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FCZA > SEC Filings for FCZA > Form 10-Q on 31-Oct-2013All Recent SEC Filings

Show all filings for FIRST CITIZENS BANC CORP /OH

Form 10-Q for FIRST CITIZENS BANC CORP /OH


31-Oct-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 September 30, 2013 compared to December 31, 2012, and the consolidated results of operations for the three and nine-month periods ended September 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 may contain "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), relating to such matters as financial condition, anticipated operating results, cash flows, business line results, credit quality expectations, prospects for new lines of business, economic trends (including interest rates) and similar matters. Forward-looking statements reflect our expectations, estimates or projections concerning future results or events. These statements are generally identified by the use of forward-looking words or phrases such as "believe," "belief," "expect," "anticipate," "may," "could," "intend," "intent," "estimate," "plan," "foresee," "likely," "will," "should" or other similar words or phrases. Forward-looking statements are not guarantees of performance and are inherently subject to known and unknown risks, uncertainties and assumptions that are difficult to predict and could cause our actual results, performance or achievements to differ materially from those expressed in or implied by the forward-looking statements. Factors that could cause actual results, performance or achievements to differ from results discussed in the forward-looking statements include, but are not limited to, changes in financial markets or national or local economic conditions; sustained weakness or deterioration in the real estate market; volatility and direction of market interest rates; credit risks of lending activities; changes in the allowance for loan losses; legislation or regulatory changes or actions; increases in FDIC insurance premiums and assessments; changes in tax laws; failure of or breach in our information and data processing systems; unforseen litigation; 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. Risk Factors" of Part I of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2012, and in "Item 1A. Risk Factors" of Part II of this Quarterly Report on Form 10-Q. 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.

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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 September 30, 2013 were $1,147,787 compared to $1,136,971 at December 31, 2012, an increase of $10,816, or 1.0 percent. The increase in total assets was mainly attributable to an increase in cash and due from banks, loans, net of allowance, loans held for sale and other assets, partially offset by a decrease in securities available for sale. Total liabilities at September 30, 2013 were $1,044,871 compared to $1,032,991 at December 31, 2012, an increase of $11,880, or 1.2 percent. The increase in total liabilities was mainly attributable to an increase in non interest-bearing deposits offset by decreases in interest-bearing deposits, securities sold under agreements to repurchase and FHLB advances.

Net loans have increased $6,463 or 0.8 percent since December 31, 2012. The commercial and agricultural, real estate construction and consumer and other loan portfolios increased $5,169, $6,984 and $1,145, respectively, since December 31, 2012, while the commercial real estate and residential real estate loan portfolios decreased $3,075 and $6,205, 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 increase in consumer and other loans is mainly the result of pooled dealer loan purchases. 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 residential real estate 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 increased $3,018 or 161.1 percent since December 31, 2012. During the third quarter, the Corporation made the decision to sell certain impaired loans and reclassified as held for sale. Prior to moving these loans to held for sale, the balances were charged down to their expected fair value. At September 30, 2013, the net loan to deposit ratio was 85.1 percent compared to 85.9 percent at December 31, 2012. This ratio has declined in 2013 due to the increase in deposits.

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 increased 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. For the nine months of operations in 2013, $1,100 was placed into the allowance for loan losses from earnings, compared to $5,565 in the same period of 2012. Net charge-offs have decreased to $3,545, compared to $5,333 in 2012. For the first nine months of 2013, the Corporation has charged off one hundred and ninety-four loans. Ninety-seven Real Estate Mortgage loans totaling $2,215 net of recoveries, twenty-five Commercial Real Estate loans totaling $1,009 net of recoveries, five Commercial and Agriculture loans totaling $178 net of recoveries and two Real Estate Construction loans totaling $29 net of recoveries were charged off in the first nine months of the year. In addition, sixty-five Consumer and Other loans totaling $114, 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. The one exception was the Consumer and Other loans category, for which the percentage of net charge offs to loans as of September 30, 2013 was 1.04 percent. Nonperforming loans have decreased by $9,241, of which $80 was due to a decrease in loans past due 90 days but still accruing and $9,161 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 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 $500 or larger, on an individual basis and classifies a loan as impaired when an analysis of the borrower's operating results and financial condition indicate 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 2.11 percent at September 30, 2013 and 2.42 percent at December 31, 2012.

The available for sale security portfolio decreased by $3,605, from $203,961 at December 31, 2012, to $200,356 at September 30, 2013. The decrease is the result of a decline in market value of the securities portfolio in the first nine months of 2013. The Corporation continued utilizing letters of credit from the FHLB to replace maturing securities that were pledged for public entities. As of September 30, 2013, the Corporation was in compliance with all pledging requirements.

Bank owned life insurance (BOLI) increased $423 from December 31, 2012 to September 30, 2013 due to increases in the cash surrender value of the underlying insurance policies.

