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Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2011
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                    to                   
Commission File Number: 0-25980
First Citizens Banc Corp
(Exact name of registrant as specified in its charter)
     
Ohio   34-1558688
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification Number)
     
100 East Water Street, Sandusky, Ohio   44870
(Address of principal executive offices)   (Zip Code)
Registrant’s telephone number, including area code: (419) 625-4121
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):
             
Large accelerated filer o   Accelerated filer o   Non-accelerated filer o   Smaller reporting company þ
        (Do not check if smaller reporting company)    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Common Shares, no par value, outstanding at August 5, 2011 — 7,707,917 shares.
 
 

 

 


 

FIRST CITIZENS BANC CORP
Index
         
       
 
       
       
 
       
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 Exhibit 31.1
 Exhibit 31.2
 Exhibit 32.1
 Exhibit 32.2
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT

 

 


Table of Contents

Part I — Financial Information
ITEM 1.  
Financial Statements
FIRST CITIZENS BANC CORP
Consolidated Balance Sheets (Unaudited)
(In thousands, except share data)
                 
    June 30,     December 31,  
    2011     2010  
ASSETS
               
Cash and due from financial institutions
  $ 42,264     $ 79,030  
Securities available for sale
    207,405       184,952  
Loans held for sale
    134        
Loans, net of allowance of $21,749 and $21,768
    743,876       745,555  
Other securities
    15,318       15,344  
Premises and equipment, net
    18,168       18,129  
Accrued interest receivable
    4,050       4,382  
Goodwill
    21,720       21,720  
Core deposit and other intangibles
    4,693       5,275  
Bank owned life insurance
    17,624       12,320  
Other assets
    13,850       13,915  
 
           
Total assets
  $ 1,089,102     $ 1,100,622  
 
           
 
               
LIABILITIES
               
Deposits
               
Noninterest-bearing
  $ 163,801     $ 157,529  
Interest-bearing
    716,498       734,934  
 
           
Total deposits
    880,299       892,463  
Federal Home Loan Bank advances
    50,311       50,327  
Securities sold under agreements to repurchase
    19,156       21,842  
U. S. Treasury interest-bearing demand note payable
    1,659       2,008  
Subordinated debentures
    29,427       29,427  
Accrued expenses and other liabilities
    8,411       7,605  
 
           
Total liabilities
    989,263       1,003,672  
 
           
 
               
SHAREHOLDERS’ EQUITY
               
Preferred stock, no par value, 200,000 shares authorized, 23,184 shares issued
    23,142       23,134  
Common stock, no par value, 20,000,000 shares authorized, 8,455,881 shares issued
    114,447       114,447  
Retained deficit
    (19,529 )     (20,218 )
Treasury stock, 747,964 shares at cost
    (17,235 )     (17,235 )
Accumulated other comprehensive loss
    (986 )     (3,178 )
 
           
Total shareholders’ equity
    99,839       96,950  
 
           
 
               
Total liabilities and shareholders’ equity
  $ 1,089,102     $ 1,100,622  
 
           
See notes to interim unaudited consolidated financial statements

 

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FIRST CITIZENS BANC CORP
Consolidated Statements of Income (Unaudited)
(In thousands, except per share data)
                                 
    Three months ended     Six months ended  
    June 30,     June 30,  
    2011     2010     2011     2010  
Interest and dividend income
                               
Loans, including fees
  $ 10,180     $ 11,241     $ 20,753     $ 22,349  
Taxable securities
    1,448       1,423       2,846       3,016  
Tax-exempt securities
    405       477       831       947  
Federal funds sold and other
    12       8       28       10  
 
                       
Total interest income
    12,045       13,149       24,458       26,322  
 
                       
Interest expense
                               
Deposits
    1,293       1,870       2,715       3,866  
Federal Home Loan Bank advances
    396       611       808       1,355  
Subordinated debentures
    194       211       389       419  
Other
    9       16       21       41  
 
                       
Total interest expense
    1,892       2,708       3,933       5,681  
 
                       
Net interest income
    10,153       10,441       20,525       20,641  
Provision for loan losses
    2,700       4,600       5,700       8,340  
 
                       
Net interest income after provision for loan losses
    7,453       5,841       14,825       12,301  
 
                       
Noninterest income
                               
Service charges
    1,089       1,148       2,118       2,213  
Net gain on sale of securities
    3       1       3       15  
ATM fees
    465       461       898       872  
Trust fees
    520       481       1,072       921  
Bank owned life insurance
    170       118       304       238  
Computer center data processing fees
    64       66       133       135  
Other
    215       181       666       354  
 
                       
Total noninterest income
    2,526       2,456       5,194       4,748  
 
                       
Noninterest expense
                               
Salaries, wages and benefits
    4,889       4,113       9,445       8,368  
Net occupancy expense
    545       576       1,179       1,237  
Equipment expense
    396       365       717       767  
Contracted data processing
    204       222       412       487  
FDIC Assessment
    376       397       731       788  
State franchise tax
    300       250       541       527  
Professional services
    467       614       996       1,087  
Amortization of intangible assets
    291       305       581       609  
ATM Expense
    154       182       298       359  
Marketing
    191       188       383       375  
Other operating expenses
    1,670       1,779       3,388       3,383  
 
                       
Total noninterest expense
    9,483       8,991       18,671       17,987  
 
                       
Income (loss) before taxes
    496       (694 )     1,348       (938 )
Income tax expense (benefit)
    (27 )     (435 )     72       (716 )
 
                       
Net Income (loss)
  $ 523     $ (259 )   $ 1,276     $ (222 )
 
                       
Preferred stock dividends and discount accretion
  $ 293     $ 294     $ 587     $ 588  
 
                       
Net income (loss) available to common shareholders
  $ 230     $ (553 )   $ 689     $ (810 )
 
                       
Earnings per common share, basic and diluted
  $ 0.03     $ (0.07 )   $ 0.09     $ (0.11 )
 
                       
See notes to interim unaudited consolidated financial statements

 

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FIRST CITIZENS BANC CORP
Consolidated Comprehensive Income Statements (Unaudited)
(In thousands)
                                 
    Three months ended     Six months ended  
    June 30,     June 30,  
    2011     2010     2011     2010  
Net income (loss)
  $ 523     $ (259 )   $ 1,276     $ (222 )
 
                               
Unrealized holding gains on available for sale securities
    1,173       1,904       3,324       3,119  
Reclassification adjustment for gains later recognized in income
    (3 )     (1 )     (3 )     (15 )
 
                       
 
                               
Net unrealized gains
    1,170       1,903       3,321       3,104  
Tax effect
    (398 )     (647 )     (1,129 )     (1,055 )
 
                       
Total other comprehensive gain
    772       1,256       2,192       2,049  
 
                       
Comprehensive income
  $ 1,295     $ 997     $ 3,468     $ 1,827  
 
                       
See notes to interim unaudited consolidated financial statements

 

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FIRST CITIZENS BANC CORP
Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)
Form 10-Q
(In thousands, except share data)
                                                                 
                                                    Accumulated        
    Preferred Stock     Common Stock                     Other     Total  
    Outstanding             Outstanding             Retained     Treasury     Comprehensive     Shareholders’  
    Shares     Amount     Shares     Amount     Deficit     Stock     Income/(Loss)     Equity  
 
                                                               
Balance, January 1, 2011
    23,184     $ 23,134       7,707,917     $ 114,447     $ (20,218 )   $ (17,235 )   $ (3,178 )   $ 96,950  
 
                                                               
Net Income
                            1,276                   1,276  
 
                                                               
Change in unrealized gain/(loss) on securities available for sale, net of reclassifications and tax effects
                                        2,192       2,192  
 
                                                               
Amortization of discount on preferred stock
          8                   (8 )                  
 
                                                               
Preferred stock dividend
                            (579 )                 (579 )
 
                                               
 
                                                               
Balance, June 30, 2011
    23,184     $ 23,142       7,707,917     $ 114,447     $ (19,529 )   $ (17,235 )   $ (986 )   $ 99,839  
 
                                               
See notes to interim unaudited consolidated financial statements

 

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FIRST CITIZENS BANC CORP
Condensed Consolidated Statement of Cash Flows (Unaudited)
(In thousands)
                 
    Six months ended  
    June 30,  
    2011     2010  
 
Net cash from operating activities
  $ 7,904     $ 12,041  
 
               
Cash flows from investing activities
               
Maturities and calls of securities, available-for-sale
    30,788       54,515  
Purchases of securities, available-for-sale
    (49,731 )     (44,740 )
Security sales
    300       871  
Redemption of FRB stock
    83       110  
Purchases of FRB stock
    (57 )      
Purchase of bank owned life insurance
    (5,000 )      
Loans made to customers, net of principal collected
    (4,962 )     (5,500 )
Proceeds from sale of OREO properties
    508       435  
Proceeds from sale of property
    48       714  
Net purchases of office premises and equipment
    (853 )     (518 )
 
           
Net cash (used for) provided by investing activities
    (28,876 )     5,887  
 
           
 
               
Cash flows from financing activities
               
Repayment of FHLB borrowings
    (16 )     (22 )
Net change in short-term FHLB advances
          (5,000 )
Repayment of long-term FHLB advances
    (22,500 )     (15,000 )
Proceeds from long-term FHLB advances
    22,500        
Net change in deposits
    (12,164 )     32,951  
Change in securities sold under agreements to repurchase
    (2,686 )     (1,054 )
Repayment of U. S. Treasury interest-bearing demand note payable
    (349 )     (1,661 )
Dividends paid
    (579 )     (580 )
 
           
Net cash from financing activities
    (15,794 )     9,634  
 
           
 
               
Net change in cash and due from financial institutions
    (36,766 )     27,562  
Cash and cash equivalents at beginning of period
    79,030       26,942  
 
           
Cash and cash equivalents at end of period
  $ 42,264     $ 54,504  
 
           
 
               
Cash paid during the period for:
               
Interest
  $ 3,930     $ 5,900  
Income taxes
  $ 1,600     $ 650  
Supplemental cash flow information:
               
Transfer of loans from portfolio to OREO
  $ 580     $ 1,419  
See notes to interim unaudited consolidated financial statements

 

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First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
(1) Consolidated Financial Statements
   
Nature of Operations and Principles of Consolidation: The Consolidated Financial Statements include the accounts of First Citizens Banc Corp (FCBC) and its wholly-owned subsidiaries: The Citizens Banking Company (Citizens), First Citizens Insurance Agency, Inc., and Water Street Properties, Inc. (Water St.). First Citizens Capital LLC (FCC) is wholly-owned by Citizens and holds inter-company debt. The operations of FCC are located in Wilmington, Delaware. First Citizens Investments, Inc. (FCI) is wholly-owned by Citizens and holds and manages Citizens’ securities portfolio. The operations of FCI are located in Wilmington, Delaware. The above companies together are referred to as the Corporation. Intercompany balances and transactions are eliminated in consolidation.
   
