1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended:....................................June 30, 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 incorporation (I.R.S. Employer or organization) Identification Number) 100 East Water Street, Sandusky, Ohio 44870 (Address of principle executive offices) (Zip Code) Registrant's telephone number, including area code: (419) 625-4121 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes ------ No ------ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, no par value Outstanding at August 14, 2001 4,082,619 common shares FIRST CITIZENS BANC CORP
2 Index <TABLE> <S> <C> PART I. Financial Information ITEM 1. Financial Statements: Consolidated Balance Sheets (unaudited) June 30, 2001 and December 31, 2000 ........................... 3 Consolidated Statements of Income (unaudited) Three and six months ended June 30, 2001 and 2000 ............. 4 Consolidated Statements of Comprehensive Income (unaudited) Three and six months ended June 30, 2001 and 2000 ............. 5 Consolidated Statement of Shareholders' Equity (unaudited) For the years ended December 31, 2000 and Six months ended June 30, 2001 ................................ 6 Condensed Consolidated Statement of Cash Flows (unaudited) Six months ended June 30, 2001 and 2000 ....................... 7 Notes to Consolidated Financial Statements (unaudited) ............ 8-17 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ......................................... 18-23 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk ........ 23-25 PART II. Other Information ITEM 1. Legal Proceedings ................................................. 26 ITEM 2. Changes in Securities and Use of Proceeds ......................... 26 ITEM 3. Defaults Upon Senior Securities ................................... 26 ITEM 4. Submission of Matters to a Vote of Security Holders ............... 26 ITEM 5. Other Information ................................................. 26 ITEM 6. Exhibits and Reports on Form 8-K .................................. 27 SIGNATURES ................................................................ 28 </TABLE>
3 FIRST CITIZENS BANC CORP Consolidated Balance Sheets (In thousands, except share data) <TABLE> <CAPTION> (Unaudited) June 30, December 31, Assets 2001 2000 --------- ------------ <S> <C> <C> Cash and due from banks $ 15,396 $ 15,735 Federal Funds Sold 4,880 0 Interest-bearing deposits 0 51 Securities Available-for-sale 112,179 115,514 Held-to-maturity (Estimated Fair Value of $235 at June 30, 2001, and $278 at December 31, 2000) 230 278 --------- --------- Total securities 112,409 115,792 Loans held for sale 1,292 571 Loans 348,970 346,089 Less: Allowance for loan losses (4,353) (4,107) --------- --------- Net loans 344,617 341,982 Office premises and equipment, net 7,132 7,221 Intangible assets 1,706 1,869 Accrued interest and other assets 6,454 6,038 --------- --------- Total assets $ 489,006 $ 489,259 ========= ========= Liabilities Deposits Noninterest-bearing deposits $ 43,189 $ 42,306 Interest-bearing deposits 370,144 349,662 --------- --------- Total deposits 413,333 391,968 Federal Home Loan Bank borrowings 1,108 1,400 Securities sold under agreements to repurchase 10,365 12,946 U. S. Treasury interest-bearing demand deposit note payable 2,034 1,207 Notes payable to other financial institutions 14,000 10,600 Federal funds purchased 0 20,000 Accrued interest, taxes and other expenses 3,202 3,213 --------- --------- Total liabilities 444,042 441,334 Shareholders' Equity Common stock, no par value; 10,000,000 shares authorized, 4,263,401 shares issued 23,258 23,258 Retained earnings 29,485 28,614 Treasury stock, 180,782 shares at cost at June 30, 2001, 175,782 shares at cost at December 31, 2000 (4,919) (4,818) Accumulated other comprehensive income 2,020 871 --------- --------- Total shareholders' equity 49,844 47,925 --------- --------- Total liabilities and shareholders' equity $ 493,886 $ 489,259 --------- --------- </TABLE> See notes to interim consolidated financial statements Page 3
4 FIRST CITIZENS BANC CORP Consolidated Statements of Income (Unaudited) (In thousands, except per share data) <TABLE> <CAPTION> Three months ended Six months ended June 30, June 30, 2001 2000 2001 2000 ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> INTEREST INCOME: Loans, including fees $ 7,399 $ 6,405 $ 14,903 $ 12,340 Taxable securities 1,094 1,416 2,252 2,932 Nontaxable securities 441 546 888 1,093 Federal funds sold 117 8 161 41 Other 3 10 13 24 ----------- ----------- ----------- ----------- Total interest income 9,054 8,385 18,217 16,430 INTEREST EXPENSE: Deposits 3,677 3,428 7,369 6,870 FHLB Borrowings 17 25 36 52 Other 430 346 1,017 498 ----------- ----------- ----------- ----------- Total interest expense 4,124 3,799 8,422 7,420 ----------- ----------- ----------- ----------- NET INTEREST INCOME 4,930 4,586 9,795 9,010 PROVISION FOR LOAN LOSSES 225 120 521 215 ----------- ----------- ----------- ----------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,705 4,466 9,274 8,795 NONINTEREST INCOME: Computer center data processing fees 303 300 606 563 Service charges 413 448 813 900 Net gain/(loss) on sale of securities 0 (43) 0 (44) Net gain/(loss) on sale of loans 89 (65) 141 (65) Other 420 378 839 783 ----------- ----------- ----------- ----------- Total noninterest income 1,225 1,018 2,399 2,137 NONINTEREST EXPENSE: Salaries, wages and benefits 1,970 1,708 3,918 3,355 Net occupancy expense 232 196 469 396 Equipment expense 270 278 522 521 Data processing expense 185 186 368 353 State franchise tax 181 155 363 302 Professional services 220 294 362 571 Other operating expenses 1,221 956 2,379 1,919 ----------- ----------- ----------- ----------- Total noninterest expense 4,279 3,773 8,381 7,417 ----------- ----------- ----------- ----------- Income before taxes 1,651 1,711 3,292 3,515 Income tax expense 491 447 951 946 ----------- ----------- ----------- ----------- Net Income $ 1,160 $ 1,264 $ 2,341 $ 2,569 =========== =========== =========== =========== Earnings per share $ 0.28 $ 0.31 $ 0.57 $ 0.62 Dividends declared per share $ 0.18 $ 0.17 $ 0.36 $ 0.34 Wtd. avg. shares during the period 4,082,619 4,108,449 4,083,144 4,123,688 </TABLE> See notes to interim consolidated financial statements Page 4
