<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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from.......................to........................
Commission File Number:.................................................0-25980
First Citizens Banc Corp
------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-1558688
---- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
100 East Water Street, Sandusky, Ohio 44870
------------------------------------------------------------------------
(Address of principle executive offices) (Zip Code)
Registrant's telephone number, including area code: (419) 625-4121
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
X Yes
---
No
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, no par value
Outstanding at May 12, 1999
4,262,795 common shares
<PAGE> 2
<TABLE>
<CAPTION>
FIRST CITIZENS BANC CORP
Index
<S> <C>
PART I. Financial Information
ITEM 1. Financial Statements:
Consolidated Balance Sheets (unaudited)
March 31, 1999 and December 31, 1998...................................3
Consolidated Statements of Income (unaudited)
Three months ended March 31, 1999 and 1998.............................4
Consolidated Statement of Shareholders' Equity (unaudited)
For the years ended December 31, 1997 and 1998 and
three months ended March 31, 1999......................................5
Consolidated Statement of Cash Flows (unaudited)
Three months ended March 31, 1999 and 1998.............................6
Notes to Consolidated Financial Statements (unaudited)..................7-14
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................15-21
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.............21-22
PART II. Other Information
ITEM 1. Legal Proceedings.........................................................23
ITEM 2. Changes in Securities and Use of Proceeds.................................23
ITEM 3. Defaults Upon Senior Securities...........................................23
ITEM 4. Submission of Matters to a Vote of Security Holders.......................23
ITEM 5. Other Information.........................................................23
ITEM 6. Exhibits and Reports on Form 8-K..........................................23
SIGNATURES.........................................................................24
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
FIRST CITIZENS BANC CORP
Consolidated Balance Sheet
(Unaudited)
March 31, December 31,
Assets 1999 1998
------------- -------------
<S> <C> <C>
Cash and due from banks $ 14,351,356 $ 16,443,613
Federal funds sold 16,270,000 19,950,000
Interest-bearing deposits 248,282 248,282
Securities
Available for sale 163,610,803 171,952,700
Held to maturity (Estimated Fair Value of $708,338 at
March 31, 1999 and $823,632 at December 31, 1998) 700,386 810,122
------------- -------------
Total securities 164,311,189 172,762,822
Loans held for sale 1,174,850 2,273,509
Loans 279,815,943 283,349,201
Less: Allowance for loan losses (4,475,703) (4,567,126)
------------- -------------
Net Loans 275,340,240 278,782,075
Office premises and equipment, net 7,285,850 7,363,513
Intangible assets 2,452,451 2,533,963
Accrued interest and other assets 6,606,864 8,531,086
------------- -------------
Total assets $ 488,041,082 $ 508,888,863
============= =============
Liabilities
Deposits
Noninterest-bearing $ 38,642,499 $ 38,574,055
Interest-bearing 373,434,666 379,325,190
------------- -------------
Total deposits 412,077,165 417,899,245
Federal Home Loan Bank borrowings 2,359,262 13,235,165
Securities sold under agreements to repurchase 12,937,971 16,369,681
U. S. Treasury interest-bearing demand notes payable 814,543 971,558
Accrued expenses and other liabilities 6,037,223 6,672,283
------------- -------------
Total liabilities 434,226,164 455,147,932
Shareholders' Equity
Common stock, no par value; 10,000,000 shares authorized,
4,263,401 shares issued and outstanding 23,257,520 23,257,520
Retained earnings 27,984,701 26,811,264
Treasury stock, 250 shares at cost at March 31, 1999 (6,750) 0
Accumulated other comprehensive income 2,579,447 3,672,147
------------- -------------
Total shareholders' equity 53,814,918 53,740,931
------------- -------------
Total liabilities and shareholders' equity $ 488,041,082 $ 508,888,863
============= =============
</TABLE>
See notes to interim consolidated financial statements.