The consolidated financial statements have been prepared by the Corporation without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the Corporation’s financial position as of June 30, 2011 and its results of operations and changes in cash flows for the periods ended June 30, 2011 and 2010 have been made. The accompanying consolidated financial statements have been prepared in accordance with instructions of Form 10-Q, and therefore certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been omitted. The results of operations for the period ended June 30, 2011 are not necessarily indicative of the operating results for the full year. Reference is made to the accounting policies of the Corporation described in the notes to the financial statements contained in the Corporation’s 2010 annual report. The Corporation has consistently followed these policies in preparing this Form 10-Q.
   
The Corporation provides financial services through its offices in the Ohio counties of Erie, Crawford, Champaign, Franklin, Logan, Summit, Huron, Ottawa, and Richland. Its primary deposit products are checking, savings, and term certificate accounts, and its primary lending products are residential mortgage, commercial, and installment loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets and commercial and residential real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. There are no significant concentrations of loans to any one industry or customer. However, the customers’ ability to repay their loans is dependent on the real estate and general economic conditions in the area. Other financial instruments that potentially represent concentrations of credit risk include deposit accounts in other financial institutions and Federal Funds sold. First Citizens Insurance Agency Inc. was formed to allow the Corporation to participate in commission revenue generated through its third party insurance agreement. Insurance commission revenue was less than 1.0% of total revenue through June 30, 2011. Water St. revenue was less than 1.0% of total revenue through June 30, 2011. Management considers the Corporation to operate primarily in one reportable segment, banking.

 

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First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
   
Use of Estimates: To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in financial statements and the disclosures provided, and future results could differ. The allowance for loan losses, impairment of goodwill, fair values of financial instruments, deferred taxes and pension obligations are particularly subject to change.
   
Income Taxes: Income tax expense is based on the effective tax rate expected to be applicable for the entire year. Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax basis of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.
   
New Accounting Pronouncements:
   
In August, 2010, the Financial Accounting Standards Board (FASB) issued ASU 2010-21, Accounting for Technical Amendments to Various SEC Rules and Schedules. This ASU amends various SEC paragraphs pursuant to the issuance of Release No. 33-9026: Technical Amendments to Rules, Forms, Schedules, and Codification of Financial Reporting Policies. The adoption of this ASU did not have a significant impact on the Corporation’s financial statements.
   
In August, 2010, the FASB issued ASU 2010-22, Technical Corrections to SEC Paragraphs — An announcement made by the staff of the U.S. Securities and Exchange Commission. This ASU amends various SEC paragraphs based on external comments received and the issuance of SAB 112, which amends or rescinds portions of certain SAB topics. The adoption of this ASU did not have a significant impact on the Corporation’s financial statements.
   
In September, 2010, the FASB issued ASU 2010-25, Plan Accounting — Defined Contribution Pension Plans. The amendments in this ASU require that participant loans be classified as notes receivable from participants, which are segregated from plan investments and measured at their unpaid principal balance plus any accrued but unpaid interest. The amendments in this ASU are effective for fiscal years ending after December 15, 2010 and did not have a significant impact on the Corporation’s financial statements.
   
In December, 2010, the FASB issued ASU 2010-28, When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. This ASU modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that impairment may exist. The qualitative factors are consistent with the existing guidance, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. For public entities, the amendments in this ASU are effective for fiscal year, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. This ASU did not have a significant impact on the Corporation’s financial statements.

 

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First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
   
In December 2010, the FASB issued ASU 2010-29, Disclosure of Supplementary Pro Forma Information for Business Combinations. The amendments in this ASU specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments in this ASU are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. This ASU did not have a significant impact on the Corporation’s financial statements.
   
In January 2011, the FASB issued ASU 2011-01, Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20. The amendments in this ASU temporarily delay the effective date of the disclosures about troubled debt restructurings in Update 2010-20, enabling public-entity creditors to provide those disclosures after the FASB clarifies the guidance for determining what constitutes a troubled debt restructuring. The deferral in this ASU will result in more consistent disclosures about troubled debt restructurings. This amendment does not defer the effective date of the other disclosure requirements in Update 2010-20. In the proposed Update for determining what constitutes a troubled debt restructuring, the FASB proposed that the clarifications would be effective for interim and annual periods ending after June 15, 2011. For the new disclosures about troubled debt restructurings in Update 2010-20, those clarifications would be applied retrospectively to the beginning of the fiscal year in which the proposal is adopted. The adoption of this ASU did not have a significant impact on the Corporation’s financial statements.
   
Impact of Not Yet Effective Authoritative Accounting Pronouncements:
   
In October, 2010, the FASB issued ASU 2010-26, Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts. This ASU addresses the diversity in practice regarding the interpretation of which costs relating to the acquisition of new or renewal insurance contracts qualify for deferral. The amendments are effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2011, and are not expected to have a significant impact on the Corporation’s financial statements.

 

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First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
   
In April 2011, the FASB issued ASU 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring. The amendments in this ASU provide additional guidance or clarification to help creditors in determining whether a creditor has granted a concession and whether a debtor is experiencing financial difficulties for purposes of determining whether a restructuring constitutes a troubled debt restructuring. The amendments in this ASU are effective for the first interim or annual reporting period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning annual period of adoption. As a result of applying these amendments, an entity may identify receivables that are newly considered impaired. For purposes of measuring impairment of those receivables, an entity should apply the amendments prospectively for the first interim or annual period beginning on or after June 15, 2011. The Corporation is currently evaluating the impact the adoption of the standard will have on the Corporation’s financial position or results of operations.
   
In April 2011, the FASB issued ASU 2011-03, Reconsideration of Effective Control for Repurchase Agreements. The main objective in developing this ASU is to improve the accounting for repurchase agreements (repos) and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. The amendments in this ASU remove from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion. The amendments in this ASU apply to all entities, both public and nonpublic. The amendments affect all entities that enter into agreements to transfer financial assets that both entitle and obligate the transferor to repurchase or redeem the financial assets before their maturity. The guidance in this ASU is effective for the first interim or annual period beginning on or after December 15, 2011 and should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. This ASU is not expected to have a significant impact on the Corporation’s financial statements.
   
In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in this ASU result in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs. Consequently, the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. The amendments in this ASU are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. Early application by public entities is not permitted. This ASU is not expected to have a significant impact on the Company’s financial statements.
   
In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income. The amendments in this ASU improve the comparability, clarity, consistency, and transparency of financial reporting and increase the prominence of items reported in other comprehensive income. To increase the prominence of items reported in other comprehensive income and to facilitate convergence of U.S. GAAP and IFRS, the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity was eliminated. The amendments require that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. All entities that report items of comprehensive income, in any period presented, will be affected by the changes in this ASU. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The amendments in this Update should be applied retrospectively, and early adoption is permitted. This ASU is not expected to have a significant impact on the Company’s financial statements.

 

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First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
(2) Securities
   
Available for sale securities at June 30, 2011 and December 31, 2010 were as follows:
                                 
            Gross     Gross        
    Amortized     Unrealized     Unrealized     Fair  
June 30, 2011   Cost     Gains     Losses     Value  
U.S. Treasury securities and obligations of U.S. government agencies
  $ 57,447     $ 536     $ (100 )   $ 57,883  
Obligations of states and political subdivisions
    59,880       1,918       (153 )     61,645  
Mortgage-backed securities in government sponsored entities
    84,521       2,765       (85 )     87,201  
 
                       
Total debt securities
    201,848       5,219       (338 )     206,729  
 
                               
Equity securities in financial institutions
    481       195             676  
 
                       
Total
  $ 202,329     $ 5,414     $ (338 )   $ 207,405  
 
                       
                                 
            Gross     Gross        
    Amortized     Unrealized     Unrealized     Fair  
December 31, 2010   Cost     Gains     Losses     Value  
U.S. Treasury securities and obligations of U.S. government agencies
  $ 55,398     $ 616     $ (307 )   $ 55,707  
Obligations of states and political subdivisions
    61,401       483       (1,415 )     60,469  
Mortgage-backed securities in government sponsored entities
    65,917       2,236       (53 )     68,100  
 
                       
Total debt securities
    182,716       3,335       (1,775 )     184,276  
 
                               
Equity securities in financial institutions
    481       195             676  
 
                       
Total
  $ 183,197     $ 3,530     $ (1,775 )   $ 184,952  
 
                       

 

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First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
The fair value of securities at June 30, 2011, by contractual maturity, is shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Securities not due at a single maturity date, primarily mortgage-backed securities and equity securities, are shown separately.
         
Available for sale   Fair Value  
Due in one year or less
  $ 954  
Due after one year through five years
    20,828  
Due after five years through ten years
    12,896  
Due after ten years
    84,850  
Mortgage-backed securities
    87,201  
Equity securities
    676  
 
     
Total securities available for sale
  $ 207,405  
 
     
Proceeds from the sale of securities during the six months ended June 30, 2011 were $300 and $871 for the six months ended June 30, 2010. Gains from securities called, sold or settled by the issuer were $3 during the quarter ended June 30, 2011 and $1 during the quarter ended June 30, 2010.

