First Citizens Banc Corp
2014 Annual Report
Five Year Condensed Consolidated Financial Summary
Earnings
Net Income (000)
Preferred dividends and discount accretion
2014
2013
2012
2011
2010
$9,528
$6,179
$5,579
$3,958
$(1,268)
on warrants (000)
$(1,873)
$(1,159)
$(1,193)
$(1,176)
$(1,176)
Net Income/(Loss) available to
common shareholders (000)
$7,655
$5,020
$4,386
$2,782
$(2,444)
Per Common Share Earnings/(Loss)
Before preferred dividends
Basic
Diluted
Available to common shareholders
Basic
Diluted
Book Value
Dividends Paid
Balances
Assets (millions)
Deposits (millions)
Net Loans (millions)
$1.24
$0.87
$0.99
$0.85
$0.80
$0.79
$0.65
$0.64
$0.72
$0.72
$0.57
$0.57
$12.04
$10.65
$10.48
$10.30
$0.19
$0.15
$0.12
$0.03
$0.51
$0.51
($0.16)
($0.16)
$0.36
$0.36
($0.32)
($0.32)
$9.58
$0.00
$1,213.2
$1,167.5
$1,137.0
$1,113.0
$1,100.7
$968.9
$942.5
$926.4
$901.2
$892.5
$900.6
$844.7
$795.8
$764.0
$745.6
Shareholders’ Equity (millions)
$115.9
$128.4
$104.0
$102.5
$97.0
Performance Ratios
Return on Average Assets
Return on Average Equity
Equity Capital Ratio
0.77%
8.34%
9.55%
0.53%
5.97%
11.00%
0.49%
5.36%
9.15%
0.35%
3.96%
9.21%
(0.11%)
(1.27%)
8.81%
Net Loans to Deposit Ratio
92.95%
89.63%
85.90%
84.77%
83.54%
Loss Allowance to Total Loans
1.56%
1.92%
2.42%
2.71%
2.84%
Dear Shareholders:
We are pleased to report that 2014 was a good year for First Citizens Banc Corp. To summarize the 2014
performance, we have been able to prudently grow loans, increase net interest income, increase non-interest
income, keep loan loss provisions reasonable, hold non-interest expenses stable, and dramatically improve
bottom line. Net earnings (before preferred dividend) were $9,528,000. This was a 54% increase over 2013’s
earnings of $6,179,000. Even adding back the non-cash pension adjustment made in 2013, there was a 24%
increase in basic earnings.
Highlighting major accomplishments for 2014, in December 2013 we completed the issuance of $25,000,000 in
convertible preferred stock and in January 2014 we used the proceeds from the preferred stock offering to pay
off the Capital Preservation Program preferred stock sold to the US Treasury in 2009. We have successfully
negotiated the acquisition of TCNB Financial Corp. We expect to close this acquisition on March 6, 2015, at
which time TCNB’s bank, the Citizens National Bank of Southwest Ohio, will be integrated into our operation.
This acquisition will add $100,000,000 in assets and will provide a presence in the Dayton, Ohio marketplace
complimenting and providing opportunity to expand business we already enjoy in that market. In late 2014,
we began a search for a loan production location in the greater Cleveland, Ohio area to support existing
business and expand growth in that market. This resulted in establishing an office at Landerbrook Point in
Mayfield Heights, Ohio in January 2015. This office will be staffed by existing personnel and the addition of
two seasoned commercial lenders from that market.
Loan Growth
Our loan growth for 2014 was $53,616,000 or 6.2%. Median loan growth in the State of Ohio through the first
three quarters of 2014 was 3.9%. Additionally we sold $29,234,000 in one-to-four family real estate mortgages.
The chart below shows our steady loan growth as the economy recovered. This has been the result of having
experienced lenders providing very personal service. This is what differentiates us from the “big” banks.
More importantly, this growth was achieved by lending in our markets (where we know the customer), and
not altering our lending standards or our pricing expectations. At the end of the third quarter 2014, our yield
on loans was 4.61%. The median of all banks in Ohio was 5.00%. We are less than the median because we are
not making long-term rate commitments. With this extremely low rate environment, we believe it’s more
prudent to stay with variable- or short-term rate commitments rather than a long-term fixed rate at perhaps
0.5% higher rate. We do not believe the premium is worth the rate risk when interest markets move.
(In thousands)
Gross Loans
2014
914,857
$
2013
861,241
$
2012
815,553
$
2011
785,268
$
2010
767,323
$
Deposit Growth
To fund our loan growth, we need deposits. Our focus continues on noninterest bearing deposits (checking
accounts), which have increased nicely to $250,701,000 or 25.9% of total deposits as of December 31, 2014.
Much of this checking account growth has come from providing deposit and cash management services to our
expanding commercial loan customer base. These accounts provide low cost funding and opportunity for non-
interest income through service fees. Of the $718,217,000 in interest bearing deposits, approximately 2/3 are
interest bearing checking and savings. While interest bearing, they are also relatively low cost accounts and
provide core funding for loans. At the end of the third quarter our cost of funds was 0.38% compared to the
state of Ohio median of 0.53%. This differential is a big contributor to our better than peer interest margin and
provides us the flexibility to keep our loan rate commitments short, which helps to control interest rate risk.
(In thousands)
Noninterest bearing deposits
Interest bearing deposits
$
2014
250,701
718,217
$
2013
234,976
707,499
$
2012
202,416
723,973
$
2011
189,382
711,864
$
2010
157,529
734,934
Total
$
968,918
$
942,475
$
926,389
$
901,246
$
892,463
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 increased approximately 4.6% from 2013 to 2014 as a
result of increased loan volume, increased loan fee income, and continued decreases in interest costs.
Expressed as a percentage, our interest margin at the end of the third quarter was 3.73% and remains above a
peer group of 16 mid-west banks we follow that have a median margin of 3.46%.
Net interest income per share (basic)
2014
5.43
$
2013
5.19
$
2012
5.26
$
2011
5.37
$
2010
5.38
$
Noninterest Income
For 2014, we enjoyed a 15.4% increase in our noninterest income shown below as per share contribution. The
primary drivers of this increase are revenues from wealth management and our tax refund processing service.
Noninterest income per share (basic)
2014
1.80
$
2013
1.56
$
2012
1.45
$
2011
1.29
$
2010
1.26
$
Noninterest Expense
Noninterest expenses, shown as per share below, decreased approximately 4.3% from 2013. The decrease was
primarily the result of the non-cash pension adjustment in 2013. If we remove the 2013 adjustment from the
calculation, the non-interest expenses for 2014 were up approximately 1%. Areas of increase were attributed to
technology costs and marketing costs. The marketing costs were a result of our company rebranding efforts
that will be introduced in the first quarter of 2015. Occupancy costs were up in 2014, but largely a result of
snow removal and salt. Even when removing the 2013 pension adjustment, salary and benefit costs were down
slightly in 2014.
Noninterest expense per share (basic)
2014
5.39
$
2013
5.63
$
2012
4.94
$
2011
4.76
$
2010
4.64
$
Provision for Loan Loss
The provision for loan loss was up slightly for 2014 compared to 2013. The increase was a result of loan growth
as opposed to increased challenged loans. Our year-end total past due loans were 0.36% of the portfolio. Peer
at the end of the third quarter was 0.45%. Our non-performing loans decreased from 2.98% of the portfolio at
year end 2013 to 2.02% at the end of 2014. Third quarter peer was 2.28%.
Loan loss provision per share (basic)
2014
0.19
$
2013
0.14
$
2012
0.83
$
2011
1.27
$
2010
2.33
$
Earnings Per Share
Looking at our earnings per share before the preferred dividend, we have enjoyed a 55% improvement from
2013 to 2014, and continued steady improvement since the depth of the recession in 2010.
Net earnings per share (basic)
2014
1.24
$
2013
0.80
$
2012
0.72
$
2011
0.51
$
2010
(0.16)
$
Stock Performance
We are very pleased with the market recognition of the company’s performance and, in turn, the increasing
value of our stock. An article released January 14, 2015, by SNL securities indicates that the performance
return on banks with less than $100,000,000 in market capitalization was 9.77% for the year. The article went
on to comment that the group was led by First Citizens Banc Corp with a return of 61.15%. We believed that
our financial performance, the retirement of the CPP preferred stock, and a demonstrated return to active
acquisition would reflect in our stock’s performance.
Looking Ahead
We believe in our business model – gathering deposits in our legacy markets, putting those deposits to work in
loans and investments in those legacy markets, and with limited loan demand in the legacy markets, using the
remaining funding in more vibrant markets where there are greater loan opportunities. The results of this
model show in our better than peer interest margin. We also believe we have the infrastructure in place to
grow the company without material increases in fixed operating costs. This was demonstrated in 2014 with
increased revenue and virtually flat operating expense.
In this post-recession economy, growth is the key to success. Our efforts have focused on attracting, servicing,
and retaining loan, deposit, and wealth management customers in our markets. Where we see opportunity we
will consider loan production offices, such as the new office in Mayfield Heights, but only when we can
acquire seasoned, connected lending talent to serve the office. We are actively looking at urban and rural
acquisition potentials. Urban acquisitions, such as the pending TCNB Dayton transaction, allow us to expand
our lending in more economically vibrant areas of the state. Rural acquisitions, in the right locations, can
provide deposit gathering opportunities with loyal customer bases.
