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FCZA > SEC Filings for FCZA > Form 10-Q on 9-May-2013All Recent SEC Filings

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Form 10-Q for FIRST CITIZENS BANC CORP /OH


9-May-2013

Quarterly Report

Management's Discussion and Analysis of Financial Condition and Results of Operations

Form 10-Q

(Amounts in thousands, except share data)

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Introduction

The following discussion focuses on the consolidated financial condition of the Corporation at March 31, 2013 compared to December 31, 2012 and the consolidated results of operations for the three-month period ended March 31, 2013, compared to the same period in 2012. This discussion should be read in conjunction with the consolidated financial statements and footnotes included in this Form 10-Q.

Forward-Looking Statements

This Quarterly Report on Form 10-Q includes forward-looking statements by the Corporation relating to various matters, including, without limitation, anticipated operating results, credit quality expectations, economic trends (including interest rates) and similar matters. Such statements are based upon the current beliefs and expectations of the Corporation's management and are subject to risks and uncertainties. While the Corporation believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could prove to be inaccurate, and accordingly, actual results and experiences could differ materially from the anticipated results or other expectations expressed by the Corporation in its forward-looking statements. Factors that could cause actual results or experiences to differ from results discussed in the forward-looking statements include, but are not limited to, regional and national economic conditions; volatility and direction of market interest rates; credit risks of lending activities; governmental legislation and regulation, including changes in accounting regulation or standards; material unforeseen changes in the financial condition or results of operations of the Corporation's clients; increases in FDIC insurance premiums and assessments; and other risks identified from time-to-time in the Corporation's other public documents on file with the SEC, including those risks identified in Item 1A of Part 1 of the Corporation's Annual Report on Form 10-K.

The Corporation does not undertake, and specifically disclaims, any obligation to publicly release the result of any revisions that may be made to any forward-looking statements to reflect occurrence of anticipated or unanticipated events or circumstances after the date of such statements, except as required by law.

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements, and the purpose of this section is to secure the use of the safe harbor provisions.

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Table of Contents

First Citizens Banc Corp

Management's Discussion and Analysis of Financial Condition and Results of Operations

Form 10-Q

(Amounts in thousands, except share data)

Financial Condition

Total assets of the Corporation at March 31, 2013 were $1,173,686 compared to $1,136,971 at December 31, 2012, an increase of $36,715, or 3.2 percent. The increase in total assets was mainly attributed to an increase in cash and due from banks partially offset by a decrease in net loans. Total liabilities at March 31, 2013 were $1,068,633 compared to $1,032,991 at December 31, 2012, an increase of $35,642, or 3.5 percent. The increase in total liabilities was mainly attributed to increases in non interest-bearing deposits and interest-bearing deposits.

Net loans have decreased $8,645 or 1.1 percent since December 31, 2012. The real estate construction portfolio increased $4,813 since December 31, 2012, while the commercial and agricultural, commercial real estate, real estate and consumer loan portfolios decreased $2,609, $8,779, $1,337 and $765, respectively. The current increase in real estate construction loans is mainly due to an increase in the demand for construction loans and advances on existing construction loans. The current decrease in commercial and agricultural loans is the result of the pay down of loan balances on agricultural loans. The current decrease in real estate and consumer loans is mainly the result of the economic downturn and high unemployment rates in our market area, coupled with the Corporation's decision to originate and sell the majority of mortgage loans in the secondary market.

Loans held for sale have decreased $1,601 or 85.5 percent since December 31, 2012. At March 31, 2013, the net loan to deposit ratio was 81.5 percent compared to 85.9 percent at December 31, 2012. This ratio has decreased in 2013 due to an increase in deposits.

