<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended:..................................March 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from.......................to........................
Commission File Number:................................................0-25980
First Citizens Banc Corp
------------------------
(Exact name of Registrant as specified in its charter)
Ohio 34-1558688
---- ----------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
100 East Water Street, Sandusky, Ohio 44870
-------------------------------------------------
(Address of principle executive offices) (Zip Code)
Registrant's telephone number, including area code: (419) 625-4121
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
X Yes
----
No
-----
Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date.
Common Stock, no par value
Outstanding at May 13, 1998
4,263,401 common shares
<PAGE> 2
FIRST CITIZENS BANC CORP
Index
<TABLE>
<CAPTION>
PART I. Financial Information
<S> <C> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets (unaudited)
March 31, 1998 and December 31, 1997.........................................................3
Consolidated Statements of Income (unaudited)
Three months ended March 31, 1998 and 1997...................................................4
Consolidated Statement of Shareholders' Equity (unaudited)
Three months ended March 31, 1998 and 1997...................................................5
Consolidated Statement of Cash Flows (unaudited)
Three months ended March 31, 1998 and 1997...................................................6
Notes to Consolidated Financial Statements (Unaudited)........................................7-14
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................................15-20
PART II. Other Information
Item 1. Legal Proceedings...............................................................................22
Item 2. Changes in Securities...........................................................................22
Item 3. Defaults upon Senior Securities.................................................................22
Item 4. Submission of Matters to a Vote of Security Holders.............................................22
Item 5. Other Information...............................................................................22
Item 6. (a) Exhibits....................................................................................22
Signatures ............................................................................................23
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
FIRST CITIZENS BANC CORP
Consolidated Balance Sheet
(Unaudited)
December 31,
Assets March 31, 1998 1997
--------------- -------------
<S> <C> <C>
Cash and due from banks $ 11,935,231 $ 14,328,125
Federal funds sold 12,540,000 10,400,000
Securities (Note 2)
Available-for-sale 62,726,700 58,468,703
Held-to-maturity 4,601,684 6,737,206
------------- -------------
Total investment securities 67,328,384 65,205,909
Loans available for sale 1,202,580 690,998
Loans (Notes 3) 224,122,815 224,557,029
Less: Allowance for possible loan losses (Note 4) (2,821,613) (2,799,000)
------------- -------------
Net Loans 221,301,202 221,758,029
Office premises and equipment, net 6,887,238 6,993,953
Accrued interest receivable 2,306,969 2,027,743
Intangible assets 2,765,999 2,847,511
Other assets 1,689,531 1,670,830
------------- -------------
Total assets $ 327,957,134 $ 325,923,098
============= =============
Liabilities
Deposits
Interest bearing $ 236,849,500 $ 233,528,600
Noninterest bearing 30,470,905 31,474,577
------------- -------------
Total deposits 267,320,405 265,003,177
Federal Home Loan Bank borrowings 14,182,740 14,488,034
Securities sold under agreements to repurchase 8,331,809 6,879,346
U. S. Treasury interest-bearing demand notes payable 1,212,262 2,913,641
Accrued interest, taxes and other expenses 1,604,260 1,790,955
------------- -------------
Total liabilities 292,651,476 291,075,153
Commitments and contingencies (Note 5)
Shareholders' Equity
Common stock, no par value, 10,000,000 shares authorized,
3,051,504 shares issued and outstanding 15,257,520 15,257,520
Retained Earnings 19,615,763 19,174,257
Unrealized gain on securities available for sale 432,375 416,168
------------- -------------
Total shareholders' equity 35,305,658 34,847,945
------------- -------------
Total liabilities and shareholder $ 327,957,134 $ 325,923,098
============= =============
</TABLE>
See notes to interim consolidated financial statements. Page 3
<PAGE> 4
<TABLE>
<CAPTION>
FIRST CITIZENS BANC CORP
Consolidated Statements of Income (Unaudited)
Three months ended
March 31,
-------------------------
1998 1997
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $4,773,417 $4,381,966
Interest and dividends on securities
Taxable 613,052 648,566
Nontaxable 303,404 341,412
Interest on federal funds sold 131,252 122,087
Other interest income 9,693 1,024
---------- ----------
Total interest income 5,830,818 5,495,055
INTEREST EXPENSE:
Interest on deposits 2,286,183 2,003,429
Interest on FHLB borrowings 207,241 222,949
Interest on other borrowings 107,974 73,788
---------- ----------
Total interest expense 2,601,398 2,300,166
---------- ----------
NET INTEREST INCOME 3,229,420 3,194,889
PROVISION FOR LOAN LOSSES (Note 4) 108,000 98,500
---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 3,121,420 3,096,389
NONINTEREST INCOME:
Computer center service charges and retail sales 462,092 576,742
Service charges on deposit accounts 138,956 129,409
Security gain/(loss) 19,580 6,250
Gain on sale of loans 33,965 0
Other operating income 237,684 213,324
---------- ----------
Total noninterest income 892,277 925,725
NONINTEREST EXPENSE:
Salaries and wages 1,180,621 1,269,006
Employee benefits 212,517 150,556
Net occupancy expense 141,643 142,763
Equipment 164,604 178,624
FDIC Premiums 14,720 7,705
Franchise Tax 117,732 109,058
Professional Fees 151,623 131,920
Goodwill amortization 81,512 81,512
Other operating expenses 679,335 691,053
---------- ----------
Total noninterest expense 2,744,307 2,762,197
---------- ----------
Income before taxes 1,269,390 1,259,917
Provision for Income Taxes 370,158 348,302
---------- ----------
Net Income $ 899,232 $ 911,615
========== ==========
Per share data (based on 3,051,504 shares)
Earnings per share $ 0.29 $ 0.30
Dividends declared $ 0.15 $ 0.14
</TABLE>
See notes to interim consolidated financial statements Page 4
<PAGE> 5
FIRST CITIZENS BANC CORP
Condensed Consolidated Statement of Shareholders' Equity (Unaudited)
Form 10-Q
<TABLE>
<CAPTION>
Accumulated
Other Total
Common Stock Retained Comprehensive Comprehensive Shareholders'
Shares Amount Earnings Income Income Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 762,876 15,257,520 18,160,292 388,979 33,806,791
Net income 3,964,886 3,964,886 3,964,886
300% stock split 2,288,628
Other comprehensive income, net of tax:
Unrealized gain/loss on securities (224,205) (224,205) (224,205)
------------
Comprehensive income $ 3,740,681
============
Cash dividends
($1.02 per share) (3,120,163) (3,120,163)
Balance, December 31, 1996 3,051,504 15,257,520 19,005,015 164,774 34,427,309
Net income 3,434,353 3,434,353 3,434,353
Other comprehensive income, net of tax:
Unrealized gain/loss on securities 251,394 251,394 251,394
------------
Comprehensive income $ 3,685,747
============
Cash dividends
($1.07 per share) (3,265,111) (3,265,111)
Balance, December 31, 1997 3,051,504 $ 15,257,520 $ 19,174,257 416,168 $34,847,945
Net income 899,232 899,232 899,232
Other comprehensive income, net of tax:
Unrealized gain/loss on securities 16,207 16,207 16,207
------------
Comprehensive income $ 915,439
============
Cash dividends
($.15 per share) (457,726) (457,726)
---------- ------------- ------------- -------- -----------
Balance, March 31, 1998 3,051,504 $ 15,257,520 $ 19,615,763 432,375 $35,305,658
========== ============= ============= ======== ===========
</TABLE>
See notes to interim consolidated financial statements Page 5
<PAGE> 6
FIRST CITIZENS BANC CORP
Consolidated Statement of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------
1998 1997
<S> <C> <C>
Cash flows from operating activities
Net Income $ 899,232 $ 911,615
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of office premises and equipment 190,269 157,253
Amortization of goodwill 81,512 81,512
Provision for loan losses 108,000 98,500
Loans originated for sale (1,738,080)
Proceeds form sale of loans 1,260,463
Gain on sale of loans (33,965)
Change in deferred loan fees (29,185) (12,282)
Net amortization of security premiums and discounts 35,636 32,811
Change in accrued interest receivable (279,226) (253,638)
Change in other assets (18,701) (535,991)
Change in accrued interest, taxes and other expenses (195,044) 540,364
------------ ------------
Net cash from operating activities 280,911 1,020,144
Cash flows from investing activities
Maturities and calls of securities, held-to-maturity 2,132,011 542,219
Maturities and calls of securities, available-for-sale 3,106,399 3,094,740
Purchases of securities, available-to-sale (7,371,965) (3,881,185)
Loans made to customers, net of principal collected 378,012 (1,674,612)
Change in federal funds sold (2,140,000) 373,000
Proceeds from sale of property and equipment 25,613
Purchases of office premises and equipment (109,167) (98,666)
------------ ------------
Net cash from investing activities (3,979,097) (1,644,504)
Cash flows from financing activities
Branch acquisition 0 12,153,945
Repayments of FHLB borrowings (305,294) (289,584)
Net change in deposits 2,317,228 (6,205,868)
Change in securities sold under agreements to repurchase 1,452,463 (2,976,394)
Change in U. S. Treasury interest-bearing demand notes payable (1,701,379) 508,283
Cash dividends paid (457,726) (427,211)
------------ ------------
Net cash from financing activities 1,305,292 2,763,171
------------ ------------
Net change in cash and cash equivalents (2,392,894) 2,138,811
Cash and due from banks at beginning of period 14,328,125 11,615,060
------------ ------------
Cash and due from banks at end of period $ 11,935,231 $ 13,753,871
============ ============
Supplemental disclosures:
Cash paid during the period for:
Interest $ 2,599,070 $ 2,276,508
Income taxes 0 $ 0
</TABLE>
See notes to interim consolidated financial statements Page 6
<PAGE> 7
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
- ------------------------------------------------------------------------------
(1) Consolidated Financial Statements
The consolidated financial statements include the accounts of First
Citizens Banc Corp (Corporation) and it wholly-owned subsidiaries, The
Citizens Banking Company (Citizens), The Castalia Banking Company
(Castalia), SCC Resources, Inc. (SCC), and R. A. Reynolds Appraisal
Service, Inc. (Reynolds). All significant intercompany balances and
transactions have been eliminated in consolidation.