5 FIRST CITIZENS BANC CORP Consolidated Comprehensive Income Statements (Unaudited) (In thousands) <TABLE> <CAPTION> Three months ended Six months ended June 30, June 30, 2001 2000 2001 2000 ------- ------- ------- ------- <S> <C> <C> <C> <C> Net income $ 1,160 $ 1,264 $ 2,341 $ 2,569 Other Comprehensive Income (Loss): Unrealized holding gains and (losses) on available for sale securities 252 285 1,740 (346) Reclassification adjustment for (gains) and losses later recognized in income -- 43 -- 44 ------- ------- ------- ------- Net unrealized gains and (losses) 252 328 1,740 (302) Tax effect (85) (112) (591) 103 ------- ------- ------- ------- Total other comprehensive income (loss) 167 216 1,149 (199) ------- ------- ------- ------- Comprehensive income $ 1,327 $ 1,480 $ 3,490 $ 2,370 ======= ======= ======= ======= </TABLE> See notes to interim consolidated financial statements Page 5
6 FIRST CITIZENS BANC CORP Condensed Consolidated Statement of Shareholders' Equity (Unaudited) Form 10-Q (In thousands, except share data) <TABLE> <CAPTION> Accumulated Common Stock Other Total Outstanding Retained Treasury Comprehensive Shareholders' Shares Amount Earnings Stock Income/(Loss) Equity ----------- --------- --------- --------- ------------- ------------- <S> <C> <C> <C> <C> <C> <C> Balance, January 1, 2000 4,162,815 $ 23,258 $ 28,010 $ (2,877) $ (196) $ 48,195 Net income 5,692 5,692 Change in unrealized gain/(loss) on securities available for sale, net of reclassifications and tax effects 1,067 1,067 Purchase of treasury stock, at cost (75,196) (1,941) (1,941) Cash dividends ($1.24 per share) (5,088) (5,088) --------- --------- --------- --------- --------- --------- Balance, December 31, 2000 4,087,619 23,258 28,614 (4,818) 871 47,925 Net income 2,341 2,341 Change in unrealized gain/(loss) on securities available for sale, net of reclassifications and tax effects 1,149 1,149 Purchase of treasury stock, at cost (5,000) (101) (101) Cash dividends ($.36 per share) (1,470) (1,470) --------- --------- --------- --------- --------- --------- Balance, June 30, 2001 4,082,619 $ 23,258 $ 29,485 $ (4,919) $ 2,020 $ 49,844 ========= ========= ========= ========= ========= ========= </TABLE> See notes to interim consolidated financial statements Page 6
7 FIRST CITIZENS BANC CORP Condensed Consolidated Statement of Cash Flows (Unaudited) (In thousands) <TABLE> <CAPTION> Six months ended June 30, ------------------------- 2001 2000 ---- ---- <S> <C> <C> Net cash from operating activities $ 1,738 $ 1,530 Cash flows from investing activities Maturities of deposits held in other institutions 51 -- Maturities and calls of securities, held-to-maturity 47 35 Maturities and calls of securities, available-for-sale 9,425 9,090 Purchases of securities, available-for-sale (4,358) (2,135) Proceeds from sale of securities, available-for-sale -- 11,688 Loans made to customers, net of principal collected (3,134) (15,798) Loans purchased -- (7,364) Change in federal funds sold (4,880) 4,600 Proceeds from sale of property and equipment 4 32 Purchases of office premises and equipment (380) (180) -------- -------- Net cash from investing activities (3,225) (32) Cash flows from financing activities Repayment of FHLB borrowings (292) (276) Net change in deposits 21,365 (7,944) Change in securities sold under agreements to repurchase (2,581) (3,731) Change in U. S. Treasury interest-bearing demand note payable 827 (269) Change in notes payable 3,400 -- Change in federal funds purchased (20,000) 15,280 Purchases of treasury stock (101) (1,577) Cash dividends paid (1,470) (1,407) -------- -------- Net cash from financing activities 1,148 76 -------- -------- Net change in cash and due from banks (339) 1,574 Cash and due from banks at beginning of period 15,735 14,598 -------- -------- Cash and due from banks at end of period $ 15,396 $ 16,172 ======== ======== Cash paid during the period for: Interest $ 7,817 $ 8,533 Income taxes $ 960 $ 720 </TABLE> See notes to interim consolidated financial statements Page 7
8 First Citizens Banc Corp Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) (1) Consolidated Financial Statements The consolidated financial statements include the accounts of First Citizens Banc Corp (First Citizens) and it wholly-owned subsidiaries, The Citizens Banking Company (Citizens), The Castalia Banking Company (Castalia), The Farmers State Bank of New Washington (Farmers), SCC Resources, Inc. (SCC), R. A. Reynolds Appraisal Service, Inc., (Reynolds), Mr. Money Finance Company, (Mr. Money), First Citizens Title Insurance Agency, and First Citizens Insurance Agency, together referred to as the Corporation. All significant intercompany balances and transactions have been eliminated in consolidation. The consolidated financial statements have been prepared by the Corporation without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the Corporation's financial position as of June 30, 2001 and its results of operations and changes in cash flows for the periods ended June 30, 2001 and 2000 have been made. The accompanying consolidated financial statements have been prepared in accordance with instructions of Form 10-Q, and therefore certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. The results of operations for the period ended June 30, 2001 are not necessarily indicative of the operating results for the full year. Reference is made to the accounting policies of the Corporation described in the notes to financial statements contained in the Corporation's 2000 annual report. The Corporation has consistently followed these policies in preparing this Form 10-Q. The Corporation provides financial services through its offices in the Ohio