First Citizens
Banc Corp
2013 Annual Report
Five Year Condensed Consolidated Financial Summary
2013
2012
2011
2010
2009
Earnings
Net Income/(loss) (000)
$ 6,179
$5,579
$3,958
$(1,268)
$1,655
Preferred dividends and discount accretion
on warrants (000)
$(1,159)
$(1,193)
$(1,176)
$(1,176)
$(955)
Net Income/(loss) available to
common shareholders (000)
$5,020
$4,386
$2,782
$(2,444)
$700
Per Common Share
Earnings/(loss)
Basic
Diluted
Earnings/(loss), available to common
shareholders
Basic
Diluted
Book Value
Dividends Paid
Balances
Assets (millions)
Deposits (millions)
Net Loans (millions)
Shareholders’ Equity (millions)
Performance Ratios
Return on Average Assets
Return on Average Equity
Equity Capital Ratio
$0.80
$0.79
$0.72
$0.72
$0.51
$0.51
($0.16)
($0.16)
$0.21
$0.21
$0.65
$0.64
$0.57
$0.57
$0.36
$0.36
$10.65
$10.48
$10.30
$0.15
$0.12
$0.03
($0.32)
($0.32)
$9.58
$0.00
$0.09
$0.09
$9.82
$0.25
$1,167.5
$1,137.0
$1,113.0
$1,100.7
$1,102.8
$942.5
$844.7
$128.4
$926.4
$901.2
$892.5
$856.1
$795.8
$764.0
$745.6
$775.5
$104.0
$102.5
$97.0
$98.8
0.53%
5.97%
11.00%
0.49%
5.36%
9.15%
0.35%
(0.11%)
3.96%
(1.27%)
9.21%
8.81%
0.15%
1.68%
8.96%
Net Loans to Deposit Ratio
89.63%
85.90%
84.77%
83.54%
90.59%
Loss Allowance to Total Loans
1.92%
2.42%
2.71%
2.84%
1.93%
Dear Shareholder:
2013 was a good year. Net income for the year was $6,179,000, an improvement of $600,000 or 11% over
the income of $5,579,000 in 2012. We successfully completed the issuance of $25,000,000 of convertible
preferred stock to replace the CPP preferred stock. This transaction seems to have had a positive impact
in the market for our stock. During the year, we also had the opportunity to add a mortgage lending
group at our Dublin, Ohio location. We believe this will generate additional mortgage-related revenue
for the company. The commercial lending teams that we have assembled in our urban locations are
generating solid loan growth. 2013 saw loan growth of 5.6%. As you can see in the chart below, total
loans at year-end 2013 were $861,241,000 an almost $100,000,000 increase since year-end 2010, which was
the depth of the recession for us. This growth has been a direct result of the investment we made in
seasoned lenders in our more vibrant markets.
(In thousands)
Gross Loans
2013
$ 861,241
2012
$ 815,553
2011
$ 785,268
2010
$ 767,323
2009
$ 790,818
As with loans, we continue to enjoy growth in deposits. Our focus has been on noninterest-bearing
deposits (checking accounts), which have increased nicely. The percentage of total deposits represented
by noninterest-bearing deposits has increased from 16% in 2009 to approximately 25% at year-end 2013.
These low-cost funds have a direct bearing on our above peer interest margin.
(In thousands)
Noninterest Bearing Deposits
Interest Bearing Deposits
Total
2013
$ 234,976
707,499
$ 942,475
2012
$ 202,416
723,973
$ 926,389
2011
$ 189,382
711,864
$ 901,246
2010
$ 157,529
734,934
$ 892,463
2009
$ 140,659
715,393
$ 856,052
Net Interest Income
Our net interest income, shown below as a per share amount, is the amount that we generate by taking
deposits and making loans and investments. This has diminished approximately 3.5% from $5.38 in 2010
to $5.19 per share in 2013. As noted in earlier letters, this reduction is a direct result of the current low
interest rate environment. The negative impact of low rates was damped by our increased loan volume.
We did see our fourth quarter 2013 interest margin (expressed as a percent) come in at 3.85% compared to
the fourth quarter of 2012 at 3.80%. It appears that the impact of the low rates may be stabilizing.
Net Interest Income per share (basic)
2013
$ 5.19
2012
$ 5.26
2011
$ 5.37
2010
$ 5.38
2009
$ 5.22
There are actions we could take to increase our margin and our net interest income. They would involve
making longer term loans and loosening credit standards. We don’t believe these actions would be
prudent. We will accept a slightly lower margin (though its remains higher than our peers) rather than
change our standards. Rates, at some point, will increase. We continue to sell the long-term fixed-rate
mortgages that we generate, and we encourage variable rate or shorter term commercial lending. This
should give us an income generating advantage when rates increase.
Noninterest Income
For 2013, we enjoyed a 7.7% increase in our noninterest income. We believe that we provide quality
products and should be compensated accordingly. We regularly compare our pricing with competitors
and consider new products and services that will benefit our customers and generate revenue for the
company. Our wealth management department continues to be a success. It contributed revenue of
$2,627,000 in 2013, an increase of 21.5% over 2012.
Noninterest Income per share (basic)
2013
$ 1.56
2012
$ 1.45
2011
$ 1.29
2010
$ 1.26
2009
$ 1.25
Noninterest Expense
Noninterest expenses increased approximately 14% from 2012. Driving the increase were personnel
costs. Personnel costs are slightly more than one half of our noninterest expenses. Some of the increase
relates to the lending teams that have been assembled over the last two years. For the company to grow,
we need loan producers in our more active markets, along with the staff to support them. We have seen
the results of these efforts in our loan growth. Most of the increase relates to benefits. In spite of active
efforts to contain costs, health care expenses have increased from $1,991,000 in 2012 to $2,623,000 in 2013.
In 2013 we also recognized a non-cash entry related to an unrealized pension liability of $2,251,000, or
about $.19 per share. We are examining several initiatives to provide a competitive benefits package with
reasonable costs to the company.
Noninterest Expense per share (basic)
2013
$ 5.63
2012
$ 4.94
2011
$ 4.76
2010
$ 4.64
2009
$ 4.56
Provision for Loan Loss
We have seen a steady decline in the provision needed for the Reserve for Loan Loss. This is a result of
an improving economy and improvement in the finances of our customers. In the fourth quarter we sold
approximately $4,800,000 in non-performing loans. This was not typical for us, but it was time for us to
redirect our resources from these long-term problems.
Provision for Loan Losses (basic)
2013
$ 0.14
2012
$ 0.83
2011
$ 1.27
2010
$ 2.33
2009
$ 1.73
Earnings Per Share
Looking at our earnings per share before the preferred dividend, we have enjoyed steady improvement
since the depth of the recession. Much of the improvement is a result of decreases in the provision, but it
also reflects our ability to generate consistent core earnings.
Net Earnings Per Share (basic)
2013
$ 0.80
2012
$ 0.72
2011
$ 0.51
2010
$ (0.16)
2009
$ 0.21
Looking Ahead
In addition to the expanded mortgage operation discussed earlier, there were a number of products and
services introduced in 2013. Recognizing the growing customer preference for online and mobile
banking, we have added the ability to make Person to Person Payments and Bank to Bank Payments
using one’s smart phone. The technology world is evolving rapidly, and we will continue to adapt the
delivery of our products to provide alternatives that today’s customers expect.
In the commercial loan arena we have increased the selective use of interest rate swaps, which provide a
commercial customer the option of getting a longer term fixed rate on their loans. The use of swaps also
protects the bank from the risk of an increase in rates and generates fee income.
Our chassis is built to provide a 360-degree focus on serving the financial needs of our business and
personal customers, with business lending, cash management, personal banking, mortgage lending, and
wealth management delivering services seamlessly and all contributing to the generation of core earnings
for the company.
While there is opportunity to grow in our existing markets, we continue to investigate other vibrant areas
where we could assemble teams of lenders to selectively generate business for us. We also believe that
we are in a good position to take advantage of the acquisition opportunities that we expect over the next
few years as the banking industry evolves and consolidates. The key to evaluating acquisition
opportunities is to remain disciplined in our approach and pricing. This will translate into an outcome
that is in the best interest of our shareholders.
You will find that your proxy will contain a request for your vote to approve a stock incentive plan.
Many companies have performance incentive programs, and we have several incentive plans for
producers and senior management which are tied to a number of company performance goals. Our
programs, which are competitive in the marketplace, are distributed in cash. We believe distributions that
include a stock-based component offer advantages. Having a stock-based program with awards that vest
over a period of time will, we believe, strongly align the participant’s interests with shareholder’s
interests. Since the participant will not receive parts of his or her award for several years, we believe that
it can also discourage valuable employees from leaving the company. The proxy will contain more
information on this and other issues. Please take the time to review the material and vote your proxy.
Finally, I would like to reflect on the untimely passing of director John Pheiffer in December. John had a
strong interest in the company, and he was proud of his family ties to the company going back to its
founding in 1884. His contributions to the board and its committees will be missed.
Very truly yours,
James O. Miller
President & C.E.O.
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ANNUAL REPORT
CONTENTS
Five –Year Selected Consolidated Financial Data .........................................................................................
Common Stock and Shareholder Matters ......................................................................................................
General Development of Business ...................................................................................................................
Management’s Discussion and Analysis of Financial Condition and Results of Operations .................
1
3
3
4
Quantitative and Qualitative Disclosures about Market Risk .....................................................................
17
Financial Statements
Management’s Report on Internal Control over Financial Reporting .................................................
Report of Independent Registered Public Accounting Firm on Internal Control Over
Financial Statements ................................................................................................................................
Report of Independent Registered Public Accounting Firm on Financial Statements ......................
Consolidated Balance Sheets .....................................................................................................................
Consolidated Statements of Operations ..................................................................................................
Consolidated Comprehensive Income Statements ................................................................................
Consolidated Statements of Changes in Shareholders’ Equity ............................................................
Consolidated Statements of Cash Flow ...................................................................................................
Notes to Consolidated Financial Statements ..........................................................................................
20
21
22
23
24
25
26
28
30
Five-Year Selected Consolidated Financial Data
(Amounts in thousands, except per share data)
Statements of income:
Total interest and dividend income
Total interest expense
Net interest income
Provision for loan losses
Net interest income after
provision for loan losses
Security gains/(losses)
Other noninterest income
Total noninterest income
Other noninterest expense
Total noninterest expense
Income (loss) before federal income taxes
Federal income tax expense (benefit)
Net income (loss)
Preferred stock dividends and
discount accretion
Net income (loss) available to
2013
Year ended December 31,
2011
2010
2012
2009
$
44,881
4,907
39,974
1,100
$
46,762
6,184
40,578
6,400
$
48,861
7,500
41,361
9,800
$
51,925
10,464
41,461
17,940
$
55,191
14,918
40,273
13,323
38,874
204
11,858
12,062
34,178
40
11,160
11,200
31,561
23,521
26,950
(8)
9,979
9,971
212
8,942
9,154
75
9,558
9,633
43,384
43,384
7,552
1,373
6,179
$
38,074
38,074
7,304
1,725
5,579
$
36,727
36,727
4,805
847
3,958
$
35,774
35,774
(3,099)
(1,831)
(1,268)
$
35,165
35,165
1,418
(237)
1,655
$
1,159
1,193
1,176
1,176
955
common shareholders
$
5,020
$
4,386
$
2,782
$
(2,444)
$
700
Per share of common stock:
Earnings (basic)
Earnings (diluted)
Earnings available to common
shareholders (basic)
Earnings available to common
shareholders (diluted)
Dividends
Book value
Average common shares outstanding:
Basic
Diluted
Year-end balances:
Loans, net
Securities
Total assets
Deposits
Borrowings
Shareholders' equity
Average balances:
Loans, net
Securities
Total assets
Deposits
Borrowings
Shareholders' equity
$
0.80
0.79
$
0.72
0.72
$
0.51
0.51
$
(0.16)
(0.16)
$
0.21
0.21
0.65
0.64
0.15
10.65
0.57
0.57
0.12
10.48
0.36
0.36
0.03
10.30
(0.32)
(0.32)
-
9.58
0.09
0.09
0.25
9.82
7,707,917
7,821,780
7,707,917
7,707,917
7,707,917
7,707,917
7,707,917
7,707,917
7,707,917
7,707,917
$
844,713
215,037
1,167,546
942,475
87,206
128,376
$
800,063
216,848
1,172,819
965,370
89,496
103,563
$
795,811
219,528
1,136,971
926,389
92,907
103,980
$
759,105
224,566
1,127,989
914,851
95,973
104,114
$
764,011
220,021
1,112,977
901,246
98,751
102,528
$
741,383
216,549
1,124,553
910,315
105,071
99,848
$
745,555
200,296
1,100,622
892,463
103,604
96,950
$
765,821
212,038
1,121,105
892,773
117,280
99,648
$
775,547
222,674
1,102,812
856,052
139,105
98,797
$
777,825
197,826
1,102,779
863,488
127,793
98,454
1
Five-Year Selected Ratios
Net interest margin
Return on average total assets
Return on average shareholders' equity
Average shareholders' equity as a percent
of average total assets
Net loan charge-offs as a percent of
average total loans
Allowance for loan losses as a percent
year-end
of loans at
Shareholders' equit
y as a percent
of total year-end assets
2013
3.79%
0.53
5.97
8.83
0.53
1.92
11.00
Year ended December 31,
2011
2010
2012
3.98%
0.49
5.36
4.00%
0.35
3.96
3.94%
(0.11)
(1.27)
9.23
1.01
2.42
9.15
8.88
1.35
2.71
9.21
8.89
1.46
2.84
8.81
2009
3.91%
0.15
1.68
8.97
0.
87
1.
93
8.
96
A copy of the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange
Commission, will be furnished, free of charge, to shareholders, upon written request to the Secretary
of First Citizens Banc Corp, 100 East Water Street, Sandusky, Ohio 44870.
2
Common Stock and Shareholder Matters
The common shares of First Citizens Banc Corp (FCBC) trade on The NASDAQ Stock Market under the
symbol “FCZA”. As of February 19, 2014, there were 7,707,917 shares outstanding held by approximately
1,348 shareholders of record (not including the number of persons or entities holding stock in nominee or
street name through various brokerage firms). Information below is the range of sales prices of our
common shares for each quarter for the last two years.
2013
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$5.15
to
$7.00
$6.84
to
$7.71
$6.37
to
$7.44
$5.94
to
$6.99
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$3.82
to
$5.73
$5.39
to
$7.10
$5.04
to
$6.81
$4.91
to
$6.10
2012
Dividends per share declared on common shares by FCBC were as follows:
First quarter
Second quarter
Third quarter
Fourth quarter
2013
2012
$
0.03
0.04
0.04
$
0.03
0.03
0.03
0.04
0.03
$
0.15
$
0.12
Information regarding potential restrictions on dividends paid can be found in Note 17 to the
Consolidated Financial Statements.
On December 19, 2013, FCBC completed a public offering of 1,000,000 depositary shares, each
representing a 1/40th ownership interest in a Noncumulative Redeemable Convertible Perpetual
Preferred Share, Series B (the “Series B Preferred Shares”), of FCBC. The depositary shares trade on The
NASDAQ Stock market under the symbol “FCZAP.” The terms of the Series B Preferred Shares provide
for the payment of quarterly dividends on the Series B Preferred Shares (and, therefore, the depositary
shares) at the rate of 6.50% per annum of the liquidation preference of $1,000 per Series B Preferred Share
(or $25.00 per depositary share. Dividends are noncumulative and are payable if, when and as declared
by the board of directors. However, no dividends may be declared or paid on the common shares of
FCBC during any calendar quarter unless full dividends on the Series B Preferred Shares (and, therefore,
the depositary shares) have been declared for that quarter and all dividends previously declared on the
Series B Preferred Shares (and, therefore, the depositary shares) have been paid in full.
General Development of Business
(Amounts in thousands)
FIRST CITIZENS BANC CORP (FCBC) was organized under the laws of the State of Ohio on February 19,
1987 and is a registered financial holding company under the Gramm-Leach-Bliley Financial
Modernization Act of 1999, as amended. FCBC and its subsidiaries are sometimes referred to together as
the Company. The Company’s office is located at 100 East Water Street, Sandusky, Ohio. The Company
had total consolidated assets of $1,167,546 at December 31, 2013.
3
THE CITIZENS BANKING COMPANY (Citizens), owned by the Company since 1987, opened for
business in 1884 as The Citizens National Bank. In 1898, Citizens was reorganized under Ohio banking
law and was known as The Citizens Bank and Trust Company. In 1908, Citizens surrendered its trust
charter and began operation under its current name. Citizens maintains its main office at 100 East Water
Street, Sandusky, Ohio and operates branch banking offices in the following Ohio communities:
Sandusky (2), Norwalk (2), Berlin Heights, Huron, Port Clinton, Castalia, New Washington, Shelby (3),
Willard, Chatfield, Tiro, Greenwich, Plymouth, Shiloh, Akron, Dublin, Hilliard, Plain City, Russells Point,
Urbana (2), West Liberty and Quincy. Citizens accounted for 99.5% of the Company’s consolidated assets
at December 31, 2013.
FIRST CITIZENS INSURANCE AGENCY INC. (Insurance Agency) was formed to allow the Company to
participate in commission revenue generated through its third party insurance agreement. Assets of the
Insurance Agency were less than one percent of the Company’s consolidated assets as of December 31,
2013.
WATER STREET PROPERTIES (Water St.) was formed to hold properties repossessed by FCBC
subsidiaries. Water St. accounted for less than one percent of the Company’s consolidated assets as of
December 31, 2013.
FC REFUND SOLUTIONS, INC. (FCRS) was formed during 2012 and remained inactive for the periods
presented.
FIRST CITIZENS INVESTMENTS, INC. (FCI) is wholly-owned by Citizens and holds and manages its
securities portfolio. The operations of FCI are located in Wilmington, Delaware.
FIRST CITIZENS CAPITAL LLC (FCC) is wholly-owned by Citizens and holds inter-company debt that
is eliminated in consolidation. The operations of FCC are located in Wilmington, Delaware.
Management’s Discussion and Analysis of Financial Condition and Results of Operations - As of
December 31, 2013 and December 31, 2012 and for the Years Ended December 31, 2013 and 2012
(Amounts in thousands, except per share data)
General
The following paragraphs more fully discuss the significant highlights, changes and trends as they relate
to the Company’s financial condition, results of operations, liquidity and capital resources as of
December 31, 2013 and 2012, and during the two-year period ended December 31, 2013. This discussion
should be read in conjunction with the Consolidated Financial Statements and notes to the Consolidated
Financial Statements, which are included elsewhere in this report.
Forward-Looking Statements
This report may contain “forward-looking statements” within the meaning of Section 27A of the
Securities Act of 1933, as amended (the “Securities Act”), and 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
4
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; unforeseen litigation; and other risks identified from
time-to-time in the Company’s other public documents on file with the Securities and Exchange
Commission.
The forward-looking statements included in this report are only made as of the date of this report, and
we disclaim any obligation to publicly update any forward-looking statement to reflect subsequent
events or circumstances, 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
At December 31, 2013, total assets were $1,167,546, compared to $1,136,971 at December 31, 2012. The
increase in assets is primarily the result of an increase in the loan portfolio. Other factors contributing to
the change in assets are discussed in the following sections.
At $844,713, net loans have increased from December 31, 2012 by 6.1%. The increases were primarily in
commercial and agricultural, commercial real estate and real estate construction loans. Commercial and
agricultural loans increased by $15,214 to $115,875 at December 31, 2013 from $100,661 at December 31,
2012. Commercial real estate loans increased by $9,038 to $443,846 at December 31, 2013 from $434,808 at
December 31, 2012. Real estate construction loans increased by $20,287 to $39,964 at December 31, 2013
from $19,677 at December 31, 2012.
Securities available for sale decreased by $4,348, or 2.1%, from $203,961 at December 31, 2012 to $199,613
at December 31, 2013. U.S. Treasury securities and obligations of U.S. government agencies decreased
$2,726, from $54,286 at December 31, 2012 to $51,560 at December 31, 2013. Obligations of states and
political subdivisions available for sale increased $819 from 2012 to 2013. Mortgage-backed securities
decreased by $2,456 to total $66,979 at December 31, 2013. The Company continues to utilize letters of
credit from the Federal Home Loan Bank (FHLB) to replace maturing securities that were pledged for
public entities. As of December 31, 2013, the Company was in compliance with all pledging
requirements.