A recent Wall Street Journal article noted that 38% of individuals aged 18-34 would consider a bank with no
branches. This is confirmed by our experience where we have seen decreased teller traffic and increased
electronic banking. To that end we closed four branches in 2014 and transferred accounts to other offices, with
very little customer impact. To serve this fast changing financial service landscape, we offer internet banking,
electronic statements, remote deposit capture, and through one’s smart phone – mobile deposits, person to
person payments, and bank to bank payments. New products, such as Apple Pay, are rapidly coming to the
marketplace and we must be prepared to offer these products to our customers.
You should have received information by now about our identity change to Civista Bank. A number of other
institutions in our marketplaces operate under the “Citizens” name, all with different styles and levels of
service. The time has come to separate ourselves from all the other Citizens and unify our brand under a new
identity where our brand and level of service can shine. While our heritage will always be Citizens Bank and
the partners who have joined us through the years, Castalia Bank, Farmers State Bank of New Washington,
Citizens National Bank of Norwalk, First National Bank of Shelby, Champaign Bank, and recently Citizens
National of Southwestern Ohio, our new name recognizes our continued community commitment and view
toward the future with the merging of “Civic” and “Vista” to form Civista.
Finally, you will find a number of issues on the proxy requiring your vote. Many of the issues have been
presented before and received majority support of the votes cast, but not enough shareholders cast their
ballots. Since, for passage, many of these issues require that a majority of all of the outstanding shares vote in
favor, your vote is important – this is your company. We ask you to read the material and cast your ballot.
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 .....................................................................
18
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 ..........................................................................................
21
22
23
24
25
26
27
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
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
2014
Year ended December 31,
2012
2011
2013
2010
$
45,970
4,104
41,866
1,500
$
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
40,366
113
13,761
13,874
38,874
204
11,858
12,062
34,178
40
11,160
11,200
31,561
23,521
(8)
9,979
9,971
212
8,942
9,154
41,550
12,690
3,162
9,528
$
43,384
7,552
1,373
6,179
$
38,074
7,304
1,725
5,579
$
36,727
4,805
847
3,958
$
35,774
(3,099)
(1,831)
(1,268)
$
1,873
1,159
1,193
1,176
1,176
common shareholders
$
7,655
$
5,020
$
4,386
$
2,782
$
(2,444)
Per common share earnings/(loss):
Before preferred dividends (basic)
Before preferred dividends (diluted)
Available to common shareholders (basic)
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
$
1.24
0.87
0.99
0.85
0.19
12.04
$
0.80
0.79
0.65
0.64
0.15
10.65
$
0.72
0.72
0.57
0.57
0.12
10.48
$
0.51
0.51
0.36
0.36
0.03
10.30
$
(0.16)
(0.16)
(0.32)
(0.32)
-
9.58
7,707,917
10,904,848
7,707,917
7,821,780
7,707,917
7,707,917
7,707,917
7,707,917
7,707,917
7,707,917
$
900,589
210,491
1,213,191
968,918
116,240
115,909
$
858,532
214,123
1,234,406
1,026,093
83,058
114,266
$
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
See accompanying notes to consolidated financial statements.
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
of loans at year-end
Shareholders' equity as a percent
of total year-end assets
2014
3.79%
0.77
8.34
9.26
0.43
1.56
9.55
Year ended December 31,
2012
2011
2013
3.79%
0.53
5.97
8.83
0.53
1.92
11.00
3.98%
0.49
5.36
4.00%
0.35
3.96
9.23
1.01
2.42
9.15
8.88
1.35
2.71
9.21
2010
3.94%
(0.11)
(1.27)
8.89
1.46
2.84
8.81
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.
See accompanying notes to consolidated financial statements.
2
Common Stock and Shareholder Matters
The common shares of First Citizens Banc Corp (FCBC) trade on The NASDAQ Capital Market under the
symbol “FCZA”. As of February 20, 2015, there were 7,799,344 shares outstanding held by approximately
1,229 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.
2014
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$6.52
to
$9.70
$8.34
to
$9.47
$8.70
to
$10.00
$9.14
to
$10.70
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
2013
Dividends per share declared on common shares by FCBC were as follows:
First quarter
Second quarter
Third quarter
Fourth quarter
2014
2013
$
0.04
0.05
0.05
$
0.03
0.04
0.04
0.05
0.04
$
0.19
$
0.15
Information regarding potential restrictions on dividends paid can be found in Note 18 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 Capital 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 $1,213,191 at December 31, 2014.
See accompanying notes to consolidated financial statements.
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 (2),
Willard, Greenwich, Plymouth, Shiloh, Akron, Dublin, Plain City, Russells Point, Urbana (2), West
Liberty and Quincy. In January 2015, we added a loan production office in Mayfield Heights, Ohio.
Citizens accounted for 99.8% of the Company’s consolidated assets at December 31, 2014.
A new name for the bank is being introduced during the first quarter of 2015. The new name, Civista
Bank, fulfills our strategic direction to solidify our dual Citizens/Champaign brand and distinguish
ourselves from the many other Citizens’ Banks in existing and prospective markets. Created from the
words, “civic” and “vista”, Civista uniquely reflects our commitment to the community, our Citizens
heritage and our view toward the future. Our commitment to community banking and our shareholders
remains at the heart of all we do.
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,
2014.
WATER STREET PROPERTIES, INC. (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, 2014.
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, 2014 and December 31, 2013 and for the Years Ended December 31, 2014 and 2013
(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, 2014 and 2013, and during the two-year period ended December 31, 2014. 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
See accompanying notes to consolidated financial statements.
4
operating results, cash flows, business line results, credit quality expectations, prospects for new lines of
business, economic trends (including interest rates) and similar matters. Forward-looking statements
reflect our expectations, estimates or projections concerning future results or events. These statements are
generally identified by the use of forward-looking words or phrases such as “believe,” “belief,” “expect,”
“anticipate,” “may,” “could,” “intend,” “intent,” “estimate,” “plan,” “foresee,” “likely,” “will,” “should”
or other similar words or phrases. Forward-looking statements are not guarantees of performance and
are inherently subject to known and unknown risks, uncertainties and assumptions that are difficult to
predict and could cause our actual results, performance or achievements to differ materially from those
expressed in or implied by the forward-looking statements. Factors that could cause actual results,
performance or achievements to differ from results discussed in the forward-looking statements include,
but are not limited to, changes in financial markets or national or local economic conditions; sustained
weakness or deterioration in the real estate market; volatility and direction of market interest rates; credit
risks of lending activities; changes in the allowance for loan losses; legislation or regulatory changes or
actions; increases in FDIC insurance premiums and assessments; changes in tax laws; failure of or breach
in our information and data processing systems; unforeseen litigation; increased competition in our
market area; failures to manage growth and/or effectively integrate acquisitions; 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, 2014, total assets were $1,213,191, compared to $1,167,546 at December 31, 2013. 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 $900,589, net loans have increased from December 31, 2013 by 6.6%. The increases were primarily in
Commercial Real Estate - Non-Owner Occupied, Residential Real Estate, Real Estate Construction and
Consumer and Other loans. Commercial Real Estate - Non-Owner Occupied loans increased by $25,834
to $308,666 at December 31, 2014 from $282,832 at December 31, 2013. Residential Real Estate loans
increased by $17,819, to $268,510 at December 31, 2014, from $250,691 at December 31, 2013. Real Estate
Construction loans increased by $25,488, to $65,452 at December 31, 2014, from $39,964 at December 31,
2013. Consumer and Other loans increased by $4,164, to $15,029 at December 31, 2014, from $10,865 at
December 31, 2013.
Securities available for sale decreased by $1,708, or 0.9%, from $199,613 at December 31, 2013 to $197,905
at December 31, 2014. U.S. Treasury securities and obligations of U.S. government agencies decreased
$8,658, from $51,560 at December 31, 2013 to $42,902 at December 31, 2014. Obligations of states and
political subdivisions available for sale increased $7,396 from 2013 to 2014. Mortgage-backed securities
decreased by $537 to total $66,442 at December 31, 2014. 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, 2014, the Company was in compliance with all pledging
requirements.
Mortgage-backed securities totaled $66,442 at December 31, 2014 and none were considered unusual or
“high risk” securities as defined by regulatory authorities. Of this total, $50,683 was pass-through
securities issued by the Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage
See accompanying notes to consolidated financial statements.
5
Corporation (FHLMC) and Government National Mortgage Association (GNMA), and $15,759 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, 2014 was 3.1%. The average
maturity at December 31, 2014 was approximately 3.8 years. The Company has not invested in any
derivative securities.
Securities available for sale had a fair value at December 31, 2014 of $197,905. This fair value includes
unrealized gains of approximately $6,262 and unrealized losses of approximately $609. Net unrealized
gains totaled $5,653 on December 31, 2014 compared to net unrealized gains of $519 on December 31,
2013. 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 $1,913 from December 31, 2013 to
December 31, 2014. The decrease in office premises and equipment is attributed to new purchases of
$485, depreciation of $1,176 and disposals of $1,222.
Other assets decreased $1,141 from December 31, 2013 to December 31, 2014. The decrease is primarily
the result of a decrease in the Company’s deferred taxes, offset by an increase in the notional value of
interest rate swap assets.