The consolidated balance sheets as of March 31, 1998 and December 31,
1997; the consolidated statements of income for the three month periods
ended March 31, 1998 and 1997; the consolidated statement of
shareholders' equity for the periods ended December 31, 1996, December
31, 1997 and March 31, 1998; and the consolidated statement of cash
flows for the three month periods ended March 31, 1998 and 1997 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 March 31, 1998 and its results of operations and changes
in cash flows for the periods ended March 31, 1998 and 1997 have been
made. The accompanying consolidated financial statements have been
prepared in accordance with instructions of form 10-Q and therefore,
certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. The results of operations for
the period ended March 31, 1998 are not necessarily indicative of the
operating results for the full year. Reference is made to the
accounting policies of the Corporation described in the notes to
financial statements contained in the Corporation's 1997 annual report.
The Corporation has consistently followed these policies in preparing
this form 10-Q.
The provision for income taxes is based on the effective tax rate
expected to be applicable for the entire year. The corporation follows
the liability method of accounting for income taxes. The liability
method provides that deferred tax assets and liabilities are recorded
based on the difference between the tax basis of assets and liabilities
and their carrying amounts for financial reporting purposes, using
enacted tax rates.
Statement of Financial Accounting Standards ("SFAS") No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities",was issued by the Financial Accounting
Standards Board ("FASB") in 1997. It revises the accounting for
transfers of financial assets, such as loans and securities, and for
distinguishing between sales and secured borrowings. It was originally
effective for some transactions in 1997 and others in 1998. SFAS No.
127, "Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125" was issued in December 1997. SFAS No. 127 defers for
one year the
Page 7
<PAGE> 8
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
- ------------------------------------------------------------------------------
effective date of provisions related to securities lending, repurchase
agreements and other similar transactions. The remaining portions of
SFAS No. 125 will continue to be effective January 1, 1997. SFAS No.
125 did not have a material impact on the Corporation's financial
statements.
In March 1997, the FASB issued SFAS No. 128, "Earnings Per Share" which
is effective for the financial statements for periods ending after
December 15, 1997, including interim periods. SFAS No. 128 simplifies
the calculation of earnings per share by replacing primary EPS with
basic EPS. It also requires dual presentation of basic EPS and diluted
EPS for entities with complex capital structures. Basic EPS includes no
dilution and is computed by dividing income available to common
shareholders by the weighted-average common shares outstanding for the
period. Diluted EPS reflects the potential dilution of securities that
could share in earnings such as stock options, warrants or other common
stock equivalents. All prior period EPS data will be restated to
conform with the new presentation.
Page 8
<PAGE> 9
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
- -------------------------------------------------------------------------------
(2) Securities
The gross unrealized gains and losses of securities as presented in the
consolidated balance sheets at March 31, 1998 and December 31,1997 are
as follows:
<TABLE>
<CAPTION>
March 31, 1998
Gross Gross
Amortized Unrealized Unrealized Estimated Fair
AVAILABLE FOR SALE Cost Gains Losses Value
------------ -------------- ----------------- -------------
U.S. Treasury securities and
obligations of U.S. government
<S> <C> <C> <C> <C>
corporations and agencies $32,100,051 $ 134,274 ($ 16,822) $32,217,503
Obligations of state and political
subdivisions 22,945,414 534,238 (6,688) 23,472,964
Other securities, including mortgage-
backed securities 7,025,889 13,526 (3,182) 7,036,233
----------- --------- ------------ -----------
$62,071,354 $ 682,038 ($ 26,692) $62,726,700
=========== ========= ============ ===========
</TABLE>
<TABLE>
<CAPTION>
March 31, 1998
Gross Gross
Amortized Unrealized Unrealized Estimated Fair
HELD TO MATURITY Cost Gains Losses Value
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies
Obligations of state and political
subdivisions $3,170,965 $ 34,157 $ 3,205,122
Other securities, including mortgage-
backed securities 1,430,719 12,020 ($ 1,018) 1,441,721
---------- -------- ----------- ----------
$4,601,684 $ 46,177 ($ 1,018) $4,646,843
========== ======== =========== ==========
</TABLE>
Page 9
<PAGE> 10
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1997
Gross Gross
Amortized Unrealized Unrealized Estimated Fair
AVAILABLE FOR SALE Cost Gains Losses Value
------------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $33,085,104 $ 101,144 ($ 46,511) $33,139,737
Obligations of state and political
subdivisions 19,233,997 583,780 (16,135) 19,801,642
Other securities, including mortgage-
backed securities 5,519,045 8,537 (258) 5,527,324
----------- --------- ------------ -----------
$57,838,146 $ 693,461 ($ 62,904) $58,468,703
=========== ========= ============ ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
Gross Gross
Amortized Unrealized Unrealized Estimated Fair
HELD TO MATURITY Cost Gains Losses Value
----------- ---------- ------------- ------------
<S> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $1,000,000 $ 2,500 $ 1,002,500
Obligations of states and political
subdivisions 4,004,519 50,389 ($ 5,613) 4,049,295
Other securities, including mortgage-
backed securities 1,732,687 13,974 (2,067) 1,744,594
---------- -------- ----------- ----------
$6,737,206 $ 66,863 ($ 7,680) $6,796,389
========== ======== =========== ==========
</TABLE>
Page 10
<PAGE> 11
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
- -------------------------------------------------------------------------------
The amortized cost and estimated fair value of debt securities at March 31,
1998, by contractual maturity, are shown below. Actual maturities may differ
from contractual maturities because issuers may have the right to call or prepay
obligations.