Mortgage-backed securities totaled $66,979 at December 31, 2013 and none were considered unusual or
“high risk” securities as defined by regulatory authorities. Of this total, $41,866 was pass-through
securities issued by the Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage
Corporation (FHLMC) and Government National Mortgage Association (GNMA), and $25,113 was
collateralized by mortgage-backed securities issued or guaranteed by FNMA, FHLMC, or GNMA. The
average interest rate of the mortgage-backed portfolio at December 31, 2013 was 3.5%. The average
maturity at December 31, 2013 was approximately 3.7 years. The Company has not invested in any
derivative securities.
Securities available for sale had a fair value at December 31, 2013 of $199,613. This fair value includes
unrealized gains of approximately $3,549 and unrealized losses of approximately $3,030. Net unrealized
gains totaled $519 on December 31, 2013 compared to net unrealized gains of $8,863 on December 31,
5
2012. The change in unrealized gains is primarily due to changes in market interest rates. Note 2 to the
Consolidated Financial Statements provides additional information on unrealized gains and losses.
Premises and equipment, net of accumulated depreciation, decreased $239 from December 31, 2012 to
December 31, 2013. The decrease in office premises and equipment is attributed to new purchases of
$1,281, depreciation of $1,509 and disposals of $11.
Year-end deposit balances totaled $942,475 in 2013 compared to $926,389 in 2012, an increase of $16,086,
or 1.7%. Overall, the increase in deposits at December 31, 2013 compared to December 31, 2012 included
increases in noninterest bearing demand deposits of $32,560, or 16.1%, statement and passbook savings
accounts of $13,256, or 4.6%, offset in part by declines in interest bearing demand accounts of $2,077, or
1.2%, individual retirement accounts of $2,696, or 8.2%, and certificate of deposit accounts of $24,957, or
10.8%. A primary factor of the increase in deposits, especially savings and money market deposits, can
be attributed to the prolonged, dampened state of the economy and low interest rates on time deposits.
Customers seem to be staying out of the market, spending less, saving more and shifting their
investments to more liquid accounts while waiting for interest rates to begin climbing. Average deposit
balances for 2013 were $965,370 compared to $914,851 for 2012, an increase of 5.5%. Noninterest bearing
deposits averaged $233,592 for 2013, compared to $194,418 for 2012, increasing $39,174, or 20.1%.
Savings, NOW, and MMDA accounts averaged $485,054 for 2013 compared to $447,823 for 2012. Average
certificates of deposit decreased $25,886 to total an average balance of $246,724 for 2013.
Borrowings from the Federal Home Loan Bank (FHLB) of Cincinnati were $37,726 at December 31, 2013.
The detail of these borrowings can be found in Note 9 to the Consolidated Financial Statements. The
balance decreased $2,535 from $40,261 at year-end 2012. The change in balance is the result of an advance
paid off and not replaced.
Citizens offers repurchase agreements in the form of sweep accounts to commercial checking account
customers. These repurchase agreements totaled $20,053 at December 31, 2013 compared to $23,219 at
December 31, 2012. Obligations of U.S. government agencies maintained under Citizens’ control are
pledged as collateral for the repurchase agreements.
Other liabilities decreased $4,206 from December 31, 2012 to December 31, 2013. The decrease is
primarily the result of a decrease in the Company’s accrued pension liability.
Total shareholders’ equity increased $24,396, or 23.5% during 2013 to $128,376. The change in
shareholders’ equity resulted from net income of $6,179, offset by preferred dividends and common
dividends of $1,159 and $1,156, respectively, decreased market value of securities available for sale, net of
tax, of $5,508 and the change in the Company’s pension liability, net of tax of $2,908. For further
explanation of these items, see Note 1 and Note 13 to the Consolidated Financial Statements. In addition,
on December 19, 2013, the Company completed a public offering of 1,000,000 depositary shares, each
representing a 1/40th ownership interest in a Noncumulative Redeemable Convertible Perpetual
Preferred Share, Series B, of the Company. The Company sold the maximum of 1,000,000 depositary
shares in the offering at $25.00 per depositary share, resulting in net proceeds to the Company of $23,132.
The proceeds of the Series B issuance will be used to redeem the Series A preferred shares. For further
explanation, see Note 21 to the Consolidated Financial Statements. The Company paid $0.15 per common
share in dividends in 2013 compared to $0.12 per common share in dividends in 2012. Total outstanding
shares at December 31, 2013 and 2012 were 7,707,917. The ratio of total shareholders’ equity to total
assets was 11.0% and 9.2%, respectively, at December 31, 2013 and December 31, 2012.
6
Results of Operations
The operating results of the Company are affected by general economic conditions, the monetary and
fiscal policies of federal agencies and the regulatory policies of agencies that regulate financial
institutions. The Company’s cost of funds is influenced by interest rates on competing investments and
general market rates of interest. Lending activities are influenced by the demand for real estate loans and
other types of loans, which in turn is affected by the interest rates at which such loans are made, general
economic conditions and the availability of funds for lending activities.
The Company’s net income primarily depends on its net interest income, which is the difference between
the interest income earned on interest-earning assets, such as loans and securities, and interest expense
incurred on interest-bearing liabilities, such as deposits and borrowings. The level of net interest income
is dependent on the interest rate environment and the volume and composition of interest-earning assets
and interest-bearing liabilities. Net income is also affected by provisions for loan losses, service charges,
gains on the sale of assets, other income, noninterest expense and income taxes.
Comparison of Results of Operations for the Years Ended December 31, 2013 and December 31, 2012
Net Income
The Company’s net income for the year ended December 31, 2013 was $6,179, compared to $5,579 for the
year ended December 31, 2012. The change in net income was the result of the items discussed in the
following sections.
Net Interest Income
Net interest income for 2013 was $39,974, a decrease of $604, or 1.5%, from 2012. Although average
earning assets increased 3.7% from 2012, market rates in 2013 led to a $1,881 decline in interest income,
related to both loan portfolio and the taxable securities portfolio. This decrease was offset by a decrease
in interest expense on interest-bearing liabilities of $1,277, a 20.7% decline. The Company continually
examines its rate structure to ensure that its interest rates are competitive and reflective of the current rate
environment in which it competes. A change in the mix of deposits from certificates of deposit to non-
maturing deposits also contributed to the decline in interest expense.
Total interest income decreased $1,881, or 4.0%, from 2012. The decrease was mainly a result of a
decrease in the yield on earning assets. Average loans increased $38,366 from 2012 to 2013. Interest
earned on the Company’s loan portfolio declined due to a 39 basis point decline in yield. While the
average balance of the securities portfolio for 2013 compared to 2012 decreased $7,718, this was primarily
due to the change in market value. Interest earned on the security portfolio, including bank stocks,
decreased mainly due to decreases in yield. Average balances in interest-bearing deposits in other banks
increased in 2013 by $8,629.
Total interest expense decreased $1,277, or 20.7%, for 2013 compared to 2012. The decrease in interest
expense can be attributed to declines in market rates and the corresponding repricing of deposits and
other sources of funding. The total average balance of interest-bearing liabilities increased $4,868 while
the average rate decreased 16 basis points in 2013. Average interest-bearing deposits increased $11,345
from 2012 to 2013. The increase in average interest-bearing deposits, mainly in lower cost interest-
bearing demand and savings accounts, coupled by a decline in rate of approximately 15 basis points,
caused interest expense on deposits to decrease by $1,012. Interest expense on FHLB borrowings
decreased $172 due to a decrease in average balance of $8,336. The average balance in subordinated
debentures did not change from 2012 to 2013, but the rate on these securities decreased 32 basis points,
resulting in a decrease in interest expense of $93. Other borrowings increased $1,837 in average balance
7
from 2012 to 2013. The increase in other borrowings is mainly the result of an increase in repurchase
agreements.
Refer to “Distribution of Assets, Liabilities and Shareholders’ Equity, Interest Rates and Interest
Differential” and “Changes in Interest Income and Interest Expense Resulting from Changes in Volume
and Changes in Rate” on pages 11 through 13 for further analysis of the impact of changes in interest-
bearing assets and liabilities on the Company’s net interest income.
Provision and Allowance for Loan Losses
The following table contains information relating to the provision for loan losses, activity in and analysis
of the allowance for loan losses as of and for each of the two years in the period ended December 31.
As of and for year
ended December 31,
2013
2012
Net loan charge-offs
Provision for loan losses charged to expense
Net loan charge-offs as a percent of average outstanding loans
Allowance for loan losses
Allowance for loan losses as a percent of
year-end outstanding loans
Impaired loans
Impaired loans as a percent of gross year-end loans (1)
Nonaccrual and 90 days or more past due loans
Nonaccrual and 90 days or more past due loans
as a percent of gross year-end loans (1)
$
$
4,314
1,100
0.53%
16,528
7,915
6,400
1.01%
19,742
$
$
1.92%
18,057
2.10%
20,459
$
$
2.42%
26,090
3.20%
29,935
$
$
2.38%
3.67%
(1) Nonperforming loans and impaired loans are defined differently. Some loans may be
included in both categories, whereas other loans may only be included in one category. A
loan is considered nonaccrual if it is maintained on a cash basis because of deterioration in
the borrower’s financial condition, where payment in full of principal or interest is not
expected and where the principal and interest have been in default for 90 days, unless the
asset is both well-secured and in process of collection. A loan is considered impaired when it
is probable that all of the interest and principal due will not be collected according to the
terms of the original contractual agreement.
The Company’s policy is to maintain the allowance for loan losses at a level sufficient to provide for
probable losses incurred in the current portfolio. The Company provides for loan losses through regular
provisions to the allowance for loan losses. The amount of the provision is affected by loan charge-offs,
recoveries and changes in specific and general allocations required for the allowance for loan losses.
Provisions for loan losses totaled $1,100 and $6,400 in 2013 and 2012, respectively. Management believes
the analysis of the allowance for loan losses supported a reserve of $16,528 at December 31, 2013.
The Company’s provision for loan losses decreased during 2013 due to reductions in problem loans, but
remained significant due to the continuing challenging economic conditions and depressed collateral
values in our market. As we have continued to strengthen our collection and loan workout process, we
have written down the value of problem loans to reflect current conditions. In addition, the Company
reclassified a group of $6,548 nonperforming loans as held for sale, wrote them down by $1,792 and
subsequently sold them at a loss of $36. The sale of this group of loans was a last resort as all other
attempts to work these loans had been exhausted. We have also enhanced our review process to assure
8
that loan problems are identified. A number of factors impact the provisions for loan losses, such as the
level of higher risk loans in the portfolio, changes in practices related to loans, changes in collateral values
and other factors. We continue to actively manage this process and have provided to maintain the
reserve at a level that assures adequate coverage ratios.
Efforts are continually made to analyze each segment of the loan portfolio and quantify risk to assure that
reserves are appropriate for each segment and the overall portfolio. Management specifically evaluates
loans that are impaired, which includes restructured loans, to estimate potential loss. This analysis
includes a review of the loss migration calculation for all loan categories as well as fluctuations and
trends in various risk factors that have occurred within the portfolios’ economic life cycle. The analysis
also includes assessment of qualitative factors such as credit trends, unemployment trends, vacancy
trends and loan growth. 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.
Management analyzes each commercial and commercial real estate loan, with a balance of $350 or larger,
on an individual basis and designates a loan as impaired when it is in nonaccrual status or 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. 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.
Noninterest Income
Noninterest income increased $862, or 7.7%, to $12,062 for the year ended December 31, 2013, from
$11,200 for the comparable 2012 period. The increase was primarily due to increases in earnings on gain
on sale of securities of $164, ATM fees of $128, Trust fees of $464 and other income of $478 which were
partially offset by decreases in service charge income of $128, gain on sale of loans of $163 and income on
Bank Owned Life Insurance (BOLI) of $72.
Gain on securities increased primarily from the recovery of a security previously written off. ATM fees
increased due to increased transaction volumes and the implementation of transaction charges in markets
that were previously incurring no charges. Trust fees increased due to an increase in assets under
management. Other income increased primarily due to the recognition of fees related to our customer
derivative program and gain on sale of fixed assets. The decrease in service charges was the result of a
decrease in overdraft fees. The decrease in gain on sale of loans was partially due to a loss on the sale of
impaired loans. The decrease in BOLI income is due to lower yields received in the current year.
Sales of other real estate owned resulted in recognized gains of $120 on the sale of 25 properties in 2013
compared to gains of $118 on the sale of 33 properties in 2012.
Noninterest Expense
Noninterest expense increased $5,310, or 13.9%, to $43,384 for the year ended December 31, 2013, from
$38,074 for the comparable 2012 period. The increase was primarily due to increases in salaries, wages
and benefits of $4,271, contracted data processing of $112, FDIC assessment of $161, professional services
of $172 and other operating expenses of $744 which were partially offset by declines in amortization of
intangible assets of $128 and repossession expenses of $222.
Salaries, wages and benefits increased primarily due to an increase in staffing, higher health insurance
costs and higher pension costs. The number of full-time equivalent employees increased during 2013 to
312.5, up 5.7, compared to the same period of 2012. In addition, as a result of retirements the Company
recognized a pre-tax non-cash charge of approximately $2,251 associated with our defined benefit
pension plan. Contracted data processing increased due to increases in cost of technology services. FDIC
9
assessments continued to increase due to a change in the methodology used to calculate the
assessmentcharged to banks, including changes to both the assessment base and the assessment rate.
Professional services increased primarily due to the Company’s review of communication infrastructures
and investment advisory fees. Other operating expenses increased as a result of increased SBA loan
expenses, increased revenue sharing expenses related to trust, amortization of low income housing
investments and a write off of monies related to our tax refund program. The decrease in amortization of
intangible assets is the result of a decline in scheduled amortization of intangible assets associated with
mergers. The decrease in repossession expense is the result of a general decrease in legal fees and
appraisal services.
Income Tax Expense
Federal income tax expense was $1,373 in 2013 compared to $1,725 in 2012. Federal income tax expense
as a percentage of income was 18.2% in 2013 compared to 23.6% in 2012. A lower federal effective tax
rate than the statutory rate of 34% is primarily due to tax-exempt interest income from state and
municipal investments, municipal loans and income from BOLI. Federal income tax expense decreased
in 2013 primarily due to an increase in tax-exempt interest income from state and municipal investments,
municipal loans and low income housing tax credits.
10
Distribution of Assets, Liabilities and Shareholders’ Equity,
Interest Rates and Interest Differential
The following table sets forth, for the years ended December 31, 2013, 2012 and 2011, the distribution of
assets, including interest amounts and average rates of major categories of interest-earning assets and
interest-bearing liabilities (Amounts in thousands):
Assets
Average
balance
Yield/
Interest
rate
Average
balance
Yield/
Interest
rate
Average
balance
Yield/
Interest
rate
2013
2012
2011
Interest-earning assets:
Loans (1)(2)(3)(5)
$
819,152
$
38,776
Taxable securities (4)
157,930
3,763
Non-taxable
securities (4)(5)
Federal funds sold
Interest-bearing deposits
58,918
2,211
-
-
4.74%
2.42%
5.90%
0.00%
$
780,786
$
40,048
172,560
4,710
52,006
1,895
-
-
5.13%
2.81%
6.01%
0.00%
$
763,918
$
41,604
174,366
5,490
5.45%
3.22%
42,183
31,838
1,675
19
6.22%
0.06%
in other banks
55,609
131
0.24%
46,980
109
0.23%
47,893
73
0.15%
Total interest income
assets
1,091,609
44,881
4.24%
1,052,332
46,762
4.58%
1,060,198
48,861
4.71%
Noninterest-earning assets:
Cash and due from
financial institutions
Premises and
equipment, net
Accrued interest
receivable
Intangible assets
Other assets
Bank owned life insurance
Less allowance for
25,203
16,862
4,288
24,464
10,626
18,856
21,934
17,588
4,456
25,363
9,737
18,260
9,242
18,055
4,933
26,453
11,253
16,954
loan losses
Total
(19,089)
$
1,172,819
(21,681)
$
1,127,989
(22,535)
$
1,124,553
(1) For purposes of these computations, the daily average loan amounts outstanding are net of unearned income and include loans
held for sale.
Included in loan interest income are loan fees of $368 in 2013, $325 in 2012 and $516 in 2011.
(2)
(3) Non-accrual loans are included in loan totals and do not have a material impact on the analysis presented.
(4) Average balance is computed using the carrying value of securities. The average yield has been computed using the historical
amortized cost average balance for available-for-sale securities.
Interest yield is calculated using the tax-equivalent adjustment.
(5)
11
Distribution of Assets, Liabilities and Shareholders’ Equity,
Interest Rates and Interest Differential (Continued)
The following table sets forth, for the years ended December 31, 2013, 2012 and 2011, the distribution of
liabilities and shareholders’ equity, including interest amounts and average rates of major categories of
interest-earning assets and interest-bearing liabilities (Amounts in thousands):
Liabilities and
Shareholders' Equity
Average
balance
Yield/
Interest
rate
Average
balance
Yield/
Interest
rate
Average
balance
Yield/
Interest
rate
2013
2012
2011
Interest-bearing liabilities:
Savings and interest-
bearing demand
accounts
$
485,054
$
401
Certificates of deposit
246,724
2,387
0.08%
0.97%
$
447,823
$
520
272,610
3,280
0.12%
1.20%
$
428,043
$
824
305,837
4,267
0.19%
1.40%
Federal Home Loan
Bank advances
Securities sold under
repurchase agreements
Federal funds purchased
Subordinated debentures
U.S. Treasury demand
notes payable
Total interest-
39,293
1,358
3.46%
47,629
1,530
3.21%
54,038
1,606
2.97%
20,749
27
29,427
21
-
740
0.10%
0.00%
2.51%
18,912
5
29,427
21
-
833
0.11%
0.00%
2.83%
20,241
18
29,427
33
-
770
0.16%
0.00%
2.62%
-
-
0.00%
-
-
0.00%
1,347
-
0.00%
bearing liabilities
821,274
4,907
0.60%
816,406
6,184
0.76%
838,951
7,500
0.89%
Noninterest-bearing liabilities:
Demand deposits
Other liabilities
Shareholders' equity
233,592
14,390
247,982
103,563
194,418
13,051
207,469
104,114
176,435
9,319
185,754
99,848
Total
$
1,172,819
$
1,127,989
$
1,124,553
Net interest income and
interest rate spread (1)
$
39,974
3.64%
$
40,578
3.82%
$
41,361
3.82%
Net interest margin (2)
3.79%
3.98%
4.00%
(1)
Interest rate spread is calculated by subtracting the rate on average interest-bearing liabilities from the yield on average
interest-earning assets.
(2) Net interest margin is calculated by dividing tax-equivalent adjusted net interest income by average interest-earning assets.
12
Changes in Interest Income and Interest Expense
Resulting from Changes in Volume and Changes in Rate
The following table sets forth, for the periods indicated, a summary of the changes in interest income and
interest expense resulting from changes in volume and changes in rate. (Amounts in thousands)
2013 compared to 2012
Increase (decrease) due to:
Rate(1)
Net
Volume(1)
Interest income:
Loans
Taxable securities
Nontaxable securities
Interest-bearing deposits in other banks
Total interest income
Interest expense:
Savings and interest-bearing demand accounts
Certificates of deposit
Federal Home Loan Bank advances
Securities sold under repurchase agreements
Subordinated debentures
Total interest expense
Net interest income
$ 1,909
(390)
270
20
$ (3,181)
(557)
46
2
$ (1,272)
(947)
316
22
$
1,809
$
(3,690)
$
(1,881)
40
(292)
(282)
2
-
(159)
(601)
110
(2)
(93)
(119)
(893)
(172)
-
(93)
$
(532)
$
(745)
$
(1,277)
$
2,341
$
(2,945)
$
(604)
(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.