Year-end deposit balances totaled $968,918 in 2014 compared to $942,475 in 2013, an increase of $26,443,
or 2.8%. Overall, the increase in deposits at December 31, 2014 compared to December 31, 2013 included
increases in noninterest bearing demand deposits of $15,725, or 6.7%, statement and passbook savings
accounts of $15,822, or 5.2%, interest bearing demand accounts of $11,275, or 6.7%, offset in part by
declines in individual retirement accounts of $3,432, or 11.4%, and certificate of deposit accounts of
$12,947, or 6.3%. 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 2014 were $1,026,093 compared to $965,370 for 2013, an increase of 6.3%. Noninterest
bearing deposits averaged $297,003 for 2014, compared to $233,592 for 2013, increasing $63,411, or 27.2%.
Savings, NOW, and MMDA accounts averaged $501,408 for 2014 compared to $485,054 for 2013. Average
certificates of deposit decreased $19,042 to total an average balance of $227,682 for 2014.
Borrowings from the Federal Home Loan Bank (FHLB) of Cincinnati were $65,200 at December 31, 2014.
The detail of these borrowings can be found in Note 10 to the Consolidated Financial Statements. The
balance increased $27,474 from $37,726 at year-end 2013. The change in balance is mainly the result of a
short term advance used as overnight funding to support loan growth.
Citizens offers repurchase agreements in the form of sweep accounts to commercial checking account
customers. These repurchase agreements totaled $21,613 at December 31, 2014 compared to $20,053 at
December 31, 2013. Obligations of U.S. government agencies maintained under Citizens’ control are
pledged as collateral for the repurchase agreements.
Other liabilities increased $2,635 from December 31, 2013 to December 31, 2014. The increase is primarily
the result of increases in the notional value of interest rate swap liabilities, clearing accounts associated
with the tax refund processing program and accrued compensation and deferred compensation accounts.
The increase was offset by a decrease in the Company’s accrued pension liability resulting from the hard
freeze implemented during 2014.
See accompanying notes to consolidated financial statements.
6
Total shareholders’ equity decreased $12,467, or 9.7% during 2014 to $115,909. The change in
shareholders’ equity resulted from net income of $9,528, offset by preferred dividends and common
dividends of $1,873 and $1,465, respectively, and the redemption of Series A Preferred Shares of $22,857,
increased market value of securities available for sale, net of tax, of $3,389 and a decrease in the
Company’s pension liability, net of tax of $811. For further explanation of these items, see Note 1, Note
14 and Note 23 to the Consolidated Financial Statements. The Company paid $0.19 per common share in
dividends in 2014 compared to $0.15 per common share in dividends in 2013. Total outstanding shares at
December 31, 2014 and 2013 were 7,707,917. The ratio of total shareholders’ equity to total assets was
9.6% and 11.0%, respectively, at December 31, 2014 and December 31, 2013. The ratio for 2013 was higher
because of the timing of the issuance of the Series B Preferred Shares and the repayment of the Series A
Preferred Shares. If the Series B issuance and Series A repayment had both occurred in December of
2013, the ratio for 2013 would have been 9.2%.
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, 2014 and December 31, 2013
Net Income
The Company’s net income for the year ended December 31, 2014 was $9,528, compared to $6,179 for the
year ended December 31, 2013. The change in net income was the result of the items discussed in the
following sections.
Net Interest Income
Net interest income for 2014 was $41,866, an increase of $1,892, or 4.7%, from 2013. Average earning
assets increased 4.7% from 2013. Although market rates in 2014 continued to decline, interest income
increased $1,089, primarily due to increased loan volume. In addition, interest expense on interest-
bearing liabilities decreased $803. 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 increased $1,089, or 2.4%, from 2013. The increase was mainly a result of an
increase in loan volume. Average loans increased $55,280 from 2013 to 2014. The yield on the
Company’s loan portfolio declined 16 basis points from 2013. While the average balance of the securities
portfolio for 2014 compared to 2013 decreased $2,725, this was primarily due to the Company not
replacing matured securities. Interest earned on the security portfolio, including bank stocks, decreased
See accompanying notes to consolidated financial statements.
7
mainly due to decreases in yield. Average balances in interest-bearing deposits in other banks decreased
in 2014 by $1,780.
Total interest expense decreased $803, or 16.4%, for 2014 compared to 2013. 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 decreased $9,126 while
the average rate decreased 9 basis points in 2014. Average interest-bearing deposits decreased $2,688
from 2013 to 2014. The decrease in average interest-bearing deposits, mainly in time deposit accounts,
coupled by a decline in rate on time deposits of approximately 13 basis points, caused interest expense on
deposits to decrease by $496. Interest expense on FHLB borrowings decreased $343 due to a decrease in
average balance of $5,462. The average balance in subordinated debentures did not change from 2013 to
2014, but the rate on these securities increased 13 basis points, resulting in an increase in interest expense
of $37. Repurchase agreements decreased $990 in average balance from 2013 to 2014.
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,
2014
2013
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)
$
$
3,760
1,500
0.43%
14,268
4,314
1,100
0.53%
16,528
$
$
1.56%
11,149
1.22%
13,558
$
$
1.92%
18,057
2.10%
20,459
$
$
1.48%
2.38%
(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.
See accompanying notes to consolidated financial statements.
8
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 $1,500 and $1,100 in 2014 and 2013, respectively. Management believes
the analysis of the allowance for loan losses supported a reserve of $14,268 at December 31, 2014.
The Company’s provision for loan losses increased $400 during 2014 to support the final resolutions in
certain problem loans, coupled with solid loan growth of 6.2%. 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 impaired commercial and commercial real estate loan with a balance of $350
or larger, on an individual basis and 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 $1,812, or 15.0%, to $13,874 for the year ended December 31, 2014, from
$12,062 for the comparable 2013 period. The increase was primarily due to increases in earnings on gain
on sale of loans of $198, Trust fees of $503 and tax refund processing fees of $1,894 which were partially
offset by decreases in service charge income of $82, gain on sale of securities of $91, income on Bank
Owned Life Insurance (BOLI) of $63 and other income of $475.
Gain on sale of loans increased primarily from the addition of investors and loan volume. Trust fees
increased due to both an increase in assets valuations as well as an increase in accounts. Tax refund
processing fees primarily increased due to added volume from the addition of vendors to the tax
processing program. The decrease in service charges was the result of a decrease in overdraft fees. The
decrease in gain on sale of securities was due to a recovery of a security previously written off. This
recovery was posted in 2013. The decrease in BOLI income is due to lower yields received in the current
year. The decrease in other income was primarily the result of lower fees related to our customer
derivative program and lower gains recognized on the sale of fixed assets.
Sales of other real estate owned resulted in recognized gains of $44 on the sale of 16 properties in 2014
compared to gains of $120 on the sale of 25 properties in 2013.
See accompanying notes to consolidated financial statements.
9
Noninterest Expense
Noninterest expense decreased $1,834, or 4.2%, to $41,550 for the year ended December 31, 2014, from
$43,384 for the comparable 2013 period. The decrease was primarily due to decreases in salaries, wages
and benefits of $2,465, FDIC assessment of $103, state franchise tax of $242, amortization of intangible
assets of $78 and repossession expense of $291 which were partially offset by increases in contracted data
processing of $254, professional services of $178, equipment expense of $148, ATM expense of $156 and
marketing expense of $525.
Salaries, wages and benefits decreased primarily due to a decrease in pension costs. As of April 2014, the
Company has frozen its pension plan. Several large pension disbursements were made in 2013,
triggering settlement expense of $2,251. While the plan still exists, no new participants will be added and
no additional benefits will accrue. FDIC assessments decreased due to a decrease in assessment rates.
State franchise taxes decreased due to a change made by the State of Ohio. In 2014, the state replaced its
corporate franchise tax with the financial institutions tax (FIT). The new tax is based on equity capital,
whereas, the corporate franchise tax was based on net worth. In addition, the new law lowered tax rates.
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 expenses related to repossessions. Contracted data processing increased due to increases in
cost of technology services. Professional services increased primarily due to merger expenses and a
general increase in consulting fees. Equipment expenses increased due to a change in the Company’s
capitalization policy in 2014. ATM expense increased due to increased vendor charges. Marketing
expenses increased as a result of our efforts to unify our marketing approach in order to improve the
impact of marketing dollars spent.
Income Tax Expense
Federal income tax expense was $3,162 in 2014 compared to $1,373 in 2013. Federal income tax expense
as a percentage of income was 24.9% in 2014 compared to 18.2% in 2013. 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, income from BOLI and low income housing credits. Federal
income tax expense increased in 2014 primarily due to an increase in pretax income, which also led to the
increase in the effective tax rate in 2014.
See accompanying notes to consolidated financial statements.