<TABLE>
<CAPTION>
Estimated Fair
Amortized Cost Value
<S> <C> <C>
AVAILABLE FOR SALE
Due in one year or less $20,434,509 $20,465,087
Due after one year through five years 24,446,202 24,818,503
Due after five years through ten years 9,716,482 9,946,936
Due after ten years 448,271 459,939
Mortgage-backed securities 40,922 41,550
Other securities 6,984,967 6,994,685
----------- -----------
Total securities available for sale $62,071,353 $62,726,700
=========== ===========
HELD TO MATURITY
Due in one year or less $ 2,815,965 $ 2,845,603
Due after one year through five years 355,000 359,520
Mortgage-backed securities 461,614 467,772
Other securities 969,105 973,949
----------- -----------
Total securities held to maturity $ 4,601,684 $ 4,646,844
=========== ===========
</TABLE>
No securities were sold during the three months ended March 31, 1998 or
1997. Securities called or settled by the issuer resulted in gains of
$19,580 for the three months ended March 31, 1998 and $6,250 for the
three months ended March 31, 1997.
Securities with a carrying value of approximately $36,491,000 and
$36,757,000 were pledged as of March 31, 1998 and December 31, 1997,
respectively, to secure public deposits, other deposits and liabilities
as required by law.
Page 11
<PAGE> 12
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
- ------------------------------------------------------------------------------
(3) Loans
Loans as presented in the consolidated balance sheet are comprised of
the following classifications:
<TABLE>
<CAPTION>
3/31/98 12/31/97
---------------- -------------
<S> <C> <C>
Commercial and agriculture $ 48,206,071 $ 47,043,354
Real estate - mortgage 134,015,536 135,635,917
Real estate - construction 1,741,441 2,652,565
Consumer 39,512,305 38,621,281
Credit card and other 1,708,163 1,693,798
Deferred loan fees (1,060,700) (1,089,886)
------------- -------------
Total loans $ 224,122,816 $ 224,557,029
============= =============
</TABLE>
(4) Allowance for Loan Losses
A summary of the activity in the allowance for loan losses for the
three months ended March 31, 1998 and March 31, 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Balance January 1, $ 2,799,000 $ 2,642,000
Loans charged off (128,216) (115,635)
Recoveries 42,829 56,184
Provision for loan losses 108,000 98,500
----------- -----------
Balance March 31, $ 2,821,613 $ 2,681,049
=========== ===========
</TABLE>
Page 12
<PAGE> 13
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
- -------------------------------------------------------------------------------
Information regarding impaired loans is as follows for the three months ended
March 31.
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Average investment in impaired loans $1,817,000 $1,883,000
Interest income recognized on impaired loans
including interest income recognized on cash
basis $26,711 $42,366
Interest income recognized on impaired loans $26,711 $42,366
on cash basis
</TABLE>
Information regarding impaired loans at March 31, 1998 and December 31, 1997 is
as follows:
<TABLE>
<CAPTION>
3/31/98 12/31/97
------------ ------------
<S> <C> <C>
Balance impaired loans $1,816,000 $1,817,000
Less portion for which no allowance for loan
losses is allocated --- ---
Portion of impaired loan balance for which an
allowance for credit losses is allocated 1,816,000 1,817,000
Portion of allowance for loan losses allocated to 454,000 466,000
the impaired loan balance
</TABLE>
(5) Commitments, Contingencies and Off-Balance Sheet Risk
The Bank subsidiaries are parties to financial instruments with
off-balance sheet risk in the normal course of business to meet
financing needs of their customers. These include commitments to make
or purchase loans, undisbursed lines of credit, undisbursed credit card
balances and letters of credit. The Banks' exposure to credit loss in
the event of nonperformance by the other party to the financial
instrument is represented by the contractual amount of those
instruments. The Banks follow the same credit policy to make such
commitments as they use for loans recorded on the balance sheet. Since
many commitments to make loans expire without being used, the amount
does not necessarily represent future cash commitments. Collateral
obtained relating to the commitments is
Page 13
<PAGE> 14
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
- -------------------------------------------------------------------------------
determined using management's credit evaluation of the borrower and may
include real estate, vehicles, business assets, deposits and other
items. The Banks do make fixed rate loan commitments for short periods
of time. However, such commitments were immaterial as of March 31, 1998
and December 31, 1997.
