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, 2001 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 incorporation (I.R.S. Employer or organization) Identification Number) 100 East Water Street, Sandusky, Ohio 44870 ------------------------------------------------------- (Address of principle executive offices) (Zip Code) Registrant's telephone number, including area code: (419) 625-4121 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes ----- No ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, no par value Outstanding at May 11, 2001 4,082,619 common shares
2 FIRST CITIZENS BANC CORP Index PART I. Financial Information <TABLE> <S> <C> ITEM 1. Financial Statements: Consolidated Balance Sheets (unaudited) March 31, 2001 and December 31, 2000.........................................................3 Consolidated Statements of Income (unaudited) Three months ended March 31, 2001 and 2000...................................................4 Consolidated Statements of Comprehensive Income (unaudited) Three months ended March 31, 2001 and 2000...................................................5 Consolidated Statement of Shareholders' Equity (unaudited) For the years ended December 31, 2000 and three months ended March 31, 2001............................................................6 Condensed Consolidated Statement of Cash Flows (unaudited) Three months ended March 31, 2001 and 2000...................................................7 Notes to Consolidated Financial Statements (unaudited)........................................8-15 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................................................16-20 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk........................................20-21 PART II. Other Information ITEM 1. Legal Proceedings....................................................................................22 ITEM 2. Changes in Securities and Use of Proceeds............................................................22 ITEM 3. Defaults Upon Senior Securities......................................................................22 ITEM 4. Submission of Matters to a Vote of Security Holders..................................................22 ITEM 5. Other Information....................................................................................22 ITEM 6. Exhibits and Reports on Form 8-K.....................................................................22 SIGNATURES....................................................................................................23 </TABLE>
3 FIRST CITIZENS BANC CORP Consolidated Balance Sheets (In thousands, except share data) <TABLE> <CAPTION> (Unaudited) March 31, December 31, Assets 2001 2000 ---------------- ---------------- <S> <C> <C> Cash and due from banks $ 21,368 $ 15,735 Interest-bearing deposits 0 51 Securities Available-for-sale 115,717 115,514 Held-to-maturity (Estimated Fair Value of $277 at March 31, 2001, and $278 at December 31, 2000) 274 278 ---------------- ---------------- Total securities 115,991 115,792 Loans held for sale 949 571 Loans 350,664 346,089 Less: Allowance for loan losses (4,319) (4,107) ---------------- ---------------- Net loans 346,345 341,982 Office premises and equipment, net 7,151 7,221 Intangible assets 1,788 1,869 Accrued interest and other assets 6,428 6,038 ---------------- ---------------- Total assets $ 500,020 $ 489,259 ================ ================ Liabilities Deposits Noninterest-bearing deposits $ 41,653 $ 42,306 Interest-bearing deposits 368,048 349,662 ---------------- ---------------- Total deposits 409,701 391,968 Federal Home Loan Bank borrowings 1,255 1,400 Securities sold under agreements to repurchase 12,065 12,946 U. S. Treasury interest-bearing demand deposit note payable 384 1,207 Notes payable to other financial institutions 14,000 10,600 Federal funds purchased 9,665 20,000 Accrued interest, taxes and other expenses 3,698 3,213 ---------------- ---------------- Total liabilities 450,768 441,334 Shareholders' Equity Common stock, no par value; 10,000,000 shares authorized, 4,263,401 shares issued 23,258 23,258 Retained earnings 29,060 28,614 Treasury stock, 180,782 shares at cost at March 31, 2001, 175,782 shares at cost at December 31, 2000 (4,919) (4,818) Accumulated other comprehensive income 1,853 871 ---------------- ---------------- Total shareholders' equity 49,252 47,925 ---------------- ---------------- Total liabilities and shareholders' equity $ 500,020 $ 489,259 ================ ================ </TABLE> See notes to interim consolidated financial statements Page 3