13
Liquidity and Capital Resources
Citizens maintains a conservative liquidity position. All securities are classified as available for sale. At
December 31, 2013, securities with maturities of one year or less, totaled $3,309, or 1.7%, of the total
security portfolio. The available for sale portfolio helps to provide Citizens with the ability to meet its
funding needs. The Consolidated Statements of Cash Flows contained in the Consolidated Financial
Statements detail the Company’s cash flows from operating activities resulting from net earnings.
Cash from operations for 2013 was $12,466. The primary additions to cash from operating activities are
from changes in amortization of intangible assets, amortization of securities net of accretion, the
provision for loan losses, depreciation, prepaid FDIC insurance and proceeds from sale of loans. The
primary use of cash from operating activities is from loans originated for sale. Cash used for investing
activities was $55,916 in 2013. Security and property and equipment purchases along with loans to
customers were offset by security maturities and sales and proceeds from the sale of Other Real Estate
Owned (“OREO”) properties. Cash from financing activities in 2013 totaled $31,202. A major source of
cash for financing activities is the net change in deposits. Cash provided by the net change in deposits
was $16,086 in 2013. The large increase in deposits was primarily due to increases in noninterest-bearing
deposits and statement and passbook savings accounts, which added $32,560 and $13,256, respectively, in
deposits during 2013. These increases were offset by decreases in individual retirement accounts and
certificate of deposits of $2,696 and $24,957, respectively. In addition, the Company completed a public
offering of Noncumulative Redeemable Convertible Perpetual Preferred Share, Series B, resulting in net
proceeds to the Company of $23,132. The primary uses of cash in financing activities include payment of
dividends and repayment of a FHLB advance. Cash and cash equivalents decreased from $46,131 at
December 31, 2012 to $33,883 at December 31, 2013.
Future loan demand of Citizens can be funded by increases in deposit accounts, proceeds from payments
on existing loans, the maturity of securities, the issuances of trust preferred obligations, and the sale of
securities classified as available for sale. Additional sources of funds may also come from borrowing in
the Federal Funds market and/or borrowing from the FHLB. As of December 31, 2013, Citizens had total
credit availability with the FHLB of $130,450 of which $37,726 was outstanding.
On a separate entity basis, FCBC’s primary source of funds is dividends paid primarily by Citizens.
Generally, subject to applicable minimum capital requirements, Citizens may declare a dividend without
the approval of the Federal Reserve Bank of Cleveland and the State of Ohio Department of Commerce,
Division of Financial Institutions, provided the total dividends in a calendar year do not exceed the total
of its profits for that year combined with its retained profits for the two preceding years. At December
31, 2012, Citizens was able to pay dividends to FCBC without obtaining regulatory approval. During
2013, Citizens paid dividends totaling $7,888 to FCBC. This represented approximately eighty percent of
the Citizens’ earnings for the year, thereby accumulating cash at FCBC for general corporate purposes,
while also preserving capital at Citizens.
In addition to the restrictions placed on dividends by banking regulations, the Company is subject to
restrictions on the payment of dividends as a result of the Company’s issuance of 1,000,000 depositary
shares, each representing a 1/40th ownership interest in a Series B Preferred Share, of the Company on
December 19, 2013. Under the terms of the Series B Preferred Shares, no dividends may be declared or
paid on the common shares of the Company during any calendar quarter unless full dividends on the
Series B Preferred Shares (and, therefore, the depositary shares) have been declared for that quarter and
all dividends previously declared on the Series B Preferred Shares (and, therefore, the depositary shares)
have been paid in full.
14
The Company manages its liquidity and capital through quarterly Asset/Liability Committee (ALCO)
meetings. The ALCO discusses issues like those in the above paragraphs as well as others that will affect
the future liquidity and capital position of the Company. The ALCO also examines interest rate risk and
the effect that changes in rates will have on the Company. For more information about interest rate risk,
please refer to the “Quantitative and Qualitative Disclosures about Market Risk” section.
Capital Adequacy
The Company’s policy is, and always has been, to maintain its capital levels above the well capitalized
regulatory standards. Under the regulatory capital standards, total capital has been defined as Tier I
(core) capital and Tier II (supplementary) capital. The Company’s Tier I capital includes shareholders’
equity (net of unrealized security gains and losses) and subordinated debentures (subject to certain limits)
while Tier II capital also includes the allowance for loan losses. The definition of risk-adjusted assets has
also been modified to include items both on and off the balance sheet. Each item is then assigned a risk
weight or risk adjustment factor to determine ratios of capital to risk adjusted assets. The standards
require that total capital (Tier I plus Tier II) be a minimum of 8.0% of risk-adjusted assets, with at least
4.0% being in Tier I capital. To be well capitalized, a company must have a minimum of 10.0% of risk
adjusted assets, with at least 6.0% being Tier I capital. The Company’s total risk-based capital ratios were
17.1% and 14.8% as of December 31, 2013 and 2012, respectively. Tier I risk-based capital ratios were
15.8% and 13.3% for December 31, 2013 and 2012, respectively.
Additionally, the Federal Reserve Board has adopted minimum leverage-capital ratios. These standards
were established to supplement the previously issued risk based capital standards. The leverage ratio
standards use the existing Tier I capital definition, but the ratio is applied to average total assets instead
of risk-adjusted assets. The standards require that Tier I capital be a minimum of 4.0% of total average
assets for high rated entities such as the Company and a minimum of 5.0% of total average assets to be
well capitalized. The Company’s leverage ratio was 11.6% and 9.3% for December 31, 2013 and 2012,
respectively.
In July 2013, our primary federal regulator, the Federal Reserve, published final rules establishing a new
comprehensive capital framework for U.S. banking organizations. The rules implement the Basel
Committee's December 2010 framework known as “Basel III” for strengthening international capital
standards as well as certain provisions of the Dodd-Frank Act. The implementation of the final rules will
lead to higher capital requirements and more restrictive leverage and liquidity ratios than those currently
in place. In addition, in order to avoid limitations on capital distributions, such as dividend payments
and certain bonus payments to executive officers, the rules require insured financial institutions to hold a
capital conservation buffer of common equity tier 1 capital above the minimum risk-based capital
requirements. The capital conservation buffer will be phased in over time, becoming effective on January
1, 2019, and will consist of an additional amount of common equity equal to 2.5% of risk-weighted assets.
The rules will also revise the regulatory agencies' prompt corrective action framework by incorporating
the new regulatory capital minimums and updating the definition of common equity. The rules will not
begin to phase in until January 1, 2014 for larger institutions and January 1, 2015 for smaller, less complex
banking organizations such as the Company, and will be fully phased in by January 1, 2019. Until the
rules are fully phased in, we cannot predict the ultimate impact it will have upon the financial condition
or results of operations of the Company.
Effects of Inflation
The Company’s balance sheet is typical of financial institutions and reflects a net positive monetary
position whereby monetary assets exceed monetary liabilities. Monetary assets and liabilities are those
which can be converted to a fixed number of dollars and include cash assets, securities, loans, money
market instruments, deposits and borrowed funds.
15
During periods of inflation, a net positive monetary position may result in an overall decline in
purchasing power of an entity. No clear evidence exists of a relationship between the purchasing power
of an entity’s net positive monetary position and its future earnings. Moreover, the Company’s ability to
preserve the purchasing power of its net positive monetary position will be partly influenced by the
effectiveness of its asset/liability management program. As part of the asset/liability management
process, management reviews and monitors information and projections on inflation as published by the
Federal Reserve Board and other sources. This information speaks to inflation as determined by its
impact on consumer prices and also the correlation of inflation and interest rates. This information is but
one component in an asset liability process designed to limit the impact of inflation on the Company.
Management does not believe that the effect of inflation on its nonmonetary assets (primarily bank
premises and equipment) is material as such assets are not held for resale and significant disposals are
not anticipated.
Fair Value of Financial Instruments
The Company has disclosed the fair value of its financial instruments at December 31, 2013 and 2012 in
Note 15 to the Consolidated Financial Statements. The fair value of loans at December 31, 2013 was
102.0% of the carrying value compared to 102.2% at December 31, 2012. The fair value of deposits at
December 31, 2013 was 100.2% of the carrying value compared to 100.2% at December 31, 2012.
Contractual Obligations
The following table represents significant fixed and determinable contractual obligations of the Company
as of December 31, 2013.
Contractual Obligations
Deposits without a stated maturity
Certificates of deposit
FHLB advances, securities sold
under agreements to repurchase
and U.S. Treasury interest-
bearing demand note
Subordinated debentures (1)
Operating leases
One year
or less
$
706,126
156,593
One to
three years
-
$
56,624
Three to
five years
$
-
13,630
Over five
years
$
-
9,502
Total
$
706,126
236,349
50,279
-
359
5,000
-
505
2,500
-
330
-
29,427
87
57,779
29,427
1,281
(1) The subordinated debentures consist of $2,000, $2,500, $5,000, $7,500, and $12,500 debentures.
The Company has retail repurchase agreements with clients within its local market areas. These
borrowings are collateralized with securities owned by the Company. See Note 10 to the Consolidated
Financial Statements for further detail. The Company also has a cash management advance line of credit
and outstanding letters of credit with the FHLB. For further discussion, refer to Note 9 to the
Consolidated Financial Statements.
16
Quantitative and Qualitative Disclosures about Market Risk
The Company’s primary market risk exposure is interest-rate risk and, to a lesser extent, liquidity risk.
All of the Company’s transactions are denominated in U.S. dollars with no specific foreign exchange
exposure.
Interest-rate risk is the exposure of a banking organization’s financial condition to adverse movements in
interest rates. Accepting this risk can be an important source of profitability and shareholder value.
However, excessive levels of interest-rate risk can pose a significant threat to the Company’s earnings and
capital base. Accordingly, effective risk management that maintains interest-rate risk at prudent levels is
essential to the Company’s safety and soundness.
Evaluating a financial institution’s exposure to changes in interest rates includes assessing both the
adequacy of the management process used to control interest-rate risk and the organization’s quantitative
level of exposure. When assessing the interest-rate risk management process, the Company seeks to
ensure that appropriate policies, procedures, management information systems and internal controls are
in place to maintain interest-rate risk at prudent levels with consistency and continuity. Evaluating the
quantitative level of interest rate risk exposure requires the Company to assess the existing and potential
future effects of changes in interest rates on its consolidated financial condition, including capital
adequacy, earnings, liquidity and, where appropriate, asset quality.
The Federal Reserve Board, together with the Office of the Comptroller of the Currency and the Federal
Deposit Insurance Corporation, adopted a Joint Agency Policy Statement on interest-rate risk, effective
June 26, 1996. The policy statement provides guidance to examiners and bankers on sound practices for
managing interest-rate risk, which will form the basis for ongoing evaluation of the adequacy of interest-
rate risk management at supervised institutions. The policy statement also outlines fundamental
elements of sound management that have been identified in prior Federal Reserve guidance and
discusses the importance of these elements in the context of managing interest-rate risk. Specifically, the
guidance emphasizes the need for active board of director and senior management oversight and a
comprehensive risk-management process that effectively identifies, measures, and controls interest-rate
risk. Financial institutions derive their income primarily from the excess of interest collected over interest
paid. The rates of interest an institution earns on its assets and owes on its liabilities generally are
established contractually for a period of time. Since market interest rates change over time, an institution
is exposed to lower profit margins (or losses) if it cannot adapt to interest-rate changes. For example,
assume that an institution’s assets carry intermediate- or long-term fixed rates and that those assets were
funded with short-term liabilities. If market interest rates rise by the time the short-term liabilities must
be refinanced, the increase in the institution’s interest expense on its liabilities may not be sufficiently
offset if assets continue to earn at the long-term fixed rates. Accordingly, an institution’s profits could
decrease on existing assets because the institution will have either lower net interest income or, possibly,
net interest expense. Similar risks exist when assets are subject to contractual interest-rate ceilings, or rate
sensitive assets are funded by longer-term, fixed-rate liabilities in a decreasing-rate environment.
Several techniques may be used by an institution to minimize interest-rate risk. One approach used by
the Company is to periodically analyze its assets and liabilities and make future financing and investment
decisions based on payment streams, interest rates, contractual maturities, and estimated sensitivity to
actual or potential changes in market interest rates. Such activities fall under the broad definition of
asset/liability management. The Company’s primary asset/liability management technique is the
measurement of the Company’s asset/liability gap, that is, the difference between the cash flow amounts
of interest sensitive assets and liabilities that will be refinanced (or repriced) during a given period. For
example, if the asset amount to be repriced exceeds the corresponding liability amount for a certain day,
month, year, or longer period, the institution is in an asset sensitive gap position. In this situation, net
interest income would increase if market interest rates rose or decrease if market interest rates fell. If,
17
alternatively, more liabilities than assets will reprice, the institution is in a liability sensitive position.
Accordingly, net interest income would decline when rates rose and increase when rates fell. Also, these
examples assume that interest rate changes for assets and liabilities are of the same magnitude, whereas
actual interest rate changes generally differ in magnitude for assets and liabilities.
Several ways an institution can manage interest-rate risk include selling existing assets or repaying
certain liabilities; matching repricing periods for new assets and liabilities, for example, by shortening
terms of new loans or securities. Financial institutions are also subject to prepayment risk in falling rate
environments. For example, mortgage loans and other financial assets may be prepaid by a debtor so that
the debtor may refund its obligations at new, lower rates. The Company does not have significant
derivative financial instruments and does not intend to purchase a significant amount of such
instruments in the near future. Prepayments of assets carrying higher rates reduce the Company’s
interest income and overall asset yields. A large portion of an institution’s liabilities may be short term or
due on demand, while most of its assets may be invested in long term loans or securities. Accordingly,
the Company seeks to have in place sources of cash to meet short-term demands. These funds can be
obtained by increasing deposits, borrowing, or selling assets. Also, FHLB advances and wholesale
borrowings may be used as important sources of liquidity for the Company.
The following table provides information about the Company’s financial instruments that are sensitive to
changes in interest rates as of December 31, 2013 and 2012, based on certain prepayment and account
decay assumptions that management believes are reasonable. The Company had no significant
derivative financial instruments or trading portfolio as of December 31, 2013 or 2012. Expected maturity
date values for interest-bearing core deposits were calculated based on estimates of the period over which
the deposits would be outstanding. The Company’s borrowings were tabulated by contractual maturity
dates and without regard to any conversion or repricing dates.
Net Portfolio Value
Change in
Rates
+200bp
+100bp
Base
-100bp
Dollar
Amount
154,501
$
151,871
145,888
160,141
December 31, 2013
Dollar
Change
8,613
$
5,983
-
14,253
Percent
Change
6%
4%
-
10%
Dollar
Amount
134,494
$
131,217
131,127
152,511
December 31, 2012
Dollar
Change
3,367
$
90
-
21,384
Percent
Change
3%
0%
-
16%
The change in net portfolio value from December 31, 2012 to December 31, 2013, can be attributed to two
factors. The yield curve has seen an upward shift since the end of the year, with the shorter end of the
curve steepening. Additionally, both the mix and/or market value of assets and funding sources have
changed. While the market value of assets increased, the mix has shifted toward loans and away from
securities and cash. The market value of funding sources have increased slightly while the funding mix
shifted from CDs and borrowed money to deposits. The shifts in mixes led to the increase in the base.
Beyond the change in the base level of net portfolio value, projected movements in rates, up or down,
would also lead to changes in market values. The change in the rates up scenarios for both the 100 and
200 basis point movements would lead to a faster decrease in the fair value of liabilities, compared to
assets. Accordingly we would see an increase in the net portfolio value. A downward change in rates
would lead to an increase in the net portfolio value as the fair value of assets would increase much more
quickly than the fair value of liabilities.
18
Critical Accounting Policies
Allowance for Loan Losses
The allowance for loan losses is regularly reviewed by management to determine that the amount is
considered adequate to absorb probable losses in the loan portfolio. If not, an additional provision is
made to increase the allowance. This evaluation includes specific loss estimates on certain individually
reviewed impaired loans, the pooling of commercial credits risk graded as special mention and
substandard that are not individually analyzed, and general loss estimates that are based upon the size,
quality, and concentration characteristics of the various loan portfolios, adverse situations that may affect
a borrower’s ability to repay, and current economic and industry conditions, among other items.
Those judgments and assumptions that are most critical to the application of this accounting policy are
assessing the initial and on-going credit-worthiness of the borrower, the amount and timing of future
cash flows of the borrower that are available for repayment of the loan, the sufficiency of underlying
collateral, the enforceability of third-party guarantees, the frequency and subjectivity of loan reviews and
risk ratings, emerging or changing trends that might not be fully captured in the historical loss
experience, and charges against the allowance for actual losses that are greater than previously estimated.
These judgments and assumptions are dependent upon or can be influenced by a variety of factors,
including the breadth and depth of experience of lending officers, credit administration and the corporate
loan review staff that periodically review the status of the loan, changing economic and industry
conditions, changes in the financial condition of the borrower and changes in the value and availability of
the underlying collateral and guarantees.
Note 1 and Note 4 to the Consolidated Financial Statements provide additional information regarding
Allowance for Loan Losses.
Goodwill
The Company performs an annual evaluation of goodwill for impairment, or more frequently if events or
changes in circumstances indicate that the asset might be impaired. Management performed an
evaluation of the Company’s goodwill during the fourth quarter of 2013. In performing its evaluation,
management obtained several commonly used financial ratios from pending and completed purchase
transactions for banks based in the Midwest. Management used these ratios to determine an implied fair
value for the Company. The implied fair value exceeded the carrying value including goodwill.
Therefore management concluded that goodwill was not impaired and made no adjustment in 2013.
Other-Than-Temporary Impairment of Investment Securities
The Company performs a quarterly valuation to determine if a decline in the value of an investment
security is other than temporary. Although the term “other than temporary” is not intended to indicate
that the decline is permanent, it does indicate that the prospects for a near-term recovery of value are not
necessarily favorable, or that there is lack of evidence to support fair values equal to or greater than the
carrying value of the investment. Once a decline in value is determined to be other than temporary, the
value of the security is reduced and a corresponding charge to earnings is recognized. Management
utilizes criteria such as the magnitude and duration of the decline, in addition to the reasons underlying
the decline, to determine whether the loss in value is other than temporary.
19
Management’s Report on Internal Control over Financial Reporting
We, as management of First Citizens Banc Corp, are responsible for establishing and maintaining
effective internal control over financial reporting that is designed to produce reliable financial statements
in conformity with United States generally accepted accounting principles. The system of internal control
over financial reporting as it relates to the financial statements is evaluated for effectiveness by
management and tested for reliability through a program of internal audits. Actions are taken to correct
potential deficiencies as they are identified. Any system of internal control, no matter how well designed,
has inherent limitations, including the possibility that a control can be circumvented or overridden and
misstatements due to error or fraud may occur and not be detected. Also, because of changes in
conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of
internal control will provide only reasonable assurance with respect to financial statement preparation.
Management assessed the Company’s system of internal control over financial reporting as of December
31, 2013, in relation to criteria for effective internal control over financial reporting as described in “1992
Internal Control – Integrated Framework,” issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this assessment, management concludes that, as of December 31, 2013,
its system of internal control over financial reporting is effective and meets the criteria of the “1992
Internal Control – Integrated Framework”. S.R. Snodgrass, P.C., independent registered public
accounting firm, has issued an audit report on the effectiveness of the Company’s internal control over
financial reporting as of December 31, 2013.
Management is responsible for compliance with the federal and state laws and regulations concerning
dividend restrictions and federal laws and regulations concerning loans to insiders designated by the
FDIC as safety and soundness laws and regulations.
Management has assessed compliance by the Company with the designated laws and regulations relating
to safety and soundness. Based on the assessment, management believes that the Company complied, in
all significant respects, with the designated laws and regulations related to safety and soundness for the
year ended December 31, 2013.
James O. Miller
President, Chief Executive Officer
Todd A. Michel
Senior Vice President, Controller
Sandusky, Ohio
March 14, 2014
20
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
Board of Directors and Stockholders
First Citizens Banc Corp
Sandusky, Ohio
We have audited First Citizens Banc Corp and subsidiaries’ (the “Company”) internal control over financial
reporting as of December 31, 2013, based on criteria established in Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission in 1992. First Citizens
Banc Corp’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting included in the accompanying
Report on Management’s Assessment of Internal Control Over Financial Reporting. Our responsibility is to
express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audit also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles. A company's internal control over financial
reporting includes those policies and procedures that (a) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management and directors of the
company; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, First Citizens Banc Corp maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2013, based on criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 1992.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheet of First Citizens Banc Corp and subsidiaries as of December 31,
2013 and 2012, and the related consolidated statements of operations, comprehensive income, changes in
shareholders’ equity, and cash flows for the years then ended, and our report date March 14, 2014, expressed
an unqualified opinion.