 

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First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
Securities with a carrying value of approximately $142,590 and $158,940 were pledged as of June 30, 2011 and December 31, 2010, respectively, to secure public deposits, other deposits and liabilities as required by law.
Securities with unrealized losses at June 30, 2011 and December 31, 2010 not recognized in income are as follows:
                                                 
    12 Months or less     More than 12 months     Total  
June 30, 2011   Fair     Unrealized     Fair     Unrealized     Fair     Unrealized  
Description of Securities   Value     Loss     Value     Loss     Value     Loss  
 
                                               
U.S. Treasury securities and obligations of U.S. government agencies
  $ 8,900     $ (100 )   $     $     $ 8,900     $ (100 )
Obligations of states and political subdivisions
    9,209       (149 )     314       (4 )     9,523       (153 )
Mortgage-backed securities in gov’t sponsored entities
    11,493       (85 )                 11,493       (85 )
 
                                   
 
                                               
Total temporarily impaired
  $ 29,602     $ (334 )   $ 314     $ (4 )   $ 29,916     $ (338 )
 
                                   
                                                 
    12 Months or less     More than 12 months     Total  
December 31, 2010   Fair     Unrealized     Fair     Unrealized     Fair     Unrealized  
Description of Securities   Value     Loss     Value     Loss     Value     Loss  
 
                                               
U.S. Treasury securities and obligations of U.S. government agencies
  $ 10,257     $ (307 )   $     $     $ 10,257     $ (307 )
Obligations of states and political subdivisions
    34,938       (1,359 )     2,256       (56 )     37,194       (1,415 )
Mortgage-backed securities in gov’t sponsored entities
    9,696       (53 )                 9,696       (53 )
 
                                   
 
                                               
Total temporarily impaired
  $ 54,891     $ (1,719 )   $ 2,256     $ (56 )   $ 57,147     $ (1,775 )
 
                                   
There are thirty-nine securities in the portfolio with unrealized losses. Unrealized losses on securities have not been recognized into income because the issuers’ securities are of high credit quality, management has the intent and ability to hold these securities for the foreseeable future, and the decline in fair value is largely due to market yields increasing across the municipal sector partly due to higher risk premiums associated with municipal insurers. The fair value is expected to recover as the securities approach their maturity date or reset date. The Corporation does not intend to sell until recovery and does not believe selling will be required before recovery.

 

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First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
(3) Loans
   
Loan balances were as follows:
                 
    June 30,     December 31,  
    2011     2010  
Commercial and agriculture
  $ 79,834     $ 84,913  
Commercial real estate
    351,706       336,251  
Real estate — mortgage
    285,098       295,038  
Real estate — construction
    37,816       39,341  
Consumer
    10,841       11,590  
Other
    330       190  
 
           
Total loans
    765,625       767,323  
Allowance for loan losses
    (21,749 )     (21,768 )
 
           
Net loans
  $ 743,876     $ 745,555  
 
           
(4) Allowance for Loan Losses
   
Management has an established methodology to determine the adequacy of the allowance for loan losses that assesses the risks and losses inherent in the loan portfolio. For purposes of determining the allowance for loan losses, the Corporation has segmented certain loans in the portfolio by product type. Loans are segmented into the following pools: Commercial and Agricultural loans, Commercial Real Estate loans, Real Estate Mortgage loans, Real Estate Construction loans and Consumer loans. Historical loss percentages for each risk category are calculated and used as the basis for calculating loan loss allowance allocations. These historical loss percentages are calculated over a three-year period for all portfolio segments. Certain economic factors are also considered for trends which management uses to establish the directionality of changes to the unallocated portion of the reserve. The following economic factors are analyzed:
   
Changes in economic and business conditions
   
Changes in lending policies and procedures
   
Changes in experience and depth of lending and management staff
   
Changes in concentrations within the loan portfolio
   
Changes in past due, classified and nonaccrual loans and Troubled Debt Restructurings (TDRs)
   
Changes in quality of Citizens’ credit review system
   
Changes in competition or legal and regulatory requirements

 

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First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
   
The total allowance reflects management’s estimate of loan losses inherent in the loan portfolio at the balance sheet date. The Corporation considers the allowance for loan losses of $21,749 adequate to cover loan losses inherent in the loan portfolio, at June 30, 2011. The following tables present by portfolio segment, the changes in the allowance for loan losses and the loan balances outstanding for the period ended June 30, 2011 and December 31, 2010. Management has reviewed its analysis of the allowance for loan losses and made modifications to the beginning balances in this table. The analysis at December 31, 2010 was based on information available at the time. Since then we have improved our information systems and management reporting tools to allow us to better segregate the portfolio. In order to consistently provide this information, we have adjusted the beginning balances to correspond with the current methodology. The allowance for Real Estate Construction was reduced not only by charge-offs, but also due to a decrease in both the loan balances outstanding and the historical charge-offs for this type. The net result of which was a reduction in the allowance. The allowance related to the unallocated segment was also reduced. While the segment itself is lower, the reduction was the effect of distributing the impact of economic factors among the loan segments as an adjustment to the historical loss factor.
                                                         
    Commercial     Commercial     Residential     Real Estate                    
    & Agriculture     Real Estate     Real Estate     Construction     Consumer     Unallocated     Total  
 
                                                       
For the six months ending June 30, 2011
                                                       
 
                                                       
Allowance for loan losses:
                                                       
 
                                                       
Beginning balance
  $ 3,639     $ 9,827     $ 4,569     $ 2,139     $ 726     $ 868     $ 21,768  
Charge-offs
    (908 )     (2,216 )     (2,423 )     (778 )     (109 )           (6,434 )
Recoveries
    173       133       109       250       50             715  
Provision
    (83 )     2,969       3,929       (415 )     3       (703 )     5,700  
 
                                         
Ending Balance
  $ 2,821     $ 10,713     $ 6,184     $ 1,196     $ 670     $ 165     $ 21,749  
 
                                         
   
The allowance for loan losses activity is summarized as follows for June 30, 2010.
         
    2010  
Balance January 1,
  $ 15,271  
Loans charged-off
    (4,945 )
Recoveries
    266  
Provision for loan losses
    8,340  
 
     
Balance June 30,
  $ 18,932  
 
     

 

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First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
                                                         
    Commercial     Commercial     Residential     Real Estate                    
    & Agriculture     Real Estate     Real Estate     Construction     Consumer     Unallocated     Total  
 
                                                       
June 30, 2011
                                                       
 
                                                       
Allowance for loan losses:
                                                       
 
                                                       
Ending balance:
                                                       
Individually evaluated for impairment
  $ 674     $ 2,575     $ 133     $ 38     $ 369     $     $ 3,789  
 
                                         
 
                                                       
Ending balance:
                                                       
Collectively evaluated for impairment
  $ 2,147     $ 8,138     $ 6,051     $ 1,158     $ 301     $ 165     $ 17,960  
 
                                         
 
                                                       
Loan balances outstanding:
                                                       
 
                                                       
Ending Balance
  $ 79,834     $ 351,706     $ 285,098     $ 37,816     $ 11,171             $ 765,625  
 
                                         
 
                                                       
Ending balance:
                                                       
Individually evaluated for impairment
  $ 3,956     $ 12,115     $ 2,232     $ 864     $             $ 19,167  
 
                                         
 
                                                       
Ending balance:
                                                       
Collectively evaluated for impairment
  $ 75,878     $ 339,591     $ 282,866     $ 36,952     $ 11,171             $ 746,458  
 
                                         

 

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First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
                                                         
    Commercial     Commercial     Residential     Real Estate                    
    & Agriculture     Real Estate     Real Estate     Construction     Consumer     Unallocated     Total  
 
                                                       
December 31, 2010
                                                       
 
                                                       
Allowance for loan losses:
                                                       
 
                                                       
Ending balance:
                                                       
Individually evaluated for impairment
  $ 1,322     $ 1,384     $ 355     $ 375     $ 427     $     $ 3,863  
 
                                         
 
                                                       
Ending balance:
                                                       
Collectively evaluated for impairment
  $ 3,055     $ 4,220     $ 8,307     $ 1,156     $ 299     $ 868     $ 17,905  
 
                                         
 
                                                       
Loan balances outstanding:
                                                       
 
                                                       
Ending Balance
  $ 84,913     $ 336,251     $ 295,038     $ 39,341     $ 11,780             $ 767,323  
 
                                         
 
                                                       
Ending balance:
                                                       
Individually evaluated for impairment
  $ 5,925     $ 7,814     $ 2,347     $ 1,821     $ 1,266             $ 19,173  
 
                                         
 
                                                       
Ending balance:
                                                       
Collectively evaluated for impairment
  $ 78,988     $ 328,437     $ 292,691     $ 37,520     $ 10,514             $ 748,150  
 
                                         
   
The following table represents credit exposures by internally assigned grades for the period ended June 30, 2011 and December 31, 2010. The grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all. The Corporation’s internal credit risk grading system is based on experiences with similarly graded loans.
   
The Corporation’s internally assigned grades are as follows:
   
Pass — loans which are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral.
   
Special Mention — loans where a potential weakness or risk exists, which could cause a more serious problem if not corrected.
   
Substandard — loans that have a well-defined weakness based on objective evidence and are characterized by the distinct possibility that Citizens will sustain some loss if the deficiencies are not corrected.
   
Doubtful — loans classified as doubtful have all the weaknesses inherent in a substandard asset. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances.

 

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Table of Contents

First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
   
Loss — loans classified as a loss are considered uncollectible, or of such value that continuance as an asset is not warranted.
   