4 FIRST CITIZENS BANC CORP Consolidated Statements of Income (Unaudited) (In thousands, except per share data) <TABLE> <CAPTION> Three months ended March 31, ----------------------------------- 2001 2000 <S> <C> <C> INTEREST INCOME: Loans, including fees $ 7,504 $ 5,935 Taxable securities 1,158 1,516 Nontaxable securities 447 547 Federal funds sold 44 33 Other 10 14 --------------- --------------- Total interest income 9,163 8,045 INTEREST EXPENSE: Deposits 3,692 3,441 FHLB Borrowings 19 27 Other 587 152 --------------- --------------- Total interest expense 4,298 3,620 --------------- --------------- NET INTEREST INCOME 4,865 4,425 PROVISION FOR LOAN LOSSES 296 95 --------------- --------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,569 4,330 NONINTEREST INCOME: Computer center data processing fees 303 262 Service charges 400 452 Net gain/(loss) on sale of securities 0 (1) Net gain/(loss) on sale of loans 52 0 Other 418 406 --------------- --------------- Total noninterest income 1,173 1,119 NONINTEREST EXPENSE: Salaries, wages and benefits 1,948 1,647 Net occupancy expense 237 200 Equipment expense 252 242 Computer processing 182 167 State franchise tax 182 147 Professional services 142 172 Amortization of intangible assets 82 82 Other operating expenses 1,076 987 --------------- --------------- Total noninterest expense 4,101 3,644 --------------- --------------- Income before taxes 1,641 1,805 Income tax expense 460 499 --------------- --------------- Net Income $ 1,181 $ 1,306 =============== =============== Earnings per share $ 0.29 $ 0.32 Dividends declared per share $ 0.18 $ 0.17 Wtd. avg. shares during the period 4,083,675 4,138,927 </TABLE> See notes to interim consolidated financial statements Page 4
5 FIRST CITIZENS BANC CORP Consolidated Comprehensive Income Statements (Unaudited) (In thousands) <TABLE> <CAPTION> Three months ended March 31, 2001 2000 ---- ---- <S> <C> <C> Net income $ 1,181 $ 1,306 Other Comprehensive Income (Loss): Unrealized holding gains and (losses) on available for sale securities 1,488 (631) Reclassification adjustment for (gains) and losses later recognized in income -- 1 ------- ------- Net unrealized gains and (losses) 1,488 (630) Tax effect (506) 214 ------- ------- Total other comprehensive income (loss) 982 (416) ------- ------- Comprehensive income $ 2,163 $ 890 ======= ======= </TABLE> See notes to interim consolidated financial statements Page 5
6 FIRST CITIZENS BANC CORP Condensed Consolidated Statement of Shareholders' Equity (Unaudited) Form 10-Q (In thousands, except share data) <TABLE> <CAPTION> Accumulated Common Stock Other Total Outstanding Retained Treasury Comprehensive Shareholders' Shares Amount Earnings Stock Income/(Loss) Equity ------------ ------------ ------------ -------------- -------------- ------------ <S> <C> <C> <C> <C> <C> <C> Balance, January 1, 2000 4,162,815 $ 23,258 $ 28,010 $ (2,877) $ (196) $ 48,195 Net income 5,692 5,692 Change in unrealized gain/(loss) on securities available for sale, net of reclassifications and tax effects 1,067 1,067 Purchase of treasury stock, at cost (75,196) (1,941) (1,941) Cash dividends ($1.24 per share) (5,088) (5,088) ------------ ------------ ------------ -------------- -------------- ------------- Balance, December 31, 2000 4,087,619 23,258 28,614 (4,818) 871 47,925 Net income 1,181 1,181 Change in unrealized gain/(loss) on securities available for sale, net of reclassifications and tax effects 982 982 Purchase of treasury stock, at cost (5,000) (101) (101) Cash dividends ($.18 per share) (735) (735) ------------ ------------ ------------ -------------- -------------- ------------- Balance, March 31, 2001 4,082,619 $ 23,258 $ 29,060 $ (4,919) $ 1,853 $ 49,252 ============ ============ ============ ============== ============== ============= </TABLE> See notes to interim consolidated financial statements Page 6
7 FIRST CITIZENS BANC CORP Condensed Consolidated Statement of Cash Flows (Unaudited) (In thousands) <TABLE> <CAPTION> Three months ended March 31, ----------------------------------- 2001 2000 --------------- --------------- <S> <C> <C> Net cash from operating activities $ 1,020 $ 255 Cash flows from investing activities Maturities of deposits held in other institutions 51 - Maturities and calls of securities, held-to-maturity 4 20 Maturities and calls of securities, available-for-sale 2,267 3,177 Purchases of securities, available-for-sale (998) (1,089) Proceeds from sale of securities, available-for-sale - 1,800 Loans made to customers, net of principal collected (4,661) (6,576) Loans purchased - (5,092) Change in federal funds sold - (3,580) Proceeds from sale of property and equipment - 12 Purchases of office premises and equipment (163) (102) ----------------- ----------------- Net cash from investing activities (3,500) (11,430) Cash flows from financing activities Repayment of FHLB borrowings (145) (137) Net change in deposits 17,733 22,326 Change in securities sold under agreements to repurchase (881) (3,577) Change in U. S. Treasury interest-bearing demand note payable (823) (2,060) Change in notes payable 3,400 - Change in federal funds purchased (10,335) - Purchases of treasury stock (101) (1,319) Cash dividends paid (735) (707) ----------------- ----------------- Net cash from financing activities 8,113 14,526 ----------------- ----------------- Net change in cash and due from banks 5,633 3,351 Cash and due from banks at beginning of period 15,735 14,599 ----------------- ----------------- Cash and due from banks at end of period $ 21,368 $ 17,950 ================= ================= Cash paid during the period for: Interest $ 5,226 $ 4,429 Income taxes $ 0 $ 0 </TABLE> See notes to interim consolidated financial statements Page 7