10
Distribution of Assets, Liabilities and Shareholders’ Equity,
Interest Rates and Interest Differential
The following table sets forth, for the years ended December 31, 2014, 2013 and 2012, the distribution of
assets, including interest amounts and average rates of major categories of interest-earning assets and
interest-bearing liabilities (Amounts in thousands):
2014
2013
2012
Average
balance
Yield/
Interest
rate
Average
balance
Yield/
Interest
rate
Average
balance
Yield/
Interest
rate
Assets
Interest-earning assets:
Loans (1)(2)(3)(5)
$
874,432
$
40,032
Taxable securities (4)
150,510
3,443
4.58%
2.31%
$
819,152
$
38,776
157,930
3,763
4.74%
2.42%
$
780,786
$
40,048
172,560
4,710
5.13%
2.81%
Non-taxable
securities (4)(5)
Interest-bearing deposits
63,613
2,356
5.80%
58,918
2,211
5.90%
52,006
1,895
6.01%
in other banks
53,829
139
0.26%
55,609
131
0.24%
46,980
109
0.23%
Total interest income
assets
1,142,384
45,970
4.15%
1,091,609
44,881
4.24%
1,052,332
46,762
4.58%
Noninterest-earning assets:
Cash and due from
financial institutions
35,784
Premises and
equipment, net
Accrued interest
receivable
Intangible assets
Other assets
Bank owned life insurance
Less allowance for
15,262
4,242
24,122
9,133
19,379
25,203
16,862
4,288
24,464
10,626
18,856
21,934
17,588
4,456
25,363
9,737
18,260
loan losses
Total
(15,900)
$
1,234,406
(19,089)
$
1,172,819
(21,681)
$
1,127,989
(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 $387 in 2014, $368 in 2013 and $325 in 2012.
(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)
See accompanying notes to consolidated financial statements.
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, 2014, 2013 and 2012, 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
2014
2013
2012
Interest-bearing liabilities:
Savings and interest-
bearing demand
accounts
$
501,408
$
376
Certificates of deposit
227,682
1,916
0.07%
0.84%
$
485,054
$
401
246,724
2,387
0.08%
0.97%
$
447,823
$
520
272,610
3,280
0.12%
1.20%
Federal Home Loan
Bank advances
Securities sold under
repurchase agreements
Federal funds purchased
Subordinated debentures
Total interest-
33,831
1,015
3.00%
39,293
1,358
3.46%
47,629
1,530
3.21%
19,759
41
29,427
20
-
777
0.10%
0.00%
2.64%
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%
bearing liabilities
812,148
4,104
0.51%
821,274
4,907
0.60%
816,406
6,184
0.76%
Noninterest-bearing liabilities:
Demand deposits
Other liabilities
Shareholders' equity
297,003
10,989
307,992
114,266
233,592
14,390
247,982
103,563
194,418
13,051
207,469
104,114
Total
$
1,234,406
$
1,172,819
$
1,127,989
Net interest income and
interest rate spread (1)
$
41,866
3.64%
$
39,974
3.64%
$
40,578
3.82%
Net interest margin (2)
3.79%
3.79%
3.98%
(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.
See accompanying notes to consolidated financial statements.
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)
Increase (decrease) due to:
Rate(1)
Volume(1)
Net
2014 compared to 2013
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
2013 compared to 2012
$ 2,562
(176)
273
(4)
$ (1,306)
(144)
(128)
12
$ 1,256
(320)
145
8
$
2,655
$
(1,566)
$
1,089
13
(175)
(176)
(1)
-
(38)
(296)
(167)
-
37
(25)
(471)
(343)
(1)
37
$
(339)
$
(464)
$
(803)
$
2,994
$
(1,102)
$
1,892
Interest income:
Loans
Taxable securities
Nontaxable securities
Interest-bearing deposits in other banks
Total interest income
$ 1,909
(390)
270
20
$ (3,181)
(557)
46
2
$ (1,272)
(947)
316
22
$
1,809
$
(3,690)
$
(1,881)
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
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.
See accompanying notes to consolidated financial statements.
13
Liquidity and Capital Resources
Citizens maintains a conservative liquidity position. All securities are classified as available for sale. At
December 31, 2014, securities with maturities of one year or less, totaled $629, or 0.3%, 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 2014 was $14,886. 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, proceeds from sale of loans and changes in other assets and
liabilities, net. The primary use of cash from operating activities is from loans originated for sale. Cash
used for investing activities was $48,496 in 2014. Security and property and equipment purchases along
with loans to customers and purchased loans were offset by security maturities and sales and proceeds
from the sale property and equipment and the redemption of Federal Home Loan Bank “FHLB” stock.
Cash from financing activities in 2014 totaled $29,282. A major source of cash for financing activities is
the net change in deposits. Cash provided by the net change in deposits was $26,443 in 2014. The large
increase in deposits was primarily due to increases in noninterest-bearing deposits, statement and
passbook savings accounts and interest-bearing demand accounts, which added $15,725, $15,822 and
$11,275, respectively, in deposits during 2014. These increases were offset by decreases in individual
retirement accounts and certificate of deposits of $3,432 and $12,947, respectively. In addition, the
Company borrowed additional funds from the FHLB in overnight funds of $42,700 and long term
advances of $15,000. The primary uses of cash in financing activities include payment of dividends,
repayment of a FHLB advances and repurchase of the Company’s Series A Preferred Shares. Cash and
cash equivalents decreased from $34,186 at December 31, 2013 to $29,858 at December 31, 2014.
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, 2014, Citizens had total
credit availability with the FHLB of $124,741 of which $65,200 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, 2014, Citizens was able to pay dividends to FCBC without obtaining regulatory approval. During
2014, Citizens paid dividends totaling $7,339 to FCBC. This represented approximately 66 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.
See accompanying notes to consolidated financial statements.
14
The Company manages its liquidity and capital through quarterly Asset/Liability Management
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.
Prior to January 1, 2015, the guidelines included a minimum for the ratio of total capital to risk-weighted
assets of 8%, with at least half of the ratio composed of common shareholders’ equity, minority interests
in certain equity accounts of consolidated subsidiaries and a limited amount of qualifying preferred stock
and qualified trust preferred securities, less goodwill and certain other intangible assets (known as “Tier
1” risk-based capital). The guidelines also provided for a minimum ratio of Tier 1 capital to average
assets, or “leverage ratio,” of 3% for financial holding companies and bank holding companies that met
certain criteria, including having the highest regulatory rating, and 4% for all other financial holding
companies and bank holding companies.
The risk-based capital guidelines adopted by the federal banking agencies are based on the “International
Convergence of Capital Measurement and Capital Standard” (Basel I), published by the Basel Committee
on Banking Supervision (the “Basel Committee”) in 1988. In 2004, the Basel Committee published a new
capital adequacy framework (Basel II) for large, internationally active banking organizations and in
December 2010 and January 2011, the Basel Committee issued an update to Basel II (“Basel III”). The
Basel Committee frameworks did not become applicable to banks supervised in the United States until
adopted into United States law or regulations. Although the United States banking regulators imposed
some of the Basel II and Basel III rules on banks with $250 billion or more in assets or $10 billion of on-
balance sheet foreign exposure, it was not until July 2013 that the United States banking regulators issued
final (or, in the case of the FDIC, interim final) new capital rules applicable to smaller banking
organizations which also implement certain of the provisions of the Dodd-Frank Act (the “Basel III
Capital Rules”). Community banking organizations, including FCBC and Citizens, began transitioning to
the new rules on January 1, 2015. The new minimum capital requirements became effective on January 1,
2015, whereas a new capital conservation buffer and deductions from common equity capital phase in
from January 1, 2016 through January 1, 2019, and most deductions from common equity tier 1 capital
will phase in from January 1, 2015 through January 1, 2019.
The new rules include (a) a new common equity tier 1 capital ratio of at least 4.5%, (b) a Tier 1 capital
ratio of at least 6.0%, rather than the former 4.0%, (c) a minimum total capital ratio that remains at 8.0%,
and (d) a minimum leverage ratio of 4.0%.
Common equity for the common equity tier 1 capital ratio includes common stock (plus related surplus)
and retained earnings, plus limited amounts of minority interests in the form of common stock, less the
majority of certain regulatory deductions.
Tier 1 capital includes common equity as defined for the common equity tier 1 capital ratio, plus certain
non-cumulative preferred stock and related surplus, cumulative preferred stock and related surplus and
See accompanying notes to consolidated financial statements.
15
trust preferred securities that have been grandfathered (but which are not permitted going forward), and
limited amounts of minority interests in the form of additional Tier 1 capital instruments, less certain
deductions.
Tier 2 capital, which can be included in the total capital ratio, includes certain capital instruments (such as
subordinated debt) and limited amounts of the allowance for loan and lease losses, subject to new
eligibility criteria, less applicable deductions.
The deductions from common equity tier 1 capital include goodwill and other intangibles, certain
deferred tax assets, mortgage-servicing assets above certain levels, gains on sale in connection with a
securitization, investments in a banking organization’s own capital instruments and investments in the
capital of unconsolidated financial institutions (above certain levels). The deductions phase in from 2015
through 2019.
Under the guidelines, capital is compared to the relative risk related to the balance sheet. To derive the
risk included in the balance sheet, one of several risk weights is applied to different balance sheet and off-
balance sheet assets, primarily based on the relative credit risk of the counterparty. The capital amounts
and classification are also subject to qualitative judgments by the regulators about components, risk
weightings and other factors. Some of the risk weightings have been changed effective January 1, 2015.
The new rules also place restrictions on the payment of capital distributions, including dividends, and
certain discretionary bonus payments to executive officers if the company does not hold a capital
conservation buffer of greater than 2.5 percent composed of common equity tier 1 capital above its
minimum risk-based capital requirements, or if its eligible retained income is negative in that quarter and
its capital conservation buffer ratio was less than 2.5 percent at the beginning of the quarter. The capital
conservation buffer phases in starting on January 1, 2016, at 0.625%. The implementation of Basel III is
not expected to have a material impact on FCBC’s or Citizens’ capital ratios.