counties of Erie, Crawford, Huron, Marion, Ottawa, Richland and Union. Its primary deposit products are checking, savings, and term certificate accounts, and its primary lending products are residential mortgage, commercial, and installment loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets and real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. Real estate loans are secured by both residential and commercial real estate. Other financial instruments that potentially represent concentrations of credit risk include deposit accounts in other financial institutions. In 2001, SCC provided item processing for 12 financial institutions in addition to the three subsidiary banks. Through June 30, 2001, SCC accounted for less than 3.0% of the Corporation's total revenues. Reynolds provides real estate appraisal services for lending purposes to subsidiary banks and other financial institutions. Reynolds accounts for less than 1.0% of total Corporation revenues. Mr. Money provides consumer and real estate financing that the Banks would not normally provide to B and C credits at a rate commensurate with the risk. Mr. Money accounted for 4.9% of total Corporation revenues. In September 2000, the Corporation formed two new affiliates; First Citizens Title Insurance Agency Inc. and First Citizens Insurance Agency Inc. First Citizens Title Insurance Agency Inc. has been formed to provide customers with a seamless mortgage product with improved service. First Citizens Insurance Agency Inc was formed to allow the Corporation to participate in commission revenue generated through its third party Page 8
9 First Citizens Banc Corp Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) insurance agreement. At June 30, 2001, both First Citizens Title Insurance Agency Inc. and First Citizens Insurance Agency Inc were inactive. Management considers the Corporation to operate primarily in one reportable segment, banking. To prepare financial statements in conformity with generally accepted accounting principles, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in financial statements and the disclosures provided, and future results could differ. The allowance for loan losses, fair values of financial instruments, and status of contingencies are particularly subject to change. Income tax expense is based on the effective tax rate expected to be applicable for the entire year. Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax basis of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. Certain items in the 2000 financial statements have been reclassified to correspond with the 2001 presentation. In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 requires companies to record derivatives on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. The key criterion for hedge accounting is that the hedging relationship must be highly effective in achieving offsetting changes in fair value or cash flows. SFAS No. 133 does not allow hedging of a security that is classified as held to maturity. The adoption of SFAS No. 133 on January 1, 2001 did not have a significant impact on the Corporation's financial statements. In September 2000, the Financial Accounting Standards Board issued SFAS No.140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 140 replaces SFAS No. 125 and resolves various implementation issues while carrying forward most of the provisions of SFAS No. 125 without change. SFAS No. 140 revises standards for transfers of financial assets by clarifying criteria and expanding guidance for determining whether the transferor has relinquished control and the transfer is therefore accounted for as a sale. SFAS No. 140 also adopts new accounting requirements for pledged collateral and requires new disclosures about securitizations and pledged collateral. SFAS No. 140 was effective for transfers occurring after March 31, 2001 and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. The adoption of this standard has not had a material effect on the Corporation's financial statements. Page 9
10 First Citizens Banc Corp Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141. "Business Combinations."SFAS No. 141 requires all business combinations within its scope to be accounted for using the purchase method, rather than the pooling-of-interests method. The provisions of this Statement apply to all business combinations initiated after June 30, 2001. The adoption of this statement will only impact the Company's financial statements if it enters into a business combination. Also in June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets", which addresses the accounting for such assets arising from prior and future business combinations. Upon the adoption of this Statement, goodwill arising from business combinations will no longer be amortized, but rather will be assessed regularly for impairment, with any such impairment recognized as a reduction to earnings in the period identified. The Company is required to adopt this Statement on January 1, 2002 and early adoption is not permitted. The Company has not yet assessed the impact of this statement on its financial statements. Page 10
11 First Citizens Banc Corp Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) (2) Securities Securities at June 30, 2001 and December 31, 2000 were as follows: <TABLE> <CAPTION> June 30, 2001 Gross Gross AVAILABLE FOR SALE Amortized Unrealized Unrealized Cost Gains Losses Fair Value --------- ---------- ---------- ---------- <S> <C> <C> <C> <C> U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 45,031 $ 984 $ 0 $ 46,015 Obligations of state and political subdivisions 42,075 974 (5) 43,044 Corporate obligations 6,227 81 (25) 6,283 Other securities, including mortgage-backed securities and equity securities 15,786 1,051 0 16,837 --------- ---------- ---------- --------- $ 109,119 $ 3,090 $ (30) $ 112,179 ========= ========= ========= ========= </TABLE> <TABLE> <CAPTION> June 30, 2001 Gross Gross HELD TO MATURITY Amortized Unrealized Unrealized Cost Gains Losses Fair Value --------- ---------- ---------- ---------- <S> <C> <C> <C> <C> Obligations of state and political subdivisions $155 $ 3 $- $158 Other securities, including mortgage-backed securities and equity securities 75 2 - 77 ---- ---- -- ---- $230 $ 5 $- $235 ==== ==== == ==== </TABLE> Page 11