8 First Citizens Banc Corp Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) - ------------------------------------------------------------------------------- (1) Consolidated Financial Statements The consolidated financial statements include the accounts of First Citizens Banc Corp (First Citizens) 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), R. A. Reynolds Appraisal Service, Inc., (Reynolds), and Mr. Money Finance Company, (Mr. Money), together referred to as the Corporation. All significant intercompany balances and transactions have been eliminated in consolidation. The consolidated financial statements 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, 2001 and its results of operations and changes in cash flows for the periods ended March 31, 2001 and 2000 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, 2001 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 2000 annual report. The Corporation has consistently followed these policies in preparing this Form 10-Q. The Corporation provides financial services through its offices in the Ohio counties of Erie, Crawford, Huron, Marion, Ottawa, Richland and Union. Its primary deposit products are checking, savings, and term certificate accounts, and its primary lending products are residential mortgage, commercial, and installment loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets and real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. Real estate loans are secured by both residential and commercial real estate. Other financial instruments that potentially represent concentrations of credit risk include deposit accounts in other financial institutions. In 2001, SCC provided item processing for 12 financial institutions in addition to the three subsidiary banks. SCC accounted for less than 3.0% of the Corporation's total revenues. Reynolds provides real estate appraisal services for lending purposes to subsidiary banks and other financial institutions. Reynolds accounts for less than 1.0% of total Corporation revenues. Mr. Money provides consumer and real estate financing that the Banks would not normally provide to B and C credits at a rate commensurate with the risk. Mr. Money accounted for 4.7% of total Corporation revenues. In September 2000 the Corporation formed two new affiliates; First Citizens Title Insurance Agency Inc. and First Citizens Insurance Agency Inc. First Citizens Title Insurance Agency Inc. has been formed to provide customers with a seamless mortgage product with improved service. First Citizens Insurance Agency Inc was formed to allow the Corporation to participate in commission revenue generated through its third party insurance Page 8
9 First Citizens Banc Corp Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) - ------------------------------------------------------------------------------- agreement. At March 31, 2001, both First Citizens Title Insurance Agency Inc. and First Citizens Insurance Agency Inc were inactive. Management considers the Corporation to operate primarily in one reportable segment, banking. To prepare financial statements in conformity with generally accepted accounting principles, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in financial statements and the disclosures provided, and future results could differ. The allowance for loan losses, fair values of financial instruments, and status of contingencies are particularly subject to change. Income tax expense is based on the effective tax rate expected to be applicable for the entire year. Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax basis of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. Certain items in the 2000 financial statements have been reclassified to correspond with the 2001 presentation. 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 that is classified as held to maturity. The Corporation did not reclassify any securities upon adoption of SFAS No, 133. SFAS No. 133, as deferred by SFAS No. 137 and amended by SFAS No. 138, is effective for fiscal years beginning after June 15, 2000 with early adoption encouraged for any fiscal quarter beginning July 1, 1998 or later, with no retroactive application. The adoption of SFAS No. 133 on January 1, 2001 did not have a significant impact on the Corporation's financial statements. Page 9