Page 3
<PAGE> 4
FIRST CITIZENS BANC CORP
Consolidated Statements of Income (Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
INTEREST INCOME:
Loans, including fees $5,800,900 $6,245,801
Taxable securities 1,721,105 1,535,265
Nontaxable securities 581,025 502,087
Federal funds sold 175,819 202,445
Other 21,035 15,646
---------- ----------
Total interest income 8,299,884 8,501,244
INTEREST EXPENSE:
Deposits 3,649,220 3,951,970
FHLB borrowings 163,064 207,241
Other 157,332 120,864
---------- ----------
Total interest expense 3,969,616 4,280,075
---------- ----------
NET INTEREST INCOME 4,330,268 4,221,169
PROVISION FOR LOAN LOSSES 68,000 108,000
---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 4,262,268 4,113,169
NONINTEREST INCOME:
Computer center data processing fees 509,696 462,092
Service charges 240,641 209,661
Net gain on sales of securities 727,304 19,580
Net gain on sales of loans 94,518 33,965
Other 332,608 244,551
---------- ----------
Total noninterest income 1,904,767 969,849
NONINTEREST EXPENSE:
Salaries, wages and benefits 1,780,196 1,703,670
Net occupancy expense 196,938 167,744
Equipment expense 186,792 171,754
FDIC premiums 12,245 18,971
State franchise tax 150,756 173,982
Professional services 268,029 176,032
Amortization of intangible assets 81,512 81,512
Other operating expenses 906,115 825,776
---------- ----------
Total noninterest expense 3,582,583 3,319,441
---------- ----------
Income before taxes 2,584,452 1,763,577
Income tax expense 728,871 503,158
---------- ----------
Net Income $1,855,581 $1,260,419
========== ==========
Earnings per share $ 0.44 $ 0.30
Dividends declared $ 0.16 $ 0.15
Weighted average shares during the period 4,263,345 4,263,401
</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>
Unrealized
Gain on
Securities Total
Common Stock Retained Treasury Available Shareholders'
Shares Amount Earnings Stock for Sale Equity
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 4,263,401 $23,257,520 $24,619,419 $ 0 $ 811,399 $48,688,338
Comprehensive income:
Net income 4,440,544 4,440,544
Change in unrealized gain on
securities available for sale 1,615,663 1,615,663
-----------
Total 6,056,207
Cash dividends ($1.07 per share) (3,265,110) (3,265,110)
Cash dividends declared Farmers,
pior to merger (280,000) (280,000)
--------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 4,263,401 23,257,520 25,514,853 0 2,427,062 51,199,435
Comprehensive income:
Net income 5,760,667 5,760,667
Change in unrealized gain on
securities available for sale 1,245,085 1,245,085
-----------
Total 7,005,752
Cash paid for fractional shares (3,451) (3,451)
Cash dividends ($1.11 per share) (4,368,805) (4,368,805)
Cash dividends declared Farmers,
pior to merger (92,000) (92,000)
--------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 4,263,401 23,257,520 26,811,264 0 3,672,147 53,740,931
Comprehensive income:
Net income 1,855,581 1,855,581
Change in unrealized gain on
securities available for sale (1,092,700) (1,092,700)
-----------
Total 762,881
Purchase of treasury stock at cost (250) (6,750) (6,750)
Cash dividends ($.16 per share) (682,144) (682,144)
--------- ----------- ----------- ----------- ----------- -----------
Balance, March 31, 1999 4,263,151 $23,257,520 $27,984,701 $ (6,750) $ 2,579,447 $53,814,918
========= =========== =========== =========== =========== ===========
</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,
-----------------------------
1999 1998
<S> <C> <C>
Cash flows from operating activities
Net Income $ 1,855,581 $ 1,260,419
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization of office premises and equipment 228,682 202,999
Amortization of intangible assets 81,512 81,512
Provision for loan losses 68,000 108,000
Loans originated for sale (2,308,150) (1,738,080)
Proceeds form sale of loans 3,447,478 1,260,463
Gain on sale of loans (94,518) (33,965)
Security gains (727,304) (19,580)
Change in deferred loan fees (26,725) (43,887)
Net amortization of security premiums and discounts 155,810 55,598
Change in accrued interest and other assets 1,978,071 (504,165)
Change in accrued interest, taxes and other expenses (72,153) (1,171,542)
------------ ------------
Net cash from operating activities 4,586,284 (542,228)
Cash flows from investing activities
Maturities of interest bearing deposits 99,000
Maturities and calls of securities, held-to-maturity 109,419 2,132,011
Maturities and calls of securities, available-for-sale 12,232,503 8,717,503
Purchases of securities, available-to-sale (6,183,990) (11,586,574)
Proceeds from sale of securities, available-to-sale 1,209,587
Loans made to customers, net of principal collected 3,400,560 3,002,940
Change in federal funds sold 3,680,000 (1,540,000)
Proceeds from sale of property and equipment 1,627 25,613
Purchases of office premises and equipment (152,645) (141,926)
------------ ------------
Net cash from investing activities 14,297,061 708,567
Cash flows from financing activities
Repayments of FHLB borrowings (10,875,903) (305,294)
Net change in deposits (5,822,080) (1,345,641)
Change in securities sold under agreements to repurchase (3,431,710) 1,502,463
Change in U. S. Treasury interest-bearing demand notes payable (157,015) (2,162,408)
Purchases of treasury stock (6,750)
Cash dividends paid (682,144) (737,726)
------------ ------------
Net cash from financing activities (20,975,602) (3,048,606)
------------ ------------
Net change in cash and cash equivalents (2,092,257) (2,882,267)
Cash and due from banks at beginning of period 16,443,613 17,695,634
------------ ------------
Cash and due from banks at end of period $ 14,351,356 $ 14,813,367
============ ============
Supplemental disclosures:
Cash paid during the period for:
Interest $ 4,796,761 $ 5,226,007
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), The Farmers State Bank of New Washington (Farmers), 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, 1999 and December 31,
1998; the consolidated statements of income for the three month periods
ended March 31, 1999 and 1998; the consolidated statement of
shareholders' equity for the three months ended March 31, 1999 and the
years ended December 31, 1998 and 1997; and the consolidated statements
of cash flows for the three month periods ended March 31, 1999 and 1998
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, 1999 and its results of operations and changes
in cash flows for the periods ended March 31, 1999 and 1998 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, 1999 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 1998 annual report.