12 First Citizens Banc Corp Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) <TABLE> <CAPTION> December 31, 2000 Gross Gross AVAILABLE FOR SALE Amortized Unrealized Unrealized Cost Gains Losses Fair Value --------- ---------- ---------- ---------- <S> <C> <C> <C> <C> U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 47,834 $ 325 $ (130) $ 48,029 Obligations of state and political subdivisions 43,500 516 (97) 43,919 Corporate obligations 5,630 9 (226) 5,413 Other securities, including mortgage-backed securities and equity securities 17,230 1,024 (101) 18,153 --------- ---------- ---------- --------- $ 114,194 $ 1,874 $ (554) $ 115,514 ========= ========= ========= ========= </TABLE> <TABLE> <CAPTION> December 31, 2000 Gross Gross HELD TO MATURITY Amortized Unrealized Unrealized Cost Gains Losses Fair Value --------- ---------- ---------- ---------- <S> <C> <C> <C> <C> Obligations of state and political subdivisions $ 155 $ 1 $ 0 $ 156 Other securities, including mortgage-backed securities and equity securities 123 0 (1) 122 ----- ----- ----- ----- $ 278 $ 1 $ (1) $ 278 ===== ===== ===== ===== </TABLE> The amortized cost and fair value of securities at June 30, 2001, by contractual maturity, are Page 12
13 First Citizens Banc Corp Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Securities not due at a single maturity date, primarily mortgage-backed securities and equity securities are shown separately. <TABLE> <CAPTION> AVAILABLE FOR SALE Amortized Cost Fair Value -------------- ---------- <S> <C> <C> Due in one year or less $ 27,380 $ 27,605 Due after one year through five years 57,044 58,569 Due after five years through ten years 8,909 9,168 Due after ten years 0 0 Mortgage-backed securities 9,540 9,647 Equity securities 6,246 7,190 -------- -------- Total securities available for sale $109,119 $112,179 ======== ======== </TABLE> <TABLE> <CAPTION> Estimated Fair HELD TO MATURITY Amortized Cost Value -------------- -------------- <S> <C> <C> Due in one year or less $ 78 $ 79 Due after one year through five years 77 79 Mortgage-backed securities 75 77 ---- ---- Total securities held to maturity $230 $235 ==== ==== </TABLE> Proceeds from sales of securities, gross realized gains and gross realized losses were as follows: <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, ---------------------- ---------------------- 2001 2000 2001 2000 ---- -------- ---- -------- <S> <C> <C> <C> <C> Proceeds $-- $ 9,888 $-- $ 11,688 Gross gains -- -- -- 19 Gross losses -- (47) -- (67) Security gains due to calls prior to maturity -- 4 -- 4 </TABLE> Securities with a carrying value of approximately $68,237 and $58,088 were pledged as of June Page 13
14 First Citizens Banc Corp Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) 30, 2001 and December 31, 2000, respectively, to secure public deposits, other deposits and liabilities as required by law. (3) Loans Loans at June 30, 2001 and December 31, 2000 were as follows: <TABLE> <CAPTION> 6/30/2001 12/31/2000 --------- ---------- <S> <C> <C> Commercial and Agriculture $ 26,902 $ 26,416 Commercial real estate 66,107 60,546 Real Estate - mortgage 212,810 217,344 Real Estate - construction 13,162 9,684 Consumer 27,139 29,509 Credit card and other 3,123 2,979 Leases 678 590 --------- --------- Total loans 349,921 347,068 Allowance for loan losses (4,353) (4,107) Deferred loan fees (936) (957) Unearned interest (15) (22) --------- --------- Net loans $ 344,617 $ 341,982 ========= ========= </TABLE> (4) Allowance for Loan Losses Page 14
15 First Citizens Banc Corp Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) A summary of the activity in the allowance for loan losses was as follows: <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, -------------------- -------------------- 2001 2000 2001 2000 ------- ------- ------- ------- <S> <C> <C> <C> <C> Balance beginning of period $ 4,319 $ 4,252 $ 4,107 $ 4,274 Loans charged-off (305) (187) (468) (351) Recoveries 114 102 193 149 Provision for loan losses 225 120 521 215 ------- ------- ------- ------- Balance June 30, $ 4,353 $ 4,287 $ 4,353 $ 4,287 ======= ======= ======= ======= </TABLE> Information regarding impaired loans was as follows for the six months ended June 30. <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, ------------------ ----------------- 2001 2000 2001 2000 ------ ------ ------ ------ <S> <C> <C> <C> <C> Average investment in impaired loans $2,410 $3,543 $3,335 $3,746 Interest income recognized on impaired loans including interest income recognized on cash basis 79 64 101 144 Interest income recognized on impaired loans on cash basis 79 64 101 144 </TABLE> Information regarding impaired loans at June 30, 2001 and December 31, 2000 was as follows: Page 15
16 First Citizens Banc Corp Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) <TABLE> <CAPTION> 6/30/01 12/31/00 ------- -------- <S> <C> <C> Balance impaired loans $3,757 $5,152 Less portion for which no allowance for loan losses is allocated -- -- ------ ------ Portion of impaired loan balance for which an allowance for credit losses is allocated $3,757 $5,152 ====== ====== Portion of allowance for loan losses allocated to the impaired loan balance $ 590 $1,179 ====== ====== </TABLE> Nonperforming loans were as follows. <TABLE> <CAPTION> June 30, December 31, 2001 2000 ------- ------------ <S> <C> <C> Loans past due over 90 days still on accrual $2,141 $ 558 Nonaccrual 4,440 1,368 </TABLE> Nonperforming loans would include some loans, which are classified as impaired, and smaller balance homogeneous loans, such as residential mortgages and consumer loans, that are collectively evaluated for impairment. (5) Commitments, Contingencies and Off-Balance Sheet Risk Some financial instruments, such as loan commitments, credit lines, letters of credit and overdraft protection are issued to meet customers financing needs. These are agreements to provide credit or to support the credit of others, as long as the conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance-sheet risk of credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of commitment. The contractual amount of financial instruments with off-balance-sheet risk was as follows for June 30, 2001 and December 31, 2000. Page 16