Unrated— Generally, consumer loans are not risk-graded, except when collateral is used for a business purpose Commercial
                                                 
    Commercial                                
    &     Commercial     Residential     Real Estate     Consumer        
June 30, 2011   Agriculture     Real Estate     Real Estate     Construction     and Other     Total  
 
Pass
  $ 66,660     $ 298,641     $ 102,464     $ 28,384     $ 725     $ 496,874  
Special Mention
    3,025       16,122       6,130       876             26,153  
Substandard
    9,711       35,063       12,921       6,243             63,938  
Doubtful
                                   
Loss
                                   
 
                                   
Ending Balance
  $ 79,396     $ 349,826     $ 121,515     $ 35,503     $ 725     $ 586,965  
 
                                   
                                                 
    Commercial                                
    &     Commercial     Residential     Real Estate     Consumer        
December 31, 2010   Agriculture     Real Estate     Real Estate     Construction     and Other     Total  
 
Pass
  $ 70,825     $ 284,083     $ 111,248     $ 28,815     $ 556     $ 495,527  
Special Mention
    2,972       12,674       2,821       937             19,404  
Substandard
    11,116       39,416       16,482       7,492       44       74,550  
Doubtful
          78                         78  
Loss
                                   
 
                                   
Ending Balance
  $ 84,913     $ 336,251     $ 130,551     $ 37,244     $ 600     $ 589,559  
 
                                   
   
The following table present performing and nonperforming loans based solely on payment activity for the period ended June 30, 2011 and December 31, 2010. Payment activity is reviewed by management on a monthly basis to determine how loans are performing. Loans are considered to be nonperforming when they become 90 days past due. Nonperforming loans also include certain loans that have been modified in TDRs where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Corporation’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months.

 

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Table of Contents

First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
                                                 
    Commercial                                
    &     Commerical     Residential     Real Estate     Consumer        
    Agriculture     Real Estate     Real Estate     Construction     and Other     Total  
 
June 30, 2011
                                               
Performing
  $ 438     $ 1,880     $ 162,752     $ 2,313     $ 10,435     $ 177,818  
Nonperforming
                831             11       842  
 
                                   
Total
  $ 438     $ 1,880     $ 163,583     $ 2,313     $ 10,446     $ 178,660  
 
                                   
                                                 
    Commercial                                
    &     Commerical     Residential     Real Estate     Consumer        
    Agriculture     Real Estate     Real Estate     Construction     and Other     Total  
 
December 31, 2010
                                               
Performing
  $     $     $ 162,702     $ 2,097     $ 11,169     $ 175,968  
Nonperforming
                1,785             11       1,796  
 
                                   
Total
  $     $     $ 164,487     $ 2,097     $ 11,180     $ 177,764  
 
                                   
   
Following is a table which includes an aging analysis of the recorded investment of past due loans outstanding as of June 30, 2011 and December 31, 2010.
                                                         
    30-59     60-89     90 Days                              
    Days     Days     or     Total                     Total  
June 30, 2011   Past Due     Past Due     Greater     Past Due     Current     Nonaccrual     Loans  
 
Commericial & Agriculture
  $ 510     $ 704     $ 498     $ 1,712     $ 75,853     $ 2,269     $ 79,834  
Commercial Real Estate
    5,048       734       1,447       7,229       332,470       12,007       351,706  
Residential Real Estate
    1,163       2,299       707       4,169       273,705       7,224       285,098  
Real Estate Construction
                649       649       35,962       1,205       37,816  
Consumer and Other
    52       11       11       74       11,097             11,171  
 
                                         
Total
  $ 6,773     $ 3,748     $ 3,312     $ 13,833     $ 729,087     $ 22,705     $ 765,625  
 
                                         
                                                         
    30-59     60-89     90 Days                              
    Days     Days     or     Total                     Total  
December 31, 2010   Past Due     Past Due     Greater     Past Due     Current     Nonaccrual     Loans  
 
Commericial & Agriculture
  $ 471     $ 309     $ 904     $ 1,684     $ 80,568     $ 2,661     $ 84,913  
Commercial Real Estate
    3,467       39       349       3,855       324,337       8,059       336,251  
Residential Real Estate
    3,042       340       382       3,764       281,688       9,586       295,038  
Real Estate Construction
    258       246       581       1,085       36,387       1,869       39,341  
Consumer and Other
    118       39       25       182       11,598             11,780  
 
                                         
Total
  $ 7,356     $ 973     $ 2,241     $ 10,570     $ 734,578     $ 22,175     $ 767,323  
 
                                         

 

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First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
   
Impaired Loans: Larger (greater than $350) commercial loans and commercial real estate loans, many of which are 60 days or more past due, are tested for impairment. These loans are analyzed to determine if it is probable that all amounts will not be collected according to the contractual terms of the loan agreement. If management determines that the value of the impaired loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allowance estimate or a charge-off to the allowance.
   
Nonaccrual Loans: Loans are considered for nonaccrual status upon reaching 90 days delinquency, unless the loan is well secured and in the process of collection, although the Corporation may be receiving partial payments of interest and partial repayments of principal on such loans. When a loan is placed on nonaccrual status, previously accrued but unpaid interest is deducted from interest income.
   
The following table includes the recorded investment and unpaid principal balances for impaired financing receivables with the associated allowance amount, if applicable as of June 30, 2011 and December 31, 2010.
                                         
            Unpaid             Average     Interest  
    Recorded     Principal     Related     Recorded     Income  
June 30, 2011   Investment     Balance     Allowance     Investment     Recognized  
 
With no related allowance recorded:
                                       
Commericial & Agriculture
  $ 352     $ 352     $     $ 376     $ 6  
Commercial Real Estate
    2,051       2,051             2,410       37  
Residential Real Estate
    252       252             941       5  
Real Estate Construction
    387       387             1,325       12  
Consumer and Other
                             
 
                                       
With an allowance recorded:
                                       
Commericial & Agriculture
  $ 3,150     $ 3,604     $ 454     $ 3,902     $ 156  
Commercial Real Estate
    7,294       10,064       2,770       9,267       231  
Residential Real Estate
    1,453       1,980       527       2,451       17  
Real Estate Construction
    439       477       38       477       20  
Consumer and Other
                             
 
                                       
Total:
                                       
Commericial & Agriculture
  $ 3,502     $ 3,956     $ 454     $ 4,278     $ 162  
Commercial Real Estate
    9,345       12,115       2,770       11,677       268  
Residential Real Estate
    1,705       2,232       527       3,392       22  
Real Estate Construction
    826       864       38       1,802       32  
Consumer and Other
                             

 

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First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
                                         
            Unpaid             Average     Interest  
    Recorded     Principal     Related     Recorded     Income  
December 31, 2010   Investment     Balance     Allowance     Investment     Recognized  
 
With no related allowance recorded:
                                       
Commericial & Agriculture
  $ 2,259     $ 2,259     $     $ 3,129     $ 24  
Commercial Real Estate
    1,849       1,849             5,579       11  
Residential Real Estate
    635       635             2,035       31  
Real Estate Construction
    477       477             293       34  
Consumer and Other
    125       125             125        
 
                                       
With an allowance recorded:
                                       
Commericial & Agriculture
  $ 3,346     $ 3,665     $ 1,322     $ 1,612     $ 191  
Commercial Real Estate
    4,582       5,966       1,384       4,569       256  
Residential Real Estate
    1,357       1,712       355       1,146       69  
Real Estate Construction
    969       1,344       375       1,377       7  
Consumer and Other
    1,145       1,141       427       1,145       31  
 
                                       
Total:
                                       
Commericial & Agriculture
  $ 5,605     $ 5,924     $ 1,322     $ 4,741     $ 215  
Commercial Real Estate
    6,431       7,815       1,384       10,148       267  
Residential Real Estate
    1,992       2,347       355       3,181       100  
Real Estate Construction
    1,446       1,821       375       1,670       41  
Consumer and Other
    1,270       1,266       427       1,270       31  

 

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First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
(5) Earnings per Common Share:
   
Basic earnings per share are net income available to common shareholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share include the dilutive effect, if any, of additional potential common shares issuable under stock options, computed using the treasury stock method.
                                 
    Three months ended June 30,     Six months ended June 30,  
    2011     2010     2011     2010  
Basic
                               
Net income (loss)
  $ 523     $ (259 )   $ 1,276     $ (222 )
Preferred stock dividends and discount accretion
    293       294       587       588  
 
                       
Net income (loss) available to common shareholders
  $ 230     $ (553 )   $ 689     $ (810 )
 
                       
 
                               
Weighted average common shares outstanding
    7,707,917       7,707,917       7,707,917       7,707,917  
 
                       
 
                               
Basic earnings per common share
  $ 0.03     $ (0.07 )   $ 0.09     $ (0.11 )
 
                       
 
                               
Diluted
                               
Net income (loss)
  $ 523     $ (259 )   $ 1,276     $ (222 )
Preferred stock dividends and discount accretion
    293       294       587       588  
 
                       
Net income (loss) available to common shareholders
  $ 230     $ (553 )   $ 689     $ (810 )
 
                       
Weighted average common shares outstanding for basic earnings per common share
    7,707,917       7,707,917       7,707,917       7,707,917  
Add: Dilutive effects of assumed exercises of stock options
                       
 
                       
 
                               
Average shares and dilutive potential common shares outstanding
    7,707,917       7,707,917       7,707,917       7,707,917  
 
                       
 
                               
Diluted earnings per common share
  $ 0.03     $ (0.07 )   $ 0.09     $ (0.11 )
 
                       
   
Stock options for 29,500 common shares and warrants for 469,312 common shares were not considered in computing diluted earnings per common share for the three-month periods ended June 30, 2011 and June 30, 2010 because they were anti-dilutive.

 

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First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
(6) Commitments, Contingencies and Off-Balance Sheet Risk
   
Some financial instruments, such as loan commitments, credit lines, letters of credit and overdraft protection are issued to meet customers’ financing needs. These are agreements to provide credit or to support the credit of others, as long as the conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance-sheet risk of credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of commitment. The contractual amount of financial instruments with off-balance-sheet risk was as follows for June 30, 2011 and December 31, 2010:
                                 
    Contract Amount  
    June 30, 2011     December 31, 2010  
    Fixed     Variable     Fixed     Variable  
    Rate     Rate     Rate     Rate  
Commitment to extend credit:
                               
Lines of credit and construction loans
  $ 3,804     $ 107,165     $ 3,161     $ 98,083  
Overdraft protection
    1,327       17,522             12,500  
Letters of credit
    200       439       275       1,288  
 
                       
 
  $ 5,331     $ 125,126     $ 3,436     $ 111,871  
 
                       
   
Commitments to make loans are generally made for a period of one year or less. Fixed rate loan commitments included in the table above had interest rates ranging from 3.25% to 9.50% at June 30, 2011 and December 31, 2010. Maturities extend up to 30 years.
   