For the three months of operations in 2013, $500 was placed into the allowance for loan losses from earnings, compared to $2,400 in the same period of 2012. Economic conditions and high unemployment rates in our market area continue to stress the ability of some customers to make payments on their loans. General and specific reserves decreased compared to December 31, 2012. Detailed analyses of potential losses in the loan portfolio indicated that a reduced provision was appropriate. Net charge-offs have decreased to $532, compared to $1,633 in 2012. For the first three months of 2013, the Corporation has charged off forty-three loans. Twenty-five real estate mortgage loans totaling $331 net of recoveries, eight commercial real estate loans totaling $222 net of recoveries, zero commercial and agriculture loans totaling $41 in recoveries, and zero real estate construction loans totaling $52 in recoveries were charged off in the first three months of the year. In addition, ten consumer loans totaling $71, net of recoveries, were charged off. For each loan category, as well as in total, the percentage of net charge-offs to loans was less than one percent. Nonperforming loans have decreased by $986, of which $80 was due to a decrease in loans past due 90 days but still accruing and $906 was due to a decrease in loans on nonaccrual status. Each of these factors was considered by management as part of the examination of both the level and mix of the allowance by loan type as well as the overall level of the allowance. Management specifically evaluates loans that are impaired, or graded as doubtful by the internal grading function for estimates of loss. To evaluate the adequacy of the allowance for loan losses to cover probable losses in the portfolio, management considers specific reserve allocations for identified portfolio loans, reserves for delinquencies and historical reserve allocations. The composition and overall level of the loan portfolio and charge-off activity are also factors used to determine the amount of the allowance for loan losses.

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Table of Contents

First Citizens Banc Corp

Management's Discussion and Analysis of Financial Condition and Results of Operations

Form 10-Q

(Amounts in thousands, except share data)

Management analyzes commercial and commercial real estate loans, with balances of $350 or larger, on an individual basis and classifies a loan as impaired when an analysis of the borrower's operating results and financial condition indicates that underlying cash flows are not adequate to meet its debt service requirements. Often this is associated with a delay or shortfall in payments of 90 days or more. In addition, loans held for sale and leases are excluded from consideration as impaired. Loans are generally moved to nonaccrual status when 90 days or more past due. A loan may also be considered for nonaccrual status when it is not 90 days delinquent if deterioration in the borrower's financial condition or other circumstances indicates that Citizens will receive less than full principal and interest payments for an extended period of time. Impaired loans, or portions thereof, are charged-off when deemed uncollectible. The allowance for loan losses as a percent of total loans was 2.44 percent at March 31, 2013 and 2.42 percent at December 31, 2012.

The available for sale security portfolio increased by $1,411, from $203,961 at December 31, 2012, to $205,372 at March 31, 2013. The increase is the result of additional securities purchases made in the first three months of 2013 above scheduled maturities and reinvestment of profits. The Corporation continued utilizing letters of credit from the Federal Home Loan Bank (FHLB) to replace maturing securities that were pledged for public entities. As of March 31, 2013, the Corporation was in compliance with all pledging requirements.

Bank owned life insurance (BOLI) increased $147 from December 31, 2012 to March 31, 2013 due to increases in the cash surrender value of the underlying insurance policies.

Office premises and equipment, net, have decreased $203 from December 31, 2012 to March 31, 2013, as a result of depreciation of $352 and disposals of $11, offset by new purchases of $160.

Total deposits at March 31, 2013 increased $39,427 from year-end 2012. Noninterest-bearing deposits increased $20,596 from year-end 2012, while interest-bearing deposits, including savings and time deposits, increased $18,831 from December 31, 2012. The primary reason for the increase in noninterest-bearing deposits was due to increased volume related to the Corporation's processing of tax returns and an increase in commercial accounts, which tend to fluctuate. The interest-bearing deposit increase was due to an increase in savings accounts, interest-bearing demand accounts offset by decreases in time certificates and individual retirement accounts (IRA). Savings accounts increased $6,635 from year-end 2012, which included increases of $5,524 in statement savings, $907 in corporate savings and $1,386 in public fund money market savings, offset by a decrease of $1,430 in money market savings. Interest-bearing demand accounts increased $22,303 from year end 2012, which included increases of $2,055 in interest-bearing checking accounts, $3,298 in NOW accounts and $17,468 in interest-bearing public funds. Time certificates, individual retirement accounts (IRA) and Certificate of Deposit Account Registry Service (CDARS) accounts decreased $8,952, $421 and $734, respectively from year end 2012. The year-to-date average balance of total deposits increased $84,813 compared to the average balance for the same period in 2012. The increase in average balance is due to increases of $56,509 in demand deposits, $20,935 in interest-bearing public funds, $10,096 in brokered deposits, $10,063 in statement savings accounts, $9,263 in interest-bearing demand and $9,073 in NOW accounts, offset by decreases of $29,883 in time certificates, $6,501 in public fund money market accounts, $3,085 in IRA accounts and $1,780 in CDARS accounts.

