan, Inc. Attorney, Buckingham, Lucal, McGookey & Zeiher, L.P.A. David A. Voight President, First Citizens Banc Corp Yvonne Mason Board Treasurer/General Manager, Akil, Inc. James O. Miller Executive Vice President The Citizens Banking Company R.A. Reynolds Appraisal Services, Inc. - -------------------------------------------------------------------------------- Dean S. Lucal David A. Voight Attorney, Buckingham, Lucal, President, First Citizens Banc Corp McGookey & Zeiher, L.P.A. John F. Stauffer President, R.A. Reynolds Appraisal Service, Inc. SCCResources, Inc. - -------------------------------------------------------------------------------- H. Lowell Hoffman, M.D. David A. Voight President, First Citizens Banc Corp LeRoy C. Link President, SCC Resources, Inc.
DIRECTORS OF AFFILIATED COMPANIES The Citizens Banking Company - ------------------------------------------------------------------------------------ John L. Bacon James O. Miller Chairman Emeritus Executive Vice President Mack Iron Works Company The Citizens Banking Company Laurence A. Bettcher W. Patrick Murray President, Bettcher Industries Attorney, Murray &Murray Company, L.P.A. Mary Lee G. Close George L. Mylander Richard B. Fuller Retired Educator and City Official Chairman, Firelands Regional Medical Anthony S. Guerra Center President, Lewco, Inc. John P. Pheiffer H. Lowell Hoffman, M.D. President, Sandusky Bay Development Company, Vice President, Dorr Chevrolet Lowell W. Leech Oldsmobile, Inc. Chairman of the Board The Citizens Banking Company David A. Voight President, Chief Executive Officer Dean S. Lucal The Citizens Banking Company Attorney, Buckingham, Lucal, McGookey & Zeiher, L.P.A. Paul H. Pheiffer, Director Emeritus Yvonne Mason Richard O. Wagner, Director Emeritus Board Treasurer/General Manager Akil, Inc. Leland J. Welty, CPA, Director Emeritus Grady McDonald
The Castalia Banking Company - -------------------------------------------------------------------------------- John L. Bacon Lowell W. Leech Chairman Emeritus Chairman of the Board Mack Iron Works Company The Castalia Banking Company Jack D. Bohn W. Patrick Murray Partner, Bohn Implement Attorney, Murray & Murray Company, Farmer Company, L.P.A. Bruce A. Bravard Robert L. Ransom President, Chief Executive Officer, Funeral Director, The Castalia Banking Company Ransom Funeral Home Joyce A. Keller David H. Strack, D.D.S. Retired NAVIGATING YOU TOWARDS FINANCIAL SUCCESS... Shareholder Information The Annual Meeting of the Shareholders of First Citizens Banc Corp will be held at The Citizens Banking Company, 100 East Water Street, Sandusky, Ohio on April 16, 2002 at 2:00 p.m. Notice of the meeting and a proxy statement will be sent to shareholders in a separate mailing. TRANSFER AGENT - -------------------------------------------------------------------------------- Illinois Stock Transfer Company 209 West Jackson Boulevard, Suite 903 Chicago, Illinois 60606-6905 Tel: (312) 427-2953 or 1-800-757-5755 (Toll Free) Fax: (312) 427-2879 FIRST CITIZENS BANC CORP - -------------------------------------------------------------------------------- 100 East Water Street Sandusky, Ohio 44870 Tel: (419)625-4121 or 1-888-645-4121 (Toll Free) Fax: (419) 627-3359 www.fcza.com AFFILIATES - -------------------------------------------------------------------------------- The Citizens Banking Company 100 East Water Street Sandusky, Ohio 44870 Tel: (419)625-4121 or 1-888-645-4121 (Toll Free) Fax: (419) 627-0103 www.citizensbankco.com The Castalia Banking Company 208 South Washington Street Castalia, Ohio 44824 Tel: (419)684-5333 Fax: (419) 684-7051 www.castaliabankingco.com The Farmers State Bank 102 South Kibler Street New Washington, Ohio 44854 Tel: (419)492-2177 or 1-888-452-2654 (Toll Free) Fax: (419) 492-2757 www.farmersstatebank.net Mr. Money Finance Company 1164 Cleveland Road #20 Sandusky, Ohio 44870 Tel: (419) 609-3791 or 1-877-676-6639 (Toll Free) Fax: (419) 609-3792 R.A. Reynolds Appraisal Services, Inc. 165 East Water Street Sandusky, Ohio 44870 Tel: (419)627-4543 Fax: (419) 627-4674 SCC Resources, Inc. 1845 Superior Street Sandusky, Ohio 44870 Tel: (419)625-1605 Fax: (419) 625-0081 www.sccresources.com -----END PRIVACY-ENHANCED MESSAGE-----