Citizens is required to maintain certain reserve balances on hand in accordance with the Federal Reserve Board requirements. The average reserve balance maintained in accordance with such requirements was $686 on June 30, 2011 and $3,585 on December 31, 2010.

 

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First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
(7) Pension Information
   
Net periodic pension expense was as follows:
                                 
    Three months ended     Six months ended  
    June 30     June 30  
    2011     2010     2011     2010  
Service cost
  $ 211     $ 210     $ 423     $ 421  
Interest cost
    204       190       408       380  
Expected return on plan assets
    (207 )     (151 )     (414 )     (302 )
Other components
    86       65       172       129  
 
                       
Net periodic pension cost
  $ 294     $ 314     $ 589     $ 628  
 
                       
   
The total amount of contributions expected to be paid by the Corporation in 2011 total $1,152, compared to $2,016 in 2010.
(8) Stock Options
   
Options to buy stock may be granted to directors, officers and employees under the Corporation’s Stock Option and Stock Appreciation Rights Plan, which provided for issue of up to 225,000 options. The exercise price of stock options is determined based on the market price of the Corporation’s common shares at the date of grant. The maximum option term is ten years, and options normally vest after three years.
   
The Corporation did not grant any stock options during the first six months of 2011 or 2010, nor did any stock options become vested during the first six months of 2011 or 2010. The Corporation’s Stock Option and Stock Appreciation Rights Plan expired in 2010, and no further stock options or other awards may be granted by the Corporation under such plan.

 

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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 plan is as follows:
                                 
    Six months ended     Six months ended  
    June 30, 2011     June 30, 2010  
    Total options     Total options  
    outstanding     outstanding  
            Weighted             Weighted  
            Average             Average  
            Price             Price  
    Shares     Per Share     Shares     Per Share  
 
                               
Outstanding at beginning of year
    29,500     $ 25.42       29,500     $ 25.42  
Granted
                       
Exercised
                       
Forfeited
                       
 
                       
Options outstanding, end of period
    29,500     $ 25.42       29,500     $ 25.42  
 
                       
 
                               
Options exercisable, end of period
    29,500     $ 25.42       29,500     $ 25.42  
 
                       
The following table details stock options outstanding:
                         
    Outstanding Options  
            Weighted        
            Average     Weighted  
            Remaining     Average  
            Contractual     Exercise  
Exercise price   Number     Life     Price  
$20.50
    19,500     1 yr. 0 mos.     $ 20.50  
$35.00
    10,000     1 yrs. 9.5 mos.       35.00  
 
                   
Outstanding at quarter-end
    29,500     1 yr. 3 mos.     $ 25.42  
 
                   
The intrinsic value for stock options is calculated based on the exercise price of the underlying awards and the market price of our common shares as of the reporting date. As of June 30, 2011 and December 31, 2010, the aggregate intrinsic value of outstanding stock options was $0.

 

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First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
(9) Fair Value Measurement
The Corporation uses a fair value hierarchy to measure fair value. The topic describes three levels of inputs that may be used to measure fair value. Level 1: Quoted prices or identical assets in active markets that are identifiable on the measurement date; Level 2: Significant other observable inputs, such as quoted prices for similar assets, quoted prices in markets that are not active and other inputs that are observable or can be corroborated by observable market data; Level 3: Significant unobservable inputs that reflect the Corporation’s own view about the assumptions that market participants would use in pricing an asset.
Securities: The fair values of securities available for sale are determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).
Equity securities: The fair values of equity securities available for sale are determined by review of quoted prices for the specific securities, when available. (Level 2 inputs).
Impaired loans: The fair values of impaired loans are determined using the fair values of collateral for collateral dependent loans. The Corporation uses appraisals and other available data to estimate the fair value of collateral (Level 3 inputs).
Other real estate owned: The fair value of other real estate owned is determined using the fair value of collateral. The Corporation uses appraisals and other available data to estimate the fair value of collateral (Level 2 inputs).

 

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First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
Assets measured at fair value are summarized below.
                         
    Fair Value Measurements at June 30, 2011 Using:  
    Quoted Prices in             Significant  
    Active Markets for     Significant Other     Unobservable  
    Identical Assets     Observable Inputs     Inputs  
    (Level 1)     (Level 2)     (Level 3)  
 
                       
Assets:
                       
 
Assets measured at fair value on a recurring basis:
                       
 
                       
U.S. Treasury securities and obligations of U.S. Government agencies
  $     $ 57,883     $  
Obligations of states and political subdivisions
          61,103       542  
Mortgage-backed securities
          87,201        
Equity securities
    676              
 
                       
Assets measured at fair value on a nonrecurring basis:
                       
 
                       
Impaired loans
  $     $     $ 15,378  
Other real estate owned
                1,524  
                         
    Fair Value Measurements at December 31, 2010 Using:  
    Quoted Prices in             Significant  
    Active Markets for     Significant Other     Unobservable  
    Identical Assets     Observable Inputs     Inputs  
    (Level 1)     (Level 2)     (Level 3)  
 
                       
Assets:
                       
 
Assets measured at fair value on a recurring basis:
                       
 
                       
U.S. Treasury securities and obligations of U.S. Government agencies
  $     $ 55,707     $  
Obligations of states and political subdivisions
          59,909       560  
Mortgage-backed securities
          68,100        
Equity securities
    676              
 
                       
Assets measured at fair value on a nonrecurring basis:
                       
 
                       
Impaired loans
  $     $     $ 15,310  
Other real estate owned
          1,795        

 

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First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
The following table presents the changes in the Level III fair-value category for the period ended June 30, 2011. The Corporation classifies financial instruments in Level III of the fair value hierarchy when there is reliance on at least one significant unobservable input to the valuation model. In addition to the unobservable inputs, the valuation models for Level III financial instruments typically also rely on a number of inputs that are readily observable, either directly or indirectly.
         
Securities available for sale
       
 
Beginning balance January 1, 2011
  $ 560  
Principal payments
    (18 )
 
     
Ending balance June 30, 2011
  $ 542  
The carrying amount and fair values of financial instruments not previously presented were as follows.
                                 
    June 30, 2011     December 31, 2010  
    Carrying             Carrying        
    Amount     Fair Value     Amount     Fair Value  
Financial Assets:
                               
Cash and due from financial institutions
  $ 42,264     $ 42,264     $ 79,030     $ 79,030  
Loans, net of allowance for loan losses
    743,876       759,589       745,555       763,768  
Accrued interest receivable
    5,345       5,345       4,382       4,382  
 
Financial Liabilities:
                               
Deposits
    880,299       882,106       892,463       895,950  
Federal Home Loan Bank advances
    50,311       52,379       50,327       53,162  
U.S. Treasury interest-bearing demand note payable
    1,659       1,659       2,008       2,008  
Securities sold under agreement to repurchase
    19,156       19,156       21,842       21,842  
Subordinated debentures
    29,427       16,214       29,427       15,883  
Accrued interest payable
    366       366       362       362  
The fair value approximates carrying amount for all items except those described below. The fair value for securities is based on quoted market values for the individual securities or for equivalent securities. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the cash flow analysis or underlying collateral values. Fair value of debt is based on current rates for similar financing. The fair value of off-balance-sheet items is based on the current fees or cost that would be charged to enter into or terminate such arrangements and are considered nominal.

 

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First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
For certain homogeneous categories of loans, such as some residential mortgages, credit card receivables, and other consumer loans, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics. The fair value of other types of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.
(10) Participation in the Treasury Capital Purchase Program
On January 23, 2009, the Corporation completed the sale to the U.S. Treasury of $23,184 of newly-issued non-voting preferred shares as part of the Capital Purchase Program (CPP) enacted by the U.S. Treasury as part of the Troubled Assets Relief Program (TARP) under the Emergency Economic Stabilization Act of 2008 (EESA). To finalize the Corporation’s participation in the CPP, the Corporation and the Treasury entered into a Letter Agreement, dated January 23, 2009, including the Securities Purchase Agreement — Standard Terms attached thereto. Pursuant to the terms of the Securities Purchase Agreement, the Corporation issued and sold to Treasury (1) 23,184 shares of Fixed Rate Cumulative Perpetual Preferred Shares, Series A, each without par value and having a liquidation preference of $1,000 per share (Series A Preferred Shares), and (2) a Warrant to purchase 469,312 common shares of the Corporation, each without par value, at an exercise price of $7.41 per share. The Warrant has a ten-year term. All of the proceeds from the sale of the Series A Preferred Shares and the Warrant by the Corporation to the U.S. Treasury under the CPP qualify as Tier 1 capital for regulatory purposes. Under the standardized CPP terms, cumulative dividends on the Series A Preferred Shares will accrue on the liquidation preference at a rate of 5% per annum for the first five years, and at a rate of 9% per annum thereafter, but will be paid only if, as and when declared by the Corporation’s Board of Directors. The Series A Preferred Shares have no maturity date and rank senior to the common shares with respect to the payment of dividends and distributions and amounts payable upon liquidation, dissolution and winding up of the Corporation.

 

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Table of Contents

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)
ITEM 2.  
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Introduction
The following discussion focuses on the consolidated financial condition of the Corporation at June 30, 2011 compared to December 31, 2010 and the consolidated results of operations for the three and six-month periods ended June 30, 2011, compared to the same period in 2010. This discussion should be read in conjunction with the consolidated financial statements and footnotes included in this Form 10-Q.
Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements by the Corporation relating to various matters, including, without limitation, anticipated operating results, business line results, credit quality expectations, prospects for new lines of business, economic trends (including interest rates) and similar matters. Such statements are based upon the current beliefs and expectations of the Corporation’s management and are subject to risks and uncertainties. While the Corporation believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could prove to be inaccurate, and accordingly, actual results and experience could differ materially from the anticipated results or other expectations expressed by the Corporation in its forward-looking statements. Factors that could cause actual results or experience to differ from results discussed in the forward-looking statements include, but are not limited to, regional and national economic conditions; volatility and direction of market interest rates; credit risks of lending activities, governmental legislation and regulation, including changes in accounting regulation or standards; material unforeseen changes in the financial condition or results of operations of the Corporation’s clients; increases in FDIC insurance premiums and assessments; and other risks identified from time-to-time in the Corporation’s other public documents on file with the SEC, including those risks identified in Item 1A of Part 1 of the Corporation’s Annual Report on Form 10-K.
The Corporation does not undertake, and specifically disclaims, any obligation to publicly release the result of any revisions that may be made to any forward-looking statements to reflect occurrence of anticipated or unanticipated events or circumstances after the date of such statements, except as required by law.
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements, and the purpose of this section is to secure the use of the safe harbor provisions.
Financial Condition
Total assets of the Corporation at June 30, 2011 were $1,089,102 compared to $1,100,622 at December 31, 2010, a decrease of $11,520, or 1.0 percent. The decrease in total assets was mainly attributed to decreases in cash, partially offset by increased investment securities. Total liabilities at June 30, 2011 were $989,263 compared to $1,003,672 at December 31, 2010, a decrease of $14,409, or 1.4 percent. The decrease in total liabilities was mainly attributed to decreases in interest-bearing deposits.