17 First Citizens Banc Corp Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) <TABLE> <CAPTION> Contract Amount ----------------------------------- June 30, 2001 December 31, 2000 ------------- ----------------- <S> <C> <C> Commitment to extend credit: Lines of credit and construction loans $28,436 $28,170 Credit cards 4,646 4,564 Letters of credit 398 339 ------- ------- $33,480 $33,073 ======= ======= </TABLE> Commitments to make loans are generally made for a period of one year or less. Fixed rate loan commitments included above totaled $5,494 at June 30, 2001 and had interest rates ranging from 4.00% to 12.50% with maturities extended up to 30 years. Fixed rate loan commitments included above totaled $6,064 at December 31, 2000 with interest rates ranging from 5.00% to 12.50% with maturities extended up to 30 years. The Banks are required to maintain certain reserve balances on hand in accordance with the Federal Reserve Board requirements. The average reserve balance maintained in accordance with such requirements for the periods ended June 30, 2001 and December 31, 2000 approximated $4,254 and $4,148. Page 17
18 First Citizens Banc Corp Management's Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q (Amounts in thousands, except share data) Introduction The following discussion focuses on the consolidated financial condition of First Citizens Banc Corp at June 30, 2001, compared to December 31, 2000 and the consolidated results of operations for the three month and six month periods ending June 30, 2001 compared to the same periods in 2000. This discussion should be read in conjunction with the consolidated financial statements and footnotes included in this Form 10-Q. The registrant is not aware of any trends, events or uncertainties that will have, or are reasonably likely to have, a material effect on the liquidity, capital resources, or operations except as discussed herein. Also, the registrant is not aware of any current recommendation by regulatory authorities, which would have a material effect if implemented. When used in this Form 10-Q or future filings by the Corporation with the Securities and Exchange Commission, in press releases or other public or shareholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," "believe," or similar expressions are intended to identify "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The Corporation wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and to advise readers that various factors, including regional and national economic conditions, changes in levels of market interest rates, credit risks of lending activities and competitive and regulatory factors, could effect the Corporation's financial performance and could cause the Corporation's actual results for future periods to differ materially from those anticipated or projected. The Corporation does not undertake, and specifically disclaims, any obligation to publicly release the result of any revisions, which may be made to any forward-looking statements to reflect occurrence of anticipated or unanticipated events or circumstances after the date of such statements. See Exhibit 99, which is incorporated herein by reference. Financial Condition Total assets of the Corporation at June 30, 2001 totaled $493,886 compared to $489,259 at December 31, 2000. This was an increase of $4,627, or 0.9 percent. Within the structure of the assets, net loans have increased $2,635, or 0.8 percent since December 31, 2000, primarily in the area of commercial real estate loans. Mr. Money was formed in late 2000 to service the needs of B and C credit customers for consumer and real estate financing that the Banks would not normally provide, and at a rate commensurate with the risk. Mr. Money had loans outstanding of $16,288 at June 30, 2001 compared to $12,143 at December 31, 2000. Loans held for sale increased $721, or 126.37 percent from December 31, 2000. The balance in loans held for sale is Page 18
19 First Citizens Banc Corp Management's Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q (Amounts in thousands, except share data) a function of the demand for fixed rate mortgages. As rates began to fall in the first half of 2001, the demand for fixed rate mortgages increased. In May of 2001, Farmers State Bank sold $2,613 in fixed rate loans, thus reducing the net increase in loans. Farmers State Bank sold the loans in its portfolio to decrease interest rate risk inherent with fixed rate long-term mortgages. At June 30, 2001, the net loan to deposit ratio was 83.4 percent compared to 87.2 percent at December 31, 2000. The slight decline was due to $21,365 increase in deposits. At June 30, 2001, $112,179, or 99.8 percent of the security portfolio was classified as available for sale. The $230 remainder of the portfolio was classified as held to maturity. Securities decreased $3,382 from December 31, 2000 due to maturities exceeding purchases. The cash inflow was used to support the modest loan growth. For the six months of operations in 2001, $521 was placed into the allowance for loan losses from earnings compared to $215 for the same period of 2000. The increased provision is due to an increase in net charge-offs as well as an increase in nonperforming loans. Additionally, Mr. Money established allowance for loan losses at a higher level than the banks due to the higher credit risks associated with the loans they originate. To evaluate the adequacy of the allowance