10 First Citizens Banc Corp Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) - ------------------------------------------------------------------------------- (2) Securities Securities at March 31, 2001 and December 31, 2000 were as follows: <TABLE> <CAPTION> March 31, 2001 Gross Gross AVAILABLE FOR SALE Amortized Cost Unrealized Unrealized Fair Gains Losses Value -------------- -------------- --------------- -------------- <S> <C> <C> <C> <C> U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 47,820 $ 866 $ 0 $ 48,686 Obligations of state and political subdivisions 42,855 1,026 (4) 43,877 Corporate obligations 5,620 62 (82) 5,600 Other securities, including mortgage-backed securities and equity securities 16,614 940 0 17,554 --------------- --------------- --------------- --------------- $ 112,909 $ 2,894 $ (86) $ 115,717 =============== =============== =============== =============== March 31, 2001 Gross Gross HELD TO MATURITY Amortized Cost Unrealized Unrealized Fair Gains Losses Value -------------- -------------- --------------- -------------- Obligations of state and political subdivisions $ 155 $ 1 $ - $ 156 Other securities, including mortgage-backed securities and equity securities 119 2 - 121 --------------- --------------- --------------- --------------- $ 274 $ 3 $ - $ 277 =============== =============== =============== =============== </TABLE> Page 10
11 First Citizens Banc Corp Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) - ------------------------------------------------------------------------------- <TABLE> <CAPTION> December 31, 2000 Gross Gross AVAILABLE FOR SALE Amortized Cost Unrealized Unrealized Fair Gains Losses Value -------------- -------------- --------------- -------------- <S> <C> <C> <C> <C> U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 47,834 $ 325 $ (130) $ 48,029 Obligations of state and political subdivisions 43,500 516 (97) 43,919 Corporate obligations 5,630 9 (226) 5,413 Other securities, including mortgage-backed securities and equity securities 17,230 1,024 (101) 18,153 ------------- ------------- --------------- ------------- $ 114,194 $ 1,874 $ (554) $ 115,514 ============= ============= =============== ============= December 31, 2000 Gross Gross HELD TO MATURITY Amortized Cost Unrealized Unrealized Fair Gains Losses Value -------------- -------------- --------------- -------------- Obligations of state and political subdivisions $ 155 $ 1 $ 0 $ 156 Other securities, including mortgage-backed securities and equity securities 123 0 (1) 122 ------------- ------------- --------------- ------------- $ 278 $ 1 $ (1) $ 278 ============= ============= =============== ============= </TABLE> Page 11
12 First Citizens Banc Corp Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) - ------------------------------------------------------------------------------- The amortized cost and fair value of securities at March 31, 2001, 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. AVAILABLE FOR SALE Amortized Fair Cost Value -------- -------- Due in one year or less $ 22,891 $ 23,029 Due after one year through five years 63,028 64,429 Due after five years through ten years 10,376 10,705 Due after ten years 0 0 Mortgage-backed securities 10,465 10,533 Equity securities 6,149 7,021 -------- -------- Total securities available for sale $112,909 $115,717 ======== ======== HELD TO MATURITY Amortized Estimated Cost Fair Value -------- -------- Due in one year or less $ 78 $ 78 Due after one year through five years 77 78 Mortgage-backed securities 119 121 --- --- Total securities held to maturity $ 274 $ 277 === === Proceeds from sales of securities, gross realized gains and gross realized losses were as follows: Three Months Ended March 31, ------------------------------------------ 2001 2000 ------------------- ------------------- Proceeds $ - $ 1,800 Gross gains - - Gross losses - (1) Page 12
13 First Citizens Banc Corp Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) - ------------------------------------------------------------------------------- Securities with a carrying value of approximately $68,464 and $58,088 were pledged as of March 31, 2001 and December 31, 2000, respectively, to secure public deposits, other deposits and liabilities as required by law. (3) Loans Loans at March 31, 2001 and December 31, 2000 were as follows: 3/31/2001 12/31/2000 --------- ---------- Commercial and Agriculture $ 25,031 $ 26,416 Commercial real estate 62,831 60,546 Real Estate - mortgage 219,304 217,344 Real Estate - construction 12,325 9,684 Consumer 28,665 29,509 Credit card and other 2,783 2,979 Leases 702 590 --------- --------- Total loans 351,641 347,068 Allowance for loan losses (4,319) (4,107) Deferred loan fees (958) (957) Unearned interest (19) (22) --------- --------- Net loans $ 346,345 $ 341,982 ========= ========= (4) Allowance for Loan Losses A summary of the activity in the allowance for loan losses for the three months ended March 31, 2001 and 2000 was as follows: 2001 2000 ---- ---- Balance January 1, $ 4,107 $ 4,274 Loans charged-off (163) (164) Recoveries 79 47 Provision for loan losses 296 95 ------- ------- Balance March 31, $ 4,319 $ 4,252 ======= ======= Page 13