 

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Table of Contents

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 loans have decreased $1,679 or 0.2 percent since December 31, 2010. The commercial real estate portfolio increased by $15,455 since December 31, 2010. The commercial and agricultural, real estate, real estate construction and consumer loan portfolios decreased $5,079, $9,940, $1,525 and $749, respectively. The current increase in commercial real estate loans is mainly due to increased opportunities from our larger markets and calling efforts by the commercial lending officers. The current decrease in commercial and agriculture loans is the result of commercial and agricultural credit lines being paid down and weak demand for commercial loan products. The current decrease in real estate, real estate construction and consumer loans is mainly the result of the Corporation’s decision to originate and sell the majority of mortgage loans in the secondary market and a decline in the demand for construction loans.
The Corporation had $134 loans held for sale at June 30, 2011. The Corporation had no loans held for sale at December 31, 2010. At June 30, 2011, the net loan to deposit ratio was 84.5 percent compared to 83.5 percent at December 31, 2010. This ratio has improved in 2011 due to decreased deposits.
For the six months of operations in 2011, $5,700 was placed into the allowance for loan losses from earnings, compared to $8,340 in the same period of 2010. The economic downturn and high unemployment rates in our market area continue to stress the ability of some customers to make payments on their loans. Although general reserves required increased compared to December 31, 2010, specific reserves declined during the same period. However, detailed analyses of potential losses in the loan portfolio indicate a reduced provision is appropriate. Net charge-offs have increased to $5,719, compared to $4,679 in 2010 as the amount of gross charge-offs have increased while the number of charge-offs have decreased. For the year the Corporation has charged off one hundred and twenty loans. Seventy-eight Real Estate Mortgages totaling $2,842 net of recoveries, ten Commercial Real Estate loans totaling $2,083 net of recoveries, and eleven Commercial and Agriculture loans totaling $735 net of recoveries were charged off in the first six months of the year. In addition, twenty-one Consumer loans were charged off, although the net amount charged off was only $59. For each loan category, except real estate construction, as well as in total, the percentage of net charge-offs to loans was less than one percent. Real estate construction’s percentage of net charge-offs to loans was 1.4 percent. Nonperforming loans have increased by $1,601, of which $1,071 was due to an increase in loans past due 90 days but still accruing and $530 was due to an increase in loans on nonaccrual status. Each of these factors was considered by management as part of the examination of both the level and mix of the allowance by loan type as well as the overall level of the allowance. Management specifically evaluates loans that are impaired, or graded as doubtful by the internal grading function for estimates of loss. To evaluate the adequacy of the allowance for loan losses to cover probable losses in the portfolio, management considers specific reserve allocations for identified portfolio loans, reserves for delinquencies and historical reserve allocations. The composition and overall level of the loan portfolio and charge-off activity are also factors used to determine the amount of the allowance for loan losses.

 

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Table of Contents

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)
Management analyzes commercial and commercial real estate loans, with balances of $350 or larger, on an individual basis and classifies a loan as impaired when an analysis of the 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. In addition, loans held for sale and leases are excluded from consideration as impaired. Loans are generally moved to nonaccrual status when 90 days or more past due. Impaired loans or portions thereof, are charged-off when deemed uncollectible.
The allowance for loan losses as a percent of total loans was 2.84 percent at both June 30, 2011 and December 31, 2010.
The available for sale security portfolio increased by $22,453, from $184,952 at December 31, 2010, to $207,405 at June 30, 2011. The increase is the result of additional securities purchases made in the first quarter above scheduled maturities. These purchases were made to generate additional asset yield but did not significantly change the characteristics of the portfolio. The Corporation continued utilizing letters of credit from the Federal Home Loan Bank (FHLB) to replace maturing securities that were pledged for public entities. As of June 30, 2011, the Corporation was in compliance with all pledging requirements.
Bank owned life insurance (BOLI) increased $5,304 from December 31, 2010 to June 30, 2011 due to the purchase of $5,000 of additional BOLI and to income earned on the BOLI investment. BOLI was purchased as an alternative to replacing maturing securities, and is being used to help recover employee costs, including healthcare, group term life, and 401(k) expenses.
Office premises and equipment, net, have increased $39 from December 31, 2010 to June 30, 2011, as a result of depreciation of $766 and disposals of $48 offset by new purchases of $853.
Total deposits at June 30, 2011 decreased $12,164 from year-end 2010. Noninterest-bearing deposits increased $6,272 from year-end 2010 while interest-bearing deposits, including savings and time deposits, decreased $18,436 from December 31, 2010. The primary reason for the increase in noninterest-bearing deposits was due to an increase in public fund accounts, which tend to fluctuate. The interest-bearing deposit decrease was due to an increase in savings accounts offset by decreases in the Corporation’s participation in the Certificate of Deposit Account Registry Service (CDARS), time certificates and interest bearing demand deposit accounts. Savings accounts increased $18,066 from year-end 2010, which included increases of $7,808 in statement savings, $2,712 in money market savings and $6,927 in public fund money market savings. Interest bearing-deposits and time deposits decreased $36,502 from year end 2010, which included an increase in interest-bearing public deposits of $4,436 offset by decreases of $13,880 in interest-bearing deposits, $3,534 in time certificates and $23,578 in CDARS accounts. The year-to-date average balance of total deposits increased $32,065 compared to the average balance of the same period in 2010. The increase in average balance is due to increases of $41,013 in demand deposit accounts, $10,781 in statement savings accounts, $7,060 in money market savings, $4,701 in interest-bearing public funds, and $7,415 in public fund money market savings offset by decreases of $6,805 in time certificates, $29,962 in CDARS accounts and $1,045 in brokered deposits.

 

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Table of Contents

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)
Total borrowed funds have decreased $3,051 from December 31, 2010 to June 30, 2011. At June 30, 2011, the Corporation had $50,311 in outstanding Federal Home Loan Bank advances compared to $50,327 at December 31, 2010. On February 15, 2011, the Corporation exchanged two FHLB advances with two new advances that are substantially different. The first advance, in the amount of $20,000, had a remaining term of nineteen months with a fixed rate of 4.40%. The new replacement advance, in the amount of $20,000, has a term of forty-two months with a fixed rate of 2.06%.The second advance, in the amount of $2,500, had a remaining term of eleven months with a fixed rate of 4.74%. The new replacement advance, in the amount of $2,500, has a term of thirty months with a fixed rate of 1.49%. The replaced advances had pre-payment penalties associated with them of $1,199 and $98, respectively. The pre-payment penalties will be amortized as an adjustment of interest expense over the remaining term of the replacement advances. Securities sold under agreements to repurchase, which tend to fluctuate due to timing of deposits, have decreased $2,686 and U.S. Treasury Tax Demand Notes have decreased $349 from December 31, 2010 to June 30, 2011.
Shareholders’ equity at June 30, 2011 was $99,839, or 9.2 percent of total assets, compared to $96,950 at December 31, 2010, or 8.8 percent of total assets. The increase in shareholders’ equity resulted from net income of $1,276 plus the increase in the market value of securities available for sale, net of tax, of $2,192 less preferred dividends paid of $579. Total outstanding common shares at June 30, 2011 and 2010 were 7,707,917.
Under the Corporation’s stock repurchase program, the Corporation is authorized to buy up to 5.0 percent of the total common shares outstanding. However, the Corporation has participated in the U.S. Treasury’s Capital Purchase Program (CPP), which was announced by the U.S. Treasury on October 14, 2008 as part of the Troubled Asset Relief Program (“TARP”) established under the Emergency Economic Stabilization Act of 2008 (EESA). On January 23, 2009, the Corporation issued to the U.S. Treasury $23,184,000 of cumulative perpetual preferred shares (Senior Preferred Shares), with a liquidation preference of $1,000 per share, and a warrant to purchase 469,312 of the Corporation’s common shares at an exercise price of $7.41 (which is equal to 15% of the aggregate amount of the Senior Preferred Shares purchased by the U.S. Treasury). As a participant in the CPP, the Corporation is required to comply with a number of restrictions and provisions, including limits on executive compensation, stock redemptions and the declaration and payment of dividends. Due to these restrictions, the Corporation is precluded from repurchasing its common shares without the approval of the U.S. Treasury for a period of three years.
Results of Operations
Six Months Ended June 30, 2011 and 2010
The Corporation had net income of $1,276 for the six months ended June 30, 2011, an increase of $1,498 from net loss of $222 for the first six months of 2010. Basic and diluted earnings per common share were $.09 for the first six months of 2011, compared to $(0.10) for the same period in 2010. The primary reasons for the changes in net income are explained below.