for loan losses to cover probable losses in the portfolio, management considers specific reserve allocations for identified portfolio loans, reserves for delinquencies and historical reserve allocations. The composition and overall level of the loan portfolio and charge-off activity are also factors used to determine provisions to the reserve. Charge-offs for the first six months of 2001 were $468 compared to $202 for the same period of 2000. The increase was due to charge-offs at Mr. Money and installment charge-offs at The Citizens Banking Company. The June 30, 2001 allowance for loan losses as a percent of total loans was 1.25 percent compared to 1.19 percent at December 31, 2000. Office premises and equipment have decreased $89 and intangible assets have decreased $163 since December 31, 2000. The decrease in office premises and equipment is attributed to new purchases of $380, disposals of $4, and depreciation of $465. Intangible assets decreased due to amortization. Accrued interest and other assets totaled $6,454 at June 30, 2001 compared to $6,038 at December 31, 2000, an increase of $416. Of the $416, $281 was primarily due to a higher interest receivable balance at Mr. Money which was a result of higher loan volume and higher interest rates charged on its loans compared to the three banks. Total deposits at June 30, 2001 increased $21,365 from year-end 2000. Noninterest-bearing deposits, representing demand deposit balances, increased $883 from year-end 2000. Interest-bearing deposits, including savings and time deposits, increased $20,482 from year-end 2000. The year to date 2001 average balance of savings deposits has decreased $6,412 compared to the average balance of the same period for 2000. The growth in deposits was used to reduce the amount of borrowed funds. The current average rate of these deposits is 2.34 percent compared to 2.36 percent in 2000. The year to date 2001 average balance of time certificates has increased Page 19
20 First Citizens Banc Corp Management's Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q (Amounts in thousands, except share data) $13,091 compared to the average balance for the same period for 2000. In conjunction with market conditions, and in order to remain competitive, the banks have offered special rates on various certificates of deposit. As a result, the banks have experienced shifting toward the special rate certificates of deposit. The current average rate on deposits is 5.09 percent which is the same as it was for the comparable period in 2000. Total borrowed funds have decreased $18,646 from December 31, 2000 to June 30, 2001. Federal funds purchased have decreased $20,000 since December 31, 2000. The need to use federal funds purchased has decreased somewhat, due to increased deposits. However, in the short term, there is still a need to supplement traditional funding sources with non-deposit funding. In addition, the Corporation has notes outstanding with other financial institutions totaling $14,000 at June 30, 2001. These notes were used to fund the loan growth at Mr. Money. Federal Home Loan Bank borrowings have decreased $292 as a result of scheduled pay downs. Securities sold under agreements to repurchase, which tend to fluctuate, have decreased $2,581 and U.S. Treasury Tax Demand Notes have increased $827. Shareholders' equity at June 30, 2001 was $49,844, which was 10.1 percent of total assets. Shareholders' equity at December 31, 2000 was $47,925, which was 9.8 percent of total assets. The increase in shareholders' equity is made up of earnings of $2,341, less dividends paid of $1,470 and the purchase of 5,000 treasury shares for $101 and the increase in the market value of securities available for sale, net of tax, of $1,149. The Corporation paid cash dividends on February 1, 2001 and on May 1, 2001 each at a rate of $.18 per share. Total outstanding shares at June 30, 2001 were 4,082,619. Results of Operations Six Months Ended June 30, 2001 and 2000 Net income for the six months ended June 30, 2001 was $2,341, or $.57 per common share compared to $2,569, or $.62 per common share for the same period in 2000. This was a decrease of $228, or 8.9 percent. Some of the reasons for the changes are explained below. Total interest income for the first six months of 2001 increased $1,787, or 10.9 percent compared to the same period in 2000. The average rate on earning assets on a tax equivalent basis for the first six months of 2001 was 7.67 percent and 7.32 percent for the first six months of 2000. The decrease in yield is due to the assets booked in 2000 at higher rates. Total interest expense for the first six months of 2001 has increased $1,002, or 13.5 percent compared to the same period of 2000. This increase is mainly attributed to an increase in interest on deposits of $499 and an increase in interest on other borrowings of $519. Interest on FHLB borrowings is down due to balances borrowed being lower in 2001. The average rate on interest-bearing liabilities for the first six months of 2001 was 4.28 percent compared to 3.97 percent for the same period of 2000. Page 20