Wexford, Pennsylvania
March 14, 2014
21
Report of Independent Registered Public Accounting Firm on Financial Statements
Board of Directors and Stockholders
First Citizens Banc Corp
Sandusky, Ohio
We have audited the accompanying consolidated balance sheets of First Citizens Banc Corp and
subsidiaries’ (the “Company”) as of December 31, 2013 and 2012, and the related consolidated statements
of operations, comprehensive income, changes in shareholders’ equity, and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of First Citizens Banc Corp and subsidiaries as of December 31, 2013 and
2012, and the consolidated results of their operations and their cash flows for each of the two years in the
period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), First Citizens Banc Corp and subsidiaries’ internal control over financial reporting
as of December 31, 2013, based on criteria established in Internal Control – Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in 1992, and our
report dated March 14, 2014, expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
Wexford, Pennsylvania
March 14, 2014
22
FIRST CITIZENS BANC CORP
CONSOLIDATED BALANCE SHEETS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
ASSETS
Cash and due from financial institutions
Securities available for sale
Loans held for sale
Loans, net of allowance of $16,528 and $19,742
Other securities
Premises and equipment, net
Accrued interest receivable
Goodwill
Other intangible assets
Bank owned life insurance
Other assets
Total assets
LIABILITIES
Deposits
Noninterest-bearing
Interest-bearing
Total deposits
Federal Home Loan Bank advances
Securities sold under agreements to repurchase
Subordinated debentures
Accrued expenses and other liabilities
Total liabilities
SHAREHOLDERS' EQUITY
Preferred stock, 200,000 shares authorized
Series A Preferred stock, $1,000 liquidation preference,
23,184 shares issued
Series B Preferred stock, $1,000 liquidation preference,
25,000 shares issued
Common stock, no par value, 20,000,000 shares authorized,
8,455,881 shares issued
Accumulated deficit
Treasury stock, 747,964 shares at cost
Accumulated other comprehensive loss
Total shareholders' equity
2013
2012
$
33,883
199,613
438
844,713
15,424
16,927
3,881
21,720
2,293
19,145
9,509
$
46,131
203,961
1,873
795,811
15,567
17,166
3,709
21,720
3,139
18,590
9,304
$
1,167,546
$
1,136,971
$
234,976
707,499
942,475
37,726
20,053
29,427
9,489
1,039,170
$
202,416
723,973
926,389
40,261
23,219
29,427
13,695
1,032,991
23,184
23,132
114,365
(10,823)
(17,235)
(4,247)
128,376
23,184
-
114,365
(14,687)
(17,235)
(1,647)
103,980
Total liabilities and shareholders' equity
$
1,167,546
$
1,136,971
23
FIRST CITIZENS BANC CORP
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2013 and 2012
(Amounts in thousands, except per share data)
Interest and dividend income
Loans, including fees
Taxable securities
Tax-exempt securities
Federal funds sold and other
Total interest and dividend income
Interest expense
Deposits
Federal Home Loan Bank advances
Subordinated debentures
Securities sold under agreements to repurchase
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Noninterest income
Service charges
Net gain on sale of securities
Net gain on sale of loans
ATM fees
Trust fees
Bank owned life insurance
Computer center item processing fees
Net gain on sale of other real estate owned
Other
Total noninterest income
Noninterest expense
Salaries, wages and benefits
Net occupancy expense
Equipment expense
Contracted data processing
FDIC Assessment
State franchise tax
Professional services
Amortization of intangible assets
ATM expense
Marketing expense
Repossession expense
Other operating expenses
Total noninterest expense
Income before income taxes
Income taxes
Net income
Preferred stock dividends and discount accretion
2013
2012
$
38,776
3,763
2,211
131
44,881
$
40,048
4,710
1,895
109
46,762
2,788
1,358
740
21
4,907
39,974
1,100
38,874
4,201
204
461
1,996
2,627
555
248
120
1,650
12,062
24,758
2,209
1,273
1,074
1,008
1,130
1,677
846
650
634
964
7,161
43,384
7,552
1,373
6,179
1,159
3,800
1,530
833
21
6,184
40,578
6,400
34,178
4,329
40
624
1,868
2,163
627
259
118
1,172
11,200
20,487
2,159
1,223
962
847
1,059
1,505
974
630
625
1,186
6,417
38,074
7,304
1,725
5,579
1,193
Net income available to common shareholders
$
5,020
$
4,386
Earnings per common share, basic
$
0.65
$
0.57
Earnings per common share, diluted
$
0.64
$
0.57
24
FIRST CITIZENS BANC CORP
CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS
Years ended December 31, 2013 and 2012
(Amounts in thousands, except per share data)
Net income
Other comprehensive loss:
Unrealized holding gains (loss)
on available for sale securities
Tax effect of unrealized holdings gains (loss)
on available for sale securities
Reclassification adjustment for security gains
recognized in income
Tax effect of reclassification adjustment
for security gains recognized in income
Change in unrecognized pension cost
Tax effect of change in unrecognized
pension cost
Total other comprehensive loss
Comprehensive income
2013
2012
$
6,179
$
5,579
(8,140)
2,767
(204)
69
4,406
(1,498)
(2,600)
628
(214)
(40)
14
(2,829)
962
(1,479)
$
3,579
$
4,100
25
FIRST CITIZENS BANC CORP
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Years ended December 31, 2013 and 2012
(Amounts in thousands, except share data)
Preferred Stock
Common Stock
Shares
Amount
Shares
Amount
Accumulated
deficit
Treasury
Stock
Accumulated
Other
Comprehensive
Loss
Total
Shareholders'
Equity
Balance, December 31, 2011
23,184
$
23,151
7,707,917
$
114,447
$
(17,667)
$
(17,235)
$
(168)
$
102,528
Net income
Other Comprehensive Loss
Amortization of discount on preferred stock
Common stock warrant redeemed
Cash dividends ($0.12 per share)
Preferred stock dividends
33
(82)
5,579
(33)
(482)
(925)
(1,159)
(1,479)
5,579
(1,479)
-
(564)
(925)
(1,159)
Balance, December 31, 2012
23,184
$
23,184
7,707,917
$
114,365
$
(14,687)
$
(17,235)
$
(1,647)
$
103,980
26
FIRST CITIZENS BANC CORP
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Continued)
Years ended December 31, 2013 and 2012
(Amounts in thousands, except share data)
Preferred Stock
Common Stock
Shares
Amount
Shares
Amount
Accumulated
deficit
Treasury
Stock
Accumulated
Other
Comprehensive
Loss
Total
Shareholders'
Equity
Balance, December 31, 2012
23,184
$
23,184
7,707,917
$
114,365
$
(14,687)
$
(17,235)
$
(1,647)
$
103,980
Net income
Other Comprehensive Loss
Issuance of Series B preferred shares, net
of issuance costs
Cash dividends ($0.15 per share)
Preferred stock dividends
Balance, December 31, 2013
25,000
23,132
48,184
$
46,316
7,707,917
$
114,365
6,179
(1,156)
(1,159)
(10,823)
$
(2,600)
6,179
(2,600)
23,132
(1,156)
(1,159)
128,376
$
$
(17,235)
$
(4,247)
27
FIRST CITIZENS BANC CORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2013 and 2012
(Amounts in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash from operating activities
2013
2012
$
6,179
$
5,579
1,633
1,509
846
(112)
(204)
1,100
(49,978)
51,874
(461)
(120)
(107)
(555)
1,362
1,775
(29)
(172)
(2,074)
12,466
50,184
8,686
(64,295)
143
-
(50,170)
699
(1,281)
118
(55,916)
1,987
1,493
974
332
(40)
6,400
(46,894)
46,243
(624)
(118)
-
(627)
330
780
(73)
78
1,073
16,893
63,421
12,982
(77,090)
6
(185)
(39,138)
1,349
(905)
20
(39,540)
Security amortization, net
Depreciation
Amortization of intangible assets
Amortization of net deferred loan fees
Net realized gain on sale of securities
Provision for loan losses
Loans originated for sale
Proceeds from sale of loans
Gain on sale of loans
Gain on sale of OREO properties
Gain on sale of fixed assets
Bank owned life insurance
Deferred income taxes
Prepaid FDIC Premium
Change in
Accrued interest payable
Accrued interest receivable
Other, net
Net cash from operating activities
Cash flows used for investing activities:
Securities available for sale
Maturities, prepayments and calls
Sales
Purchases
Redemption of Federal Reserve stock
Purchases of Federal Reserve stock
Net loan originations
Proceeds from sale of OREO properties
Property and equipment purchases
Proceeds from sale of property and equipment
Net cash used for investing activities
28
FIRST CITIZENS BANC CORP
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years ended December 31, 2013 and 2012
(Amounts in thousands)
Cash flows from financing activities:
Increase in deposits
Repayment of long-term FHLB advances
(Decrease) increase in securities sold under repurchase agreements
Repurchase of common stock warrant from US Treasury
Cash dividends paid
Net proceeds from issuance of preferred stock
Net cash provided by financing activities
Decrease in cash and due from financial institutions
Cash and due from financial institutions at beginning of year
2013
2012
16,086
(2,535)
(3,166)
-
(2,315)
23,132
31,202
(12,248)
46,131
25,143
(10,034)
4,190
(564)
(2,084)
-
16,651
(5,996)
52,127
Cash and due from financial institutions at end of year
$
33,883
$
46,131
Supplemental cash flow information:
Interest paid
Income taxes paid
Supplemental non-cash disclosures:
Transfer of loans from portfolio to other real estate owned
Transfer of loans from portfolio to held for sale
$
$
4,936
1,010
$
$
6,257
400
$
$
281
4,756
606
$
$
-
See accompanying notes to consolidated financial statements.
29
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the accounting policies adopted by First Citizens Banc Corp, which have a
significant effect on the financial statements.
Nature of Operations and Principles of Consolidation: The Consolidated Financial Statements include
the accounts of First Citizens Banc Corp (FCBC) and its wholly-owned subsidiaries: The Citizens Banking
Company (Citizens), First Citizens Insurance Agency, Inc., Water Street Properties, Inc. (Water St.) and
FC Refund Solutions, Inc. (FCRS). First Citizens Capital LLC (FCC) is wholly-owned by Citizens and
holds inter-company debt. First Citizens Investments, Inc. (FCI) is wholly-owned by Citizens and holds
and manages its securities portfolio. The operations of FCI and FCC are located in Wilmington,
Delaware. The above companies together are sometimes referred to as the Company. Intercompany
balances and transactions are eliminated in consolidation.
The Company provides financial services through its offices in the Ohio counties of Erie, Crawford,
Champaign, Franklin, Logan, Summit, Huron, Ottawa, Madison and Richland. 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 commercial and residential real estate.
Commercial loans are expected to be repaid from cash flow from operations of businesses. There are no
significant concentrations of loans to any one industry or customer. However, the customer’s ability to
repay their loans is dependent on the real estate and general economic conditions in the area. Other
financial instruments that potentially represent concentrations of credit risk include deposit accounts in
other financial institutions and Federal Funds sold.
First Citizens Insurance Agency Inc. was formed to allow the Company to participate in commission
revenue generated through its third party insurance agreement. Insurance commission revenue was less
than 1.0% of total revenue for the years ended December 31, 2013 and 2012. Water St. was formed to hold
repossessed assets of FCBC’s subsidiaries. Water St. revenue was less than 1% of total revenue for the
years ended December 31, 2013 and 2012. FCRS was formed in 2012 and remained inactive for the
periods presented.
Use of Estimates: To prepare financial statements in conformity with accounting principles generally
accepted in the United States of America, management makes estimates and assumptions based on
available information. These estimates and assumptions affect the amounts reported in the financial
statements and the disclosures provided, and future results could differ. The allowance for loan losses,
impairment of goodwill, fair values of financial instruments, valuation of deferred tax assets, pension
obligations and other-than-temporary-impairment of securities are considered material estimates that are
particularly susceptible to significant change in the near term.
Cash Flows: Cash and cash equivalents include cash on hand and demand deposits with financial
institutions with original maturities fewer than 90 days. Net cash flows are reported for customer loan
and deposit transactions, interest bearing deposits in other financial institutions, and federal funds
purchased or sold and repurchase agreements.
(Continued)
30
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Securities: Debt securities are classified as available-for-sale when they might be sold before maturity.
Equity securities with readily determinable fair values are also classified as available for sale. Securities
available for sale are carried at fair value, with unrealized holding gains and losses reported in other
comprehensive income, net of tax.
Interest income includes amortization of purchase premium or discount. Premiums and discounts on
securities are amortized on the level-yield method without anticipating prepayments, except for
mortgage backed securities where prepayments are anticipated. Gains and losses on sales are based on
the amortized cost of the security sold using the specific identification method.
The recent guidance specifies that if (a) a company does not have the intent to sell a debt security prior to
recovery and (b) it is more-likely-than-not that it will not have to sell the debt security prior to recovery;
the security would not be considered other-than-temporarily impaired unless there is a credit loss. When
an entity does not intend to sell the security, and it is more-likely-than-not the entity will not have to sell
the security before recovery of its cost basis, it will recognize the credit component of other-than-
temporary impairment of a debt security in earnings and the remaining portion in other comprehensive
income. For held-to-maturity debt securities, the amount of other-than-temporary impairment recorded
in other comprehensive income for the noncredit portion of a previous other-than-temporary impairment
should be amortized prospectively over the remaining life of the security on the basis of the timing of
future estimated cash flows of the security.
The Company’s Consolidated Statement of Operations as of December 31, 2013 reflects the full
impairment (that is, the difference between the security’s amortized cost basis and fair value) on debt
securities that the Company intends to sell or would more-likely-than-not be required to sell before the
expected recovery of the amortized cost basis. For available-for-sale debt securities that management has
no intent to sell and believes that it more-likely-than-not will not be required to sell prior to recovery,
only the credit loss component of the impairment is recognized in earnings, while the non-credit loss is
recognized in accumulated other comprehensive income. The credit loss component recognized in
earnings is identified as the amount of principal cash flows not expected to be received over the
remaining term of the security as projected based on cash flow projections.
Other securities which include Federal Home Loan Bank (FHLB) stock, Federal Reserve Bank (FRB) stock,
Farmer Mac stock (FMS), Bankers’ Bancshares Inc. (BB) stock, and Norwalk Community Development
Corp (NCDC) stock are carried at cost.
Loans Held for Sale: Mortgage loans originated and intended for sale in the secondary market and loans
that management no longer intends to hold for the foreseeable future, are carried at the lower of
aggregate cost or market, as determined by outstanding commitments from investors. Net unrealized
losses, if any, are recorded as a valuation allowance and charged to earnings.
Loans: Loans that management has the intent and ability to hold for the foreseeable future or until
maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs,
and an allowance for loan losses. Interest income is accrued on the unpaid principal balance. Loan
origination fees, net of certain direct origination costs, are deferred and recognized in interest income
using the level-yield method without anticipating prepayments.
(Continued)
31
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Interest income on mortgage and commercial loans is discontinued at the time the loan is 90 days
delinquent unless the credit is well-secured and in process of collection. Interest income on consumer
loans is discontinued when management determines future collection is unlikely. In all cases, loans are
placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered
doubtful.
All interest accrued, but not received, for loans placed on nonaccrual, is reversed against interest income.
Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until
qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest
amounts contractually due are brought current and future payments are reasonably assured.
Purchased Loans: The Company purchases individual loans and groups of loans. Purchased loans that
show evidence of credit deterioration since origination are recorded at the amount paid (or allocated fair
value in a purchase business combination), such that there is no carryover of the seller’s allowance for
loan losses. After acquisition, incurred losses are recognized by an increase in the allowance for loan
losses.
Purchased loans are accounted for individually or aggregated into pools of loans based on common risk
characteristics (e.g., credit score, loan type, and date of origination). The Company estimates the amount
and timing of expected cash flows for each purchased loan or pool, and the expected cash flows in excess
of amount paid is recorded as interest income over the remaining life of the loan or pool (accretable
yield). The excess of the loan’s, or pool’s, contractual principal and interest over expected cash flows is
not recorded (nonaccretable difference).
Over the life of the loan or pool, expected cash flows continue to be estimated. If the present value of
expected cash flows is less than the carrying amount, a loss is recorded. If the present value of expected
future cash flows is greater than the carrying amount, it is recognized as part of future interest income.
Allowance for Loan Losses: The allowance for loan losses (allowance) is calculated with the objective of
maintaining a reserve sufficient to absorb inherent loan losses in the loan portfolio. Management
establishes the allowance for loan losses based upon its evaluation of the pertinent factors underlying the
types and quality of loans in the portfolio. In determining the allowance and the related provision for
loan losses, the Company considers four principal elements: (i) specific impairment reserve allocations
(valuation allowances) based upon probable losses identified during the review of impaired loans in the
Commercial loan portfolio, (ii) allocations established for adversely-rated loans in the Commercial loan
portfolio and nonaccrual Real Estate Residential, Consumer installment and Home Equity loans, (iii)
allocations on all other loans based principally on a two-year historical loan loss experience and loan loss
trends. These allocations are adjusted for consideration of general economic and business conditions,
credit quality and delinquency trends, collateral values, and recent loss experience for these similar pools
of loans. The Company also maintains an unallocated allowance to account for any factors or conditions
that may cause a potential loss but are not specifically addressed in the process described above. The
Company analyzes its loan portfolio each quarter to determine the appropriateness of its allowance for
loan losses.
(Continued)
32
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
All commercial loans and commercial real estate loans are monitored on a regular basis with a detailed
review completed for all loans greater than $500. All commercial loans and commercial real estate loans
that are 90 days past due or in nonaccrual status, are analyzed to determine if they are “impaired”, which
means that it is probable that all amounts will not be collected according to the contractual terms of the
loan agreement. All loans that are delinquent 90 days are classified as substandard and placed on
nonaccrual status unless they are well-secured and in the process of collection. The remaining loans are
evaluated and segmented with loans with similar risk characteristics. The Company allocates reserves
based on risk categories and portfolio segments described below, which conform to the Company’s asset
classification policy. In reviewing risk within Citizens’ loan portfolio, management has identified specific
segments to categorize loan portfolio risk: (i) Commercial & Agriculture loans; (ii) Commercial Real
Estate; (iii) Residential Real Estate loans; (iv) Real Estate Construction loans; and (v) Consumer and Other
loans. Additional information related to economic factors can be found in Note 4.
Loan Charge-off Policies: All unsecured open- and closed-ended retail loans that become past due 90
days from the contractual due date are charged off in full. In lieu of charging off the entire loan balance,
loans with non real estate collateral may be written down to the net realizable value of the collateral, if
repossession of collateral is assured and in process. For open- and closed-ended loans secured by
residential real estate, a current assessment of value is made no later than 180 days past due. Any
outstanding loan balance in excess of the net realizable value of the property is charged off. All other
loans are generally charged down to the net realizable value when the loan is 90 days past due.
Troubled Debt Restructurings: In certain situations based on economic or legal reasons related to a
borrower's financial difficulties, management may grant a concession for other than an insignificant
period of time to the borrower that would not otherwise be considered. The related loan is classified as a
troubled debt restructuring (TDR). Management strives to identify borrowers in financial difficulty early
and work with them to modify to more affordable terms before their loan reaches nonaccrual status.
These modified terms may include rate reductions, principal forgiveness, payment forbearance and other
actions intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral.
In cases where borrowers are granted new terms that provide for a reduction of either interest or
principal, management measures any impairment on the restructuring as noted above for impaired loans.
In addition to the allowance for the pooled portfolios, management has developed a separate reserve for
loans that are identified as impaired through a TDR. These loans are excluded from pooled loss forecasts
and a separate reserve is provided under the accounting guidance for loan impairment. Consumer loans
whose terms have been modified in a TDR are also individually analyzed for estimated impairment.