 

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Table of Contents

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 interest income for the first six months of 2011 was $20,525, a decrease of $116 or 0.6 percent from $20,641 in the first six months of 2010. Net interest income, the difference between interest income earned on interest-earning assets and interest expense incurred on interest-bearing liabilities, is the most significant component of the Corporation’s earnings. Net interest income is affected by changes in volume, rates and composition of interest-earning assets and interest-bearing liabilities. Average earning assets increased 1.3 percent from the first six months last year from organic growth. Average loans for the first six months of 2011 decreased 4.3 percent compared to the first six months of 2010. Interest expense on FHLB advances decreased $547 or 40.4 percent in the first six months of 2011 compared to the same period in 2010. Average FHLB advances for the first six months of 2011 decreased 29.6 percent compared to the first six months of 2010. The interest rate paid on FHLB advances during the six months of 2011 also decreased as compared to the same period in 2010 by 58 basis points. The Corporation’s net interest margin for the six months ended June 30, 2011 and 2010 was 3.90% and 3.97%, respectively. Net interest margin decreased 7 basis points as net interest income decreased 0.6 percent while average earning assets increased 1.3 percent.
The Corporation provides for loan losses through regular provisions to the allowance for loan losses. The provision is affected by net charge-offs on loans and changes in specific and general allocations required on the allowance for loan losses. Provisions for loan losses totaled $5,700 for the first six months of 2011, compared to $8,340 for the same period in 2010. Although general reserves required increased compared to December 31, 2010, specific reserves declined during the same period. Management believes the overall adequacy of the reserve for loan losses supported a reduced provision, compared to June 30, 2010.
Non-interest income for the first six months of 2011 was $5,194, an increase of $446 or 9.4 percent from $4,748 for the same period of 2010. Service charge fee income for the first six months of 2011 was $2,118, down $95 or 4.3 percent over the same period of 2010. Trust fee income was $1,072, up $151 or 16.4 percent over the same period in 2010. The increase is related to the recoveries in the financial markets and the related effect on assets under management, as well as a general increase in assets under management. ATM fee income for the first six months of 2011 was $898, up $26 or 3.0 percent over the first six months of 2010. Bank owned life insurance contributed $304 to non-interest income during the first six months of 2011. Other non-interest income was $666, up $312 over the same period in 2010. This was the result of the Citizens’ participation in an income tax refund facilitation program, pursuant to which the Citizens collected a fee for facilitating, and expediting, payment of refunds to tax payers.

 

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Table of Contents

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)
Non-interest expense for the first six months of 2011 was $18,671, an increase of $684, from $17,987 reported for the same period of 2010. Salary and other employee costs were $9,445, up $1,077 or 12.9 percent as compared to the same period of 2010. This increase is mainly due to an increase in staffing in the credit and special assets departments and higher commission costs for the first six months of 2011. The number of full-time equivalent employees increased during the first six months of 2011 to 293.6, up 8.7, compared to the same period of 2010. Occupancy and equipment costs were $1,896, down $108 or 5.4 percent compared to the same period in 2010. Contracted data processing costs were $412, down $75, or 15.4 percent compared to last year. State franchise taxes increased by $14 compared to the same period of 2010. Amortization expense decreased $28, or 4.6 percent from the six months of 2010, as a result of scheduled amortization of intangible assets associated with mergers. FDIC assessments were down by $57 during the first six months of 2011 compared to the same period of 2010. The decrease is due to a decrease in the size of the assessment base. Professional service costs were $996, down $91 or 8.4 percent compared to the same period in 2010. The decrease is due to consulting services for loan work outs, core banking software analysis and the resolution of certain larger collection items in 2010 that were not recurring in 2011. Other operating expenses were $3,388, up $5 or .2 percent compared to the same period of 2010.
Income tax expense for the first six months of 2011 totaled $72 compared to an income tax benefit of $716 for the first six months of 2010. The increase of $788 in the federal income taxes is mainly a result of the increase in total noninterest income, coupled with a decrease in loan loss provision this year.
Three Months Ended June 30, 2011 and 2010
The Corporation had net income of $523 for the three months ended June 30, 2011, an increase of $782 from net loss of $259 for the same three months of 2010. Basic and diluted earnings per common share were $.03 for the same three months of 2011, compared to $(0.07) for the same period in 2010. The primary reasons for the changes in net income are explained below.
Net interest income for the three months ended June 30, 2011 was $10,153, a decrease of $288 or 2.8 percent from $10,441 in the same three months of 2010. Net interest income, the difference between interest income earned on interest-earning assets and interest expense incurred on interest-bearing liabilities, is the most significant component of the Corporation’s earnings. Net interest income is affected by changes in volume, rates and composition of interest-earning assets and interest-bearing liabilities. Average earning assets decreased 1.2 percent from the second quarter last year. Average loans for the second quarter of 2011 decreased 4.5 percent compared to the second quarter of 2010. Interest expense on FHLB advances decreased $215 or 35.2 percent in the second quarter of 2011 compared to the same period in 2010. Average FHLB advances for the second quarter of 2011 decreased 23.0 percent compared to the second quarter of 2010. The interest rate paid on FHLB advances during the second quarter of 2011 also decreased as compared to the same period in 2010 by 59 basis points. The Corporation’s net interest margin for the three months ended June 30, 2011 and 2010 was 3.93% and 3.99%, respectively. Net interest margin decreased 6 basis points as net interest income decreased 2.8 percent while average earning assets decreased 1.2 percent.
The Corporation provides for loan losses through regular provisions to the allowance for loan losses. The provision is affected by net charge-offs on loans and changes in specific and general allocations required on the allowance for loan losses. Provisions for loan losses totaled $2,700 for the three months ended June 30, 2011, compared to $4,600 for the same period in 2010. Although general reserves required increased compared to March 31, 2011, specific reserves declined during the same period. Management believes the overall adequacy of the reserve for loan losses supported a reduced provision, compared to June 30, 2010.

 

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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)
Non-interest income for the three months ended June 30, 2011 was $2,526, an increase of $70 or 2.9 percent from $2,456 for the same period of 2010. Service charge fee income for the same three months of 2011 was $1,089, down $59 or 5.1 percent over the same period of 2010. Trust fee income was $520, up $39 or 8.1 percent over the same period in 2010. The increase is related to the recoveries in the financial markets and the related effect on assets under management, as well as a general increase in assets under management. ATM fee income for the second quarter of 2011 was $465, up $4 or 0.9 percent over the same period of 2010. Bank owned life insurance contributed $170 to non-interest income during the three months ended June 30, 2011. Other non-interest income was $452, up $86 over the same period in 2010. This was the result of the Citizens’ participation in an income tax refund facilitation program, pursuant to which the Citizens collected a fee for facilitating, and expediting, payment of refunds to tax payers.
Non-interest expense for the three months ended June 30, 2011 was $9,483, an increase of $492, from $8,991 reported for the same period of 2010. Salary and other employee costs were $4,889, up $776 or 18.9 percent as compared to the same period of 2010. This increase is mainly due to an increase in staffing in the credit and special assets departments and higher commission costs for the second quarter of 2011. The number of full-time equivalent employees increased during the second quarter of 2011 to 295.4, up 8.8, compared to the same period of 2010. Occupancy and equipment costs were unchanged at $941 for the three months ended June 30, 2011 and 2010. Contracted data processing costs were $204, down $18, or 8.1 percent compared to last year. State franchise taxes increased by $50 compared to the same period of 2010. Amortization expense decreased $14, or 4.6 percent from the same three months of 2010, as a result of scheduled amortization of intangible assets associated with mergers. FDIC assessments were down by $21 during the same three months of 2011 compared to the same period of 2010. The decrease is due to a decrease in the size of the assessment base. Professional service costs were $302, down $83 or 37.9 percent compared to the same period in 2010. The decrease is due to consulting services for loan work outs, core banking software analysis and the resolution of certain larger collection items in 2010 that were not recurring in 2011. Other operating expenses were $1,670, down $109 or 6.1 percent compared to the same period of 2010. A majority of the Corporation’s other operating expenses declined compared to the second quarter of 2010.
Income tax benefit for the three months ended June 30, 2011 totaled $27 compared to an income tax benefit of $435 for the same three months of 2010. This was a decrease of $408. The decrease in the federal income tax benefit is mainly a result of the decrease in loan loss provision this year compared to last.

 

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Table of Contents

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 $99,839 at June 30, 2011 compared to $96,950 at December 31, 2010. The increase in shareholders’ equity resulted from $1,276 of net income and a $2,192 net change in the unrealized gain on securities. This was offset by preferred dividends paid of $579. All of the Corporation’s capital ratios exceeded the regulatory minimum guidelines as of June 30, 2011 and December 31, 2010 as identified in the following table:
                         
    Total Risk     Tier I Risk        
    Based     Based     Leverage  
    Capital     Capital     Ratio  
Corporation Ratios — June 30, 2011
    14.9 %     13.0 %     9.0 %
Corporation Ratios — December 31, 2010
    15.1 %     13.8 %     9.3 %
For Capital Adequacy Purposes
    8.0 %     4.0 %     4.0 %
To Be Well Capitalized Under Prompt Corrective Action Provisions
    10.0 %     6.0 %     5.0 %
The Corporation did not pay a cash dividend on its common shares during the first or second quarters of 2011 or 2010. The Corporation did pay a 5% cash dividend on its preferred shares issued to the U.S. Treasury pursuant to TARP in the amount of approximately $290 each on February 15 and May 15, 2011.
Liquidity
Citizens maintains a conservative liquidity position. All securities are classified as available for sale. Securities with maturities of one year or less totaled $954, or 0.5 percent, of the total security portfolio. The available for sale portfolio helps to provide the Corporation with the ability to meet its funding needs. The Consolidated Statements of Cash Flows (Unaudited) contained in the consolidated financial statements detail the Corporation’s cash flows from operating activities resulting from net earnings.