Commitments to extend credit and letters of credit approximated the
following amounts at March 31, 1998 and December 31, 1997.
<TABLE>
<CAPTION>
Contract Amount
---------------
March 31, 1998 December 31, 1997
-------------- ------------------
Commitment to extend credit:
<S> <C> <C>
Lines of credit and construction loans $14,696,000 $16,945,000
Credit cards 3,069,000 3,169,000
Letters of credit 376,000 447,000
----------- -----------
$18,141,000 $20,561,000
=========== ===========
</TABLE>
Citizens and Castalia are required to maintain certain reserve balances
on hand in accordance with the Federal Reserve Board requirements. The
average reserve balance maintained in accordance with such requirements
for the periods ended March 31, 1998 and December 31, 1997 approximated
$1,519,000 and $1,682,000 respectively.
In the normal course of business, the Corporation and its subsidiaries
are involved in various legal actions, but in the opinion of management
and its legal counsel, ultimate disposition of such legal matters is
not expected to have a material adverse effect on the consolidated
financial statements.
Page 14
<PAGE> 15
First Citizens Banc Corp
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Form 10-Q
- -------------------------------------------------------------------------------
INTRODUCTION
- ------------
The following discussion focuses on the consolidated financial condition of
First Citizens Banc Corp at March 31, 1998, compared to December 31, 1997 and
the consolidated results of operations for the three month period ending March
31, 1998 compared to the same period in 1997. This discussion should be read in
conjunction with the consolidated financial statements and footnotes included in
this Form 10-Q.
The registrant is not aware of any trends, events or uncertainties that will
have, or are reasonably likely to have, a material effect on the liquidity,
capital resources, or operations except as discussed herein. Also, the
registrant is not aware of any current recommendation by regulatory authorities
which would have such effect if implemented.
In addition to the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. Economic circumstances, the Corporation's operations, and the
Corporation's actual results could differ significantly from those disclosed in
forward-looking statements. Some of the factors that could cause or contribute
to such differences are discussed herein but also include changes in the economy
and interest rates in the nation and in the Corporation's general market area.
Some of the forward-looking statements included herein are the statements
regarding the following:
1. Management's determination of the amount of loan loss
allowance and the amount of the loan loss provision;
2. The sufficiency of the Corporation's liquidity and capital
reserves
See Exhibit 99, which is incorporated herein by reference.
FINANCIAL CONDITION
- -------------------
Total assets of the Corporation at March 31, 1998 totaled $327,957,134 compared
to $325,923,098 at December 31, 1997. This was an increase of $2,034,036 or 0.62
percent. Within the structure of the assets, net loans have decreased $456,827
since December 31, 1997. The decrease in loans is due to the fact that the
corporation is now selling mortgages on the secondary market. For the first
quarter of 1998, loans sold or available for sale totaled $1,047,082. Office
premises and equipment have decreased $106,715 and intangible assets have
decreased $81,512 since December 31, 1997. The decrease in office premises and
equipment is attributed to the sale of equipment of $25,613 and depreciation
Page 15
<PAGE> 16
First Citizens Banc Corp
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Form 10-Q
- ------------------------------------------------------------------------------
of $190,269 exceeding new purchases of $109,167.
At March 31, 1998, $62,726,700 or 93.2 percent of the portfolio was classified
as available-for-sale. The remainder of $4,601,684 was classified as
held-to-maturity. Securities increased $2,122,475 from December 31, 1997. As of
March 31, 1998, the net unrealized gain of the available-for-sale portfolio was
$655,346 compared to $630,537 at December 31, 1997. The decrease in the net
unrealized gain reflects changes in market values due to the current interest
rate environment.
Total loans at March 31, 1998 decreased $456,827 or 0.2 percent from year end
1997. Loans available-for-sale increased $511,582 or 74.0% from December 31,
1997. At March 31, 1998, the net loan to deposit ratio was 82.8 percent compared
to 83.7 percent at December 31, 1997.