Office premises and equipment, net, have decreased $603 from December 31, 2012 to September 30, 2013, as a result of depreciation of $1,037 and disposals of $23, offset by new purchases of $457.

Total deposits at September 30, 2013 increased $16,069 from year-end 2012. Noninterest-bearing deposits increased $18,388 from year-end 2012, while interest-bearing deposits, including savings and time deposits, decreased $2,319 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 mainly due to decreases in time certificates and individual retirement accounts (IRA) offset by increases in savings accounts and interest-bearing demand accounts. Time certificates and IRAs decreased $20,940 and $2,344, respectively, from year end 2012. Savings accounts increased $14,151 from year-end 2012, which included increases of $3,336 in statement savings, $3,455 in public fund money market savings and $6,869 in money market savings. Interest-bearing deposits increased $7,289 from year end 2012, which included an increase of $13,404 in interest-bearing public funds offset by a decrease of $7,480 in NOW accounts. The year-to-date average balance of total deposits increased $57,309 compared to the average balance of the same period in 2012. The increase in average balance is due to increases of $40,409 in demand deposit accounts, $8,719 in statement savings accounts, $5,346 in interest-bearing demand, $6,976 in NOW accounts, $19,986 in interest-bearing public funds, $4,261 in money market savings and $9,985 in brokered deposits, offset by decreases of $30,517 in time certificates, $3,248 in IRA's, $3,396 in public fund money market and $1,472 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)

FHLB advances have decreased $2,526 from December 31, 2012 to September 30, 2013. At September 30, 2013, the Corporation had $37,735 in outstanding FHLB advances compared to $40,261 at December 31, 2012. On August 15, 2013, the Corporation had a 2,500, 1.49% fixed rate, thirty-month FHLB advance mature. This advance was not replaced. Securities sold under agreements to repurchase, which tend to fluctuate due to timing of deposits, have decreased $2,409 from December 31, 2012 to September 30, 2013.

Shareholders' equity at September 30, 2013 was $102,916, or 9.0 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 $5,136, a decrease in the Corporation's pension liability, net of tax, of $342, a decrease in the fair value of securities available for sale, net of tax, of $4,825, and less dividends on preferred stock and common stock of $869 and $848, respectively. Total outstanding common shares at September 30, 2013 and December 31, 2012 were 7,707,917.

Results of Operations

Nine Months Ended September 30, 2013 and 2012

The Corporation had net income of $5,136 for the nine months ended September 30, 2013, an increase of $1,523 from net income of $3,613 for the same nine months of 2012. Basic and diluted earnings per common share were $0.55 for the nine months of 2013, compared to $0.35 for the same period in 2012. The primary reasons for the changes in net income are explained below.

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Table of Contents

First Citizens Banc Corp

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

Form 10-Q

(Amounts in thousands, except share data)

Net interest income for the nine months ended September 30, 2013 was $29,684, a decrease of $935 from $30,619 in the same nine 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 nine months ended September 30, 2013 was $33,438, a decrease of $1,967 from $35,405 in the same nine months of 2012. Average earning assets increased 4.3 percent from the nine month period last year. Average loans, non-taxable securities and interest-bearing deposits in other banks for the nine months of 2013 increased 5.1 percent, 16.8 percent and 27.0 percent, respectively, compared to the nine months of last year. These increases were offset by a decrease in average taxable securities of 9.1 percent compared to the same period of 2012. The yield on earning assets decreased 41 basis points for the first nine months of 2013 compared to the same period last year. The yield on loans and taxable securities decreased 47 and 41 basis points, respectively, during the first nine months of 2013 compared to the first nine months of last year. These factors combined resulted in the decrease in total interest income for the first nine months of 2013. Total interest expense for the nine months ended September 30, 2013 was $3,754, a decrease of $1,032 from $4,786 in the same nine months of 2012. Interest expense on time deposits decreased $742 or 28.9 percent in the first nine months of 2013 compared to the same period in 2012. Average time deposits for the first nine months of 2013 decreased 9.2 percent compared to 2012. The interest rate paid on time deposits during the first nine months of 2013 also decreased by 26 basis points, as compared to the same period in 2012. The Corporation's net interest margin for the nine months ended September 30, 2013 and 2012 was 3.77% and 4.02%, 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 nine months ended September 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.