21 First Citizens Banc Corp Management's Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q (Amounts in thousands, except share data) The net interest margin on a tax equivalent basis was 4.21 percent for the six-month period ended June 30, 2001 and 4.03 percent for the same period ended June 30, 2000. Noninterest income for the first six months of 2001 totaled $2,399, compared to $2,137 for the same period of 2000, an increase of $262. The main reason for the increase was due to gain on sales of loans which were $141 for the six months ended June 30, 2001, versus a loss of $65 in the prior year due to a write down of loans held for sale to the lower of cost or market. Gain on the sale of loans increased because falling interest rates increased the demand for fixed rate mortgages. This increased the volume of loans sold, including the Farmers State Bank sale of $2,613 in fixed rate mortgages. Additionally, revenue from computer operations increased $44. SCC provides item processing for 12 financial institutions in addition to the three subsidiary banks. Other operating income increased $55. This increase was mainly due to a $46 increase in revenues by the corporation's appraisal company. Noninterest expense for the six months ended June 30, 2001 totaled $8,381 compared to $7,417 for the same period in 2000. This was an increase of $964, or 13.0 percent. Salaries and benefits increased $563, or 16.8 percent compared to the first six months of 2000 as a result of the Corporation adding employees at each of the existing affiliates as well as the new affiliate, Mr. Money. Computer processing increased by $15 compared to last year. These increases were offset by a $209 decrease in professional fees, which was caused by a reclassification of expenses. Also, net occupancy expense increased $73 compared to the first six months of 2000. The formation of Mr. Money, the relocating of and opening of a new branch of the Citizens Banking Company attributed for $74 of the increase of net occupancy expense. Income tax expense for the first six months of 2001 totaled $951 compared to $946 for the first six months of 2000. This was an increase of $5, or 0.5 percent. The increase in the federal income taxes is a result of the decrease in nontaxable Municipal security income of $205. The effective tax rates were comparable for the six-month periods ended June 30, 2001 and June 30, 2000, at 28.9% and 26.9% respectively. Three Months Ended June 30, 2001 and 2000 Net income for the three months ended June 30, 2001 was $1,160 or $.28 per common share compared to $1,264, or $.31 per common share for the same period in 2000. This was a decrease of $104, or 8.2 percent. Some of the reasons for the changes are explained below. Total interest income for the second quarter of 2001 increased $669, or 8.0 percent compared to the same period in 2000. Interest on fees and loans increased $994, or 15.5 percent compared to the same period in 2000. The average rate on earning assets on a tax equivalent basis for the second quarter of 2001 was 7.58 percent and 7.39 percent for the same period of 2000. Total interest expense for the second quarter of 2001 increased $325, or 8.6 percent compared to the same period of 2000. Interest on deposits increased $248, mainly due to an increase in volume. Page 21
22 First Citizens Banc Corp Management's Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q (Amounts in thousands, except share data) The average rate on interest-bearing liabilities for the second quarter of 2001 was 4.14 percent compared to 4.07 percent for the same period of 2000. The net interest margin on a tax equivalent basis was 4.24 percent for the three-month period ended June 30, 2000 and 4.04 percent for the same period ended June 30, 2000. Noninterest income for the second quarter of 2001 totaled $1,226, compared to $1,018 for the same period of 2000, an increase of $208. Gains on sales of loans increased $154 due to the same reasons as discussed in the comparable six month periods. No gains on securities were realized for the second quarter of 2001. However, this resulted in a net increase of $43 due to net losses realized in the second quarter of 2000. Revenue from computer operations increased $3. SCC provides item processing for 12 financial institutions in addition to the three subsidiary banks. Other operating income increased $43. Service charges on deposit accounts decreased $35 as a result of decreased customer overdrafts and new deposit products offered to them. Noninterest expense for the three months ended June 30, 2001 totaled $4,280 compared to $3,773 for the same period in 2000. This was an increase of $507, or 13.4 percent. Salaries and benefits increased $262, or 15.3 percent compared to the second quarter of 2000. Other expenses increased by $265 compared to 2000. Professional fees decreased by $74, or 25.2 percent compared to the same period of 2000. Net occupancy expense increased $36, or 18.2 percent compared to the same period of 2000. Both of these changes are due to the same reasons as discussed in the comparable six month period. Income tax expense for the second quarter totaled $491 compared to $447 for the same period in 2000. This was an increase of $44, or 9.96 percent. The increase in the federal income taxes is a result of the decrease in nontaxable Municipal security income of $105. The effective tax rates were comparable for the three-month periods ended June 30, 2001 and June 30, 2000, at 29.7% and 26.1%. Page 22
23 First Citizens Banc Corp Management's Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q (Amounts in thousands, except share data) Capital Resources Shareholders' equity totaled $49,844, at June 30, 2001 compared to $47,925 at December 31, 2000. All of the capital ratios exceed the regulatory minimum guidelines as identified in the following table: <TABLE> <CAPTION> Corporation Ratios Regulatory 6/30/01 12/31/00 Minimums ------- -------- ---------- <S> <C> <C> <C> Tier I Risk Based Capital 14.4% 14.1% 4.0% Total Risk Based Capital 15.9% 15.3% 8.0% Leverage Ratio 9.4% 9.3% 4.0% </TABLE> The Corporation paid a cash dividend of $.18 per common share each on February 1, 2001 and May 1, 2001 compared to $.17 per common share each on February 1, 2000 and May 1, 2000. Capital expenditures totaled $380 for the first six months of 2001 compared to $180 for the same period of 2000. Liquidity Liquidity as it relates to the banking entities of the Corporation is the ability to meet the cash demand and credit needs of its customers. The Banks, through their respective correspondent banks, maintain federal funds borrowing lines totaling $45,261 and the Banks have additional borrowing availability at the Federal Home Loan Bank of Cincinnati of $76,706 at June 30, 2001. Finally, 99.8% of the Corporation's security portfolio has been classified as available for sale, which provides additional liquidity. ITEM 3. Quantitative and Qualitative Disclosures about Market Risk The Corporation's primary market risk exposure is interest rate risk and, to a lesser extent, liquidity risk. The Banks do not maintain a trading account for any class of financial instrument and the Corporation is not affected by foreign currency exchange rate risk or commodity price risk. Due to the basis in equities held by Farmers being so much less than the current fair value at this time, the Corporation is not subject to significant equity price risk. Interest rate risk is the risk that the Corporation's financial condition will be adversely affected due to movements in interest rates. The Corporation, like other financial institutions, is subject to interest rate risk to the extent that its interest-earning assets reprice differently than interest- Page 23