14 First Citizens Banc Corp Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) - ------------------------------------------------------------------------------- Information regarding impaired loans was as follows for the three months ended March 31. 2001 2000 ---- ---- Average investment in impaired loans $ 3,123 $ 3,976 Interest income recognized on impaired loans including interest income recognized on cash basis 22 80 Interest Income recognized on impaired loans on cash basis 22 80 Information regarding impaired loans at March 31, 2001 and December 31, 2000 was as follows: 3/31/01 12/31/00 ------- -------- Balance impaired loans $ 1,063 $ 5,152 Less portion for which no allowance for loan losses is allocated - - ----------- ----------- Portion of impaired loan balance for which an allowance for credit losses is allocated $ 1,063 $ 5,152 =========== =========== Portion of allowance for loan losses allocated to the impaired loan balace $ 313 $ 1,179 =========== =========== Nonperforming loans were as follows. March 31, 2001 December 31, 2000 ---------------- ----------------- Loans past due over 90 days still on accrual $ 1,923 $ 558 Nonaccrual 2,386 1,368 Nonperforming loans would include some loans, which are classified as impaired, and smaller balance homogeneous loans, such as residential mortgages and consumer loans, that are collectively evaluated for impairment. Page 14
15 First Citizens Banc Corp Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) - ------------------------------------------------------------------------------- (5) Commitments, Contingencies and Off-Balance Sheet Risk Some financial instruments, such as loan commitments, credit lines, letters of credit and overdraft protection are issued to meet customers financing needs. These are agreements to provide credit or to support the credit of others, as long as the conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance-sheet risk of credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of commitment. The contractual amount of financial instruments with off-balance-sheet risk was as follows for March 31, 2001 and December 31, 2000. Contract Amount --------------- March 31, 2001 December 31, 2000 ------------------ ------------------- Commitment to extend credit: Lines of credit and construction loans $ 29,849 $ 28,170 Credit cards 6,981 4,564 Letters of credit 383 339 ------------------ ------------------- $ 37,213 $ 33,073 ================== =================== Commitments to make loans are generally made for a period of one year or less. Fixed rate loan commitments included above totaled $4,610 at March 31, 2001 and had interest rates ranging from 5.25% to 12.50% with maturities extended up to 30 years. Fixed rate loan commitments included above totaled $6,064 at December 31, 2000 with interest rates ranging from 5.00% to 12.50% with maturities extended up to 30 years. 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, 2001 and December 31, 2000 approximated $4,071 and $4,148. Page 15
16 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) - ------------------------------------------------------------------------------- INTRODUCTION The following discussion focuses on the consolidated financial condition of First Citizens Banc Corp at March 31, 2001, compared to December 31, 2000 and the consolidated results of operations for the three-month period ending March 31, 2001 compared to the same period in 2000. 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, 2001 totaled $500,020 compared to $489,259 at December 31, 2000. This was an increase of $10,761, or 2.2 percent. Within the structure of the assets, net loans have increased $4,363, or 1.3 percent since December 31, 2000, primarily in the area of commercial and residential real estate loans, a portion of which was generated by Mr. Money. Mr. Money was formed to service the needs of B and C credit customers for consumer and real estate financing that the Banks would not normally provide, and at a rate commensurate with the risk. Mr. Money had loans outstanding of $15,189 at March 31, 2001. Loans held-for-sale increased $378, or 66.2 percent from December 31, 2000. The balance in loans held for sale Page 16