Other Real Estate: Other real estate acquired through or instead of loan foreclosure is initially recorded at
fair value less costs to sell when acquired, establishing a new cost basis. If fair value declines subsequent
to foreclosure, a valuation allowance is recorded through expense. Operating costs after acquisition are
expensed. Other real estate owned included in other assets totaled approximately $173 at December 31,
2013 and $471 at December 31, 2012.
Premises and Equipment: Land is carried at cost. Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using both accelerated and straight-line methods
over the estimated useful life of the asset, ranging from three to seven years for furniture and equipment
and seven to fifty years for buildings and improvements.
(Continued)
33
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Federal Home Loan Bank (FHLB) Stock: Citizens is a member of the FHLB of Cincinnati and as such, is
required to maintain a minimum investment in stock of the FHLB that varies with the level of advances
outstanding with the FHLB. The stock is bought from and sold to the FHLB based upon its $100 par
value. The stock does not have a readily determinable fair value and as such is classified as restricted
stock, carried at cost and evaluated for impairment by management. The stock’s value is determined by
the ultimate recoverability of the par value rather than by recognizing temporary declines. The
determination of whether the par value will ultimately be recovered is influenced by criteria such as the
following: (a) the significance of the decline in net assets of the FHLB as compared to the capital stock
amount and the length of time this situation has persisted (b) commitments by the FHLB to make
payments required by law or regulation and the level of such payments in relation to the operating
performance (c) the impact of legislative and regulatory changes on the customer base of the FHLB and
(d) the liquidity position of the FHLB. With consideration given to these factors, management concluded
that the stock was not impaired at December 31, 2013 or 2012.
Federal Reserve Bank (FRB) Stock: Citizens is a member of the Federal Reserve System. FRB stock is
carried at cost, classified as a restricted security, and periodically evaluated for impairment based on
ultimate recovery of par value.
Bank Owned Life Insurance (BOLI): Citizens has purchased BOLI policies on certain key executives.
BOLI is recorded at the amount that can be realized under the insurance contract at the balance sheet
date, which is the cash surrender value adjusted for other charges or other amounts due that are probable
at settlement.
Goodwill and Other Intangible Assets: Goodwill results from prior business acquisitions and represents
the excess of the purchase price over the fair value of acquired tangible assets and liabilities and
identifiable intangible assets. Goodwill is assessed at least annually for impairment and any such
impairment will be recognized in the period identified.
Other intangible assets consist of core deposit intangibles arising from whole bank and branch
acquisitions. These intangible assets are measured at fair value and then amortized on an accelerated
method over their estimated useful lives, which range from five to twelve years.
Servicing Rights: Servicing rights are recognized as assets for the allocated value of retained servicing
rights on loans sold. Servicing rights are initially recorded at fair value at the date of transfer. The
valuation technique used is the present value of estimated future cash flows using current market
discount rates. Servicing rights are amortized in proportion to, and over the period of, estimated net
servicing revenues. Impairment is evaluated based on the fair value of the rights, using groupings of the
underlying loans as to interest rates and then, secondarily, prepayment characteristics. Fair value is
determined using prices for similar assets with similar characteristics, when available, or based upon
discounted cash flows using market-based assumptions. Any impairment of a grouping is reported as a
valuation allowance to the extent that fair value is less than the capitalized asset for the grouping.
Long-term Assets: Premises and equipment, core deposit and other intangible assets, and other long-
term assets are reviewed for impairment when events indicate their carrying amount may not be
recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.
(Continued)
34
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Repurchase Agreements: Substantially all repurchase agreement liabilities represent amounts advanced
by various customers. Securities are pledged to cover these liabilities, which are not covered by federal
deposit insurance.
Loan Commitments and Related Financial Instruments: Financial instruments include off-balance sheet
credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet
customer financing needs. The face amount for these items represents the exposure to loss, before
considering customer collateral or ability to repay.
Income Taxes: 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.
The Company prescribes a recognition threshold and a measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from
tax positions should be recognized in the financial statements only when it is more likely than not that the
tax position will be sustained upon examination by the appropriate taxing authority that would have full
knowledge of all relevant information.
A tax position that meets the more-likely-than-not recognition threshold is measured at the largest
amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. Tax positions
that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the
first subsequent financial reporting period in which that threshold is met. Previously recognized tax
positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in
the first subsequent financial reporting period in which that threshold is no longer met. The Company
recognizes interest and/or penalties related to income tax matters in income tax expense.
Retirement Plans: Pension expense is the net of service and interest cost, expected return on plan assets
and amortization of gains and losses not immediately recognized. Employee 401(k) and profit sharing
plan expense is the amount of matching contributions. Deferred compensation allocates the benefits over
the years of service.
Earnings per Common Share: Basic earnings per share are net income available to common shareholders
divided by the weighted average number of common shares outstanding during the period. Diluted
earnings per common share include the dilutive effect of additional potential common shares issuable
related to convertible preferred shares. Treasury shares are not deemed outstanding for earnings per
share calculations.
Comprehensive Income: Comprehensive income consists of net income and other comprehensive
income. Other comprehensive income includes unrealized gains and losses on securities available for
sale and changes in the funded status of the pension plan.
(Continued)
35
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course
of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of
loss can be reasonably estimated. Management does not believe there now are such matters that will
have a material effect on the financial statements.
Restrictions on Cash: Cash on hand or on deposit with the Federal Reserve Bank was required to meet
regulatory reserve and clearing requirements. These balances do not earn interest.
Dividend Restriction: Banking regulations require maintaining certain capital levels and may limit the
dividends paid by Citizens to FCBC or by FCBC to shareholders. Additional information related to
dividend restrictions can be found in Note 17.
Fair Value of Financial Instruments: Fair values of financial instruments are estimated using relevant
market information and other assumptions, as more fully disclosed in a separate note. Fair value
estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk,
prepayments, and other factors, especially in the absence of broad markets for particular items. Changes
in assumptions or in market conditions could significantly affect these estimates.
Operating Segments: While the Company’s chief decision makers monitor the revenue streams of the
various products and services, operations are managed and financial performance is evaluated on a
Company-wide basis. Operating segments are aggregated into one as operating results for all segments
are similar. Accordingly, all of the Company’s financial service operations are considered by
management to be aggregated in one reportable operating segment.
Reclassifications: Some items in the prior year financial statements were reclassified to conform to the
current presentation. Such reclassifications had no effect on net income or shareholders’ equity.
Effect of Newly Issued but Not Yet Effective Accounting Standards:
In February 2013, the FASB issued ASU 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint and
Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date. The
objective of the amendments in this Update is to provide guidance for the recognition, measurement, and
disclosure of obligations resulting from joint and several liability arrangements for which the total
amount of the obligation within the scope of this guidance is fixed at the reporting date, except for
obligations addressed within existing guidance in U.S. generally accepted accounting principles (GAAP).
Examples of obligations within the scope of this Update include debt arrangements, other contractual
obligations, and settled litigation and judicial rulings. U.S. GAAP does not include specific guidance on
accounting for such obligations with joint and several liability, which has resulted in diversity in practice.
Some entities record the entire amount under the joint and several liability arrangements on the basis of
the concept of a liability and the guidance that must be met to extinguish a liability. Other entities record
less than the total amount of the obligation, such as an amount allocated, an amount corresponding to the
proceeds received, or the portion of the amount the entity agreed to pay among its co-obligors, on the
basis of the guidance for contingent liabilities. The amendments in this Update are effective for fiscal
years, and interim periods within those years, beginning after December 15, 2013. Adoption of this
Update is not expected to have a significant impact on the Company’s financial statements.
(Continued)
36
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In April 2013, the FASB issued ASU 2013-07, Presentation of Financial Statements (Topic 205): Liquidation
Basis of Accounting. The amendments in this Update are being issued to clarify when an entity should
apply the liquidation basis of accounting. In addition, the guidance provides principles for the
recognition and measurement of assets and liabilities and requirements for financial statements prepared
using the liquidation basis of accounting. The amendments require an entity to prepare its financial
statements using the liquidation basis of accounting when liquidation is imminent. Liquidation is
imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan
for liquidation is approved by the person or persons with the authority to make such a plan effective and
the likelihood is remote that the execution of the plan will be blocked by other parties or (b) a plan for
liquidation is being imposed by other forces (for example, involuntary bankruptcy). If a plan for
liquidation was specified in the entity’s governing documents from the entity’s inception (for example,
limited-life entities), the entity should apply the liquidation basis of accounting only if the approved plan
for liquidation differs from the plan for liquidation that was specified at the entity’s inception. The
amendments are effective for entities that determine liquidation is imminent during annual reporting
periods beginning after December 15, 2013, and interim reporting periods therein. Entities should apply
the requirements prospectively from the day that liquidation becomes imminent. Early adoption is
permitted. Entities that use the liquidation basis of accounting as of the effective date in accordance with
other Topics (for example, terminating employee benefit plans) are not required to apply the
amendments. Instead, those entities should continue to apply the guidance in those other Topics until
they have completed liquidation. Adoption of this Update is not expected to have a significant impact on
the Company’s financial statements.
In June 2013, the FASB issued ASU 2013-08, Financial Services – Investment Companies (Topic 946):
Amendments to the Scope, Measurement, and Disclosure Requirements. The amendments in this Update affect
the scope, measurement, and disclosure requirements for investment companies under U.S. GAAP. The
amendments do all of the following: 1. Change the approach to the investment company assessment in
Topic 946, clarify the characteristics of an investment company, and provide comprehensive guidance for
assessing whether an entity is an investment Company. 2. Require an investment company to measure
noncontrolling ownership interests in other investment companies at fair value rather than using the
equity method of accounting. 3. Require the following additional disclosures: (a) the fact that the entity is
an investment company and is applying the guidance in Topic 946, (b) information about changes, if any,
in an entity’s status as an investment company, and (c) information about financial support provided or
contractually required to be provided by an investment company to any of its investees. The amendments
in this Update are effective for an entity’s interim and annual reporting periods in fiscal years that begin
after December 15, 2013. Earlier application is prohibited. The Company is currently evaluating the
impact the adoption of the standard will have on the Company’s financial position or results of
operations.
In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax
Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This
Update applies to all entities that have unrecognized tax benefits when a net operating loss carryforward,
a similar tax loss, or a tax credit carryforward exists at the reporting date. An unrecognized tax benefit,
or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction
to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit
carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a
(Continued)
37
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
tax credit carryforward is not available at the reporting date under the tax law of the applicable
jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position
or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not
intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented
in the financial statements as a liability and should not be combined with deferred tax assets. The
assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and
deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax
position at the reporting date. The amendments in this Update are effective for fiscal years, and interim
periods within those years, beginning after December 15, 2013. Management is currently investigating
the potential impact of this Update to the Company’s financial statements.
In January 2014, FASB issued ASU 2014-01, Investments – Equity Method and Join Ventures (Topic 323):
Accounting for Investments in Qualified Affordable Housing Projects. The amendments in this Update permit
reporting entities to make an accounting policy election to account for their investments in qualified
affordable housing projects using the proportional amortization method if certain conditions are met.
Under the proportional amortization method, an entity amortizes the initial cost of the investment in
proportion to the tax credits and other tax benefits received and recognizes the net investment
performance in the income statement as a component of income tax expense (benefit). The amendments
in this Update should be applied retrospectively to all periods presented. A reporting entity that uses the
effective yield method to account for its investments in qualified affordable housing projects before the
date of adoption may continue to apply the effective yield method for those preexisting investments. The
amendments in this Update are effective for public business entities for annual periods and interim
reporting periods within those annual periods, beginning after December 15, 2014. Early adoption is
permitted. The Company is currently evaluating the impact the adoption of the standard will have on
the Company’s financial position or results of operations.
In January 2014, the FASB issued ASU 2014-04, Receivables – Troubled Debt Restructurings by Creditors
(Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon
Foreclosure. The amendments in this Update clarify that an in substance repossession or foreclosure
occurs, and a creditor is considered to have received physical possession of residential real estate
property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the
residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest
in the residential real estate property to the creditor to satisfy that loan through completion of a deed in
lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim
and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the
creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real
estate property that are in the process of foreclosure according to local requirements of the applicable
jurisdiction. The amendments in this Update are effective for public business entities for annual periods,
and interim periods within those annual periods, beginning after December 15, 2014. An entity can elect
to adopt the amendments in this Update using either a modified retrospective transition method or a
prospective transition method. This ASU is not expected to have a significant impact on the Company’s
financial statements.
(Continued)
38
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 2 - SECURITIES
The amortized cost and fair value of available for sale securities and the related gross unrealized gains
and losses recognized in accumulated other comprehensive loss were as follows.
2013
U.S. Treasury securities and obligations of U.S.
government agencies
Obligations of states and political subdivisions
Mortgage-back securities in government
sponsored entities
Total debt securities
Equity securities in financial institutions
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
$
52,229
79,975
$
95
2,327
$
(764)
(1,677)
$
51,560
80,625
66,409
198,613
481
1,127
3,549
-
(557)
(2,998)
(32)
66,979
199,164
449
Total
$
199,094
$
3,549
$
(3,030)
$
199,613
2012
U.S. Treasury securities and obligations of U.S.
government agencies
Obligations of states and political subdivisions
Mortgage-back securities in government
sponsored entities
Total debt securities
Equity securities in financial institutions
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
$
53,919
72,884
$
375
6,946
$
(8)
(24)
$
54,286
79,806
67,814
194,617
481
1,854
9,175
-
(233)
(265)
(47)
69,435
203,527
434
Total
$
195,098
$
9,175
$
(312)
$
203,961
(Continued)
39
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 2 – SECURITIES (Continued)
The amortized cost and fair value of securities at year end 2013 by contractual maturity were as follows.
Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.
Due in one year or less
Due from one to five years
Due from five to ten years
Due after ten years
Mortgage-backed securities in
Available for sale
Amortized Cost
Fair Value
$
3,296
21,451
34,288
73,169
$
3,309
21,334
34,403
73,139
government sponsored entities
Equity securities in financial institutions
66,409
481
66,979
449
Total
$
199,094
$
199,613
Securities with a carrying value of $147,625 and $147,204 were pledged as of December 31, 2013 and 2012,
respectively, to secure public deposits, other deposits and liabilities as required or permitted by law.
Proceeds from sales of securities, gross realized gains and gross realized losses were as follows.
2013
2012
Sale proceeds
Gross realized gains
Gross realized losses
Gains from securities called or settled by the issuer
$
8,686
144
(89)
149
$
12,982
99
(59)
-
(Continued)
40
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 2 – SECURITIES (Continued)
Debt securities with unrealized losses at year end 2013 and 2012 not recognized in income are as follows.
2013
12 Months or less
More than 12 months
Total
Description of Securities
U.S. Treasury securities and
obligations of U.S.
government agencies
Obligations of states and
political subdivisions
Mortgage-backed securities
in gov't sponsored entities
Equity securities in
financial institutions
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
$
30,800
$
(764)
$
-
$
-
$
30,800
$
(764)
28,428
(1,556)
32,557
(553)
449
(32)
968
279
-
(121)
29,396
(1,677)
(4)
-
32,836
449
(557)
(32)
Total temporarily impaired
$
92,234
$
(2,905)
$
1,247
$
(125)
$
93,481
$
(3,030)
2012
12 Months or less
More than 12 months
Total
Description of Securities
U.S. Treasury securities and
obligations of U.S.
government agencies
Obligations of states and
political subdivisions
Mortgage-backed securities
in gov't sponsored entities
Equity securities in
financial institutions
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
$
6,184
$
(8)
$
-
$
-
$
6,184
$
(8)
1,440
7,907
434
(22)
465
(2)
1,905
(215)
2,122
(18)
10,029
(47)
-
-
434
(24)
(233)
(47)
Total temporarily impaired
$
15,965
$
(292)
$
2,587
$
(20)
$
18,552
$
(312)
The Company periodically evaluates securities for other-than-temporary impairment. An unrealized loss
exists when the current fair value of an individual security is less than its amortized cost basis.
Unrealized losses that are determined to be temporary in nature are recorded, net of tax, in accumulated
other comprehensive income.
(Continued)
41
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 2 – SECURITIES (Continued)
The Company has assessed each available-for-sale security position for credit impairment. Factors
considered in determining whether a loss is temporary include:
• The length of time and the extent to which fair value has been below cost;
• The severity of impairment;
• The cause of the impairment and the financial condition and near-term prospects of the issuer;
•
•
If the Company intends to sell the investment;
If it’s more-likely-than-not the Company will be required to sell the investment before recovering
its amortized cost basis; and
If the Company does not expect to recover the investment’s entire amortized cost basis (even if
the Company does not intend to sell the investment).
•
The Company’s review for impairment generally entails:
Identification and evaluation of investments that have indications of impairment;
•
• Analysis of individual investments that have fair values less than amortized cost, including
consideration of length of time investment has been in unrealized loss position and the expected
recovery period;
• Evaluation of factors or triggers that could cause individual investments to qualify as having
other-than-temporary impairment; and
• Documentation of these analyses, as required by policy.
At December 31, 2013, the Company owned ninety-one securities that were considered temporarily
impaired. The unrealized losses on these securities have not been recognized into income because the
issuers’ bonds are of high credit quality, management has the intent and ability to hold these securities
for the foreseeable future, and the decline in fair value is largely due to changes in market interest rates.
The Company also considers sector specific credit rating changes in its analysis. The fair value is
expected to recover as the securities approach their maturity date or reset date. The Company does not
intend to sell until recovery and does not believe selling will be required before recovery.
NOTE 3 - LOANS
Loans at year-end were as follows.
Commercial and agricultural
Commercial real estate
Residential real estate
Real estate construction
Consumer and other
Total Loans
Allowance for loan losses
2013
2012
$
115,875
443,846
250,691
39,964
10,865
861,241
(16,528)
$
100,661
434,808
250,598
19,677
9,809
815,553
(19,742)
Net loans
$
844,713
$
795,811
(Continued)
42
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 3 – LOANS (Continued)
Loans to principal officers, directors, and their affiliates at year-end 2013 and 2012 were as follows.
Balance - Beginning of year
New loans and advances
Repayments
Effect of changes to related parties
Balance - End of year
2013
2012
$ 9,997
3,262
(3,157)
$ 10,922
5,713
(6,788)
(808)
150
$ 9,294
$ 9,997
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
Management has an established methodology to determine the adequacy of the allowance for loan losses
that assesses the risks and losses inherent in the loan portfolio. For purposes of determining the
allowance for loan losses, the Company has segmented certain loans in the portfolio by product type.
Loans are segmented into the following pools: Commercial and Agricultural loans, Commercial Real
Estate loans, Residential Real Estate loans, Real Estate Construction loans and Consumer loans.
Historical loss percentages for each risk category are calculated and used as the basis for calculating
allowance allocations. These historical loss percentages are calculated over a three year period for all
portfolio segments. Certain economic factors are also considered for trends which management uses to
establish the directionality of changes to the unallocated portion of the reserve. The following economic
factors are analyzed:
• Changes in lending policies and procedures
• Changes in experience and depth of lending and management staff
• Changes in quality of Citizens’ credit review system
• Changes in the nature and volume of the loan portfolio
• Changes in past due, classified and nonaccrual loans and TDRs
• Changes in economic and business conditions
• Changes in competition or legal and regulatory requirements
• Changes in concentrations within the loan portfolio
• Changes in the underlying collateral for collateral dependent loans
The total allowance reflects management's estimate of loan losses inherent in the loan portfolio at the
balance sheet date. The Company considers the allowance for loan losses of $16,528 adequate to cover
loan losses inherent in the loan portfolio, at December 31, 2013. The following tables present by portfolio
segment, the changes in the allowance for loan losses, the ending allocation of the allowance for loan
losses and the loan balances outstanding for the period ended December 31, 2013 and December 31, 2012.
The changes can be impacted by overall loan volume, adversely graded loans, historical charge-offs and
economic factors.