The Corporation has consistently followed these policies in preparing
this Form 10-Q.
Income tax expense 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 at enacted tax
rates based on the difference between the tax basis of assets and
liabilities and their carrying amounts for financial reporting
purposes, referred to as "temporary differences." A valuation
allowance, if needed, reduces deferred tax assets to the amount
expected to be realized.
Certain items in the 1998 financial statements have been reclassified
to correspond with the 1999 presentation.
Page 7
<PAGE> 8
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
- --------------------------------------------------------------------------------
The Corporation elected to present comprehensive income and the
accumulated balance in the Consolidated Statement of Shareholders'
Equity for interim reporting purposes. The table below presents the
reclassification adjustments related to comprehensive income.
Reclassification adjustments are needed when an item is included in the
net income in one period and comprehensive income in another accounting
period.
Other comprehensive income components and related taxes for the three
months ended March 31, 1999 and 1998.
<TABLE>
<CAPTION>
Three months ended March 31,
1999 1998
---- ----
<S> <C> <C>
Unrealized holding gains and (losses) on
available for sale securities $ (928,306) $ 590,386
Reclassification adjustment for (gains) and
losses later recognized in income (727,304) (19,580)
--------------- -----------
Net unrealized gains and (losses) (1,655,610) 570,806
Tax effect 562,910 (194,074)
--------------- -----------
Other comprehensive income $ (1,092,700) $ 376,732
=============== ===========
</TABLE>
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. The key criterion for hedge accounting is that
the hedging relationship must be highly effective in achieving offsetting
changes in fair value or cash flows. SFAS No. 133 does not allow hedging of a
security which is classified as held to maturity, accordingly, upon adoption of
SFAS No. 133, companies may reclassify any security from held to maturity to
available for sale if they wish to be able to hedge the security in the future.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999 with
early adoption encouraged for any fiscal quarter beginning July 1, 1998 or
later, with no retroactive application. Management does not expect the adoption
of SFAS No. 133 to have a significant impact on The Corporation's financial
statements.
Page 8
<PAGE> 9
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
- --------------------------------------------------------------------------------
SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained After the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise"
changes the way companies involved in mortgage baking account for certain
securities and other interests they retain after securitizing mortgage loans
that were held for sale. SFAS No. 134 allows any retained mortgage-backed
securities after a securitization of mortgage loans held for sale to be
classified based on holding intent on accordance with SFAS No. 115, except in
cases where the retained mortgage-backed security is committed to be sold before
or during the securitization process in which case it must be classified as
trading. Previously, all retained mortgage-backed securities were required to be
classified as trading. SFAS No. 134 was effective as of January 1, 1999, and did
not have a significant impact on the Corporation's financial statements.
(2) Securities
Securities at March 31, 1999 and December 31, 1998 were as follows:
<TABLE>
<CAPTION>
March 31, 1999
Gross Gross
Unrealized Unrealized
AVAILABLE FOR SALE Amortized Cost Gains Losses Fair Value
--------------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations
of U.S. Government corporations
and agencies $ 65,250,743 $ 580,611 $ (120,345) $ 65,711,009
Obligations of state and political
subdivisions 52,798,808 1,301,603 (51,514) 54,048,897
Corporate bonds 17,720,285 70,801 (15,575) 17,775,511
Equity securities 1,385,237 2,184,293 (20,155) 3,549,375
Other securities, including mortgage-
backed securities 22,547,478 47,434 (68,901) 22,526,011
--------------- ------------ ----------- -------------
$ 159,702,551 $ 4,184,742 $ (276,490) $ 163,610,803
=============== ============ =========== =============
</TABLE>
Page 9
<PAGE> 10
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, 1999
Gross Gross
Amortized Unrealized Unrealized
HELD TO MATURITY Cost Gains Losses Fair Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Obligations of state and political
subdivisions $ 355,000 $ 2,982 $ 0 $ 357,982
Other securities, including mortgage
backed securities 345,386 5,119 (149) 350,356
------------- ------------- ------------- -------------
$ 700,386 $ 8,101 $ (149) $ 708,338
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
Gross Gross
Amortized Unrealized Unrealized
AVAILABLE FOR SALE Cost Gains Losses Fair Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations
of U.S. Government corporations
and agencies $ 69,024,266 $ 1,198,600 $ (98,129) $ 70,124,737
Obligations of state and political
subdivisions 52,759,051 1,661,950 (17,364) 54,403,637
Corporate bonds 17,957,515 166,350 (7,115) 18,116,750
Equity securities 1,867,519 2,605,797 (22,405) 4,450,911
Other securities, including mortgage
backed securities 24,780,487 86,596 (10,418) 24,856,665
------------- ------------- ------------- -------------
$ 166,388,838 $ 5,719,293 $ (155,431) $ 171,952,700
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
HELD TO MATURITY Cost Gains Losses Fair Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Obligations of state and political
subdivisions $ 355,000 $ 7,564 $ 0 $ 362,564
Other securities, including mortgage
backed securities 455,122 6,054 (108) 461,068
------------- ------------- ------------- -------------
$ 810,122 $ 13,618 $ (108) $ 823,632
============= ============= ============= =============
</TABLE>
Page 10
<PAGE> 11
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
- --------------------------------------------------------------------------------
The amortized cost and fair value of securities at March 31, 1999, by
contractual maturity, are shown below. Actual maturities may differ from
contractual maturities because issuers may have the right to call or prepay
obligations. Securities not due at a single maturity date, primarily
mortgage-backed securities and equity securities are shown separately.