See accompanying notes to consolidated financial statements.
16
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.
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, 2014 and 2013 in
Note 16 to the Consolidated Financial Statements. The fair value of loans at December 31, 2014 was
100.8% of the carrying value compared to 102.0% at December 31, 2013. The fair value of deposits at
December 31, 2014 was 100.1% of the carrying value compared to 100.2% at December 31, 2013.
Contractual Obligations
The following table represents significant fixed and determinable contractual obligations of the Company
as of December 31, 2014.
Contractual Obligations
Deposits without a stated maturity
Certificates of deposit and IRAs
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
$
748,948
115,336
One to
three years
$
-
83,746
Three to
five years
$
-
15,564
Over five
years
$
-
5,324
Total
$
748,948
219,970
47,700
-
335
2,500
-
529
15,000
-
205
-
29,427
-
65,200
29,427
1,069
(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 11 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 10 to the
Consolidated Financial Statements.
See accompanying notes to consolidated financial statements.
17
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,
See accompanying notes to consolidated financial statements.
18
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, 2014 and 2013, based on certain prepayment and account
decay assumptions that management believes are reasonable. The Company had derivative financial
instruments as of December 31, 2014 and 2013. The changes in fair value of the assets and liabilities of the
underlying contracts offset each other. For more information about derivative financial instruments see
Note 22 to the Consolidated Financial Statements. 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
160,744
$
155,452
145,915
151,829
December 31, 2014
Dollar
Change
14,829
$
9,537
-
5,914
Percent
Change
10%
7%
-
4%
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%
The change in net portfolio value from December 31, 2013 to December 31, 2014, can be attributed to two
factors. The yield curve has seen a downward, nearly parallel, shift since the end of 2013, although the
shorter end of the curve shifted less. Additionally, both the mix of assets and funding sources has
changed. The mix of assets has shifted toward loans and away from cash and securities, which leads to
less volatility. The funding mix shifted from CDs to deposits and borrowed money, which tends to
increase volatility. Although the shifts in mixes were such that the base remained nearly unchanged,
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 more quickly than the fair value of liabilities.
See accompanying notes to consolidated financial statements.
19
Critical Accounting Policies
The allowance for loan losses is regularly reviewed by management to
Allowance for Loan Losses:
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.
The Company performs an annual evaluation of goodwill for impairment, or more frequently
Goodwill:
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 2014. 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 2014.
The Company performs a quarterly
Other-Than-Temporary Impairment of Investment Securities:
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.
Pension Benefits: Pension costs and liabilities are dependent on assumptions used in calculating such
amounts. These assumptions include discount rates, benefits earned, interest costs, expected return on
plan assets, mortality rates, and other factors. In accordance with GAAP, actual results that differ from
the assumptions are accumulated and amortized over future periods and, therefore, generally affect
recognized expense and the recorded obligation of future periods. While management believes that the
assumptions used are appropriate, differences in actual experience or changes in assumptions may affect
the Company’s pension obligations and future expense. Our pension benefits are described further in
Note 14 of the “Notes to Consolidated Financial Statements.”
See accompanying notes to consolidated financial statements.
20
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, 2014, in relation to criteria for effective internal control over financial reporting as described in “2013
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, 2014,
its system of internal control over financial reporting is effective and meets the criteria of the “2013
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, 2014.
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, 2014.
James O. Miller
President, Chief Executive Officer,
Chairman of the Board
Sandusky, Ohio
March 13, 2015
Todd A. Michel
Senior Vice President, Controller
See accompanying notes to consolidated financial statements.
21
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' internal control over financial reporting as of December
31, 2014, based on criteria established in Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission in 2013. First Citizens Banc Corp and subsidiaries’
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 Management’s Report
on 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 and subsidiaries maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2014, based on criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of First Citizens Banc Corp and subsidiaries as of December 31, 2014 and
2013, and the related consolidated statements of operations, comprehensive income, changes in shareholders' equity,
and cash flows for each of the two years in the period ended December 31, 2014, and our report dated March 13, 2015,
expressed an unqualified opinion.
Wexford, Pennsylvania
March 13, 2015
See accompanying notes to consolidated financial statements.
22
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 as of December 31, 2014 and 2013, and the related consolidated statements of operations,
comprehensive income, changes in shareholders' equity, and cash flows for each of the two years in the
period ended December 31, 2014. These consolidated financial statements are the responsibility of First
Citizens Banc Corp'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, 2014 and
2013, and the results of their operations and their cash flows for each of the two
the period
in
ended December 31, 2014, in conformity with U.S. generally accepted accounting principles.
years
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, 2014, based on criteria established in Internal Control — Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated
March 13, 2015 expressed an unqualified opinion on the effectiveness of First Citizens Banc Corp and
subsidiaries’ internal control over financial reporting.
Wexford, Pennsylvania
March 13, 2015
See accompanying notes to consolidated financial statements.
23
FIRST CITIZENS BANC CORP
CONSOLIDATED BALANCE SHEETS
December 31, 2014 and 2013
(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 $14,268 and $16,528
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, no par value, 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
2014
2013
$
29,858
197,905
2,410
900,589
12,586
14,400
3,852
21,720
2,025
19,637
8,209
$
34,186
199,613
438
844,713
15,424
16,313
3,881
21,720
2,763
19,145
9,350
$
1,213,191
$
1,167,546
$
250,701
718,217
968,918
65,200
21,613
29,427
12,124
1,097,282
$
234,976
707,499
942,475
37,726
20,053
29,427
9,489
1,039,170
-
23,132
114,365
(4,306)
(17,235)
(47)
115,909
23,184
23,132
114,365
(10,823)
(17,235)
(4,247)
128,376
Total liabilities and shareholders' equity
$
1,213,191
$
1,167,546
See accompanying notes to consolidated financial statements.
24
FIRST CITIZENS BANC CORP
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2014 and 2013
(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
Tax refund processing fees
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
2014
2013
$
40,032
3,443
2,356
139
45,970
$
38,776
3,763
2,211
131
44,881
2,292
1,015
777
20
4,104
41,866
1,500
40,366
4,119
113
659
1,988
3,130
492
2,324
260
44
745
13,874
22,293
2,256
1,421
1,560
905
888
1,855
769
806
1,159
673
6,965
41,550
12,690
3,162
9,528
1,873
2,788
1,358
740
21
4,907
39,974
1,100
38,874
4,201
204
461
1,996
2,627
555
430
248
120
1,220
12,062
24,758
2,209
1,273
1,306
1,008
1,130
1,677
846
650
634
964
6,929
43,384
7,552
1,373
6,179
1,159
Net income available to common shareholders
$
7,655
$
5,020
Earnings per common share, basic
$
0.99
$
0.65
Earnings per common share, diluted
$
0.85
$
0.64
See accompanying notes to consolidated financial statements.
25
FIRST CITIZENS BANC CORP
CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS
Years ended December 31, 2014 and 2013
(Amounts in thousands, except per share data)
Net income
Other comprehensive income (loss):
Unrealized holding gains (loss)
on available for sale securities
Tax effect
Pension liability adjustment
Tax effect
Total other comprehensive income (loss)
2014
2013
$
9,528
$
6,179
5,134
(1,745)
1,228
(417)
4,200
(8,344)
2,836
4,406
(1,498)
(2,600)
Comprehensive income
$
13,728
$
3,579
See accompanying notes to consolidated financial statements.
26
FIRST CITIZENS BANC CORP
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Years ended December 31, 2014 and 2013
(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
Net income
Other comprehensive income
Cash dividends ($0.19 per share)
Preferred stock dividends
Redemption of Series A preferred stock
25,000
23,132
6,179
(1,156)
(1,159)
(2,600)
6,179
(2,600)
23,132
(1,156)
(1,159)
48,184
$
46,316
7,707,917
$
114,365
$
(10,823)
$
(17,235)
$
(4,247)
$
128,376
(23,184)
(23,184)
9,528
(1,465)
(1,873)
327
4,200
9,528
4,200
(1,465)
(1,873)
(22,857)
Balance, December 31, 2014
25,000
$
23,132
7,707,917
$
114,365
$
(4,306)
$
(17,235)
$
(47)
$
115,909
See accompanying notes to consolidated financial statements.
27
FIRST CITIZENS BANC CORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2014 and 2013
(Amounts in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash from operating activities
2014
2013
$
9,528
$
6,179
Security amortization, net
Depreciation
Amortization of intangible assets
Amortization of net deferred loan fees
Gain on sale of securities
Provision for loan losses
Loans originated for sale
Proceeds from sale of loans
Net gain on sale of loans
Net gain on sale of other real estate owned
Gain on sale of fixed assets
Increase in cash surrender value of bank owned life insurance
Decrease in prepaid FDIC Premium
Change in
Accrued interest payable
Accrued interest receivable
Deferred taxes
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
Redemption of FHLB stock
Net loan originations
Loans purchased, installment
Proceeds from sale of OREO properties
Property and equipment purchases
Proceeds from sale of property and equipment
Net cash used for investing activities
1,491
1,176
769
(123)
(113)
1,500
(31,206)
29,893
(659)
(44)
(60)
(492)
-
(30)
29
11
3,216
1,633
1,334
846
(112)
(204)
1,100
(49,978)
51,874
(461)
(120)
(107)
(555)
1,775
(29)
(172)
1,362
(1,554)
14,886
12,811
45,743
18,088
(58,367)
-
(171)
3,009
(53,562)
(4,382)
349
(485)
1,282
(48,496)
50,184
8,686
(64,295)
143
-
-
(48,272)
(1,898)
699
(1,155)
118
(55,790)
See accompanying notes to consolidated financial statements.