(Continued)
43
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 4 - ALLOWANCE FOR LOAN LOSSES (Continued)
Commercial
& Agriculture
Commercial
Real Estate
Residential
Real Estate
Real Estate
Construction
Consumer
and Other
Unallocated
Total
December 31, 2013
Allowance for loan losses:
Beginning balance
$
2,811
$
10,139
$
5,780
$
349
$
246
$
417
$
19,742
Charge-offs
Recoveries
Provision
(483)
141
372
(1,804)
449
(1,225)
(2,907)
458
1,893
(136)
108
(137)
(220)
80
108
-
-
89
(5,550)
1,236
1,100
Ending Balance
$
2,841
$
7,559
$
5,224
$
184
$
214
$
506
$
16,528
For the year ended December 31, 2013, the allowance for Commercial Real Estate loans was reduced not
only by charge-offs, but also due to the specific reserve required for impaired loans within this segment.
The net result of these changes was represented as a decrease in the provision. The allowance for Real
Estate Construction loans was reduced as a result of changes to specific reserves required for impaired
loans and a reduction in the historical charge-offs for this segment. The result of these changes was
represented as a decrease in the provision. The ending reserve balance for Residential Real Estate loans
declined from the end of the previous year due to charge-offs during the period. Since these charged-off
loans already had specific reserves assigned to them, we no longer need to carry as large a reserve for this
segment. While we have seen improvement in asset quality, given the uncertainty in the economy,
management determined that it was appropriate to maintain unallocated reserves at a higher level at this
time.
Commercial
& Agriculture
Commercial
Real Estate
Residential
Real Estate
Real Estate
Construction
Consumer
and Other
Unallocated
Total
December 31, 2012
Allowance for loan losses:
Beginning balance
$
2,876
$
10,571
$
5,796
$
974
$
719
$
321
$
21,257
Charge-offs
Recoveries
Provision
(841)
353
423
(3,440)
612
2,396
(4,506)
397
4,093
(446)
131
(310)
(246)
71
(298)
-
-
96
(9,479)
1,564
6,400
Ending Balance
$
2,811
$
10,139
$
5,780
$
349
$
246
$
417
$
19,742
For the year ended December 31, 2012, the allowance for both Real Estate Construction and Consumer
loans was a negative provision made based on volume changes in the underlying loan portfolio. Total
loans for these segments declined from the end of last year, leading to a smaller calculated required
reserve. This is represented as a decrease in the provision. The allowance related to the unallocated
segment increased, but remained at a level management feels is generally consistent with prior periods.
(Continued)
44
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 4 - ALLOWANCE FOR LOAN LOSSES (Continued)
Commercial
& Agriculture
Commercial
Real Estate
Residential
Real Estate
Real Estate
Construction
Consumer
and Other
Unallocated
Total
December 31, 2013
Allowance for loan losses:
Ending balance:
Individually evaluated
for impairment
$
1,262
$
445
$
802
$
-
$
-
$
-
$
2,509
Ending balance:
Collectively evaluated
for impairment
$
1,579
$
7,114
$
4,422
$
184
$
214
$
506
$
14,019
Ending balance
$
2,841
$
7,559
$
5,224
$
184
$
214
$
506
$
16,528
Loan balances outstanding:
Ending balance:
Individually evaluated
for impairment
$
3,869
$
10,175
$
4,005
$
-
$
8
$
18,057
Ending balance:
Collectively evaluated
for impairment
$
112,006
$
433,671
$
246,686
$
39,964
$
10,857
Ending balance
$
115,875
$
443,846
$
250,691
$
39,964
$
10,865
$
843,184
$
861,241
(Continued)
45
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 4 - ALLOWANCE FOR LOAN LOSSES (Continued)
Commercial
& Agriculture
Commercial
Real Estate
Residential
Real Estate
Real Estate
Construction
Consumer
and Other
Unallocated
Total
December 31, 2012
Allowance for loan losses:
Ending balance:
Individually evaluated
for impairment
$
286
$
2,354
$
1,199
$
107
$
60
$
-
$
4,006
Ending balance:
Collectively evaluated
for impairment
$
2,525
$
7,785
$
4,581
$
242
$
186
$
417
$
15,736
Ending balance
$
2,811
$
10,139
$
5,780
$
349
$
246
$
417
$
19,742
Loan balances outstanding:
Ending balance:
Individually evaluated
for impairment
$
5,420
$
13,941
$
6,127
$
541
$
61
$
26,090
Ending balance:
Collectively evaluated
for impairment
$
95,241
$
420,867
$
244,471
$
19,136
$
9,748
Ending balance
$
100,661
$
434,808
$
250,598
$
19,677
$
9,809
$
789,463
$
815,553
(Continued)
46
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 4 - ALLOWANCE FOR LOAN LOSSES (Continued)
The following table represents credit exposures by internally assigned risk ratings for the periods ended
December 31, 2013 and December 31, 2012. The risk rating analysis estimates the capability of the
borrower to repay the contractual obligations of the loan agreements as scheduled or at all. The
Company's internal credit risk rating system is based on experiences with similarly graded loans.
The Company's internally assigned grades are as follows:
•
•
•
Pass – loans which are protected by the current net worth and paying capacity of the obligor
or by the value of the underlying collateral.
Special Mention – loans where a potential weakness or risk exists, which could cause a more
serious problem if not corrected.
Substandard – loans that have a well-defined weakness based on objective evidence and are
characterized by the distinct possibility that Citizens will sustain some loss if the deficiencies
are not corrected.
• Doubtful – loans classified as doubtful have all the weaknesses inherent in a substandard
asset. In addition, these weaknesses make collection or liquidation in full highly
questionable and improbable, based on existing circumstances.
Loss – loans classified as a loss are considered uncollectible, or of such value that
continuance as an asset is not warranted.
•
• Unrated – Generally, consumer loans are not risk-graded, except when collateral is used for
a business purpose.
Commercial
&
Agriculture
Commercial
Real Estate
Residential
Real Estate
Real Estate
Construction
Consumer
and Other
Total
$
$
$
$
$
$
December 31, 2013
Pass
Special Mention
Substandard
Doubtful
Ending Balance
December 31, 2012
Pass
Special Mention
Substandard
Doubtful
Ending Balance
107,923
2,038
5,914
-
115,875
90,159
1,653
8,849
-
100,661
$
$
$
$
$
$
Commercial
&
Agriculture
Commercial
Real Estate
Residential
Real Estate
Real Estate
Construction
Consumer
and Other
Total
$
$
$
$
$
$
35,495
21
-
-
35,516
16,594
352
1,001
-
17,947
2,252
-
70
-
2,322
994
-
106
-
1,100
660,308
12,190
32,922
2,349
707,769
595,300
10,320
53,609
-
659,229
$
$
$
$
$
$
415,938
9,145
18,763
-
443,846
98,700
986
8,175
2,349
110,210
397,657
6,371
30,780
-
434,808
89,896
1,944
12,873
-
104,713
(Continued)
47
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 4 - ALLOWANCE FOR LOAN LOSSES (Continued)
The following tables present performing and nonperforming loans based solely on payment activity for
the periods ended December 31, 2013 and December 31, 2012 that have not been assigned an internal risk
grade. These types of loans presented here are not assigned a risk grade unless there is evidence of a
problem. Payment activity is reviewed by management on a monthly basis to evaluate performance.
Loans are considered to be nonperforming when they become 90 days past due or if management thinks
that we may not collect all of our principal and interest. Nonperforming loans also include certain loans
that have been modified in Troubled Debt Restructurings (TDRs) where economic concessions have been
granted to borrowers who have experienced or are expected to experience financial difficulties. These
concessions typically result from the Company's loss mitigation activities and could include reductions in
the interest rate, payment extensions, forgiveness of principal, forbearance or other actions due to
economic status. Certain TDRs are classified as nonperforming at the time of restructure and may only
be returned to performing status after considering the borrower's sustained repayment performance for a
reasonable period, generally six months.
Residential
Real Estate
Real Estate
Construction
Consumer
and Other
Total
December 31, 2013
Performing
Nonperforming
$
140,481
-
$
4,448
-
$
8,543
-
$
153,472
-
Total
$
140,481
$
4,448
$
8,543
$
153,472
Residential
Real Estate
Real Estate
Construction
Consumer
and Other
Total
December 31, 2012
Performing
Nonperforming
$
145,879
6
$
1,730
-
$
8,696
13
$
156,305
19
Total
$
145,885
$
1,730
$
8,709
$
156,324
(Continued)
48
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 4 - ALLOWANCE FOR LOAN LOSSES (Continued)
Following tables include an aging analysis of the recorded investment of past due loans outstanding as of
December 31, 2013 and December 31, 2012.
December 31, 2013
30-59
Days
Past Due
60-89
Days
Past Due
90 Days
or Greater
Total Past
Due
Commericial & Agriculture
Commercial Real Estate
Residential Real Estate
Real Estate Construction
Consumer and Other
$
105
655
3,140
-
170
-
$
201
1,084
-
20
$
443
2,098
5,531
-
-
$
548
2,954
9,755
-
190
Current
$
115,327
440,892
240,936
39,964
10,675
Total
Loans
$
115,875
443,846
250,691
39,964
10,865
Past Due
90 Days
and
Accruing
-
$
-
-
-
-
Total
$
4,070
$
1,305
$
8,072
$
13,447
$
847,794
$
861,241
$
-
December 31, 2012
30-59
Days
Past Due
60-89
Days
Past Due
90 Days
or Greater
Total Past
Due
Commericial & Agriculture
Commercial Real Estate
Residential Real Estate
Real Estate Construction
Consumer and Other
$
31
1,000
2,843
43
127
$
72
533
1,214
-
20
$
553
6,794
8,527
416
29
$
656
8,327
12,584
459
176
Current
$
100,005
426,481
238,014
19,218
9,633
Total
Loans
$
100,661
434,808
250,598
19,677
9,809
Past Due
90 Days
and
Accruing
-
$
80
-
-
-
Total
$
4,044
$
1,839
$
16,319
$
22,202
$
793,351
$
815,553
$
80
The following table presents loans on nonaccrual status as of December 31, 2013 and December 31, 2012.
Commericial & Agriculture
Commercial Real Estate
Residential Real Estate
Real Estate Construction
Consumer and Other
2013
2012
$
1,590
9,609
9,210
-
50
$
2,869
16,250
9,701
958
77
Total
$
20,459
$
29,855
Nonaccrual Loans: Loans are considered for nonaccrual status upon reaching 90 days delinquency,
unless the loan is well secured and in the process of collection, although the Company may be receiving
partial payments of interest and partial repayments of principal on such loans. When a loan is placed on
(Continued)
49
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 4 - ALLOWANCE FOR LOAN LOSSES (Continued)
nonaccrual status, previously accrued but unpaid interest is deducted from interest income. A loan may
be returned to accruing status only if one of three conditions are met: the loan is well-secured and none
of the principal and interest has been past due for a minimum of 90 days; the loan is a TDR and has made
a minimum of six months payments; or the principal and interest payments are reasonably assured and a
sustained period of performance has occurred, generally six months.
Loan modifications that are considered TDRs completed during the quarters and twelve month periods
ended December 31, 2013 and December 31, 2012 were as follows:
For the Twelve Month Period Ended
December 31, 2013
For the Twelve Month Period Ended
December 31, 2012
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
Number
of
Contracts
Number
of
Contracts
Commericial & Agriculture
Commercial Real Estate
Residential Real Estate
Real Estate Construction
Consumer and Other
Total Loan Modifications
-
2
-
-
-
2
-
$
547
-
-
-
-
$
547
-
-
-
$
547
$
547
6
3
25
-
5
39
$
984
1,205
1,740
-
66
$
976
1,205
1,662
-
66
$
3,995
$
3,909
Recidivism, or the borrower defaulting on its obligation pursuant to a modified loan, results in the loan
once again becoming a non-accrual loan. Recidivism occurs at a notably higher rate than do defaults on
new originations loans, so modified loans present a higher risk of loss than do new origination loans.
During both the twelve month period ended December 31, 2013 and December 31, 2012, there were no
defaults on loans that were modified and considered TDRs during the respective twelve previous
months.
(Continued)
50
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 4 - ALLOWANCE FOR LOAN LOSSES (Continued)
Impaired Loans: Larger (greater than $500) commercial loans and commercial real estate loans, all TDRs
and residential real estate and consumer loans that are part of a larger relationship are tested for
impairment. These loans are analyzed to determine if it is probable that all amounts will not be collected
according to the contractual terms of the loan agreement. If management determines that the value of the
impaired loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan
fees or costs and unamortized premium or discount), impairment is recognized through an allowance
estimate or a charge-off to the allowance.
The following tables include the recorded investment and unpaid principal balances for impaired
financing receivables with the associated allowance amount, if applicable as of December 31, 2013 and
December 31, 2012.
December 31, 2013
December 31, 2012
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Recorded
Investment
Unpaid
Principal
Balance
With no related allowance recorded:
Commericial & Agriculture
Commercial Real Estate
Residential Real Estate
Real Estate Construction
Consumer and Other
$
1,525
5,983
1,202
-
8
$
1,657
6,214
2,263
-
8
-
$
-
-
-
-
$
5,053
5,446
2,566
-
1
$
5,226
8,114
5,346
521
1
Related
Allowance
-
$
-
-
-
-
Total
8,718
10,142
-
13,066
19,208
-
With an allowance recorded:
Commericial & Agriculture
Commercial Real Estate
Residential Real Estate
Real Estate Construction
Consumer and Other
Total
Total:
Commericial & Agriculture
Commercial Real Estate
Residential Real Estate
Real Estate Construction
Consumer and Other
2,344
4,192
2,803
-
-
9,339
3,869
10,175
4,005
-
8
2,437
4,496
4,021
-
-
10,954
4,094
10,710
6,284
-
8
1,262
445
802
-
-
2,509
1,262
445
802
-
-
367
8,495
3,561
541
60
385
8,681
4,554
547
60
13,024
14,227
5,420
13,941
6,127
541
61
5,611
16,795
9,900
1,068
61
286
2,354
1,199
107
60
4,006
286
2,354
1,199
107
60
Total
$
18,057
$
21,096
$
2,509
$
26,090
$
33,435
$
4,006
(Continued)
51
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 4 - ALLOWANCE FOR LOAN LOSSES (Continued)
For the year ended:
December 31, 2013
December 31, 2012
Average
Recorded
Investment
Interest
Income
Recognized
Average
Recorded
Investment
Interest
Income
Recognized
Commericial & Agriculture
Commercial Real Estate
Residential Real Estate
Real Estate Construction
Consumer and Other
$
4,761
11,919
5,038
302
31
$
186
521
282
-
-
$
4,762
16,482
4,909
533
34
$
276
958
557
25
2
Total
$
22,051
$
989
$
26,720
$
1,818
NOTE 5 – OTHER COMPREHENSIVE INCOME
The following table presents the changes
comprehensive loss, net of tax, as of December 31, 2013 and December 31, 2012.
in each component of accumulated other
For the Year Ended
December 31, 2013
For the Year Ended
December 31, 2012
Unrealized
Gains and
Losses on
Available
for Sale
Securities
Defined
Benefit
Pension
Items
Total
Unrealized
Gains and
Losses on
Available
for Sale
Securities
Defined
Benefit
Pension
Items
Total
$
5,849
$
(7,496)
$
(1,647)
$
5,461
$
(5,629)
$
(168)
Beginning balance
Other comprehensive income
(loss) before reclassifications
(5,373)
-
(5,373)
414
-
414
Amounts reclassified from
accumulated other
comprehensive income (loss)
(135)
2,908
2,773
(26)
(1,867)
(1,893)
Net current-period other
comprehensive income (loss)
(5,508)
2,908
(2,600)
388
(1,867)
(1,479)
Ending balance
$
341
$
(4,588)
$
(4,247)
$
5,849
$
(7,496)
$
(1,647)
Amounts in parentheses indicate debits.
(Continued)
52
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 5 - OTHER COMPREHENSIVE INCOME (Continued)
The following table presents the amounts reclassified out of each component of accumulated
other comprehensive loss as of December 31, 2013 and December 31, 2012:
Amout Reclassified from
Accumulated Other Comprehensive
Loss (a)
Details about Accumulated Other
Comprehensive Loss
Components
For the year
ended December
31, 2013
For the year
ended December
31, 2012
Affected Line Item in the
Statement Where Net Income
is Presented
Unrealized gains and losses on
available-for-sale securities
Tax effect
Amortization of defined benefit
pension items
Actuarial gains/(losses)
Tax effect
$
204
(69)
$
40
(14)
Net gain on sale of securities
Income tax expense
135
26
Net of tax
(b)
(4,406)
1,498
(2,908)
2,829
(962)
1,867
(b) Salaries, wages and benefits
Income tax expense
Net of tax
Total reclassifications for the period
$
(2,773)
$
1,893
Net of tax
(a) Amounts in parentheses indicate debits to profit/loss.
(b) These accumulated other comprehensive income components are included in the computation of net
periodic pension cost.
(Continued)
53
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 6 - PREMISES AND EQUIPMENT
Year-end premises and equipment were as follows.
Land and improvements
Buildings and improvements
Furniture and equipment
Total
Accumulated depreciation
2013
$
4,083
19,681
20,153
2012
$
4,094
19,482
19,180
43,917
(26,990)
42,756
(25,590)
Premises and equipment, net
$
16,927
$
17,166
Depreciation expense was $1,509 and $1,493 for 2013 and 2012, respectively.
Rent expense was $367 and $344 for 2013 and 2012, respectively. Rent commitments under non-
cancelable operating leases at December 31, 2013 were as follows, before considering renewal options that
generally are present.
2014
2015
2016
2017
2018
Thereafter
Total
$
359
274
231
213
117
87
$
1,281
The rent commitments listed above are primarily for the leasing of five financial services branches.
NOTE 7 – GOODWILL AND INTANGIBLE ASSETS
There has been no change in the carrying amount of goodwill of $21,720 for the years ended December
31, 2013 and December 31, 2012.
Management performs an annual evaluation of goodwill for impairment, or more frequently if events or
changes in circumstances indicate that the asset might be impaired. Management performed an
evaluation of the Company’s goodwill during the fourth quarter of 2013. In performing its evaluation,
management obtained several commonly used financial ratios from pending and completed purchase
transactions for banks based in the Midwest. Management used these ratios to determine an implied
market value for the Company. The implied market value was then used to determine whether or not
additional testing was required. Based on this test, management concluded that the Company’s goodwill
was not impaired at December 31, 2013.
(Continued)
54
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 7 – GOODWILL AND INTANGIBLE ASSETS (Continued)
Acquired Intangible Assets
Acquired intangible assets were as follows as of year end.
2013
2012
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
Core deposit and other intangibles
$
11,619
$
9,326
$
11,619
$
8,480
Aggregate amortization expense was $846 and $974 for 2013 and 2012.
Estimated amortization expense for each of the next five years and thereafter is as follows.
2014
2015
2016
2017
Thereafter
$
769
555
522
447
-
$
2,293
NOTE 8 - INTEREST-BEARING DEPOSITS
Interest-bearing deposits as of December 31, 2013 and 2012 were as follows.
Demand
Statement and Passbook Savings
Certificates of Deposit:
In excess of $100
Other
Individual Retirement Accounts
2013
2012
$
168,113
303,037
$
170,190
289,781
66,561
139,586
30,202
76,261
154,843
32,898
Total
$
707,499
$
723,973
(Continued)
55
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 8 - INTEREST-BEARING DEPOSITS (Continued)
Scheduled maturities of certificates of deposit, including IRA’s at December 31, 2013 were as follows.
2014
2015
2016
2017
2018
Thereafter
Total
$
156,593
43,240
13,384
9,635
3,995
9,502
$
236,349
Deposits from principal officers, directors, and their affiliates at year-end 2013 and 2012 were $8,606 and
$8,493, respectively.
NOTE 9 - FEDERAL HOME LOAN BANK ADVANCES
The Company has a $40,000 cash management advance line of credit with the FHLB. The Company had
no outstanding balance on this line as of December 31, 2013 and December 31, 2012. The Company also
has an $80,000 repo advance line with the FHLB with no outstanding balances as of December 31, 2013
and December 31, 2012.
Advances from the FHLB were $37,726 at December 31, 2013 and $40,261 at December 31, 2012.
Outstanding balances have maturity dates ranging June 2014 to January 2017 and fixed rates ranging
from 2.06% to 4.85%. The average rate on outstanding advances was 2.56%.