<TABLE>
<CAPTION>
Amortized
Cost Fair Value
------------ ------------
<S> <C> <C>
AVAILABLE FOR SALE
Due in one year or less $ 22,140,648 $ 22,289,523
Due after one year through five years 91,284,790 92,276,401
Due after five years through ten years 22,130,650 22,746,268
Due after ten years 213,748 223,225
Mortgage-backed securities 22,547,478 22,526,011
Equity securities 1,385,237 3,549,375
------------ ------------
Total securities available for sale $159,702,551 $163,610,803
============ ============
</TABLE>
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
------------ ------------
<S> <C> <C>
HELD TO MATURITY
Due in one year or less $ 122,500 $ 124,100
Due after one year through five years 232,500 233,882
Mortgage-backed securities 345,386 350,356
------------ ------------
Total securities held to maturity $ 700,386 $ 708,338
============ ============
</TABLE>
Proceeds from sales of securities available for sale totaled $1,209,587
resulting in gross gains of $727,304. No securities were called or settled by
the issuer during the three months ended March 31, 1999. Securities called or
settled by the issuer resulted in gains of $19,580 for the three months ended
March 31, 1998.
Securities with a carrying value of approximately $62,635,000 and $60,960,000
were pledged as of March 31, 1999 and December 31, 1998, 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 at March 31, 1999 and December 31, 1998 were as follows:
<TABLE>
<CAPTION>
3/31/1999 12/31/1998
--------- ----------
<S> <C> <C>
Commercial and Agriculture $ 27,642,367 $ 28,415,462
Real Estate - mortgage 218,949,775 221,438,442
Real Estate - construction 2,731,181 3,492,928
Consumer 30,195,448 29,957,511
Credit card and other 1,602,325 1,426,312
Deferred loan fees (1,113,792) (1,140,518)
Unearned interest (191,361) (240,936)
------------ ------------
Total $279,815,943 $283,349,201
============ ============
</TABLE>
(4) Allowance for Loan Losses
A summary of the activity in the allowance for loan losses for the
three months ended March 31, 1999 and 1998 was as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Balance January 1, $4,567,126 $4,707,051
Loans charged-off (215,949) (156,216)
Recoveries 56,526 45,865
Provision for loan losses 68,000 108,000
---------- ----------
Balance March 31, $4,475,703 $4,704,700
========== ==========
</TABLE>
Page 12
<PAGE> 13
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
- --------------------------------------------------------------------------------
Information regarding impaired loans was as follows for the three months ended
March 31.
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Average investment in impaired loans $3,685,000 $4,292,000
Interest income recognized on impaired loans
including interest income recognized on cash basis 47,556 63,107
Interest Income recognized on impaired loans
on cash basis 47,556 63,107
</TABLE>
Information regarding impaired loans at March 31, 1999 and December 31, 1998 was
as follows:
<TABLE>
<CAPTION>
3/31/99 12/31/98
------- --------
<S> <C> <C>
Balance impaired loans $3,739,000 $4,159,000
Less portion for which no allowance for loan
losses is allocated -- --
Portion of impaired loan balance for which an
allowance for credit losses is allocated $3,739,000 $4,159,000
========== ==========
Portion of allowance for loan losses allocated to
the impaired loan balace $1,126,000 $1,173,000
========== ==========
</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 consolidated balance sheets. 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 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
Page 13
<PAGE> 14
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
- --------------------------------------------------------------------------------
fixed rate loan commitments for short periods of time. However, such commitments
were immaterial as of March 31, 1999 and December 31, 1998.
Commitments to extend credit and letters of credit approximated the following
amounts at March 31, 1999 and December 31, 1998.