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Table of Contents

First Citizens Banc Corp

Management's Discussion and Analysis of Financial Condition and Results of Operations

Form 10-Q

(Amounts in thousands, except share data)

Total borrowed funds have decreased $3,151 from December 31, 2012 to March 31, 2013. At March 31, 2013, the Corporation had $40,253 in outstanding Federal Home Loan Bank advances compared to $40,261 at December 31, 2012. Securities sold under agreements to repurchase, which tend to fluctuate due to timing of deposits, have decreased $3,143 from December 31, 2012 to March 31, 2013.

Shareholders' equity at March 31, 2013 was $105,053, or 8.9 percent of total assets, compared to $103,981, or 9.1 percent of total assets at December 31, 2012. The increase in shareholders' equity resulted from net income of $1,913 less the decrease in the fair value of securities available for sale, net of tax, of $423 and the Corporation's pension liability, net of tax of $104 less preferred dividends and common dividends paid of $290 and $231, respectively. Total outstanding common shares at March 31, 2013 and 2012 were 7,707,917.

Results of Operations

Three Months Ended March 31, 2013 and 2012

The Corporation had net income of $1,913 for the three months ended March 31, 2013, an increase of $620 from net income of $1,293 for the same three months of 2012. Basic and diluted earnings per common share were $0.21 for the quarter ended March 31, 2013, compared to $0.13 for the same period in 2012. The primary reasons for the changes in net income are explained below.

Net interest income for the three months ended March 31, 2013 was $9,988, a decrease of $457 from $10,445 in the same three months of 2012. Total interest income for the three months ended March 31, 2013 was $11,287, a decrease of $831 from $12,118 in the same three months of 2012. Average earning assets increased 4.6 percent during the quarter ended March 31, 2013 as compared to the same period in 2012. Average loans, non-taxable securities, and interest-bearing deposits in other banks for the first quarter of 2013 increased 5.4 percent, 25.5 percent, and 14.4 percent respectively compared to the first quarter of last year. These increases were offset by a decrease in average taxable securities of 8.5 percent compared to the same period of 2012. The yield on earning assets decreased 49 basis points for the first quarter of 2013 compared to the first quarter of last year. The yield on loans and taxable securities decreased 60 and 41 basis points respectively during the first quarter of 2013 compared to the first quarter of last year. The yield on non-taxable securities decreased 16 basis points during the first quarter of 2013 compared to the first quarter of last year. These factors combined resulted in the decrease in total interest income for the first quarter of 2013. Total interest expense for the three months ended March 31, 2013 was $1,299, a decrease of $374 from $1,673 in the same three months of 2012. Interest expense on time deposits decreased $291 or 31.3 percent in the first quarter of 2013 compared to the same period in 2012. The interest rate paid on time deposits during the first quarter of 2013 also decreased as compared to the same period in 2012 by 33 basis points. The Corporation's net yield for the three months ended March 31, 2013 and 2012 was 3.44% and 3.74%, respectively.

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Table of Contents

First Citizens Banc Corp

Management's Discussion and Analysis of Financial Condition and Results of Operations

Form 10-Q

(Amounts in thousands, except share data)

The following table presents the condensed average balance sheets for the three months ended March 31, 2013 and 2012. The daily average loan amounts outstanding are net of unearned income and include loans held for sale and nonaccrual loans. The average balance of securities is computed using the carrying value of securities. Rates are annualized and taxable equivalent yields are computed using a 34% tax rate for tax-exempt interest income. The average yield has been computed using the historical amortized cost average balance for available-for-sale securities.