At March 31, 1998, the allowance for loan losses as a percent of total loans was
1.26 percent compared to 1.25 percent at December 31, 1997. For the three months
of operations of 1998, $108,500 was placed into the allowance from earnings
compared to $98,500 for the same period of 1997. Net charge offs for the first
three months of 1998 were $85,389 compared to $59,451 for the same period of
1997. Impaired loans at March 31, 1998 totaled $1,816,000 or 0.8 percent of the
loan portfolio compared to $1,817,000 or 0.8 percent of the loan portfolio at
December 31, 1997.
Total deposits at March 31, 1998 increased $2,317,228 from year-end 1997.
Noninterest bearing deposits, representing demand deposit balances, decreased
$1,003,672 from year-end 1997. Interest bearing deposits, including savings and
time deposits, increased $3,320,900 from year-end 1997. The year to date 1998
average balance of savings deposits has decreased $5,907,000 compared to the
average balance of the same period for 1997. The current average rate of these
deposits is 2.70 percent. The year to date 1998 average balance of time
certificates has increased $18,315,000 compared to the average balance for the
same period for 1997. The current average rate on these deposits is 5.39
percent. The average balance of certificates of deposit increased because of the
introduction of a 13 month add-on certificate.
Other borrowed funds have decreased $554,210 from December 31, 1997 to March 31,
1998. Federal Home Loan Bank borrowings have decreased $305,294 as a result of
scheduled paydowns. Securities sold under agreements to repurchase have
increased $1,452,463 and U.S. Treasury Tax Demand Notes have decreased
$1,701,379.
Shareholders' equity at March 31, 1998 was $35,305,658 which was 10.8 percent of
total assets. Shareholders' equity at December 31, 1997 was $34,847,945 which
was 10.7 percent of total assets. The increase in shareholders' equity was
represented by earnings of $899,232 less dividends of $457,726 and less the
decrease in the unrealized gain on securities available for sale of $16,207. The
company paid a cash dividend February 1, 1997 at the rate of $.15 per share.
Total outstanding
Page 16
<PAGE> 17
First Citizens Banc Corp
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Form 10-Q
- -------------------------------------------------------------------------------
shares for the period December 31, 1997 to March 31, 1998 were 3,051,504.
RESULTS OF OPERATIONS
- ---------------------
Net income for the quarter ended March 31, 1998 was $899,232 or $.29 per common
share compared to $911,615 or $.30 per common share for the same period in 1997.
This was an decrease of $12,383 or 1.4 percent.
Net interest income for the first quarter 1998 totaled $3,229,420 compared to
$3,194,889 for the first quarter of 1997. This was an increase of $34,531 or 1.1
percent. Total interest income for the first three months of 1998 has increased
$335,763 or 6.1 percent compared to the same period of 1997. The average rate on
earning assets on a tax equivalent basis for the first three months of 1998 and
1997 was 7.86 percent. Total interest expense for the first three months of 1998
has increased $301,232 or 13.1 percent compared to the same period of 1997. The
average rate on paying liabilities for the first three months of 1998 was 4.11
percent compared to 3.84 percent for the same period of 1997. The net interest
margin on a tax equivalent basis for the first three months was 4.43 percent for
the three month period ended March 31, 1998 and 4.66 percent for the same period
ended March 31, 1997.
Noninterest income for the first quarter 1998 totaled $892,277 compared to
$925,725 for the first quarter 1997. This was an decrease of $33,448 or 3.6
percent and mainly attributed to decreases in revenue from the computer
operations of $114,650, increased service charges on deposit accounts of $9,547,
and decreased other operating income of $7,527. The decrease in revenue from
computer operations is the result of SCC Resources, Inc. selling its
microcomputer division.
Noninterest expense for the first quarter 1998 totaled $2,744,307 compared to
$2,762,197 for the first quarter 1997. This was an decrease of $17,890 or 0.6
percent. The largest decrease in noninterest expense is in salaries, wages and
employee benefits which decreased $26,424 for the first three months of 1998 or
1.9 percent compared to the same period of 1997. The decrease in salaries, wages
and employee benefits can be attributed to retirements, resignations and the
sale of SCC Resources, Inc.'s Microcomputer division. These three factors
accounted for a decrease in salaries, wages and employee benefits of
approximately $73,000. This decrease was offset by merit increases and the
salaries, wages and employee benefits of new hires, resulting in the net
decrease of $26,424.
PROVISION FOR INCOME TAXES
- --------------------------
The provision for income taxes for the first quarter 1998 totaled $370,158
compared to $348,302 for
Page 17
<PAGE> 18
First Citizens Banc Corp
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Form 10-Q
- -------------------------------------------------------------------------------
the first quarter 1997. This was an increase of $21,856 or 6.3 percent. The
increase in the federal income taxes is a result of the increase in total income
before taxes of $9,473, as well as a decrease in tax exempt interest income of
$38,008.