<TABLE>
<CAPTION>
Contract Amount
---------------
December 31,
March 31, 1999 1998
-------------- -----------
<S> <C> <C>
Commitment to extend credit:
Lines of credit and construction loans $24,648,000 $23,412,000
Credit cards 3,615,000 3,315,000
Letters of credit 514,000 623,000
----------- -----------
$28,777,000 $27,350,000
=========== ===========
</TABLE>
The Banks are required to maintain certain reserve balances on hand in
accordance with the Federal Reserve Board requirements. The average reserve
balance maintained in accordance with such requirements for the periods ended
March 31, 1999 and December 31, 1998 approximated $2,791,000 and $2,326,000.
In the normal course of business, the Corporation and its subsidiaries are
involved in various legal actions, but in the opinion of management and its
legal counsel, ultimate disposition of such legal matters is not expected to
have a material adverse effect on the consolidated financial statements.
Page 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, 1999, compared to December 31, 1998 and
the consolidated results of operations for the three month period ending March
31, 1999 compared to the same period in 1998. This discussion should be read in
conjunction with the consolidated financial statements and footnotes included in
this Form 10-Q.
The registrant is not aware of any trends, events or uncertainties that will
have, or are reasonably likely to have, a material effect on the liquidity,
capital resources, or operations except as discussed herein. Also, the
registrant is not aware of any current recommendation by regulatory authorities,
which would have a material effect if implemented.
When used in this form 10-Q or future filings by the Corporation with
the Securities and Exchange Commission, in press releases or other public or
shareholder communications, or in oral statements made with the approval of an
authorized executive officer, the words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "estimate," "project,"
"believe," or similar expressions are intended to identify "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. The Corporation wishes to caution readers not to place undue reliance
on any such forward-looking statements, which speak only as of the date made,
and to advise readers that various factors, including regional and national
economic conditions, changes in levels of market interest rates, credit risks of
lending activities and competitive and regulatory factors, could effect the
Corporation's financial performance and could cause the Corporation's actual
results for future periods to differ materially from those anticipated or
projected. The Corporation does not undertake, and specifically disclaims, any
obligation to publicly release the result of any revisions, which may be made to
any forward-looking statements to reflect occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.
See Exhibit 99, which is incorporated herein by reference.
FINANCIAL CONDITION
Total assets of the Corporation at March 31, 1999 totaled $488,041,082 compared
to $508,888,863 at December 31, 1998. This was a decrease of $20,847,781 or 4.1
percent. Within the structure of the assets, net loans have decreased $3,441,835
or 1.2 percent since December 31, 1998, due in part to slow loan demand.
Finally, the Corporation is now selling mortgages on the secondary market. For
the first three months of 1998, loans originated for sale totaled $2,308,150.
Loans held-for-sale
Page 15
<PAGE> 16
First Citizens Banc Corp
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Form 10-Q
- --------------------------------------------------------------------------------
decreased $1,098,659, or 48.3 percent from December 31, 1998. At March 31, 1999,
the net loan to deposit ratio was 66.8 percent compared to 66.7 percent at
December 31, 1998.
At March 31, 1999, $163,610,803, or 99.6 percent of the security portfolio was
classified as available for sale. The remainder of $700,386 was classified as
held to maturity. Securities decreased $8,451,633 from December 31, 1998. Some
matured securities were not replaced in order to increase liquidity.
Additionally, equity securities with a market value of $1,209,587 were sold
during the three months ended March 31, 1999.
For the three months of operations in 1999, $68,000 was placed into the
allowance from earnings compared to $108,000 for the same period of 1998.
Provisions to the allowance are down for a couple of reasons. First, loan volume
is down. With the loan volume down, the allowance is also reduced. The second
reason is that impaired loans are also down. Impaired loans at March 31, 1999
totaled approximately $3,739,000, or 1.3 percent of the loan portfolio compared
to $4,159,000, or 1.5 percent of the loan portfolio at December 31, 1998. Each
impaired loan has a specific reserve amount associated with it. As with loan
volume, when impaired loans decrease, so will the reserve. Net charge-offs for
the first three months of 1999 were $159,423 compared to $110,351 for the same
period of 1998. The March 31, 1999 allowance for loan losses as a percent of
total loans was 1.60 percent compared to 1.61 percent at December 31, 1998.
Office premises and equipment have decreased $77,663 and intangible assets have
decreased $81,512 since December 31, 1998. The decrease in office premises and
equipment is attributed to new purchases of $152,645, less proceeds from the
sale of equipment of $1,627 and depreciation of $228,682.
Total deposits at March 31, 1999 decreased $5,822,080 from year-end 1998.