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Table of Contents

                            First Citizens Banc Corp

   Management's Discussion and Analysis of Financial Condition and Results of
                                   Operations

                                   Form 10-Q

                   (Amounts in thousands, except share data)



                                                                  Three Months Ended March 31,
                                                        2013                                        2012
                                         Average                      Yield/         Average                      Yield/
                                         balance        Interest      rate *         balance        Interest      rate *
Assets:
Interest-earning assets:
Loans                                  $   810,117      $   9,713        4.87 %    $   768,930      $  10,390        5.48 %
Taxable securities                         160,180          1,006        2.61 %        175,087          1,273        3.03 %
Non-taxable securities                      57,610            524        6.02 %         45,891            426        6.26 %
Interest-bearing deposits in other
banks                                       91,833             44        0.19 %         80,272             29        0.15 %

Total interest-earning assets          $ 1,119,740         11,287        4.22 %    $ 1,070,180         12,118        4.70 %

Noninterest-earning assets:
Cash and due from financial
institutions                                38,834                                       9,754
Premises and equipment, net                 17,107                                      17,713
Accrued interest receivable                  3,934                                       3,953
Intangible assets                           24,783                                      25,735
Other assets                                 9,945                                      10,060
Bank owned life insurance                   18,642                                      18,021
Less allowance for loan losses             (20,154 )                                   (21,320 )

Total Assets                           $ 1,212,831                                 $ 1,134,096

Liabilities and Shareholders Equity:
Interest-bearing liabilities:
Demand and savings                     $   485,617      $     120        0.10 %    $   440,457      $     132        0.12 %
Time                                       258,239            640        1.01 %        282,891            931        1.33 %
FHLB                                        40,258            343        3.46 %         50,292            393        3.17 %
Subordinated debentures                     30,349            190        2.54 %         30,349            212        2.83 %
Other                                       22,393              6        0.11 %         17,638              5        0.11 %

Total interest-bearing liabilities     $   836,856          1,299        0.63 %    $   821,627          1,673        0.83 %

Noninterest-bearing deposits               258,139                                     193,834
Other liabilities                           13,826                                      15,461
Shareholders' Equity                       104,010                                     103,174

Total Liabilities and Shareholders'
Equity                                 $ 1,212,831                                 $ 1,134,096

Net interest income and interest
rate spread                                             $   9,988        3.59 %                     $  10,445        3.87 %
Net yield on interest earning assets                                     3.75 %                                      4.06 %

* -All yields and costs are presented on an annualized basis

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Table of Contents

First Citizens Banc Corp

Management's Discussion and Analysis of Financial Condition and Results of Operations

Form 10-Q

(Amounts in thousands, except share data)

Net interest income may also be analyzed by comparing the volume and rate components of interest income and interest expense. The following table is an analysis of the changes in interest income and expense between the three months ended March 31, 2013 and March 31, 2012. The table is presented on a fully tax-equivalent basis.

                                                      Increase (decrease) due to:
                                                 Volume(1)         Rate(1)        Net
                                                        (Dollars in thousands)
 Interest income:
 Loans                                          $       536        $ (1,213 )    $ (677 )
 Taxable securities                                    (106 )          (161 )      (267 )
 Nontaxable securities                                  115             (17 )        98
 Interest-bearing deposits in other banks                 5              10          15

 Total interest income                          $       550        $ (1,381 )    $ (831 )

 Interest expense:
 Savings and interest-bearing demand accounts            13             (25 )       (12 )
 Certificates of deposit                                (76 )          (215 )      (291 )
 Federal Home Loan Bank advances                        (83 )            33         (50 )
 Subordinated debentures                                  -             (22 )       (22 )
 Other                                                    1              -            1

 Total interest expense                         $      (145 )      $   (229 )    $ (374 )

 Net interest income                            $       695        $ (1,152 )    $ (457 )

(1) The change in interest income and interest expense due to changes in both volume and rate, which cannot be segregated, has been allocated proportionately to the change due to volume and the change due to rate.

The Corporation provides for loan losses through regular provisions to the allowance for loan losses. The provision is affected by net charge-offs on loans and changes in specific and general allocations required on the allowance for loan losses. Provisions for loan losses totaled $500 for the three months ended March 31, 2013, compared to $2,400 for the same period in 2012. Although general reserves decreased compared to March 31, 2012, specific reserves increased during the same period. Management believes the overall adequacy of the reserve for loan losses supported a reduced provision, compared to March 31, 2012.