28
FIRST CITIZENS BANC CORP
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years ended December 31, 2014 and 2013
(Amounts in thousands)
Cash flows from financing activities:
Increase in deposits
Net proceeds from short-term FHLB advances
Repayment of long-term FHLB advances
Proceeds from long-term FHLB advances
Increase (decrease) in securities sold under repurchase agreements
Repayment of series A preferred stock
Common dividends paid
Preferred dividends paid
Net proceeds from issuance of preferred stock
Net cash provided by financing activities
2014
2013
26,443
42,700
(30,226)
15,000
1,560
(22,857)
(1,465)
(1,873)
-
29,282
16,086
-
(2,535)
-
(3,166)
-
(1,156)
(1,159)
23,132
31,202
Decrease in cash and due from financial institutions
Cash and due from financial institutions at beginning of year
(4,328)
34,186
(11,777)
45,963
Cash and due from financial institutions at end of year
$
29,858
$
34,186
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
$
$
4,134
1,745
$
$
4,936
1,010
$
692
$
-
$
$
280
4,756
See accompanying notes to consolidated financial statements.
29
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(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.
: The Consolidated Financial Statements include
Nature of Operations and Principles of Consolidation
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.
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, 2014 and 2013. 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, 2014 and 2013. FCRS was formed in 2012 and remained inactive for the
periods presented.
: To prepare financial statements in conformity with accounting principles generally
Use of Estimates
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,
determination of goodwill impairment, 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 and cash equivalents include cash on hand and demand deposits with financial
Cash Flows
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, 2014 and 2013
(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.
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.
Mortgage loans originated and intended for sale in the secondary market and loans
Loans Held for Sale:
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 that management has the intent and ability to hold for the foreseeable future or until
Loans:
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, 2014 and 2013
(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.
The Company purchases individual loans and groups of loans. Purchased loans that
Purchased Loans:
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.
The allowance for loan losses (allowance) is calculated with the objective of
Allowance for Loan Losses:
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 three 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 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, 2014 and 2013
(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
loan 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 loans; (iii) Residential Real Estate loans; (iv) Real Estate Construction loans; (vi) Home Equity Lines
of Credit (HELOC); (vii) Indirect Auto loans; and (vii) Consumer and Other loans. Additional
information related to economic factors can be found in Note 4.
All unsecured open- and closed-ended retail loans that become past due 90
Loan Charge-off Policies:
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 Citizens recognizes the loan is
permanently impaired, which is generally after the loan is 90 days past due.
In certain situations based on economic or legal reasons related to a
Troubled Debt Restructurings:
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 acquired through or instead of loan foreclosure is initially recorded at
Other Real Estate:
fair value less costs to sell when acquired, establishing a new cost basis and any deficiency in the value is
charged off through the allowance. 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 $560 at December 31, 2014 and $173 at December 31, 2013.
(Continued)
33
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
: Citizens is a member of the FHLB of Cincinnati and as such, is
Federal Home Loan Bank (FHLB) Stock
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, 2014 or 2013.
: Citizens is a member of the Federal Reserve System. FRB stock is
Federal Reserve Bank (FRB) Stock
carried at cost, classified as a restricted security, and periodically evaluated for impairment based on
ultimate recovery of par value.
: Citizens has purchased BOLI policies on certain key executives.
Bank Owned Life Insurance (BOLI)
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 results from prior business acquisitions and represents
Goodwill and Other Intangible Assets:
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.
(Continued)
34
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
: Premises and equipment, core deposit and other intangible assets, and other long-
Long-term Assets
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.
: Substantially all repurchase agreement liabilities represent amounts advanced
Repurchase Agreements
by various customers. Securities are pledged to cover these liabilities, which are not covered by federal
deposit insurance.
Financial instruments include off-balance sheet
Loan Commitments and Related Financial Instruments:
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 tax expense is the total of the current year income tax due or refundable and the
Income Taxes
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.
: Pension expense is the net of service and interest cost, expected return on plan assets
Retirement Plans
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.
: Basic earnings per share are net income available to common shareholders
Earnings per Common Share
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.
(Continued)
35
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
: Comprehensive income consists of net income and other comprehensive
Comprehensive Income
income. Other comprehensive income includes unrealized gains and losses on securities available for
sale and changes in the funded status of the pension plan.
: Loss contingencies, including claims and legal actions arising in the ordinary course
Loss Contingencies
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:
regulatory reserve and clearing requirements. These balances do not earn interest.
Cash on hand or on deposit with the Federal Reserve Bank was required to meet
: Banking regulations require maintaining certain capital levels and may limit the
Dividend Restriction
dividends paid by Citizens to FCBC or by FCBC to shareholders. Additional information related to
dividend restrictions can be found in Note 18.
: Fair values of financial instruments are estimated using relevant
Fair Value of Financial Instruments
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.
: While the Company’s chief decision makers monitor the revenue streams of the
Operating Segments
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:
current presentation. Such reclassifications had no effect on net income or shareholders’ equity.
Some items in the prior year financial statements were reclassified to conform to the
Derivative Instruments and Hedging Activities
: The Company enters into interest rate swap agreements
to facilitate the risk management strategies of a small number of commercial banking customers. All
derivatives are accounted for in accordance with ASC-815, Derivatives and Hedging. The Company
mitigates the risk of entering into these agreements by entering into equal and offsetting swap
agreements with highly rated third party financial institutions. The swap agreements are free-standing
derivatives and are recorded at fair value in the Company’s consolidated balance sheets. The Company
is party to master netting arrangements with its financial institution counterparties; however, the
Company does not offset assets and liabilities under these arrangements for financial statement
presentation purposes because the Company does not currently intend to execute a setoff with its’
counterparties. The master netting arrangements provide for a single net settlement of all swap
agreements, as well as collateral, in the event of default on, or termination of, any one contract.
Collateral, usually in the form of marketable securities, is posted by the counterparty with net liability
positions in accordance with contract thresholds.
(Continued)
36
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Effect of Newly Issued but Not Yet Effective Accounting Standards:
In January 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update
(ASU) 2014-01, Investments – Equity Method and Joint 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. Adoption of this Update is not expected to have a
significant impact on the Company’s financial statements.
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 Update is not expected to have a significant impact on the
Company’s financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new revenue
recognition standard). The Update’s core principle is that a company will recognize revenue to depict the
transfer of goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. In addition, this Update specifies the
accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure
requirements for revenue recognition. This Update is effective for annual reporting periods beginning
after December 15, 2016, including interim periods within that reporting period. The Company is
evaluating the effect of adopting this new accounting Update.
(Continued)
37
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In June 2014, the FASB issued ASU 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity
Transactions, Repurchase Financings, and Disclosures. The amendments in this Update change the
accounting for repurchase-to-maturity transactions to secured borrowing accounting. For repurchase
financing arrangements, the amendments require separate accounting for a transfer of a financial asset
executed contemporaneously with a repurchase agreement with the same counterparty, which will result
in secured borrowing accounting for the repurchase agreement. The amendments also require enhanced
disclosures. The accounting changes in this Update are effective for the first interim or annual period
beginning after December 15, 2014. An entity is required to present changes in accounting for
transactions outstanding on the effective date as a cumulative-effect adjustment to retained earnings as of
the beginning of the period of adoption. Earlier application is prohibited. The disclosure for certain
transactions accounted for as a sale is required to be presented for interim and annual periods beginning
after December 15, 2014, and the disclosure for repurchase agreements, securities lending transactions,
and repurchase-to-maturity transactions accounted for as secured borrowings is required to be presented
for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15,
2015. The disclosures are not required to be presented for comparative periods before the effective date.
This Update is not expected to have a significant impact on the Company’s financial statements.
In June 2014, the FASB issued ASU 2014-12, Compensation-Stock Compensation (Topic 718): Accounting for
Share-Based Payments when the Terms of an Award Provide that a Performance Target Could Be Achieved After
the Requisite Service Period. The amendments require that a performance target that affects vesting and
that could be achieved after the requisite service period be treated as a performance condition. The
amendments in this Update are effective for annual periods and interim periods within those annual
periods beginning after December 15, 2015. Earlier adoption is permitted. Entities may apply the
amendments in this Update either (a) prospectively to all awards granted or modified after the effective
date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning
of the earliest annual period presented in the financial statements and to all new or modified awards
thereafter. If retrospective transition is adopted, the cumulative effect of applying this Update as of the
beginning of the earliest annual period presented in the financial statements should be recognized as an
adjustment to the opening retained earnings balance at that date. Additionally, if retrospective transition
is adopted, an entity may use hindsight in measuring and recognizing the compensation cost. 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 August 2014, the FASB issued ASU 2014-14, Receivables – Troubled Debt Restructurings by Creditors
(Subtopic 310-40). The amendments in this Update require that a mortgage loan be derecognized and that
a separate other receivable be recognized upon foreclosure if the following conditions are met: (1) the
loan has a government guarantee that is not separable from the loan before foreclosure, (2) at the time of
foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a
claim on the guarantee, and the creditor has the ability to recover under that claim, and (3) at the time of
foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is
fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the
loan balance (principal and interest) expected to be recovered from the guarantor. 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. This Update 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, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements -Going Concern (Subtopic
205-40). The amendments in this Update provide guidance in accounting principles generally accepted in
the United States of America about management's responsibility to evaluate whether there is substantial
doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures.