Noninterest-bearing deposits, representing demand deposit balances, increased
$68,444 from year-end 1998. Interest-bearing deposits, including savings and
time deposits, decreased $5,890,524 from year-end 1998. The year to date 1999
average balance of savings deposits has increased $1,608,000 compared to the
average balance of the same period for 1998. The current average rate of these
deposits is 2.38 percent compared to 2.80 percent in 1998. The decrease in the
savings rate is due to the Banks lowering the savings rate between 25 and 50
basis points. The year to date 1998 average balance of time certificates has
increased $2,121,000 compared to the average balance for the same period for
1998. The current average rate on these deposits is 5.18 percent compared to
5.66 percent for the same period in 1998. This decrease in rate is due to
pricing strategies employed to help control the cost of deposits, reaction to
market interest rates trending down and slowing deposit growth during a period
of slower loan demand.
Page 16
<PAGE> 17
First Citizens Banc Corp
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Form 10-Q
- --------------------------------------------------------------------------------
Other borrowed funds have decreased $14,464,628 from December 31, 1998 to March
31, 1999. Federal Home Loan Bank borrowings have decreased $10,875,903 as a
result of scheduled paydowns. Securities sold under agreements to repurchase
have decreased $3,431,710 and U.S. Treasury Tax Demand Notes have decreased
$157,015.
Shareholders' equity at March 31, 1999 was $53,814,918, which was 11.0 percent
of total assets. Shareholders' equity at December 31, 1998 was $53,740,931,
which was 10.6 percent of total assets. The increase in shareholders' equity was
represented by earnings of $1,855,581, dividends paid of $682,144, the purchase
of treasury stock for $6,750 and the decrease in the unrealized gain on
securities available for sale of $1,092,700. The Corporation paid a cash
dividend on February 1, 1999 at the rate of $.16 per share. Total outstanding
shares at March 31, 1999 were 4,263,151.
RESULTS OF OPERATIONS
Net income for the quarter ended March 31, 1999 was $1,855,581, or $.44 per
common share compared to $1,260,419, or $.30 per common share for the same
period in 1998. This was an increase of $595,162, or 47.2 percent. Some of the
reasons for the changes are explained below.
Net interest income for the first quarter 1999 totaled $4,330,268 compared to
$4,221,169 for the first quarter of 1998. This was an increase of $109,099, or
2.6 percent. Total interest income for the first three months of 1999 has
decreased $201,360, or 2.4 percent compared to the same period in 1998. The
average rate on earning assets on a tax equivalent basis for the first three
months of 1999 was 7.27 percent and 7.72 percent for the first three months of
1998. Total interest expense for the first three months of 1999 has decreased
$310,459, or 7.2 percent compared to the same period of 1998. This decrease is
due mainly to a decrease in interest on deposits of $302,750. The average rate
on interest-bearing liabilities for the first three months of 1999 was 3.37
percent compared to 3.78 percent for the same period of 1998. The net interest
margin on a tax equivalent basis was 3.90 percent for the three-month period
ended March 31, 1999 and 3.94 percent for the same period ended March 31, 1998.
Noninterest income for the first quarter 1999 totaled $1,904,767 compared to
$969,849 for the first quarter 1998, an increase of $934,918. Gain on securities
for the quarter increased $707,724 compared to 1998. The large increase in the
gain on securities was due to the sale of equity securities at Farmers. The
equity securities were sold to take advantage of significant increases in the
market value of the portfolio. Revenue from computer operations increased
$47,604, other operating income increased $88,057, service charges on deposit
accounts increased $30,980 and the gain on the sale of loans increased $60,553.
Gain on the sale of loans increased due to increased volume of loans sold.
Page 17
<PAGE> 18
First Citizens Banc Corp
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Form 10-Q
- --------------------------------------------------------------------------------
Noninterest expense for the first quarter 1999 totaled $3,582,583 compared to
$3,319,441 for the first quarter 1998. This was an increase of $263,142 or 7.9
percent. The largest change in noninterest expense was in professional fees.
Professional fees increased $91,997, due mainly to costs associated with a
change in accounting at Farmers.
INCOME TAX EXPENSE
Income tax expense for the first quarter of 1999 totaled $728,871 compared to
$503,159 for the first quarter of 1998. This was an increase of $225,713 or 44.8
percent. The increase in the federal income taxes is a result of the increase in
total income before taxes of $820,875, generated mostly by income from the sale
of equity securities. The effective tax rate remained comparable for the three
month periods, 28.2% for the three months ended March 31, 1999 and 28.5% for the
three months ended March 31, 1998.
CAPITAL RESOURCES
Shareholders equity totaled $53,814,918 at March 31, 1999 compared to
$53,740,931 at December 31, 1998. All of the capital ratios exceed the
regulatory minimum guidelines as identified in the following table:
<TABLE>
<CAPTION>
Corporation Ratios Regulatory
3/31/99 12/31/98 Minimums
------- -------- --------
<S> <C> <C> <C>
Tier I Risk Based Capital 16.9% 15.7% 4.0%
Total Risk Based Capital 18.2% 17.0% 8.0%
Leverage Ratio 9.9% 9.5% 5.0%
</TABLE>
The Corporation paid a cash dividend of $.16 per common share on February 1,
1999 compared to $.15 per common share on February 1, 1998.