Noninterest income for the three months ended March 31, 2013 was $3,215, an increase of $249 or 8.4 percent from $2,966 for the same period of 2012. Service charge fee income for the period ended March 31, 2013 was $965, down $97 or 9.1 percent over the same period of 2012. Trust fee income was $603, up $78 or 14.9 percent over the same period in 2012. The increase is related to a general increase in assets under management. ATM fee income was $460, up $16 or 3.6 percent over the same period of 2012. BOLI contributed $147 to non-interest income during the three months ended March 31, 2013. Net gain on sale of loans was $199, up $91 over the same period in 2012 as a result of the Corporation's decision to sell a majority of consumer mortgage loan products originated. Other non-interest income was $763, up $169 over the same period in 2012 as a result of increased volume in processing tax refunds and the gain on the sale of fixed assets.

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Table of Contents

First Citizens Banc Corp

Management's Discussion and Analysis of Financial Condition and Results of Operations

Form 10-Q

(Amounts in thousands, except share data)

Non-interest expense for the three months ended March 31, 2013 was $10,208, an increase of $888, from $9,320 reported for the same period of 2012. Salary and other employee costs were $5,505, up $544 or 11.0 percent as compared to the same period of 2012. This increase is mainly due to an increase in staffing and higher pension costs for the quarter ended March 31, 2013. The number of full-time equivalent employees increased during the quarter ended March 31, 2013 to 308.3, up 7.6, compared to the same period of 2012. Occupancy and equipment costs were $890, up $39 or 4.6 percent compared to the same period in 2012. This increase is mainly due to an increase in grounds maintenance. Grounds maintenance expenses for the first three months of 2012 were unusually low due to mild winter weather. Contracted data processing costs were $262, up $45 or 20.7 percent compared to the same period in 2012. State franchise taxes increased by $11 compared to the same period of 2012. Amortization expense decreased $66, or 23.7 percent from the same three months of 2012, as a result of scheduled amortization of intangible assets associated with mergers. FDIC assessments were up by $10 during the three months ended March 31, 2013 compared to the same period of 2012. Professional service costs were $481, up $78 or 19.4 percent compared to the same period in 2012. The increase is mainly due to legal and audit fees. Other operating expenses were $1,985, up $221 or 12.5 percent compared to the same period of 2012. The increase in other operating expenses is due to an allowance for loss on unused commitments, loan collection and repossession expenses and expenses related to the sale of loans posted in the first quarter of 2013.

Income tax expense for the three months ended March 31, 2013 totaled $582, up $184 compared to the same period in 2012. The increase in the federal income tax expense is mainly a result of an increase in taxable income, primarily due to reduced provision for loan losses. The effective tax rates for the three-month periods ended March 31, 2013 and March 31, 2012 were 23.3% and 23.5%, respectively.

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Table of Contents

First Citizens Banc Corp

Management's Discussion and Analysis of Financial Condition and Results of Operations

Form 10-Q

(Amounts in thousands, except share data)

Capital Resources

Shareholders' equity totaled $104,895 at March 31, 2013 compared to $103,981 at December 31, 2012. The increase in shareholders' equity resulted from $1,913 of net income and $423 net decrease in the unrealized gain on securities. This was offset by preferred dividends and common dividends paid of $290 and $231, respectively. All of the Corporation's capital ratios exceeded the regulatory minimum guidelines as of March 31, 2013 and December 31, 2012 as identified in the following table:

                                        Total Risk
                                           Based           Tier I Risk        Leverage
                                          Capital         Based Capital         Ratio
 Corporation Ratios-March 31, 2013             15.1 %               13.6 %          9.1 %
 Corporation Ratios-December 31, 2012          15.0 %               13.2 %          9.2 %
 For Capital Adequacy Purposes                  8.0 %                4.0 %          4.0 %
 To Be Well Capitalized Under Prompt
 Corrective Action Provisions                  10.0 %                6.0 %          5.0 %

The Corporation paid a cash dividend of $.03 per common share each on February 1, 2013 and February 1, 2012. The Corporation paid a 5% cash dividend on its preferred shares issued to the U.S. Treasury pursuant to TARP in the amount of approximately $290 each on February 15, 2013 and February 15, 2012.

Liquidity

Citizens maintains a conservative liquidity position. All securities are . . .

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