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

Show all filings for FIRST CITIZENS BANC CORP /OH | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for FIRST CITIZENS BANC CORP /OH


9-Aug-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 June 30, 2013 compared to December 31, 2012 and the consolidated results of operations for the three and six-month periods ended June 30, 2013, compared to the same periods 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, business line results, credit quality expectations, prospects for new lines of business, economic trends (including interest rates) and similar matters. Such statements are based upon the current beliefs and expectations of the Corporation's management and are subject to risks and uncertainties. While the Corporation believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could prove to be inaccurate, and accordingly, actual results and 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 tax laws and accounting regulation or standards; material unforeseen changes in the financial condition or results of operations of the Corporation's clients; increases in FDIC insurance premiums and assessments; and other risks identified from time-to-time in the Corporation's other public documents on file with the SEC, including those risks identified in Item 1A of Part 1 of the Corporation's Annual Report on Form 10-K.

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

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

Financial Condition

Total assets of the Corporation at June 30, 2013 were $1,143,248 compared to $1,136,971 at December 31, 2012, an increase of $6,277, or 0.6 percent. The increase in total assets was mainly attributed to an increase in cash and due from banks, partially offset by a decrease in loans. Total liabilities at June 30, 2013 were $1,041,089 compared to $1,032,991 at December 31, 2012, an increase of $8,098, or 0.8 percent. The increase in total liabilities was mainly attributed to an increase in non interest-bearing deposits offset by a decrease in securities sold under agreements to repurchase.

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Table of Contents

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

Net loans have decreased $5,110 or 0.6 percent since December 31, 2012. The commercial and agricultural and real estate construction loan portfolios increased $9,890 and $2,974, respectively since December 31, 2012, while the commercial real estate, residential real estate and consumer and other loan portfolios decreased $13,543, $4,302 and $466 respectively. The current increase in commercial and agricultural loans is mainly due to increased opportunities from our larger markets and calling efforts by the commercial lending officers. 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 real estate loans is the result of the pay-down or pay-off of loan balances. 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 $1,117 or 59.6 percent since December 31, 2012. At June 30, 2013, the net loan to deposit ratio was 84.3 percent compared to 85.9 percent at December 31, 2012. This ratio has declined in 2013 due to a decrease in loans.

For the six months of operations in 2013, $800 was placed into the allowance for loan losses from earnings, compared to $3,865 in the same period of 2012. The economic downturn and high unemployment rates in our market area continue to stress the ability of some customers to make payments on their loans. Although general reserves required increases compared to December 31, 2012, specific reserves declined during the same period. However, detailed analyses of potential losses in the loan portfolio indicated that a reduced provision was appropriate. Net charge-offs have decreased to $1,137, compared to $3,191 in 2012. For the first six months of 2013, the Corporation has charged off one hundred and twenty-three loans. Forty-six real estate mortgage loans totaling $720 net of recoveries, seventeen commercial real estate loans totaling $408 net of recoveries and three commercial and agriculture loans totaling $30 net of recoveries were charged off in the first six months of the year. While no real estate construction loans were charged off, $105 was recovered. In addition, fifty-seven consumer loans totaling $85, 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 $2,118, of which $80 was due to a decrease in loans past due 90 days but still accruing and $2,038 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. Impaired loans, or portions thereof, are charged-off when deemed uncollectible.

The allowance for loan losses as a percent of total loans was 2.40 at June 30, 2013 and 2.42 percent at December 31, 2012.

The available for sale security portfolio decreased by $4,095, from $203,961 at December 31, 2012, to $199,866 at June 30, 2013. The decrease is the result of a decline in market value of the securities portfolio in the first six months of 2013. The Corporation continued utilizing letters of credit from the Federal Home Loan Bank (FHLB) to replace maturing securities that were pledged for public entities. As of June 30, 2013, the Corporation was in compliance with all pledging requirements.

Bank owned life insurance (BOLI) increased $291 from December 31, 2012 to June 30, 2013 due to increases in the cash surrender value of the underlying insurance policies.

Office premises and equipment, net, have decreased $285 from December 31, 2012 to June 30, 2013, as a result of depreciation of $703 and disposals of $11, offset by new purchases of $429.

Total deposits at June 30, 2013 increased $11,816 from year-end 2012. Noninterest-bearing deposits decreased $12,202 from year-end 2012, while interest-bearing deposits, including savings and time deposits, decreased $386 from December 31, 2012. The primary reason for the increase in noninterest-bearing deposits was due to an increase in commercial accounts, which tend to fluctuate. The interest-bearing deposit decrease was due to an increase in savings accounts and interest-bearing demand accounts offset by decreases in time certificates and individual retirement accounts (IRA). Savings accounts increased $8,171 from year-end 2012, which included increases of $4,126 in statement savings and $4,365 in public fund money market savings, offset by a decrease in money market savings of $1,058. Interest-bearing deposits increased $11,338 from year end 2012, which included an increase of $16,157 in interest-bearing public funds offset by a decrease of $3,408 in interest-bearing checking accounts and $3,860 in NOW accounts. Time certificates, individual retirement accounts (IRA) and Certificate of Deposit Account Registry Service (CDARS) decreased $17,403, $1,755 and $722 respectively from year end 2012. The year-to-date average balance of total deposits increased $62,230 compared to the average balance of the same period in 2012. The increase in average balance is due to increases of $44,919 in demand deposit accounts, $9,645 in statement savings accounts, $7,429 in interest-bearing demand, $8,584 in NOW accounts, $19,342 in interest-bearing public funds and $10,096 in brokered deposits, offset by decreases of $31,497 in time certificates and $1,814 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 $3,815 from December 31, 2012 to June 30, 2013. At June 30, 2013, the Corporation had $40,244 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 $3,798 from December 31, 2012 to June 30, 2013.