The amendments in this Update are effective for the annual period ending after December 15, 2016, and
for annual periods and interim periods thereafter. Early application is permitted. This Update is not
expected to have a significant impact on the Company’s financial statements.
In November 2014, the FASB issued ASU 2014-16, Derivatives and Hedging (Topic 815): Determining Whether
the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to
Equity (a consensus of the FASB Emerging Issues Task Force). This Update clarifies how current U.S. GAAP
should be interpreted in subjectively evaluating the economic characteristics and risks of a host contract
in a hybrid financial instrument that is issued in the form of a share. Public business entities are required
to implement the new requirements in fiscal years and interim periods within those fiscal years beginning
after December 15, 2015. This Update is not expected to have a significant impact on the Company’s
financial statements.
In November 2014, the FASB issued ASU 2014-17, Business Combinations (Topic 805): Pushdown Accounting.
The amendments in this Update apply to the separate financial statements of an acquired entity and its
subsidiaries that are a business or nonprofit activity (either public or nonpublic) upon the occurrence of
an event in which an acquirer (an individual or an entity) obtains control of the acquired entity. An
acquired entity may elect the option to apply pushdown accounting in the reporting period in which the
change-in-control event occurs. If pushdown accounting is not applied in the reporting period in which
the change-in-control event occurs, an acquired entity will have the option to elect to apply pushdown
accounting in a subsequent reporting period to the acquired entity's most recent change-in-control event.
The amendments in this Update are effective on November 18, 2014. After the effective date, an acquired
entity can make an election to apply the guidance to future change-in-control events or to its most recent
change-in-control event. This Update is not expected to have a significant impact on the Company’s
financial statements.
In January 2015, the FASB issued ASU 2015-01, Income Statement –Extraordinary and Unusual Items, as part
of its initiative to reduce complexity in accounting standards. This Update eliminates from GAAP the
concept of extraordinary items. The amendments in this Update are effective for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the
amendments prospectively. A reporting entity also may apply the amendments retrospectively to all
prior periods presented in the financial statements. Early adoption is permitted provided that the
guidance is applied from the beginning of the fiscal year of adoption. This Update is not expected to
have a significant impact on the Company’s financial statements.
(Continued)
39
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(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.
2014
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
$
42,910
83,215
$
115
5,112
$
(123)
(306)
$
42,902
88,021
65,646
191,771
481
976
6,203
59
(180)
(609)
-
66,442
197,365
540
Total
$
192,252
$
6,262
$
(609)
$
197,905
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
(Continued)
40
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 2 – SECURITIES (Continued)
The amortized cost and fair value of securities at year end 2014 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
$
628
27,702
34,718
63,077
$
629
27,723
36,191
66,380
government sponsored entities
Equity securities in financial institutions
65,646
481
66,442
540
Total
$
192,252
$
197,905
Securities with a carrying value of $137,898 and $147,625 were pledged as of December 31, 2014 and 2013,
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.
Sale proceeds
Gross realized gains
Gross realized losses
Gains from securities called or settled by the issuer
2014
2013
$
18,088
113
(1)
1
$
8,686
144
(89)
149
(Continued)
41
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 2 – SECURITIES (Continued)
Debt securities with unrealized losses at year end 2014 and 2013 not recognized in income are as follows.
2014
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
12 Months or less
Fair
Value
Unrealized
Loss
More than 12 months
Fair
Value
Unrealized
Loss
Total
Fair
Value
Unrealized
Loss
$
7,664
$
(17)
$
11,888
$
(106)
$
19,552
$
(123)
853
12,289
(11)
(29)
5,647
(295)
6,500
11,492
(151)
23,781
(306)
(180)
Total temporarily impaired
$
20,806
$
(57)
$
29,027
$
(552)
$
49,833
$
(609)
2013
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
12 Months or less
Fair
Value
Unrealized
Loss
More than 12 months
Fair
Value
Unrealized
Loss
Total
Fair
Value
Unrealized
Loss
$
30,800
$
(764)
$
-
$
-
$
30,800
$
(764)
28,428
(1,556)
32,557
449
(553)
(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)
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)
42
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(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 each 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, 2014, the Company owned 41 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.
2014
2013
Commercial and Agriculture
Commercial Real Estate - owner occupied
Commercial Real Estate - non-owner occupied
Residential Real Estate
Real Estate Construction
Consumer and Other
$
114,186
143,014
308,666
268,510
65,452
15,029
$
115,875
161,014
282,832
250,691
39,964
10,865
Total Loans
Allowance for loan losses
Net loans
914,857
(14,268)
861,241
(16,528)
$
900,589
$
844,713
(Continued)
43
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 3 – LOANS (Continued)
Included in total loans above are deferred loan fees of $237 at December 31, 2014 and $365 at December
31, 2013.
Loans to principal officers, directors, and their affiliates at year-end 2014 and 2013 were as follows.
Balance - Beginning of year
New loans and advances
Repayments
Effect of changes to related parties
Balance - End of year
2014
2013
$ 9,294
2,700
(2,792)
$ 9,997
3,262
(3,157)
(2,171)
(808)
$ 7,031
$ 9,294
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 Agriculture loans, Commercial Real
Estate – Owner Occupied loans, Commercial Real Estate – Non-owner Occupied loans, Residential Real
Estate loans, Real Estate Construction loans and Consumer and Other 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
consolidated balance sheet date. The Company considers the allowance for loan losses of $14,268
adequate to cover loan losses inherent in the loan portfolio, at December 31, 2014. 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, 2014 and
December 31, 2013. The changes can be impacted by overall loan volume, adversely graded loans,
historical charge-offs and economic factors.
(Continued)
44
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 4 - ALLOWANCE FOR LOAN LOSSES (Continued)
Commercial
& Agriculture
Commercial
Real Estate -
Owner
Occupied
Commercial
Real Estate -
Non-Owner
Occupied
Residential
Real Estate
Real Estate
Construction
Consumer
and Other
Unallocated
Total
December 31, 2014
Allowance for loan losses:
Beginning balance
$
2,841
$
3,263
$
4,296
$
5,224
$
184
$
214
$
506
$
16,528
Charge-offs
Recoveries
Provision
(338)
249
(930)
(1,661)
363
615
(198)
50
650
(2,449)
292
680
-
6
238
(135)
61
56
-
-
191
(4,781)
1,021
1,500
Ending Balance
$
1,822
$
2,580
$
4,798
$
3,747
$
428
$
196
$
697
$
14,268
For the year ended December 31, 2014, the allowance for Commercial and Agriculture loans was reduced not only by charge-offs, but also due to a
decrease in both the loan balances outstanding and the specific reserve required for this type, which was driven by a decrease in the volume of impaired
loans and classified loans. The net result of these changes was represented as a decrease in the provision. The decrease in the allowance for Commercial
Real Estate - Owner Occupied loans was the result of eleven charge-offs, but also due to a decrease in loan balances outstanding and a decline in
nonaccrual loans. The result of these changes was represented as a decrease in the allowance. The increase in the allowance for Commercial Real Estate
- Non-Owner Occupied loans was the result of increasing loan balances and increased past-due balances. The allowance for Real Estate Construction
loans increased as a result of a significant increase in loan balances. The ending reserve balance for Residential Real Estate loans declined from the end
of the previous year due to charge-offs of loans that had a specific reserve previously applied. Additionally, a single relationship resulted in losses of
$1,436 related to protecting the Company’s collateral. The net result of the changes was represented as a decrease in the allowance. The allowance for
Consumer and Other loans decreased slightly during the year. While loan balances are up, loss rates continue to decrease resulting in the allowance
being slightly lower. 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 slightly higher level at this time.
(Continued)
45
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 4 - ALLOWANCE FOR LOAN LOSSES (Continued)
Commercial
& Agriculture
Commercial
Real Estate -
Owner
Occupied
Commercial
Real Estate -
Non-Owner
Occupied
Residential
Real Estate
Real Estate
Construction
Consumer
and Other
Unallocated
Total
December 31, 2013
Allowance for loan losses:
Beginning balance
$
2,811
$
4,836
$
5,303
$
5,780
$
349
$
246
$
417
$
19,742
Charge-offs
Recoveries
Provision
(483)
141
372
(989)
265
(849)
(815)
184
(376)
(2,907)
458
1,893
(136)
108
(137)
(220)
80
108
-
-
89
(5,550)
1,236
1,100
Ending Balance
$
2,841
$
3,263
$
4,296
$
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.