 

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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)
Cash from operations for the quarter ended June 30, 2011 was $7,904. This includes net income of $1,276 plus net adjustments of $6,628 to reconcile net earnings to net cash provided by operations. Cash from investing activities was $(28,876) for the six months ended June 30, 2011. The use of cash from investing activities is primarily due to securities purchases, loans made to customers, net of principal collected and the purchase of bank owned life insurance. Cash received from maturing and called securities totaled $30,788. This increase in cash was offset by the purchase of securities of $49,731, the purchase of bank owned life insurance of $5,000 and loans made to customers, net of principal collected of $4,962. Cash from financing activities for the first six months of 2011 totaled ($15,794). The use of cash from financing activities is due to the net change in deposits. Cash used by the net change in deposits was $(12,164) for the first six months of 2011. The decrease in deposits was primarily due to the decrease in CDARS accounts, which decreased $23,578 during the first six months of 2011. Cash was used by the early payoff of two FHLB long-term advances of $5,000 and $20,000, respectively offset by two new FHLB long-term advances. Cash and cash equivalents decreased from $79,030 at December 31, 2010 to $42,264 at June 30, 2011.
Future loan demand of Citizens may be funded by increases in deposit accounts, proceeds from payments on existing loans, the maturity of securities, and the sale of securities classified as available for sale. Additional sources of funds may also come from borrowing in the Federal Funds market and/or borrowing from the FHLB. Through its correspondent banks, Citizens maintains federal funds borrowing lines totaling $10,000. As of June 30, 2011, Citizens had total credit availability with the FHLB of $111,593 of which $50,311 was outstanding.

 

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Table of Contents

First Citizens Banc Corp
Form 10-Q
(Amounts in thousands, except share data)
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. All of the Corporation’s transactions are denominated in U.S. dollars with no specific foreign exchange exposure.
Interest-rate risk 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 interest-rate risk can pose a significant threat to the Corporation’s earnings and capital base. Accordingly, effective risk management that maintains interest-rate risk 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 interest-rate risk and the organization’s quantitative level of exposure. When assessing the interest-rate risk management process, the Corporation seeks to ensure that appropriate policies, procedures, management information systems and internal controls are in place to maintain interest-rate risk at prudent levels with consistency and continuity. Evaluating the quantitative level of interest rate risk exposure requires the Corporation to assess the existing and potential future effects of changes in interest rates on its consolidated financial condition, including capital adequacy, earnings, liquidity and, where appropriate, asset quality.

 

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First Citizens Banc Corp
Form 10-Q
(Amounts in thousands, except share data)
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. The Corporation has not purchased derivative financial instruments in the past and does not currently intend to purchase such instruments in the near future. Financial institutions are also subject to prepayment risk in falling rate environments. For example, mortgage loans and other financial assets may be prepaid by a debtor so that the debtor may refinance its obligations at new, lower rates. Prepayments of assets carrying higher rates reduce the 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. FHLB advances and wholesale borrowings may also be used as important sources of liquidity for the Corporation.

 

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First Citizens Banc Corp
Form 10-Q
(Amounts in thousands, except share data)
The following table provides information about the Corporation’s financial instruments that were sensitive to changes in interest rates as of December 31, 2010 and June 30, 2011, based on certain prepayment and account decay assumptions that management believes are reasonable. The table shows the changes in the Corporation’s net portfolio value (in amount and percent) that would result from hypothetical interest rate increases of 200 basis points and 100 basis points and an interest rate decrease of 100 basis points at June 30, 2011 and December 31, 2010. The Corporation had no derivative financial instruments or trading portfolio as of December 31, 2010 or June 30, 2011. Expected maturity date values for interest-bearing core deposits were calculated based on estimates of the period over which the deposits would be outstanding. The Corporation’s borrowings were tabulated by contractual maturity dates and without regard to any conversion or repricing dates.
Net Portfolio Value
                                                 
    June 30, 2010     December 31, 2010  
    Dollar     Dollar     Percent     Dollar     Dollar     Percent  
Change in Rates   Amount     Change     Change     Amount     Change     Change  
+200bp
    139,986       2,047       1 %     145,476       160       0 %
+100bp
    140,346       2,407       2 %     150,062       4,746       3 %
Base
    137,939                   145,316              
-100bp
    151,409       13,470       10 %     154,728       9,412       6 %
The change in net portfolio value from December 31, 2010 to March 31, 2011, is primarily a result of two factors. While the yield curve is virtually unchanged since the end of the year, both the mix and overall size of assets and funding sources have changed. Assets have decreased and the mix also shifted away from cash toward securities, which leads to greater volatility. Funding sources decreased while the funding mix shifted from CDs and borrowed money to deposits. The shifts in mixes led to the decrease in the base. Beyond the change in the base level of net portfolio value, overall projected movements, given specific changes in rates, would lead to generally larger changes in the net portfolio value compared to the end of 2010. The change in the rates up 200 basis point scenario is similar to last year, as a percent of the change. A 100 basis point upward movement in rates would lead to a faster decrease in the fair value of liabilities, compared to assets, which would lead to an increase in the net portfolio value. A downward change in rates would lead to an increase in the net portfolio value as the fair value of liabilities would increase much more slowly than the fair value of the asset portfolio.
ITEM 4.  
Controls and Procedures Disclosure
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of June 30, 2011, were effective.
Changes in Internal Control over Financial Reporting
There have not been any changes in the Corporation’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the Corporation’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

 

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First Citizens Banc Corp
Other Information
Form 10-Q
Part II — Other Information
Item 1. Legal Proceedings
In December, 2010, The Citizens Banking Company initiated a legal action to collect debts from Real America, Inc., Edward V. Gudenas and Hazards Adventure Company. The action sought judgments against those parties and foreclosure upon real estate that served as collateral for the debts. In January, 2011, the defendants in the action filed a counterclaim that alleges that representatives of Citizens fraudulently failed to disclose contents of a forbearance agreement executed by the defendants and Citizens breached an agreement to enter into additional forbearance agreements with defendants. The defendants request “an amount in excess of $1,000,000.00 in compensatory damages, $5,000,000.00 in punitive damages, attorneys fees, costs and such other and further relief as [the] Court deems proper”. Citizens believes the claims of the defendants are meritless, and it plans to vigorously defend against them while pursuing its action to collect from the defendants.
Item 1A.  
Risk Factors
There were no material changes to the risk factors as presented in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2010.
Item 2.  
Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3.  
Defaults Upon Senior Securities
None
Item 4.  
[Removed and Reserved]
Item 5.  
Other Information
None
Item 6.  
Exhibits
         
  31.1    
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
  31.2    
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
  32.1    
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  32.2    
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  101    
The following materials from First Citizens Banc Corp’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011, formatted in XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets (Unaudited) as of June 30, 2011 and December 31, 2010; (ii) Consolidated Statements of Income (Unaudited) for the three and six months ended June 30, 2011 and 2010; (iii) Consolidated Comprehensive Income Statements (Unaudited) for the three and six months ended June 30, 2011 and 2010; (iv) Condensed Consolidated Statement of Shareholders’ Equity (Unaudited) for the six months ended June 30, 2011; (v) Condensed Consolidated Statement of Cash Flows (Unaudited) for the six months ended June 30, 2011 and 2010; and (vi) Notes to Interim Consolidated Financial Statements (Unaudited) tagged as blocks of text.*
     
*  
Pursuant to Rule 406T of SEC Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are furnished and not deemed filed or part of a registration statement or prospectus for purposes of Sections 11 and 12 of the Securities Act of 1933, as amended, and are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those Sections.

 

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First Citizens Banc Corp
Signatures
Form 10-Q
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
     
First Citizens Banc Corp
   
 
   
/s/ James O. Miller
 
James O. Miller
  August 9, 2011 
Date
President, Chief Executive Officer
   
 
   
/s/ Todd A. Michel
  August 9, 2011 
 
   
Todd A. Michel
  Date
Senior Vice President, Controller
   

 

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First Citizens Banc Corp
Index to Exhibits
Form 10-Q
Exhibits
           
Exhibit   Description   Location
3.1
(a)   Articles of Incorporation, as amended, of First Citizens Banc Corp.   Filed as Exhibit 3.1 to First Citizens Banc Corp’s Form 10-K for the year ended December 31, 2005, filed on March 16, 2006 and incorporated herein by reference. (File No. 0-25980)
3.1
(b)   Certificate of Amendment by Shareholders or Members as filed with the Ohio Secretary of State on January 12, 2009, evidencing the adoption by the shareholders of First Citizens Banc Corp on January 5, 2009 of an amendment to Article FOURTH to authorize the issuance of up to 200,000 preferred shares, without par value.   Filed as Exhibit 3.1(b) to First Citizens Banc Corp’s Form 10-K for the year ended December 31, 2008, filed on March 16, 2009 and incorporated herein by reference. (File No. 0-25980)
3.1
(c)   Certificate of Amendment by Directors or Incorporators to Articles, filed with the Ohio Secretary of State on January 21, 2009, evidencing adoption of an amendment by the Board of Directors of First Citizens Banc Corp to Article FOURTH to establish the express terms of the Fixed Rate Cumulative Perpetual Preferred Shares, Series A, of First Citizens.   Filed as Exhibit 3.1 to First Citizens Banc Corp’s Current Report on Form 8-K dated and filed January 26, 2009, and incorporated herein by reference. (File No. 0-25980)
3.2
    Amended and Restated Code of Regulations of First Citizens Banc Corp (adopted April 17, 2007).   Filed as Exhibit 3.2 to First Citizens Banc Corp’s Form 10-K for the year ended December 31, 2008, filed on March 16, 2009 and incorporated herein by reference. (File No. 0-25980)
31.1
    Rule 13a-14(a)/15-d-14(a) Certification of Chief Executive Officer.   Included herewith
31.2
    Rule 13a-14(a)/15-d-14(a) Certification of Chief Financial Officer.   Included herewith
32.1
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.   Included herewith
32.2
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.   Included herewith
101
    The following materials from First Citizens Banc Corp’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011, formatted in XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets (Unaudited) as of June 30, 2011 and December 31, 2010; (ii) Consolidated Statements of Income (Unaudited) for the three and six months ended June 30, 2011 and 2010; (iii) Consolidated Comprehensive Income Statements (Unaudited) for the three and six months ended June 30, 2011 and 2010; (iv) Condensed Consolidated Statement of Shareholders’ Equity (Unaudited) for the six months ended June 30, 2011; (v) Condensed Consolidated Statement of Cash Flows (Unaudited) for the six months ended June 30, 2011 and 2010; and (vi) Notes to Interim Consolidated Financial Statements (Unaudited) tagged as blocks of text.*   Included herewith
     
*  
Pursuant to Rule 406T of SEC Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are furnished and not deemed filed or part of a registration statement or prospectus for purposes of Sections 11 and 12 of the Securities Act of 1933, as amended, and are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those Sections.

 

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