                                                                Nine Months Ended September 30,
                                                        2013                                        2012
                                         Average                      Yield/         Average                      Yield/
                                         balance        Interest      rate *         balance        Interest      rate *
Assets:
Interest-earning assets:
Loans                                  $   813,888      $  28,871        4.75 %    $   774,704      $  30,338        5.22 %
Taxable securities                         158,699          2,826        2.43 %        174,499          3,608        2.84 %
Non-taxable securities                      58,379          1,637        5.95 %         49,978          1,376        6.04 %
Interest-bearing deposits in other
banks                                       60,232            104        0.23 %         47,436             83        0.23 %

Total interest-earning assets            1,091,198         33,438        4.23 %      1,046,617         35,405        4.64 %

Noninterest-earning assets:
Cash and due from financial
institutions                                26,786                                      22,570
Premises and equipment, net                 16,953                                      17,673
Accrued interest receivable                  4,104                                       4,358
Intangible assets                           24,570                                      25,483
Other assets                                10,582                                      10,759
Bank owned life insurance                   18,787                                      18,182
Less allowance for loan losses             (19,747 )                                   (21,816 )

Total assets                           $ 1,173,233                                 $ 1,123,826

Liabilities and Shareholders Equity:
Interest-bearing liabilities:
Demand and savings                     $   484,374      $     308        0.09 %    $   442,247      $     387        0.11 %
Time                                       249,639          1,826        0.98 %        274,866          2,568        1.24 %
FHLB                                        39,819          1,029        3.46 %         50,101          1,181        3.14 %
Federal funds purchased                         37             -         0.00 %              7             -         0.00 %
Subordinated debentures                     29,427            575        2.61 %         29,427            635        2.87 %
Repuchase agreements                        20,475             16        0.10 %         18,039             15        0.11 %

Total interest-bearing liabilities         823,771          3,754        0.61 %        814,687          4,786        0.78 %

Noninterest-bearing deposits               231,543                                     191,134
Other liabilities                           14,426                                      14,216
Shareholders' equity                       103,493                                     103,789

Total liabilities and shareholders'
equity                                 $ 1,173,233                                 $ 1,123,826

Net interest income and interest
rate spread                                             $  29,684        3.62 %                     $  30,619        3.86 %
Net yield on interest earning assets                                     3.77 %                                      4.02 %

* - 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 provides an analysis of the changes in interest income and expense between the nine months ended September 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                                      $     1,484      $ (2,951 )    $ (1,467 )
   Taxable securities                                (318 )        (464 )        (782 )
   Nontaxable securities                              247            14           261
   Interest-bearing deposits in other banks            22            (1 )          21

   Total interest income                      $     1,435      $ (3,402 )    $ (1,967 )

   Interest expense:
   Demand and savings                                  34          (113 )         (79 )
   Time                                              (220 )        (522 )        (742 )
   FHLB                                              (258 )         106          (152 )
   Subordinated debentures                             -            (60 )         (60 )
   Repurchase agreements                                2            (1 )           1

   Total interest expense                     $      (442 )    $   (590 )    $ (1,032 )

   Net interest income                        $     1,877      $ (2,812 )    $   (935 )

(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 $1,100 for the nine months ended September 30, 2013, compared to $5,565 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 September 30, 2012.

Noninterest income for the nine months ended September 30, 2013 was $9,123, an increase of $663 or 7.8 percent from $8,460 for the same period of 2012. The primary reasons for the increase follow.

Service charge fee income for the first nine months of 2013 was $3,120, down $123 or 3.8 percent over the same period of 2012. The decrease is primarily due to a $182 decrease in overdraft fees during the first nine months of 2013 compared to the same period in 2012.

Trust fee income is comprised of fees earned from the management and administration of trusts and other customer assets. These fees are largely based upon the market value of the assets that we manage and the fee rate charged to customers. Total trust assets under administration were $446,856 as of September 30 2013 and $389,318 as of September 30, 2012. Trust fee income increased $367 or 23.0 percent during the first nine months of 2013 compared to the same period in 2012. The increase is related to a general increase in assets under management.

ATM fee income for the first nine months of 2013 was $1,494, up $171 or 12.9 percent over the same period of 2012. The increase is primarily due to increased transaction volumes and the implementation of transaction charges in markets that were previously incurring no charges.

BOLI decreased $53 or 11.1 percent during the nine months ended September 30, 2013 compared to the same period in 2012. The decrease is due to lower yields received in the current year.

Gain on the sale of securities increased $98 or 245.0 percent during the first nine months of 2013 compared to the same period of 2012. Management, from time to time, will reposition the investment portfolio to match liquidity needs of the Corporation by selling investments. This selling activity led to the increase in gains during the first nine months of 2013.

Other noninterest income increased $223 or 14.1 percent during the first nine months of 2013 compared to the same period in 2012. This increase was primarily due to the recognition of $199 in fees related to our customer derivative program. In addition, gain on the sale of fixed assets increased $106 during the first nine months of 2013 compared to the same period of 2012.

Noninterest expense for the nine months ended September 30, 2013 was $31,297, an increase of $2,425, from $28,872 reported for the same period of 2012. The primary reasons for the increase follow.

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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)

Salary and other employee costs were $16,839, up $1,236 or 7.9 percent as compared to the same period of 2012. The number of average full-time equivalent employees increased during the first nine months of 2013 to 311.3, up 5.5, 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 nine months of 2013.

Contracted data processing costs were $790, up $85 or 12.1 percent compared to the same period in 2012 due to increases in cost of technology services.

State franchise taxes increased by $127 compared to the same period of 2012 due to increases in the taxable value to shareholder's equity.

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