Shareholders' equity at June 30, 2013 was $102,159, or 8.9 percent of total assets, compared to $103,980, or 9.1 percent of total assets at December 31, 2012. The decrease in shareholders' equity resulted from net income of $3,570 plus the increase in the Corporation's pension liability, net of tax, of $223 less the decrease in the fair value of securities available for sale, net of tax, of $4,187, dividends declared on common shares of $308 and preferred dividends and common dividends paid of $580 and $539, respectively. Total outstanding common shares at June 30, 2013 and 2012 were 7,707,917.

Results of Operations

Six Months Ended June 30, 2013 and 2012

The Corporation had net income of $3,570 for the six months ended June 30, 2013, an increase of $1,341 from net income of $2,229 for the same six months of 2012. Basic and diluted earnings per common share were $.39 for the six months of 2013, compared to $0.21 for the same period in 2012. The primary reasons for the changes in net income are explained below.

Net interest income for the six months ended June 30, 2013 was $19,768, a decrease of $822 from $20,590 in the same six months of 2012. Net interest income, the difference between interest income earned on interest-earning assets and interest expense incurred on interest-bearing liabilities, is the most significant component of the Corporation's earnings. Net interest income is affected by changes in volume, rates and composition of interest-earning assets and interest-bearing liabilities. Total interest income for the six months ended June 30, 2013 was $22,311, a decrease of $1,564 from $23,875 in the same six months of 2012. Average earning assets increased 3.9 percent from the six month period last year. Average loans and interest-bearing deposits in other banks for the six months of 2012 increased 5.6 percent and 4.5 percent respectively compared to the six months of last year. These increases were offset by a decrease in average securities of 2.0 percent compared to the same period of 2012. The yield on earning assets decreased 31 basis points for the first six months of 2012 compared to the same period last year. The yield on loans and taxable securities decreased 53 and 44 basis points respectively during the first six months of 2013 compared to the first six months of last year. These factors combined resulted in the decrease in total interest income for the first six months of 2013. Total interest expense for the six months ended June 30, 2013 was $2,543, a decrease of $742 from $3,285 in the same six months of 2012. Interest expense on time deposits decreased $563 or 31.2 percent in the first six months of 2013 compared to the same period in 2012. Average time deposits for the first six months of 2013 decreased 9.4 percent compared to 2012. The interest rate paid on time deposits during the first six months of 2013 also decreased as compared to the same period in 2012 by 30 basis points. The Corporation's net interest margin for the six months ended June 30, 2013 and 2012 was 3.75 and 3.90%, 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 six months ended June 30, 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.

                                                                   Six Months Ended June 30,
                                                        2013                                        2012
                                         Average                      Yield/         Average                      Yield/
                                         balance        Interest      rate *         balance        Interest      rate *
Assets:
Interest-earning assets:
Loans                                  $   811,761      $  19,250        4.79 %    $   768,755      $  20,437        5.37 %
Taxable securities                         161,225          1,925        2.46 %        175,948          2,488        2.92 %
Non-taxable securities                      57,861          1,058        6.00 %         47,605            886        6.20 %
Interest-bearing deposits in other
banks                                       71,609             78        0.22 %         68,541             64        0.19 %

Total interest-earning assets          $ 1,102,456         22,311        4.22 %    $ 1,060,849         23,875        4.67 %

Noninterest-earning assets:
Cash and due from financial
institutions                                26,809                                       9,844
Premises and equipment, net                 17,042                                      17,726
Accrued interest receivable                  4,165                                       4,480
Intangible assets                           24,677                                      25,604
Other assets                                 9,300                                       9,987
Bank owned life insurance                   18,716                                      18,156
Less allowance for loan losses             (19,943 )                                   (21,728 )

Total Assets                           $ 1,183,222                                 $ 1,124,918

Liabilities and Shareholders Equity:
Interest-bearing liabilities:
Demand and savings                     $   483,201      $     219        0.09 %    $   439,522      $     258        0.12 %
Time                                       253,460          1,240        0.99 %        279,822          1,803        1.30 %
FHLB                                        40,254            689        3.45 %         50,288            787        3.16 %
Subordinated debentures                     30,349            384        2.55 %         30,349            427        2.84 %
Repuchase Agreements                        20,781             11        0.11 %         17,701             10        0.11 %

Total interest-bearing liabilities     $   828,045          2,543        0.62 %    $   817,682          3,285        0.81 %