Scheduled principal reductions of FHLB advances at December 31, 2013 were as follows.
2014
2015
2017
Total
$
30,226
5,000
2,500
$
37,726
In addition to the borrowings, the Company has outstanding letters of credit with the FHLB totaling
$23,300 at year-end 2013 and $23,600 at year-end 2012 used for pledging to secure public funds. FHLB
borrowings and the letters of credit are collateralized by FHLB stock and by $91,540 and $95,792 of
residential mortgage loans under a blanket lien arrangement at year-end 2013 and 2012, respectively.
The Company had a FHLB maximum borrowing capacity of $130,450 as of December 31, 2013, with
remaining borrowing capacity of approximately $69,423. The borrowing arrangement with the FHLB is
subject to annual renewal. The maximum borrowing capacity is recalculated at least quarterly.
(Continued)
56
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 10 – SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Information concerning securities sold under agreements to repurchase and treasury tax and loan
deposits were as follows.
2013
2012
2011
Average balance during the year
Average interest rate during the year
Maximum month-end balance during the year
Weighted average interest rate at year end
$ 20,749
0.10%
$ 24,257
0.10%
$ 18,912
0.11%
$ 23,328
0.11%
$ 21,588
0.15%
$ 25,246
0.16%
Securities underlying repurchase agreements had a fair value of $20,053 at December 31, 2013 and $23,219
at December 31, 2012.
NOTE 11 – SUBORDINATED DEBENTURES
Trusts formed by the Company issued floating rate trust preferred securities, in the amounts of $5,000
and $7,500, through special purpose entities as part of pooled offerings of such securities. The Company
issued subordinated debentures to the trusts in exchange for the proceeds of the offerings, which
debentures represent the sole assets of the trusts. The Company may redeem the subordinated
debentures, in whole but not in part, at face value. In April 2007, the Company elected to redeem and
refinance the $5,000 floating rate subordinated debenture. The refinancing was done at face value and
resulted in a 2.00% reduction in the rate. The new subordinated debenture has a 30 year maturity and is
redeemable, in whole or in part, anytime without penalty. The replacement subordinated debenture does
not have any deferred issuance cost associated with it. The interest rate at December 31, 2013 on the
$7,500 debenture is 3.40% and the $5,000 debenture is 1.84%.
Additionally, the Company formed an additional trust that issued $12,500 of 6.05% fixed rate trust
preferred securities for five years, then becoming floating rate trust preferred securities, through a special
purpose entity as part of a pooled offering of such securities. The Company issued subordinated
debentures to the trusts in exchange for the proceeds of the offerings, which debentures represent the sole
assets of the trusts. The Company may redeem the subordinated debentures at face value without
penalty. The current rate on the $12,500 subordinated debenture is 2.50%.
Finally, the Company acquired two additional trust preferred securities as part of its acquisition of Futura
Banc Corp (Futura) in December 2007. Futura TPF Trust I and Futura TPF Trust II were formed in June of
2005 in the amounts of $2,500 and $1,927, respectively. Futura had issued subordinated debentures to the
trusts in exchange for ownership of all of the common security of the trusts and the proceeds of the
preferred securities sold by the trusts. The Company may redeem the subordinated debentures, in whole
or in part, in a principal amount with integral multiples of $1,000, on or after June 15, 2010 at 100% of the
principal amount, plus accrued and unpaid interest. The subordinated debentures mature on June 15,
2035. The subordinated debentures are also redeemable in whole or in part from time to time, upon the
occurrence of specific events defined within the trust indenture. The current rate on the $2,500
subordinated debenture is variable at 1.90%. In June 2010, the rate on the $1,927 subordinated debenture
switched from a fixed rate to a floating rate. The current rate on the $1,927 subordinated debenture is
1.90%.
(Continued)
57
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 12 – INCOME TAXES
Income tax expense was as follows.
Current
Deferred
Income tax expense
2013
$
11
1,362
$
1,373
2012
$
1,395
330
$
1,725
Effective tax rates differ from the statutory federal income tax rate of 34% due to the following.
Income taxes computed at the statutory federal tax rate
Add (subtract) tax effect of:
Nontaxable interest income, net
of nondeductible interest expense
Low income housing tax credit
Cash surrender value of BOLI
Other
Income tax expense
2013
2012
$
2,568
$
2,483
(781)
(280)
(189)
55
(630)
-
(213)
85
$
1,373
$
1,725
There were no tax benefits attributable to security losses in 2013 and 2012.
(Continued)
58
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 12 – INCOME TAXES (Continued)
Year-end deferred tax assets and liabilities were due to the following.
Deferred tax assets
Allowance for loan losses
Deferred compensation
Intangible assets
Pension costs
Impairment losses
Other
Deferred tax asset
Deferred tax liabilities
Tax depreciation in excess of book depreciation
Discount accretion on securities
Purchase accounting adjustments
FHLB stock dividends
Unrealized gain on securities available for sale
Other
Deferred tax liability
2013
2012
$
5,620
1,223
50
996
146
133
$
6,712
1,057
182
2,775
195
171
8,168
11,092
(466)
(77)
(1,465)
(2,249)
(176)
(174)
(4,607)
(295)
(73)
(1,774)
(2,249)
(3,013)
(105)
(7,509)
Net deferred tax asset
$
3,561
$
3,583
The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of the State
of Ohio for all affiliates other than Citizens. Citizens is subject to tax in Ohio based upon its net worth.
There is currently no liability for uncertain tax positions and no known unrecognized tax benefits. The
Company’s federal tax returns for taxable years through 2009 have been closed for purposes of
examination by the Internal Revenue Service.
NOTE 13 - RETIREMENT PLANS
The Company sponsors a savings and retirement 401(k) plan, which covers all employees who meet
certain eligibility requirements and who choose to participate in the plan. The matching contribution to
the 401(k) plan was $204 in 2013 and $190 in 2012.
The Company also sponsors a pension plan which is a noncontributory defined benefit retirement plan
for all employees who have attained the age of 20½, completed six months of service and work 1,000 or
more hours per year. Annual payments, subject to the maximum amount deductible for federal income
tax purposes, are made to a pension trust fund. In 2006, the Company amended the pension plan to
provide that no employee could be added as a participant to the pension plan after December 31, 2006.
(Continued)
59
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 13 - RETIREMENT PLANS (Continued)
Information about the pension plan is as follows.
Change in benefit obligation:
Beginning benefit obligation
Service cost
Interest cost
Settlement loss
Actuarial (gain)/loss
Benefits paid
Ending benefit obligation
Change in plan assets, at fair value:
Beginning plan assets
Actual return
Employer contribution
Benefits paid
Administrative expenses
Ending plan assets
2013
2012
$
21,604
1,204
884
821
(1,272)
(4,785)
$
16,934
939
915
-
3,474
(658)
18,456
21,604
13,441
1,943
4,900
(4,785)
(33)
15,466
11,445
1,181
1,510
(658)
(37)
13,441
Funded status at end of year
$
(2,990)
$
(8,163)
Amounts recognized in accumulated other comprehensive income at December 31, consist of:
Unrecognized actuarial loss (net of tax, of $2,364 in 2013 and $3,862 in 2012)
$
4,588
$
7,496
2013
2012
The accumulated benefit obligation for the defined benefit pension plan was $14,537 at December 31, 2013
and $17,379 at December 31, 2012.
The components of net periodic pension expense were as follows.
Service cost
Interest cost
Expected return on plan assets
Net amortization and deferral
Net periodic benefit cost
2013
$
2012
$
1,204
884
(965)
698
1,821
939
915
(858)
359
1,355
$
$
Net loss (gain) recognized in other comprehensive income
(4,406)
2,829
Total recognized in net periodic benefit cost
and other comprehensive income (before tax)
$
(2,585)
$
4,184
(Continued)
60
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 13 - RETIREMENT PLANS (Continued)
The estimated net loss and prior service costs for the defined benefit pension plan that will be amortized
from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is
$352.
The weighted average assumptions used to determine benefit obligations at year-end were as follows.
Discount rate on benefit obligation
Long-term rate of return on plan assets
Rate of compensation increase
2013
4.38%
7.00%
3.00%
2012
3.72%
7.00%
3.00%
The weighted average assumptions used to determine net periodic pension cost were as follows.
Discount rate on benefit obligation
Long-term rate of return on plan assets
Rate of compensation increase
2013
3.72%
7.00%
3.00%
2012
4.60%
7.00%
3.00%
The Company uses long-term market rates to determine the discount rate on the benefit obligation.
Declines in the discount rate lead to increases in the actuarial loss related to the benefit obligation.
The expectation for long-term rate of return on the pension assets and the expected rate of compensation
increases are reviewed periodically by management in consultation with outside actuaries and primary
investment consultants. Factors considered in setting and adjusting these rates are historic and projected
rates of return on the portfolio and historic and estimated rates of increases of compensation.
The Company’s pension plan asset allocation at year-end 2012, and 2013 and target allocation for 2014 by
asset category are as follows.
Asset Category
Equity securities
Debt securities
Money market funds
Total
Target
Allocation
2014
20-50%
30-60
20-30
Percentage of Plan
Assets
at Year-end
2013
2012
%
46.5
53.0
0.5
%
45.5
53.9
0.6
100.0
%
100.0
%
The Company developed the pension plan investment policies and strategies for plan assets with its
pension management firm. The assets are currently invested in five diversified investment funds, which
include three equity funds, one money market fund and one bond fund. The long-term guidelines from
(Continued)
61
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 13 - RETIREMENT PLANS (Continued)
above were created to maximize the return on portfolio assets while reducing the risk of the portfolio.
The management firm may allocate assets among the separate accounts within the established long-term
guidelines. Transfers among these accounts will be at the management firm’s discretion based on their
investment outlook and the investment strategies that are outlined at periodic meetings with the
Company. The expected long-term rate of return on the plan assets was 7.00% in 2013 and 2012. This
return is based on the expected return for each of the asset categories, weighted based on the target
allocation for each class.
The Company expects to contribute $1,275 to its pension plan in 2014. Employer contributions totaled
$4,900 in 2013. The decrease in the benefit obligation, contributions and the increase in plan assets led to
a change in funded status from $(8,163) to $(2,990).
The following tables set forth by level, within the fair value hierarchy, the Plan’s assets at fair value as of
December 31, 2013 and 2012:
Assets:
Money market funds
Bond mutual funds
Common/collective trust:
Bonds
Equities
Equity market funds:
Commodity mutual funds
International
Large cap
Mid cap
Small cap
December 31, 2013
Level 1
Level 2
Level 3
Total
$
79
48
$
-
-
$
-
-
$
79
48
8,140
5,439
21
337
1,093
181
128
-
-
-
-
-
-
-
-
-
-
-
-
-
-
8,140
5,439
21
337
1,093
181
128
Total assets at fair value
$
15,466
$
-
$
-
$
15,466
(Continued)
62
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 13 - RETIREMENT PLANS (Continued)
Assets:
Money market funds
Bond mutual funds
Common/collective trust:
Bonds
Equities
Equity market funds:
Commodity mutual funds
International
Large cap
Mid cap
Small cap
December 31, 2012
Level 1
Level 2
Level 3
Total
$
76
86
$
-
-
$
-
-
$
76
86
7,158
4,772
23
240
808
177
101
-
-
-
-
-
-
-
-
-
-
-
-
-
-
7,158
4,772
23
240
808
177
101
Total assets at fair value
$
13,441
$
-
$
-
$
13,441
Investment in equity securities, debt securities, and money market funds are valued at the closing price
reported on the active market on which the individual securities are traded.
The methods described above may produce a fair value calculation that may not be indicative of net
realizable value or reflective of future fair values. Furthermore, while the Plan believes its valuation
methods are appropriate and consistent with other market participants, the use of different
methodologies or assumptions to determine the fair value of certain financial instruments could result in
a different fair value measurement at the reporting date.
Expected benefit payments, which reflect expected future service, are as follows.
2014
2015
2016
2017
2018
2019 through 2023
$
396
512
637
842
900
6,951
Total
$
10,238
Supplemental Retirement Plan
Citizens established a supplemental retirement plan (“SERP”) which covers key members of management
in 2013. Participants will receive annually a percentage of their base compensations at the time of their
retirement for a maximum of ten years. The liability recorded at December 31, 2013, was $1,111,
(Continued)
63
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 13 - RETIREMENT PLANS (Continued)
compared to $700 at December 31, 2012. The expense related to the plan was $412 for 2013 and $369 for
2012. No distributions to participants were made in either 2013 or 2012.
NOTE 14 – STOCK OPTIONS
Options to buy stock were previously granted to directors, officers and employees under the Company’s
stock option plan, which was approved by shareholders on April 18, 2000 and authorized the Company
to issue up to 225,000 options. The exercise price of the stock options was the market price at date of
grant. The maximum option term was ten years, and options vested after three years. The Company’s
stock option plan expired in 2010, and no further stock options may be granted under the plan. There
were no outstanding stock options at December 31, 2013.
A summary of the activity in the stock option plan is as follows.
2013
2012
Weighted
Average
Exercise
Price
$
35.00
-
-
-
35.00
Weighted
Average
Exercise
Price
$
25.42
-
-
-
20.50
Shares
29,500
-
-
-
(19,500)
$
-
10,000
$
35.00
$
-
10,000
$
35.00
Shares
10,000
-
-
-
(10,000)
-
-
Outstanding at beginning of year
Granted
Exercised
Forfeited
Expired
Outstanding at end of year
Options exercisable at year-end
The intrinsic value for stock options is calculated based on the exercise price of the underlying awards
and the market price of the common stock as of the reporting date. As of December 31, 2012, there were
no options that had intrinsic value.
NOTE 15 – FAIR VALUE MEASUREMENT
U.S. generally accepted accounting principles establish a hierarchal disclosure framework associated with
the level of observable pricing utilized in measuring assets and liabilities at fair value. The three broad
levels defined by the hierarchy are as follows: Level 1: Quoted prices for identical assets in active
markets that are identifiable on the measurement date; Level 2: Significant other observable inputs, such
as quoted prices for similar assets, quoted prices in markets that are not active and other inputs that are
(Continued)
64
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 15 – FAIR VALUE MEASUREMENT (Continued)
observable or can be corroborated by observable market data; Level 3: Significant unobservable inputs
that reflect the Company’s own view about the assumptions that market participants would use in
pricing an asset.
Securities: The fair values of securities available for sale are determined by matrix pricing, which is a
mathematical technique widely used in the industry to value debt securities without relying exclusively
on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other
benchmark quoted securities (Level 2 inputs). At December 31, 2012, management used significant
unobservable inputs to determine the fair value of one security (Level 3 inputs). These inputs include
appraised values of the underlying collateral and estimated costs to sell the collateral. The value of the
collateral has been discounted to represent the value in a distressed sale situation.
Equity securities: The Company’s equity securities are not actively traded in an open market. The fair
values of these equity securities available for sale are determined by using market data inputs for similar
securities that are observable. (Level 2 inputs).
Impaired loans: The fair values of impaired loans are determined using the fair values of collateral for
collateral dependent loans, or discounted cash flows. The Company uses independent appraisals,
discounted cash flow models and other available data to estimate the fair value of collateral (Level 3
inputs).
Other real estate owned: The fair value of other real estate owned is determined using the fair value of
collateral. The Company uses appraisals and other available data to estimate the fair value of collateral
(Level 3 inputs). The appraised values are discounted to represent an estimated value in a distressed sale.
Additionally, estimated costs to sell the property are used to further adjust the value.
Assets measured at fair value are summarized below.
Assets:
(Level 1)
(Level 2)
(Level 3)
Fair Value Measurements at December 31, 2013 Using:
Assets measured at fair value on a recurring basis:
U.S. Treasury securities and obligations
of U.S. Government agencies
Obligations of states and political
subdivisions
Mortgage-backed securities in government
sponsored entities
Equity securities in financial institutions
$
-
$
51,560
$
-
-
-
-
80,625
66,979
449
-
-
-
Assets measured at fair value on a nonrecurring basis:
Impaired Loans
Other Real Estate Owned
$
-
-
-
$
-
$
15,548
173
(Continued)
65
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 15 – FAIR VALUE MEASUREMENT (Continued)
Assets:
(Level 1)
(Level 2)
(Level 3)
Fair Value Measurements at December 31, 2012 Using:
Assets measured at fair value on a recurring basis:
U.S. Treasury securities and obligations
of U.S. Government agencies
Obligations of states and political
subdivisions
Mortgage-backed securities in government
sponsored entities
Equity securities in financial institutions
$
-
$
54,286
$
-
-
-
-
79,338
69,435
434
468
-
-
Assets measured at fair value on a nonrecurring basis:
Impaired Loans
Other Real Estate Owned
$
-
-
-
$
-
$
22,084
471
The following tables presents quantitative information about the Level 3 significant unobservable inputs
for assets and liabilities measured at fair value on a nonrecurring basis at December 31, 2013 and 2012.
Quantitative Information about Level 3 Fair Value Measurements
December 31, 2013
Fair Value Valuation Technique Unobservable Input
Range
Impaired loans
$
15,548
Appraisal of collateral Appraisal
10% - 30%
adjustments
Liquidation expense
0% - 10%
Holding period
0 - 30 months
Other real estate owned
$
173
Appraisal of collateral Appraisal
Discounted cash flows Discount rates
2% - 8.5%
10% - 30%
adjustments
Liquidation expense
0% - 10%
(Continued)
66
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 15 – FAIR VALUE MEASUREMENT (Continued)
Quantitative Information about Level 3 Fair Value Measurements
December 31, 2012
Fair Value Valuation Technique Unobservable Input
Range
Investments
$
468
Appraisal of collateral Appraisal
20% - 30%
adjustments
Liquidation expense
8% - 12%
Impaired loans
$
22,084
Appraisal of collateral Appraisal
10% - 30%
adjustments
Liquidation expense
0% - 10%
Holding period
0 - 30 months
Other real estate owned
$
471
Appraisal of collateral Appraisal
Discounted cash flows Discount rates
2% - 8.5%
10% - 30%
adjustments
Liquidation expense
0% - 10%
The following table presents the changes in the Level 3 fair value category for the fiscal periods ended
December 31, 2013 and 2012. The Company classifies financial instruments in Level 3 of the fair value
hierarchy when there is reliance on at least one significant unobservable input to the valuation model. In
addition to the unobservable inputs, the valuation models for Level 3 financial instruments typically also
rely on a number of inputs that are readily observable, either directly or indirectly.
Securities available for sale
Beginning balance January 1,
Principal payments
2013
$
468
(468)
2012
$
517
(49)
Ending balance December 31,
$
-
$
468
(Continued)
67
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 15 – FAIR VALUE MEASUREMENT (Continued)
The carrying amount and fair value of financial instruments were as follows.
December 31, 2013
Financial Assets:
Cash and due from financial
institutions
Securities available for sale
Other securities
Loans, available for sale
Loans, net of allowance for
loan losses
Bank owned life insurance
Accrued interest receivable
Financial Liabilities:
Nonmaturing deposits
Time deposits
Federal Home Loan Bank advances
Securities sold under agreement
to repurchase
Subordinated debentures
Accrued interest payable
Carrying
Amount
Fair Value
Level 1
Level 2
Level 3
$
33,883
199,613
15,424
438
$
33,883
199,613
15,424
438
$
33,883
-
15,424
438
$
-
199,613
-
-
-
$
-
-
-
844,713
19,145
3,881
706,126
236,349
37,726
20,053
29,427
156
861,252
19,145
3,881
706,126
237,837
38,767
20,053
20,605
156
-
19,145
3,881
706,126
-
-
20,053
-
156
-
-
-
-
-
-
-
-
-
861,252
-
-
-
237,837
38,767
-
20,605
-
(Continued)
68
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 15 – FAIR VALUE MEASUREMENT (Continued)
December 31, 2012
Financial Assets:
Cash and due from financial
institutions
Securities available for sale
Other securities
Loans, available for sale
Loans, net of allowance for
loan losses
Bank owned life insurance
Accrued interest receivable
Financial Liabilities:
Nonmaturing deposits
Time deposits
Federal Home Loan Bank advances
Securities sold under agreement
to repurchase
Subordinated debentures
Accrued interest payable
Carrying
Amount
Fair Value
Level 1
Level 2
Level 3
$
46,131
203,961
15,567
1,873
$
46,131
203,961
15,567
1,873
$
46,131
-
15,567
1,873
$
-
203,493
-
-
-
$
468
-
-
795,811
18,590
3,709
662,387
264,002
40,261
23,219
29,427
185
812,950
18,590
3,709
662,387
265,974
41,658
23,219
26,855
185
-
18,590
3,709
662,387
-
-
23,219
-
185
-
-
-
-
-
-
-
-
-
812,950
-
-
-
265,974
41,658
-
26,855
-
The estimated fair value approximates carrying amount for all items except those described below.