Capital expenditures totaled $151,018 for the first three months of 1999
compared to $109,167 for the same period of 1998.
Page 18
<PAGE> 19
First Citizens Banc Corp
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Form 10-Q
- -------------------------------------------------------------------------------
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 1999 the Banks maintained a federal funds sold position that
averaged $15,161,000. In addition, the Banks, through their respective
correspondent banks, maintain federal funds borrowing lines totaling $28,950,000
and the Banks have total borrowing availability at the Federal Home Loan Bank of
Cincinnati of $12,244,911 at March 31, 1999. Finally, 99.6% of the Corporation's
security portfolio has been classified as available for sale, which provides
additional liquidity.
YEAR 2000 ISSUE
First Citizens Banc Corp realizes that the Year 2000 challenge is a serious
problem for not only itself and other banks but for all organizations. Many
computer systems that use dates to calculate any number of computations,
functions, and a vast number of commands may begin to fail prior to or on the
start of the new Year 2000. It is critical to the continuing operations of First
Citizens Banc Corp that all its systems that are sensitive to the Year 2000 date
change be identified and changed before any adverse situations occur. First
Citizens Banc Corp's definition of Year 2000 Compliant is the capability of
sustaining minimal business disruptions, readiness of system applications and
preparation for response and recovery as necessary. System applications are
considered Year 2000 ready when they continue to produce the same
understandable, accurate and predictable results, regardless of the date.
The Year 2000 Plan is broken into 5 separate parts. Each part is important to
the end result of being 2000 compliant. Upon completion of the plan all items
will have been examined and corrected (or documented as an exception). The
phases are as follows: awareness, assessment, renovation, validation, and
implementation.
The awareness phase involves identifying the Year 2000 problem, gaining
executive level support for recognizing the importance of the problem, and
developing a team and strategy for handling the problem. First Citizens Banc
Corp has appointed Year 2000 Directors and established Year 2000 Teams and an
Executive Y2K Committee. To help inform our customer and our community of the
Year 2000 issue, we have sent brochures out to our customers and held
information seminars that were open to the public.
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<PAGE> 20
First Citizens Banc Corp
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Form 10-Q
- -------------------------------------------------------------------------------
The assessment phase involves identifying the size and complexity of the problem
as it relates to First Citizens Banc Corp, including identifying all software,
hardware, systems, and internal and external interdependencies that are affected
by the century change. From the regulatory perspective, this also includes
identifying the resources needed, the time frames, and the processes necessary
to handle the Year 2000 problem. Assessment lists have been completed listing
those items that are Year 2000 susceptible, prioritizing them as to their
importance. Maintaining this list and contact with all necessary vendors is an
ongoing process. Questionnaires were sent out to loan and deposit customers to
help address our credit and liquidity risks.
The renovation phase involves programming or reprogramming systems, hardware and
software upgrades, system replacements, and related changes that we will have to
make to prepare all systems for the turn of the century. This includes ongoing
contact with any third-party servicers or software providers that the bank may
be using. First Citizens Banc Corp is having all incompliant hardware and
software either updated or replaced.
The validation phase is essentially the testing phase to determine that all
upgrades or reprogrammed systems, as well as other systems that are believed to
be Year 2000 compliant, are truly ready for the date change to January 1, 2000.
First Citizens Banc Corp has developed a test plan to verify that all hardware
and software in use will be ready for the Year 2000. Testing is currently
ongoing and should be completed by June 30, 1999.
The implementation phase involves certification that existing systems are ready
to go, and that any new systems or changes to existing systems are compliant
with the turn of the century requirements. Active involvement of all departments
and teams will monitor new and existing items to insure that a smooth transition
into the Year 2000 and beyond is achieved.
In anticipation of potential Year 2000 problems, the Corporation has addressed
both preventative measures and corrective actions. Management has set a maximum
budget of $281,100 for Year 2000 related issues. Through March 31, 1999,
approximately $180,900 has been spent on solutions for possible problems. In
addition to the dollars spent, specific contingency plans are in place for all
mission critical items. Mission critical items are the programs that must be in
place in order for the Corporation to continue operations with minimal business
disruptions. The contingency plans vary widely and range from manual report
preparation to telephone authorization of funds transfer to reliance on vendor's
contingencies where no other alternative exists.
Page 20
<PAGE> 21
First Citizens Banc Corp
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Form 10-Q
- -------------------------------------------------------------------------------
SALE OF DATA PROCESSING CONTRACTS AT SCC RESOURCES, INC.