17 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) - ------------------------------------------------------------------------------- is a function of the demand for fixed rate mortgages. As rates began to fall in the first quarter of 2001, the demand for fixed rate mortgages increased. At March 31, 2001, the net loan to deposit ratio was 84.5 percent compared to 87.2 percent at December 31, 2000. At March 31, 2001, $115,717, or 99.8 percent of the security portfolio was classified as available for sale. The $274 remainder of the portfolio was classified as held to maturity. Securities increased $200 from December 31, 2000. For the three months of operations in 2001, $296 was placed into the allowance for loan losses from earnings compared to $95 for the same period of 2000. The increased provision is mainly a result of loan growth, including Mr. Money, which reserves for loans at a higher level. To evaluate the adequacy of the allowance foe 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 provisions to the reserve. Charge-offs for the first three months of 2001 were $163 compared to $164 for the same period of 2000. The March 31, 2001 allowance for loan losses as a percent of total loans was 1.23 percent compared to 1.19 percent at December 31, 2000. Office premises and equipment have decreased $70 and intangible assets have decreased $82 since December 31, 2000. The decrease in office premises and equipment is attributed to new purchases of $163 and depreciation of $233. Intangible assets decreased due to amortization. Accrued interest and other assets totaled $6,428 at March 31, 2001 compared to $6,038 at December 31, 2000, an increase of $390. This increase was primarily due to increases in interest receivable of $248. This increase is largely due to increased interest receivable at Mr. Money. Total deposits at March 31, 2001 increased $17,733 from year-end 2000. Noninterest-bearing deposits, representing demand deposit balances, decreased $653 from year-end 2000. Interest-bearing deposits, including savings and time deposits, increased $18,386 from year-end 2000. The year to date 2001 average balance of savings deposits has decreased $2,299 compared to the average balance of the same period for 2000. The current average rate of these deposits is 2.35 percent compared to 2.37 percent in 2000. The year to date 2001 average balance of time certificates has increased $2,994 compared to the average balance for the same period for 2000. In conjunction with market conditions, and in order to remain competitive, the banks have offered special rates on various certificates of deposit. As a result, the banks have experienced shifting toward the special rate certificates of deposit. Additionally, the banks usage of fed funds purchased as a funding source has led to an increase in the overall rate on interest-bearing liabilities. The current average rate on deposits is 5.50 percent compared to 4.92 percent for the same period in 2000. Page 17
18 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 $8,784 from December 31, 2000 to March 31, 2001. Federal funds purchased have decreased $10,335 since December 31, 2000. The need to use federal funds purchased has decreased somewhat, due to increased deposits. However, in the short term, there is still a need to supplement traditional funding sources with non-deposit funding. In addition, the Corporation has notes outstanding with other financial institutions totaling $14,000 at March 31, 2001. These notes were used to fund the loan growth at Mr. Money. Federal Home Loan Bank borrowings have decreased $145 as a result of scheduled pay downs. Securities sold under agreements to repurchase, which tend to fluctuate, have decreased $881 and U.S. Treasury Tax Demand Notes have decreased $823. Shareholders' equity at March 31, 2001 was $49,252, which was 9.8 percent of total assets. Shareholders' equity at December 31, 2000 was $47,925, which was 9.8 percent of total assets. The increase in shareholders' equity is made up of earnings of $1,181, less dividends paid of $735 and the purchase of 5,000 treasury shares for $101 and the increase in the market value of securities available for sale, net of tax, of $982. The Corporation paid cash dividends on February 1, 2001 at a rate of $.18 per share. Total outstanding shares at March 31, 2001 were 4,082,619. RESULTS OF OPERATIONS Three Months Ended March 31, 2001 and 2000 Net income for the three months ended March 31, 2001 was $1,181, or $.29 per common share compared to $1,306, or $.32 per common share for the same period in 2000. This was a decrease of $125, or 9.6 percent. Some of the reasons for the changes are explained below. Total interest income for the first three months of 2001 increased $1,118, or 13.9 percent compared to the same period in 2000. The average rate on earning assets on a tax equivalent basis for the first three months of 2001 was 7.65 percent and 7.25 percent for the first three months of 2000. The increase in yield is due to the assets booked in 2000 at higher rates. Total interest expense for the first three months of 2001 has increased $678, or 18.7 percent compared to the same period of 2000. This increase is mainly attributed to an increase in interest on deposits of $251 and an increase in interest on other borrowings of $435. Although the average balance on interest bearing deposits is down for the first quarter 2001 compared to the first quarter 2000, the rate on these deposits is up. Interest on other borrowings increased due to increased usage of fed funds purchased as a source of funding for loan growth. Interest on FHLB borrowings is down due to balances borrowed being lower in 2001. The average rate on interest-bearing liabilities for the first three months of 2001 was 4.22 percent compared to 3.89 percent for the same period of 2000. The net interest margin on a tax equivalent basis was 4.14 percent for the three-month period ended March 31, 2001 and 3.97 percent for the same period ended March 31, 2000. Page 18