CAPITAL RESOURCES
- -----------------
Shareholders equity totaled $35,305,658 at March 31, 1998 compared to
$34,847,945 at December 31, 1997. All of the capital ratios exceed the
regulatory minimum guidelines as identified in the following table:
<TABLE>
<CAPTION>
Corporation Ratios Regulatory
3/31/98 12/31/97 Minimums
------- -------- --------
<S> <C> <C> <C>
Tier I Risk Based Capital 16.38% 18.09% 4.00%
Total Risk Based Capital 17.63% 19.34% 8.00%
Leverage Ratio 9.99% 9.69% 5.00%
</TABLE>
The Corporation paid cash dividends of $.15 per common share on February 1, 1998
compared to the February 1, 1997 dividend of $.14 per common share.
Capital expenditures totaled $109,167 for the first three months of 1998
compared to $1,054,811 for the same period of 1997. The capital expenditures for
the first three months of 1997 include $956,145 of premises and equipment
acquired in the purchase of two branches.
LIQUIDITY
- ---------
Liquidity as it relates to the banking entities of the Corporation is the
ability to meet the cash demand and credit needs of its customers. For the first
three months of 1998 the Banks maintained a federal funds sold position that
averaged $9,640,000 In addition, the Banks, through their respective
correspondent banks maintain federal funds borrowing lines totaling $16,900,000
and the Banks have total borrowing availability at the Federal Home Loan Bank of
Cincinnati of $11,617,260 at March 31, 1998. Finally, 93.2% of the Corporation's
security portfolio has been classified as available for sale which provides
additional liquidity.
Page 18
<PAGE> 19
First Citizens Banc Corp
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Form 10-Q
- -------------------------------------------------------------------------------
ASSET AND LIABILITY MANAGEMENT AND MARKET RISK
- ----------------------------------------------
The Corporation's primary market risk exposure is interest rate risk and, to a
lesser extent, liquidity risk. The Banks do not maintain a trading account for
any class of financial instrument and the Corporation is not effected by foreign
currency exchange rate risk or commodity price risk. Because the Corporation
does not hold any equity securities other than stock in the FHLB of Cincinnati,
the Corporation is not subject to equity price risk.
Interest rate risk is the risk that the Corporation's financial condition will
be adversely affected due to movements in interest rates. The Corporation, like
other financial institutions, is subject to interest rate risk to the extent
that its interest-earning assets reprice differently than interest-bearing
liabilities. The income of financial institutions is primarily derived from the
excess of interest earned on interest-earning assets over interest paid on
interest-bearing liabilities. One of the Corporation's principal financial
objectives is to achieve long-term profitability while reducing its exposure to
fluctuations in interest rates. Accordingly, the Corporation places great
importance on monitoring and controlling interest rate risk.
There are several methods employed by the Corporation to monitor and control
interest rate risk. One such method is using gap analysis. The gap is defined as
the repricing variance between rate sensitive assets and rate sensitive
liabilities within certain periods. The repricing can occur due to changes in
rates on variable products as well as maturities of interest-earning assets and
interest-bearing liabilities. A high ratio of interest sensitive liabilities,
generally referred to as a negative gap, tends to benefit net interest income
during periods of falling rates as the average rate on interest-bearing
liabilities falls faster than the average rate earned on interest-earning
assets. The opposite holds true in during periods of rising rates. The
Corporation attempts to minimize the interest rate risk through management of
the gap in order to achieve consistent shareholder return. The Corporation's
Assets and Liability Management Policy is to maintain a laddered gap position.
One strategy is to originate variable rate loans tied to market indices. Such
loans reprice as the underlying market index changes. Currently, approximately
54.2% of the Corporation's loan portfolio reprices on at least an annual basis.
The Corporation also invests excess funds in federal funds that mature and
reprice daily.
The Corporation's 1997 annual report details a table which provides information
about the Banks financial instruments that are sensitive to changes in interest
rates as of December 31, 1997. The table is based on information and assumptions
set forth in the notes. The Corporation believes the assumptions are reasonable.
For loans, securities and liabilities with contractual maturities, the table
represents principal cash flows and weighted average interest rate. For variable
rate loans the contractual maturity and weighted average interest rate were
used. For liabilities without contractual maturities such as demand and savings
Page 19
<PAGE> 20
First Citizens Banc Corp
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Form 10-Q
- ------------------------------------------------------------------------------
deposits, a decay rate was utilized to match their most likely withdrawal
behavior. Management believes that no events have occurred since December 31,
1997 which would significantly change the ratio of rate sensitive liabilities
for the given time horizon.