On June 19, 1998, SCC entered into an agreement with Jack Henry & Associates,
Inc. (JHA) to sell all of the contracts for providing data processing services
to community banks. JHA agreed to pay a fee based upon annual net revenue under
e new JHA contract for each bank that signed a five-year contract with JHA by
January 31, 1999. The Corporation recognized $2,966,692 of income as a result of
the sale of the contracts in 1998. Expenses of $1,432,572 relating primarily to
the write down of software and intangible assets, lease termination costs and
employee severance costs were also recorded. The net gain of $1,534,120 was
reflected in other income for the year ended December 31, 1999. SCC will
continue to offer bookkeeping, proof and imaging services to its customer
banks, as well as the affiliated banks.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Corporation's primary market risk exposure is interest rate risk and, to a
lesser extent, liquidity risk. The Banks do not maintain a trading account for
any class of financial instrument and the Corporation is not affected by foreign
currency exchange rate risk or commodity price risk. Due to the basis in
equities held by Farmers being so much less than the current fair value at this
time, the Corporation is not subject to significant equity price risk.
Interest rate risk is the risk that the Corporation's financial condition will
be adversely affected due to movements in interest rates. The Corporation, like
other financial institutions, is subject to interest rate risk to the extent
that its interest-earning assets reprice differently than interest-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
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First Citizens Banc Corp
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Form 10-Q
- -------------------------------------------------------------------------------
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 51.1% 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 1998 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, 1998. The table is based on information and assumptions
set forth in the notes. The Corporation believes the assumptions are reasonable.
For loans, securities and liabilities with contractual maturities, the table
represents principal cash flows and weighted average interest rate. For variable
rate loans the contractual maturity and weighted average interest rate were used
with an explanatory footnote as to repricing periods. For liabilities without
contractual maturities such as demand and savings deposits, a decay rate was
utilized to match their most likely withdrawal behavior. Management believes
that no events have occurred since December 31, 1998 which would significantly
change the ratio of rate sensitive liabilities for the given time horizon.
Page 22
<PAGE> 23
First Citizens Banc Corp
Other Information
Form 10-Q
- -------------------------------------------------------------------------------
Part II - Other Information
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
Item 6. (a) Exhibit No. 27 Financial Data Schedule..........................26
(b) Exhibit No. 99 Safe Harbor under the Private Securities
Litigation Reform Act of 1995
(c) Reports on Form 8-K - Incorporated by reference. Originally
filed on February 3, 1999 announcing the February 1, 1999
dividend, implementation of the Dividend Reinvestment and Cash
Purchase Program, and approval to purchase up to 168,000
shares of the Corporation's common stock over the next year.
Page 23
<PAGE> 24
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 17, 1999
- -------------------------- ------------------
David A. Voight Date
President
/s/ James O. Miller May 17, 1999
- -------------------------- ------------------
James O. Miller Date
Executive Vice President
Page 24
<PAGE> 25
First Citizens Banc Corp
Index to Exhibits
Form 10-Q
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Exhibit
Number Description Page Number
- -------- ----------- -----------
<S> <C> <C>
27 Financial Data Schedule 26
99 Safe Harbor Under the Private Securities Incorporated by
Litigation Reform Act of 1995 reference to Exhibit 99
to Annual Report on Form
10-K for the Year Ended
December 31, 1998 filed by the
registrant on March 25, 1999
</TABLE>
Page 25
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000944745
<NAME> FIRST CITIZENS BANC CORP
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 14,351,356
<INT-BEARING-DEPOSITS> 248,282
<FED-FUNDS-SOLD> 16,270,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 163,610,803
<INVESTMENTS-CARRYING> 700,386
<INVESTMENTS-MARKET> 708,338
<LOANS> 275,340,240
<ALLOWANCE> 4,475,703
<TOTAL-ASSETS> 488,041,082
<DEPOSITS> 412,077,165
<SHORT-TERM> 13,752,514
<LIABILITIES-OTHER> 6,037,223
<LONG-TERM> 3,359,262
0
0
<COMMON> 23,257,520
<OTHER-SE> 30,557,398
<TOTAL-LIABILITIES-AND-EQUITY> 488,041,082
<INTEREST-LOAN> 5,800,900
<INTEREST-INVEST> 2,302,310
<INTEREST-OTHER> 196,854
<INTEREST-TOTAL> 8,299,884
<INTEREST-DEPOSIT> 3,649,220
<INTEREST-EXPENSE> 3,969,616
<INTEREST-INCOME-NET> 4,330,268
<LOAN-LOSSES> 68,000
<SECURITIES-GAINS> 727,304
<EXPENSE-OTHER> 3,582,583
<INCOME-PRETAX> 2,584,452
<INCOME-PRE-EXTRAORDINARY> 1,855,581
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,855,581
<EPS-PRIMARY> .44
<EPS-DILUTED> .44
<YIELD-ACTUAL> 3.75
<LOANS-NON> 1,693,000
<LOANS-PAST> 1,235,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,567,126
<CHARGE-OFFS> 215,949
<RECOVERIES> 56,526
<ALLOWANCE-CLOSE> 4,475,703
<ALLOWANCE-DOMESTIC> 4,475,703
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,410,460
</TABLE>