19 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) - ------------------------------------------------------------------------------- Noninterest income for the first three months of 2001 totaled $1,173, compared to $1,119 for the same period of 2000, an increase of $54. Revenue from computer operations increased $41. SCC provides item processing for 12 financial institutions in addition to the three subsidiary banks. Other operating income increased $12. Gain on the sale of loans increased $52 because falling interest rates increased the demand for fixed rate mortgages. This increased the volume of loans sold, thereby increasing gains. Noninterest expense for the three months ended March 31, 2001 totaled $4,101 compared to $3,644 for the same period in 2000. This was an increase of $457, or 12.5 percent. Equipment expense increased $10 as a result of increased depreciation and maintenance expense. Salaries and benefits increased $301, or 18.3 percent compared to the first three months of 2000 as a result of the Corporation adding employees at both the existing affiliates as well as the new affiliate, Mr. Money. Computer processing increased by $15 compared to last year. These increases were offset by a $30 decrease in professional fees. Income tax expense for the first three months of 2001 totaled $460 compared to $499 for the first three months of 2000. This was a decrease of $39, or 7.8 percent. The decrease in the federal income taxes is a result of the decrease in total income before taxes of $164. The effective tax rates were comparable for the three-month periods ended March 31, 2001 and March 31, 2000, at 28.0% and 27.6% respectively. CAPITAL RESOURCES Shareholders' equity totaled $49,252, at March 31, 2001 compared to $47,925 at December 31, 2000. All of the capital ratios exceed the regulatory minimum guidelines as identified in the following table: Corporation Ratios Regulatory 3/31/01 12/31/00 Minimums ------- -------- -------- Tier I Risk Based Capital 14.3% 14.1% 4.0% Total Risk Based Capital 15.6% 15.3% 8.0% Leverage Ratio 9.3% 9.3% 4.0% The Corporation paid a cash dividend of $.18 per common share each on February 1, 2001 compared to $.17 per common share each on February 1, 2000. Page 19
20 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 expenditures totaled $163 for the first three months of 2001 compared to $102 for the same period of 2000. 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. The Banks, through their respective correspondent banks, maintain federal funds borrowing lines totaling $45,261 and the Banks have additional borrowing availability at the Federal Home Loan Bank of Cincinnati of $67,165 at March 31, 2001. Finally, 99.8% of the Corporation's security portfolio has been classified as available for sale, which provides additional liquidity. 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 holds true during periods of rising rates. The Corporation attempts to minimize the Page 20
21 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) - ------------------------------------------------------------------------------- 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 46.0 percent of the Corporation's loan portfolio reprices on at least an annual basis. The Corporation's usual practice is to invest excess funds in federal funds that mature and reprice daily. The Corporation's 2000 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, 2000. 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, 2000 which would significantly change the ratio of rate sensitive assets and liabilities for the given time horizon. Page 21
22 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. 99 Safe Harbor under the Private Securities Litigation Reform Act of 1995 (b) REPORTS ON FORM 8-K - None. Page 22
23 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 14, 2001 - ------------------------------------ ------------ David A. Voight Date President /s/ James O. Miller May 14, 2001 - ------------------------------------ ------------ James O. Miller Date Executive Vice President Page 23
24 First Citizens Banc Corp Index to Exhibits Form 10-Q - -------------------------------------------------------------------------------- <TABLE> <CAPTION> Exhibit Number Description Page Number ------ ----------- ----------- <S> <C> <C> 99 Safe Harbor Under the Private Securities Incorporated by reference to Exhibit 99 to Litigation Reform Act of 1995 Annual Report for the Year Ended December 31, 2000 filed by the registrant on March 21, 2000 </TABLE> Page 24