YEAR 2000 ISSUE
- ---------------
The Corporation is aware of the potential impact of the Year 2000 on data
processing and technology. The Corporation's date processing subsidiary, SCC is
totally dependent on its ability to process for the Corporation's subsidiary
banks and other banking customers. SCC developed a Year 2000 project plan which
was introduced in May 1997. This project plan has outlined the approach to the
Year 2000 as being 1) an initial planning phase, 2) an assessment phase, 3) a
strategy phase, and 4) an overall testing phase. Management of SCC has made the
commitment that processing applications classified as high priority and
determined to be essential to ongoing operation of the Banks and banking
customers will be Year 2000 compatible by December 31, 1998. Other processing
applications having lesser priority or where date calculations have no impact
will be Year 2000 compliant by June 30, 1999. SCC communicates monthly with its
customer banks on the status of its Year 2000 project.
The Board of Directors of both Citizens and Castalia have named Year 2000
coordinators. Both Banks have conducted assessments to identify hardware,
software and other processes that may be affected by the Year 2000 date change
and that are not included in the services provided to the Banks by SCC.
Throughout 1998, additional efforts are planned to renovate or replace
functions determined by the assessment not to be Year 2000 compliant.
In addition to the impact on its own systems, the Banks have recognized that
borrowing customers could be impacted by the Year 2000 and that impact could
impair the customers ability to meet their obligations. The Banks are
communicating to significant borrowers the need to evaluate their systems.
Management recognizes that costs are associated with Year 2000 efforts, but
does not believe that these costs will materially affect the operations,
liquidity or capital resources of the Corporation.
PROPOSED MERGER
- ---------------
On July 3, 1997, The Corporation entered into a definitive agreement to acquire
The Farmers State Bank ("Farmers") of New Washington, Ohio. This agreement, as
amended, specifies that the Corporation will issue 6.06 shares of the
Corporation's common stock for each of the 200,000 shares of Farmers
outstanding. The merger is subject to the approval of both companies' regulatory
agencies and the shareholders of both Farmer and First Citizens Banc Corp. The
transaction is also subject to the pooling of interests method of accounting.
The merger has received the approval of both companies regulatory agencies, as
well as the shareholders of Farmers and First Citizens Banc Corp and was
consummated on April 28, 1998.
Page 20
<PAGE> 21
First Citizens Banc Corp
Other Information
Form 10-Q
- -------------------------------------------------------------------------------
Part II - Other Information
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. (a) EXHIBIT NO. 27 Financial Data Schedule...............24
(b) EXHIBIT NO. 99 Safe Harbor Under the Private Securities
Litigation Reform Act of 1995
(b) REPORTS ON FORM 8-K - None
Page 22
<PAGE> 22
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, The
registrant has caused this report to be signed on its behalf the undersigned
thereunto duly authorized.
First Citizens Banc Corp
/s/ David A. Voight May 13, 1997
- ---------------------------------------------- ------------
David A. Voight Date
President
/s/ James O. Miller May 13, 1997
- ----------------------------------------------- ------------
James O. Miller Date
Senior Vice President
Page 23
<PAGE> 23
First Citizens Banc Corp
Index to Exhibits
Form 10-Q
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Exhibit
Number Description Page Number
- ------ ----------- -----------
<S> <C> <C>
27 Financial Data Schedule 24
99 Safe Harbor Under the Private Securities Incorporated by reference to Exhibit
Litigation Reform Act of 1995 99 to Annual Report on Form 10-K
for the Year Ended December 31,
1996 filed by the registrant on
February 24, 1997
</TABLE>
Page 24
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000944745
<NAME>First Citizens Banc Corp
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 11,935,231
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 12,540,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 62,726,700
<INVESTMENTS-CARRYING> 4,601,684
<INVESTMENTS-MARKET> 4,646,843
<LOANS> 221,301,202
<ALLOWANCE> 2,821,613
<TOTAL-ASSETS> 327,957,134
<DEPOSITS> 267,320,405
<SHORT-TERM> 9,544,071
<LIABILITIES-OTHER> 1,604,260
<LONG-TERM> 14,182,740
0
0
<COMMON> 15,257,520
<OTHER-SE> 20,048,138
<TOTAL-LIABILITIES-AND-EQUITY> 327,957,134
<INTEREST-LOAN> 4,773,417
<INTEREST-INVEST> 916,456
<INTEREST-OTHER> 140,945
<INTEREST-TOTAL> 5,830,818
<INTEREST-DEPOSIT> 2,286,183
<INTEREST-EXPENSE> 2,601,398
<INTEREST-INCOME-NET> 3,229,420
<LOAN-LOSSES> 108,000
<SECURITIES-GAINS> 19,580
<EXPENSE-OTHER> 2,744,307
<INCOME-PRETAX> 1,269,390
<INCOME-PRE-EXTRAORDINARY> 899,232
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 899,232
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
<YIELD-ACTUAL> 4.43
<LOANS-NON> 1,338,000
<LOANS-PAST> 1,188,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,799,000
<CHARGE-OFFS> 128,216
<RECOVERIES> 42,829
<ALLOWANCE-CLOSE> 2,821,613
<ALLOWANCE-DOMESTIC> 2,821,613
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,543,906
</TABLE>