Noninterest-bearing deposits               238,287                                     190,682
Other liabilities                           12,427                                      13,072
Shareholders' Equity                       104,463                                     103,482

Total Liabilities and Shareholders'
Equity                                 $ 1,183,222                                 $ 1,124,918

Net interest income and interest
rate spread                                             $  19,768        3.60 %                     $  20,590        3.86 %
Net yield on interest earning assets                                     3.75 %                                      4.04 %

* - 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 six months ended June 30, 2013 and 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                                      $     1,101      $ (2,288 )    $ (1,187 )
   Taxable securities                                (202 )        (361 )        (563 )
   Nontaxable securities                              202           (30 )         172
   Interest-bearing deposits in other banks             3            11            14

   Total interest income                      $     1,104      $ (2,668 )    $ (1,564 )

   Interest expense:
   Demand and savings                                  24           (63 )         (39 )
   Time                                              (158 )        (405 )        (563 )
   FHLB                                              (167 )          69           (98 )
   Subordinated debentures                             -            (43 )         (43 )
   Repurchase agreements                                2            (1 )           1

   Total interest expense                     $      (299 )    $   (443 )    $   (742 )

   Net interest income                        $     1,403      $ (2,225 )    $   (822 )

(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.

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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 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 $800 for the six months ended June 30, 2013, compared to $3,865 for the same period in 2012. Although general reserves increased compared to December 31, 2012, specific reserves declined during the same period. Management believes the overall adequacy of the reserve for loan losses supported a reduced provision, compared to June 30, 2012.

Non-interest income for the six months ended June 30, 2013 was $6,047, an increase of $286 or 5.0 percent from $5,761 for the same period of 2012. Service charge fee income for the first six months of 2013 was $2,032, down $103 or 4.8 percent over the same period of 2012. Trust fee income was $1,228, up $159 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 for the first six months of 2013 was $972, up $89 or 10.1 percent over the same period of 2012. BOLI contributed $291 to non-interest income during the six months ended June 30, 2013. Other non-interest income was $1,524, up $174 over the same period in 2012 as a result of increased volume in processing tax refunds, the gain on the sale of fixed assets and gain on the sale of loans to the secondary market.

Non-interest expense for the six months ended June 30, 2013 was $20,554, an increase of $896, from $19,658 reported for the same period of 2012. The primary reasons for the increase follow. Salary and other employee costs were $11,088, up $692 or 6.7 percent as compared to the same period of 2012. The number of full-time equivalent employees increased during the first six months of 2013 to 309.7, up 6.9, compared to the same period of 2012. These increases are mainly due to an increase in staffing, higher insurance costs and higher pension costs for the first six months of 2013. Contracted data processing costs were $525, up $66 or 14.4 percent compared to the same period in 2012 due to increases in cost of technology services. State franchise taxes increased by $59 compared to the same period of 2012 due to increases in the taxable value to shareholder's equity. Amortization expense decreased $86, or 16.9 percent from the same six months of 2012, as a result of scheduled amortization of intangible assets associated with mergers. FDIC assessments were up by $44 during the first six months of 2013 compared to the same period of 2012 due to increases in deposit balances.

Income tax expense for the six months ended June 30, 2013 totaled $891, up $292 or 48.7 percent 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, this year compared to last. The effective tax rates for the six-month periods ended June 30, 2013 and June 30, 2012 were 20.0% and 21.2%, 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)

Three Months Ended June 30, 2013 and 2012

The Corporation had net income of $1,657 for the three months ended June 30, 2013, an increase of $721 from net income of $936 for the same three months of 2012. Basic and diluted earnings per common share were $.18 for the quarter ended June 30, 2013, compared to $0.08 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 June 30, 2013 was $9,781, a decrease of $365 from $10,146 in the same three months of 2012. Total interest income for the three months ended June 30, 2013 was $11,025, a decrease of $732 from $11,757 in the same three months of 2012. Average earning assets increased 2.6 percent during the quarter ended June 30, 2013 as compared to the same period in 2012. Average loans for the second quarter of 2013 increased 5.8 percent compared to the second quarter of last year. These increases were offset by a decrease in average securities and interest-bearing deposits in other banks of 2.6 percent and 19.9 percent respectively compared to the same period of 2012. The yield on earning assets decreased 21 basis points for the second quarter of 2013 compared to the second quarter of last year. The yield on loans and taxable securities decreased 52 and 50 basis points respectively during the second quarter of 2013 compared to the second quarter of last year. These factors combined resulted in the decrease in total interest income for the second quarter of 2013. Total interest expense for the three months ended June 30, 2013 was $1,244, a decrease of $367 from $1,611 in the same three months of 2012. Interest expense on time deposits decreased $272 or 31.2 percent in the second quarter of 2013 compared to the same period in 2012. Average time deposits for the second quarter of 2013 decreased 10.1 percent compared to the second quarter of 2012. The interest rate paid on time deposits during the second quarter of 2013 also decreased as compared to the same period in 2012 by 29 basis points. The Corporation's net interest margin for the six months ended June 30, 2013 and 2012 was 3.77% and 3.88%, respectively.

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Table of Contents

First Citizens Banc Corp

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

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