24 First Citizens Banc Corp Management's Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q (Amounts in thousands, except share data) bearing liabilities. The income of financial institutions is primarily derived from the excess of interest earned on interest-earning assets over interest paid on interest-bearing liabilities. One of the Corporation's principal financial objectives is to achieve long-term profitability while reducing its exposure to fluctuations in interest rates. Accordingly, the Corporation places great importance on monitoring and controlling interest rate risk. There are several methods employed by the Corporation to monitor and control interest rate risk. One such method is using gap analysis. The gap is defined as the repricing variance between rate sensitive assets and rate sensitive liabilities within certain periods. The repricing can occur due to changes in rates on variable products as well as maturities of interest-earning assets and interest-bearing liabilities. A high ratio of interest sensitive liabilities, generally referred to as a negative gap, tends to benefit net interest income during periods of falling rates as the average rate on interest-bearing liabilities falls faster than the average rate earned on interest-earning assets. The opposite holds true during periods of rising rates. The Corporation attempts to minimize the interest rate risk through management of the gap in order to achieve consistent shareholder return. The Corporation's Assets and Liability Management Policy is to maintain a laddered gap position. One strategy is to originate variable rate loans tied to market indices. Such loans reprice as the underlying market index changes. Currently, approximately 40.9 percent of the Corporation's loan portfolio reprices on at least an annual basis. The Corporation's usual practice is to invest excess funds in federal funds that mature and reprice daily. The following table provides information about the Corporation's financial instruments that are sensitive to changes in interest rates as of June 30, 2001 and December 31, 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 June 30, 2001 or December 31, 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. Page 24
25 First Citizens Banc Corp Management's Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q (Amounts in thousands, except share data) NET PORTFOLIO VALUE - JUNE 30, 2001 <TABLE> <CAPTION> CHANGE IN RATES $ AMOUNT $ CHANGE % CHANGE --------------- ---------- ----------- -------- <S> <C> <C> <C> <C> +200 bp $ 41,378 $ (11,005) (21)% +100 bp 46,916 (5,467) (10)% Base 52,383 - - -100 bp 57,548 5,165 10% -200 bp 61,713 9,330 18% </TABLE> NET PORTFOLIO VALUE - DECEMBER 31, 2000 <TABLE> <CAPTION> CHANGE IN RATES $ AMOUNT $ CHANGE % CHANGE --------------- ---------- ----------- -------- <S> <C> <C> <C> <C> +200 bp $ 34,391 $ (7,728) (18)% +100 bp 37,261 (5,627) (13)% Base 42,888 - - -100 bp 48,549 5,661 13% -200 bp 53,576 10,668 25% </TABLE> 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. Page 25
26 First Citizens Banc Corp Other Information Form 10-Q Part II - Other Information ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS First Citizens Banc Corp held its annual meeting on April 17, 2001, for the purpose of considering and voting on the following: 1.) To elect four Class III directors to serve terms of three years or until their successors are elected and qualified. Four directors, John L. Bacon, H. Lowell Hoffman, M.D., Lowell W. Leech, and David A. Voight were nominated for reelection and were subsequently reelected as directors. No other issues were brought before the meeting. The summary of the voting of common shares outstanding was as follows: <TABLE> <CAPTION> Director Candidate For Withheld ------------------ <S> <C> <C> John L. Bacon 3,446,734 32,020 H. Lowell Hoffman, M.D. 3,396,843 32,020 Lowell W. Leech 3,419,533 32,020 David A. Voight 3,445,831 32,020 </TABLE> The following directors' terms of office continued after the meeting: Robert L. Bordner, Mary Lee G. Close, Blythe A. Friedley, Richard B. Fuller Dean S. Lucal, W. Patrick Murray, George L. Mylander, Paul H. Phieffer, and Richard O. Wagner ITEM 5. OTHER INFORMATION None Page 26
27 First Citizens Banc Corp Other Information Form 10-Q ITEM 6.(a) EXHIBIT NO. 99 Safe Harbor under the Private Securities Litigation Reform Act of 1995.................... (b) REPORTS ON FORM 8-K - None. Page 27
28 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf the undersigned thereunto duly authorized. First Citizens Banc Corp /s/ David A. Voight August 14, 2001 - ------------------- --------------- David A. Voight Date President /s/ James O. Miller August 14, 2001 - ------------------- --------------- James O. Miller Date Executive Vice President Page 28
29 First Citizens Banc Corp Index to Exhibits Form 10-Q <TABLE> <CAPTION> Exhibit Number Description Page Number - ------ ----------- ----------- <S> <C> <C> 99 Safe Harbor Under the Private Securities Incorporated by reference to Exhibit 99 to Litigation Reform Act of 1995 Annual Report for the Year Ended December 31, 2000 filed by the registrant on March 21, 2000 </TABLE> Page 29