Estimated fair value for securities is based on quoted market values for the individual securities or for
equivalent securities. For fixed rate loans or deposits and for variable rate loans or deposits with
infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market
rates applied to the cash flow analysis or underlying collateral values. Fair value of debt is based on
current rates for similar financing. The fair value of off-balance-sheet items is based on the current fees or
cost that would be charged to enter into or terminate such arrangements and are considered nominal.
For certain homogeneous categories of loans, such as some residential mortgages, credit card receivables,
and other consumer loans, fair value is estimated using the quoted market prices for securities backed by
similar loans, adjusted for differences in loan characteristics. The fair value of other types of loans is
estimated by discounting the future cash flows using the current rates at which similar loans would be
made to borrowers with similar credit ratings and for the same remaining maturities.
NOTE 16 - 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 customer financing needs. These are agreements to provide credit or to
support the credit of others, as long as conditions established in the contract are met, and usually have
expiration dates. Commitments may expire without being used. Off-balance-sheet risk to credit loss
(Continued)
69
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 16 - COMMITMENTS, CONTINGENCIES AND OFF-BALANCE-SHEET RISK (Continued)
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 the commitment.
The contractual amount of financial instruments with off-balance-sheet risk was as follows at year-end.
Commitments to extend credit:
Lines of credit and construction loans
Overdraft protection
Letters of credit
2013
Fixed
Rate
Variable
Rate
2012
Fixed
Rate
Variable
Rate
$
11,866
18
200
$
151,332
21,084
2,411
$
9,378
51
294
$
118,182
19,726
396
$
12,084
$
174,827
$
9,723
$
138,304
Commitments to make loans are generally made for a period of one year or less. Fixed-rate loan
commitments included above had interest rates ranging from 3.05% to 13.75% at December 31, 2013 and
December 31, 2012. Maturities extend up to 30 years.
Citizens is 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 was
$2,959 on December 31, 2013 and $1,217 on December 31, 2012.
NOTE 17 – CAPITAL REQUIREMENTS AND RESTRICTION ON RETAINED EARNINGS
The Company and Citizens are subject to regulatory capital requirements administered by the federal
banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action
regulations involve quantitative measures of assets, liabilities and certain off-balance-sheet items
calculated under regulatory accounting practices. Capital amounts and classification are also subject to
qualitative judgments by the regulators. Failure to meet capital requirements can initiate regulatory
action.
Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically undercapitalized, although these terms are
not used to represent overall financial condition. If adequately capitalized, regulatory approval is
required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset
growth and expansion, and capital restoration plans are required. At year-end 2013 and 2012, the most
recent regulatory notifications categorized Citizens as well capitalized under the regulatory framework
for prompt corrective action. There are no conditions or events since that notification that management
believes have changed the institution's category.
(Continued)
70
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 17 – CAPITAL REQUIREMENTS AND RESTRICTION ON RETAINED EARNINGS (Continued)
The Company’s and Citizens’ actual capital levels and minimum required levels at December 31, 2013
and 2012 were as follows.
Actual
Amount
Ratio
For Capital
Adequacy Purposes
Amount
Ratio
To Be Well
Capitalized Under
Prompt Corrective
Action Purposes
Amount
Ratio
$
143,628
104,884
17.1 %
12.5
$
67,194
67,126
8.0 %
8.0
n/a
83,907
$
n/a
10.0 %
133,041
94,302
133,041
94,302
15.8
11.2
11.6
8.3
33,681
33,679
45,876
45,447
4.0
4.0
4.0
4.0
n/a
50,519
n/a
6.0
n/a
56,808
n/a
5.0
$
116,423
104,948
14.8 %
13.4
$
62,931
62,656
8.0 %
8.0
n/a
78,319
$
n/a
10.0 %
103,979
95,022
103,979
95,022
13.3
12.1
9.3
8.5
31,272
31,335
44,722
44,559
4.0
4.0
4.0
4.0
n/a
47,002
n/a
6.0
n/a
55,699
n/a
5.0
2013
Total Capital to risk-
weighted assets
Consolidated
Citizens
Tier I (Core) Capital to risk-
weighted assets
Consolidated
Citizens
Tier I (Core) Capital to
average assets
Consolidated
Citizens
2012
Total Capital to risk-
weighted assets
Consolidated
Citizens
Tier I (Core) Capital to risk-
weighted assets
Consolidated
Citizens
Tier I (Core) Capital to
average assets
Consolidated
Citizens
The Company’s primary source of funds for paying dividends to its shareholders and for operating
expense is the cash accumulated from dividends received from Citizens. Payment of dividends by
Citizens to the Company is subject to restrictions by Citizens’ regulatory agencies. These restrictions
generally limit dividends to the current and prior two years retained earnings as defined by the
regulations. In addition, dividends may not reduce capital levels below minimum regulatory
requirements.
(Continued)
71
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 18 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
Condensed financial information of FCBC follows.
Condensed Balance Sheets
Assets:
Cash
Securities available for sale
Investment in bank subsidiary
Investment in nonbank subsidiaries
Other assets
Total assets
Liabilities and Shareholders’ Equity:
Deferred income taxes and other liabilities
Subordinated debentures
Preferred stock
Common stock
Accumulated deficit
Treasury Stock
Accumulated other comprehensive loss
December 31,
2013
2012
$ 32,572
449
111,121
12,595
5,210
$ 9,291
434
115,426
12,585
4,015
$ 161,947
$ 141,751
$ 4,144
29,427
46,316
114,365
(10,823)
(17,235)
(4,247)
$ 8,344
29,427
23,184
114,365
(14,687)
(17,235)
(1,647)
Total liabilities and shareholders’ equity
$ 161,947
$ 141,751
Condensed Statements of Operations
Dividends from bank subsidiaries
Interest expense
Pension expense
Other expense, net
Income before equity in undistributed
net earnings of subsidiaries
Income tax benefit
Equity in undistributed net
earnings of subsidiaries
Net income
Comprehensive income
For the years ended
December 31,
2013
2012
$ 7,888
(740)
(4,072)
(952)
$ 4,747
(833)
(1,257)
(854)
2,124
1,960
1,803
1,001
2,095
2,775
$ 6,179
$ 5,579
$ 3,579
$ 4,100
(Continued)
72
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 18 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (Continued)
Condensed Statements of Cash Flows
Operating activities:
Net income
Adjustment to reconcile net income to net
cash provided by operating activities:
Change in other assets and other liabilities
Equity in undistributed net earnings of
subsidiaries
For the years ended
December 31,
2013
2012
$
6,179
$
5,579
(1,620)
959
(2,095)
(2,775)
Net cash from operating activities
2,464
3,763
Financing activities:
Proceeds from issuance of preferred stock
Cash dividends paid
23,132
(2,315)
-
(2,084)
Net cash provided by (used for) financing activities
20,817
(2,084)
Net change in cash and cash equivalents
23,281
1,679
Cash and cash equivalents at beginning of year
9,291
7,612
Cash and cash equivalents at end of year
$
32,572
$
9,291
NOTE 19 – EARNINGS PER SHARE
The factors used in the earnings per share computation follow.
2013
2012
Basic
Net income available to common shareholders
Weighted average common shares outstanding
Basic earnings per share
Diluted
Net income available to common shareholders
Weighted average common shares outstanding
$
5,020
7,707,917
0.65
$
$
4,386
7,707,917
0.57
$
$
5,020
$
4,386
for basic earnings per common share
Add: dilutive effects of convertible preferred shares
7,707,917
113,863
7,707,917
-
Average shares and dilutive potential common
shares outstanding
Diluted earnings per share
7,821,780
7,707,917
$
0.64
$
0.57
(Continued)
73
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 19 – EARNINGS PER SHARE (Continued)
Basic earnings per common share are calculated by dividing net income by the weighted-average number
of common shares outstanding for the period. Diluted earnings per common share takes into
consideration the pro forma dilution of unexercised stock option awards, computed using the treasury
stock method.
Stock options for 10,000 shares in 2012 were not considered in computing diluted earnings per common
share because they were anti-dilutive. There were no stock options outstanding as of December 31, 2013.
NOTE 20 – QUARTERLY FINANCIAL DATA (UNAUDITED)
Interest
Income
Net Interest
Income
Net
Income
Basic
Earnings
per
Common
Share
Diluted
Earnings
per
Common
Share
First quarter (1)(2)(5)
Second quarter (1)(2)(3)
Third quarter (1)(2)
Fourth quarter (1)(2)(4)(6)
$
11,287
$
9,988
$
1,913
$
0.21
$
0.21
11,025
11,127
11,443
9,781
9,917
10,290
1,657
1,566
1,043
0.18
0.17
0.09
0.18
0.17
0.08
First quarter (6)(7)(8)
Second quarter (6)(7)(10)
Third quarter (6)(7)(8)
Fourth quarter (6)(7)(8)(9)
$
12,118
$
10,445
$
1,293
$
0.13
$
0.13
11,757
11,529
11,357
10,146
10,028
9,959
936
1,384
1,966
0.08
0.14
0.22
0.08
0.14
0.22
Interest income decreased as loans repriced downward.
Interest expense decreased as deposits repriced downward and the deposit mix shifted
toward cheaper funding sources.
Net interest income and net income decreased due to reversed late charges.
Net interest income and net income increased due to increased loan volume.
Net income increased due to fees on tax refund program.
Net income decreased due to non cash charge to pension plan.
Interest income decreased as loans repriced downward.
Interest expense decreased as deposits repriced downward and the deposit mix shifted
toward cheaper funding sources.
Net income increased due to a reduction in provision for loan losses.
Interest income decreased due to reversed income related to nonaccrual loans.
2013
2012
(1)
(2)
(3)
(4)
(5)
(6)
(6)
(7)
(8)
(9)
(Continued)
74
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
(Amounts in thousands, except share data)
NOTE 21 – PARTICIPATION IN THE TREASURY CAPITAL PURCHASE PROGRAM
On January 23, 2009, the Company completed the sale to the U.S. Treasury of $23,184 of newly-issued
non-voting preferred shares as part of the Capital Purchase Program (CPP) enacted by the U.S. Treasury
as part of the Troubled Assets Relief Program (TARP) under the Emergency Economic Stabilization Act of
2008 (EESA). To finalize the Company’s participation in the CPP, the Company and the Treasury entered
into a Letter Agreement, dated January 23, 2009, including the Securities Purchase Agreement – Standard
Terms attached thereto. Pursuant to the terms of the Securities Purchase Agreement, the Company
issued and sold to Treasury (1) 23,184 shares of Fixed Rate Cumulative Perpetual Preferred Shares, Series
A, each without par value and having a liquidation preference of $1,000 per share (Series A Preferred
Shares), and (2) a Warrant to purchase 469,312 common shares of the Company, each without par value,
at an exercise price of $7.41 per share. The Warrant had a ten-year term. All of the proceeds from the sale
of the Series A Preferred Shares and the Warrant by the Company to the U.S. Treasury under the CPP
qualified as Tier 1 capital for regulatory purposes. Under the standardized CPP terms, cumulative
dividends on the Series A Preferred Shares accrued on the liquidation preference at a rate of 5% per
annum for the first five years, and at a rate of 9% per annum thereafter. The Series A Preferred Shares
had no maturity date and ranked senior to the common shares with respect to the payment of dividends
and distributions and amounts payable upon liquidation, dissolution and winding up of the Company.
On July 3, 2012, the U.S. Treasury completed the sale of all 23,184 of the Preferred Shares to various
investors pursuant to a modified “Dutch auction” process. On September 5, 2012, the Company
completed the repurchase of the Warrant from the U.S. Treasury in accordance with the terms of the
Securities Purchase Agreement for an aggregate purchase price of $563,174.
On December 19, 2013, the Company announced the completion of its public offering of 1,000,000
depositary shares, each representing a 1/40th ownership interest in a Noncumulative Redeemable
Convertible Perpetual Preferred Share, Series B, of the Company with a liquidation preference of $1,000
per share (equivalent to $25.00 per depositary share). The Company sold the maximum of 1,000,000
depositary shares in the offering at $25.00 per depositary share, resulting in proceeds, net of $1,868
issuance costs, to the Company of $23,132.
On January 17, 2014, the Company provided notice that it intends to redeem all 23,184 of the Series A
Preferred Shares (CUSIP No. 319459 30 1), which were originally sold to the United States Department of
the Treasury, as part of TARP. The redemption of the Series A Preferred Shares was effective as of
February 15, 2014.
(Continued)
75
First Citizens Banc Corp
Directors
Thomas A. Depler
Attorney, Poland, Depler & Shepherd Co., LPA
Allen R. Maurice
Attorney, Wagner, Maurice & Davidson Co., LPA
James O. Miller
Chairman, President & CEO,
The Citizens Banking Company
President & CEO, First Citizens Banc Corp
W. Patrick Murray
Attorney, Murray and Murray Company, LPA
Officers
James O. Miller
President, Chief Executive Officer
John A. Betts
Senior Vice President, Audit Liaison
Richard J. Dutton
Senior Vice President
James E. McGookey
Senior Vice President, General Counsel,
Corporate Secretary
Allen R. Nickles, CPA, CFE, FCPA, CFF, CICA
Partner, Payne, Nickles & Company
David A. Voight
Chairman of the Board,
First Citizens Banc Corp
Daniel J. White
International Business Consultant
Todd A. Michel
Senior Vice President, Controller
Dennis G. Shaffer
Senior Vice President
Paul J. Stark
Senior Vice President
$0.80
$0.79
$0.72
$0.72
$0.51
$0.51
($0.16)
($0.16)
$0.21
$0.21
The Citizens Banking Company
Directors
John O. Bacon
President & CEO, Mack Iron Works Company
Barry W. Boerger
Self-Employed Farmer
Thomas A. Depler
Attorney, Poland, Depler & Shepherd Co., LPA
Dennis E. Murrray
Attorney, Murray and Murray Company, LPA
Allen R. Nickles, CPA, CFE, FCPA, CFF, CICA
Partner, Payne, Nickles & Company
J. William Springer
President & CEO, Industrial Nut Corporation
Blythe A. Friedley
Owner/President, Friedley & Co. Insurance Agency, Inc.
David A. Voight
Chairman of the Board, First Citizens Banc Corp
Allen R. Maurice
Attorney, Wagner, Maurice & Davidson Co., LPA
Daniel J. White
International Business Consultant
James O. Miller
Chairman, President & CEO, The Citizens Banking Company
President & CEO, First Citizens Banc Corp
Gerald B. Wurm
President, Wurm’s Woodworking Co., Inc.
Directors Emeritus
James D. Heckelman
President, Dan-Mar Co., Inc.
George L. Mylander
Retired Educator and City Official
Chair Emeritus, Firelands Regional Medical Center
2013
2012
2011
2010
2009
Earnings
Preferred dividends and discount accretion
Net Income/(loss) (000)
$ 6,179
$5,579
$3,958
$(1,268)
$1,655
on warrants (000)
$(1,159)
$(1,193)
$(1,176)
$(1,176)
$(955)
common shareholders (000)
$5,020
$4,386
$2,782
$(2,444)
$700
Earnings/(loss), available to common
shareholders
Net Income/(loss) available to
Per Common Share
Earnings/(loss)
Basic
Diluted
Basic
Diluted
Book Value
Dividends Paid
Balances
Assets (millions)
Deposits (millions)
Net Loans (millions)
$0.65
$0.64
$0.57
$0.57
$0.36
$0.36
$10.65
$10.48
$10.30
$0.15
$0.12
$0.03
($0.32)
($0.32)
$9.58
$0.00
$0.09
$0.09
$9.82
$0.25
Shareholders’ Equity (millions)
$104.0
$102.5
$97.0
$98.8
$1,167.5
$1,137.0
$1,113.0
$1,100.7
$1,102.8
$926.4
$901.2
$892.5
$856.1
$795.8
$764.0
$745.6
$775.5
$942.5
$844.7
$128.4
Performance Ratios
Return on Average Assets
Return on Average Equity
Equity Capital Ratio
0.53%
5.97%
11.00%
0.49%
5.36%
9.15%
0.35%
(0.11%)
3.96%
(1.27%)
9.21%
8.81%
0.15%
1.68%
8.96%
Net Loans to Deposit Ratio
89.63%
85.90%
84.77%
83.54%
90.59%
Loss Allowance to Total Loans
1.92%
2.42%
2.71%
2.84%
1.93%
Shareholder Information
The Annual Meeting of the Shareholders of First Citizens Banc Corp will be held at Bowling Green State
University, Firelands College, Huron, Ohio, on April 15, 2014, at 10:00 a.m. Notice of the meeting and a proxy
statement will be sent to shareholders in a separate mailing.
Transfer Agent
ist Shareholder Services
433 S. Carlton Ave.
Wheaton, Illinois 60187
Tel: (630) 480-0393
or 1-800-757-5755 (Toll Free)
Fax: (630) 480-0641
www.ilstk.com
Citizens Bank Locations
Berlin Heights
24 E. Main St.
Berlin Heights, Ohio 44814
419-588-2095
Castalia
208 S. Washington St.
Castalia, Ohio 44824
419-684-5333
Chatfield
6862 Sandusky Ave.
Chatfield, Ohio 44825
419-988-2671
Greenwich
13 Main St.
Greenwich, Ohio 44837
419-752-4411
Huron
410 Cleveland Road East
Huron, Ohio 44839
419-433-0328
New Washington
102 S. Kibler St.
New Washington, Ohio 44854
419-492-2177
Norwalk
207 Milan Ave.
Norwalk, Ohio 44857
419-744-3162
36 E. Seminary St.
Norwalk, Ohio 44857
419-744-3100
Plymouth
49 Sandusky St.
Plymouth, Ohio 44865
419-687-4081
Port Clinton
185 S. E. Catawba Rd.
Port Clinton, Ohio 43452
419-732-0565
Sandusky
100 E. Water St.
Sandusky, Ohio 44870
419-625-4121
1907 E. Perkins Ave.
Sandusky, Ohio 44870
419-625-4123
702 W. Perkins Ave.
Sandusky, Ohio 44870
419-625-4122
First Citizens Banc Corp
100 East Water Street
Sandusky, Ohio 44870
Tel: (419) 625-4121
or 1-888-645-4121 (Toll Free)
Fax: (419) 627-3359
www.fcza.com
Shelby
200 N. Gamble St.
Shelby, Ohio 44875
419-347-5770
156 Mansfield Ave.
Shelby, Ohio 44875
419-347-5141
60 W. Main St.
Shelby, Ohio 44875
419-342-4010
Shiloh
23 W. Main St.
Shiloh, Ohio 44878
419-896-2101
Tiro
101 S. Main St
Tiro, Ohio 44887
419-342-4536
Willard
119 Blossom Centre Blvd.
Willard, Ohio 44890
419-935-0637
Champaign Bank Locations
Akron
529 N. Cleveland Massillon Rd.
Akron, Ohio 44333
330-670-8080
Urbana
601 Scioto St.
Urbana, Ohio 43078
937-653-1186
504 North Main St.
Urbana, Ohio 43078
937-653-1191
West Liberty
205 S. Detroit St.
West Liberty, Ohio 43357
937-465-9050
Dublin
6400 Perimeter Dr.
Dublin, Ohio 43016
614-210-2448
Hilliard
4501 Cemetery Rd.
Hilliard, Ohio 43026
614-527-4600
Plain City
320 S. Jefferson Ave.
Plain City, Ohio 43064
614-873-4688
Quincy
101 S. Miami St.
Quincy, Ohio 43343
937-585-4268
Russells Point
330 S. Orchard Island Rd.
Russells Point, Ohio 43348
937-843-9957