(Continued)
46
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 4 - ALLOWANCE FOR LOAN LOSSES (Continued)
Commercial
Real Estate -
Owner
Occupied
Commercial
Real Estate -
Non-Owner
Occupied
Commercial
& Agriculture
Residential
Real Estate
Real Estate
Construction
Consumer
and Other
Unallocated
Total
December 31, 2014
Allowance for loan losses:
Ending balance:
Individually evaluated for impairment
$
641
$
57
$
20
$
305
$
-
$
-
$
-
$
1,023
Ending balance:
Collectively evaluated for impairment
$
1,181
$
2,523
$
4,778
$
3,442
$
428
$
196
$
697
$
13,245
Ending balance
$
1,822
$
2,580
$
4,798
$
3,747
$
428
$
196
$
697
$
14,268
Loan balances outstanding:
Ending balance:
Individually evaluated for impairment
$
2,304
$
3,557
$
2,175
$
3,108
$
-
$
5
$
11,149
Ending balance:
Collectively evaluated for impairment
$
111,882
$
139,457
$
306,491
$
265,402
$
65,452
$
15,024
Ending balance
$
114,186
$
143,014
$
308,666
$
268,510
$
65,452
$
15,029
$
903,708
$
914,857
(Continued)
47
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 4 - ALLOWANCE FOR LOAN LOSSES (Continued)
Commercial
Real Estate -
Owner
Occupied
Commercial
Real Estate -
Non-Owner
Occupied
Commercial
& Agriculture
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
$
390
$
55
$
802
$
-
$
-
$
-
$
2,509
Ending balance:
Collectively evaluated for impairment
$
1,579
$
2,873
$
4,241
$
4,422
$
184
$
214
$
506
$
14,019
Ending balance
$
2,841
$
3,263
$
4,296
$
5,224
$
184
$
214
$
506
$
16,528
Loan balances outstanding:
Ending balance:
Individually evaluated for impairment
$
3,869
$
6,792
$
3,383
$
4,005
$
-
$
8
$
18,057
Ending balance:
Collectively evaluated for impairment
$
112,006
$
154,222
$
279,449
$
246,686
$
39,964
$
10,857
Ending balance
$
115,875
$
161,014
$
282,832
$
250,691
$
39,964
$
10,865
$
843,184
$
861,241
(Continued)
48
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(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, 2014 and 2013. The remaining loans in Residential Real Estate, Real Estate Construction
and Consumer and Other loans that are not assigned a risk grade are presented in a separate table below.
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:
•
•
•
•
•
•
– loans where a potential weakness or risk exists, which could cause a more
– loans which are protected by the current net worth and paying capacity of the obligor
Pass
or by the value of the underlying collateral.
Special Mention
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
continuance as an asset is not warranted.
Unrated
a business purpose.
– loans classified as a loss are considered uncollectible, or of such value that
– Generally, consumer loans are not risk-graded, except when collateral is used for
(Continued)
49
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 4 - ALLOWANCE FOR LOAN LOSSES (Continued)
December 31, 2014
Pass
Special Mention
Substandard
Doubtful
Ending Balance
December 31, 2013
Pass
Special Mention
Substandard
Doubtful
Ending Balance
Commercial
&
Agriculture
Commercial
Real Estate -
Owner
Occupied
Commercial
Real Estate -
Non-Owner
Occupied
Residential
Real Estate
Real Estate
Construction
Consumer
and Other
Total
$
$
$
$
$
$
$
107,903
3,446
2,837
-
114,186
128,222
5,492
9,300
-
143,014
298,237
6,305
4,124
-
308,666
100,810
697
8,834
-
110,341
59,584
19
41
-
59,644
5,651
-
46
-
5,697
700,407
15,959
25,182
-
741,548
$
$
$
$
$
$
$
Commercial
&
Agriculture
Commercial
Real Estate -
Owner
Occupied
Commercial
Real Estate -
Non-Owner
Occupied
Residential
Real Estate
Real Estate
Construction
Consumer
and Other
Total
$
$
$
$
$
$
$
107,923
2,038
5,914
-
115,875
143,531
4,334
13,149
-
161,014
272,407
4,811
5,614
-
282,832
98,700
986
8,175
2,349
110,210
35,495
21
-
-
35,516
2,252
-
70
-
2,322
660,308
12,190
32,922
2,349
707,769
$
$
$
$
$
$
$
(Continued)
50
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(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, 2014 and December 31, 2013 that have not been assigned an internal risk
grade. The 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, 2014
Performing
Nonperforming
$
158,169
-
$
5,808
-
$
9,332
-
$
173,309
-
Total
$
158,169
$
5,808
$
9,332
$
173,309
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
(Continued)
51
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(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, 2014 and 2013.
December 31, 2014
30-59
Days
Past Due
60-89
Days
Past Due
90 Days
or Greater
Total Past
Due
Current
Total Loans
Commericial & Agriculture
Commercial Real Estate - Owner Occupied
Commercial Real Estate - Non-Owner Occupied
Residential Real Estate
Real Estate Construction
Consumer and Other
$
58
622
521
1,923
33
131
-
$
251
5
721
-
8
$
187
657
2,103
2,347
8
19
$
245
1,530
2,629
4,991
41
158
$
113,941
141,484
306,037
263,519
65,411
14,871
$
114,186
143,014
308,666
268,510
65,452
15,029
Past Due
90 Days
and
Accruing
-
$
-
-
-
-
-
Total
$
3,288
$
985
$
5,321
$
9,594
$
905,263
$
914,857
$
-
December 31, 2013
30-59
Days
Past Due
60-89
Days
Past Due
90 Days
or Greater
Total Past
Due
Current
Total Loans
Commericial & Agriculture
Commercial Real Estate - Owner Occupied
Commercial Real Estate - Non-Owner Occupied
Residential Real Estate
Real Estate Construction
Consumer and Other
$
105
253
208
3,140
-
170
$
-
188
13
1,084
-
20
$
443
1,643
455
5,531
-
-
$
548
2,084
676
9,755
-
190
$
115,327
158,930
282,156
240,936
39,964
10,675
$
115,875
161,014
282,832
250,691
39,964
10,865
Past Due
90 Days
and
Accruing
$
-
-
-
-
-
-
Total
$
3,876
$
1,305
$
8,072
$
13,253
$
847,988
$
861,241
$
-
(Continued)
52
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 4 - ALLOWANCE FOR LOAN LOSSES (Continued)
The following table presents loans on nonaccrual status as of December 31, 2014 and 2013.
Commericial & Agriculture
Commercial Real Estate - Owner Occupied
Commercial Real Estate - Non-Owner Occupied
Residential Real Estate
Real Estate Construction
Consumer and Other
2014
2013
$
1,264
3,403
2,134
6,674
41
42
$
1,590
6,360
3,249
9,210
-
50
Total
$
13,558
$
20,459
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 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.
A modification of a loan constitutes a troubled debt restructuring (“TDR”) when the Company for economic or legal reasons related to a
Modifications:
borrower’s financial difficulties grants a concession to the borrower that it would not otherwise consider. The Company offers various types of
concessions when modifying a loan, however, forgiveness of principal is rarely granted. Commercial Real Estate loans modified in a TDR often involve
reducing the interest rate lower than the current market rate for new debt with similar risk. Real Estate loans modified in a TDR were primarily
comprised of interest rate reductions where monthly payments were lowered to accommodate the borrowers’ financial needs.
Loans modified in a TDR are typically already on non-accrual status and partial charge-offs have in some cases already been taken against the
outstanding loan balance. As a result, loans modified in a TDR may have the financial effect of increasing the specific allowance associated with the
loan. An allowance for impaired loans that have been modified in a TDR are measured based on the present value of expected future cash flows
(Continued)
53
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 4 - ALLOWANCE FOR LOAN LOSSES (Continued)
discounted at the loan’s effective interest rate or the estimated fair value of the collateral, less any selling costs, if the loan is collateral dependent.
Management exercises significant judgment in developing these estimates. As of December 31, 2014, TDRs accounted for $895 of the allowance for loan
losses.
Loan modifications that are considered TDRs completed during the twelve month periods ended December 31, 2014 and December 31, 2013 were as
follows:
For the Twelve Month Period Ended
December 31, 2014
For the Twelve Month Period Ended
December 31, 2013
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
Number
of
Contracts
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
Number
of
Contracts
Commericial & Agriculture
Commercial Real Estate - Owner Occupied
Commercial Real Estate - Non-Owner Occupied
Residential Real Estate
Real Estate Construction
Consumer and Other
-
-
-
9
1
-
-
$
-
-
619
35
-
-
$
-
-
554
35
-
Total Loan Modifications
10
$
654
$
589
-
2
-
-
-
-
2
-
$
547
-
-
-
-
-
$
547
-
-
-
-
$
547
$
547
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, 2014 and December 31, 2013, there were no defaults on loans that were
modified and considered TDRs during the respective twelve previous months.
(Continued)
54
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 4 - ALLOWANCE FOR LOAN LOSSES (Continued)
Larger (greater than $500) commercial loans and commercial real estate loans, all TDRs and residential real estate and consumer loans
Impaired 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.
(Continued)
55
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 4 - ALLOWANCE FOR LOAN LOSSES (Continued)
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, 2014 and 2013.
With no related allowance recorded:
Commericial & Agriculture
Commercial Real Estate - Owner Occupied
Commercial Real Estate - Non-Owner Occupied
Residential Real Estate
Consumer and Other
Total
With an allowance recorded:
Commericial & Agriculture
Commercial Real Estate - Owner Occupied
Commercial Real Estate - Non-Owner Occupied
Residential Real Estate
Total
Total:
Commericial & Agriculture
Commercial Real Estate - Owner Occupied
Commercial Real Estate - Non-Owner Occupied
Residential Real Estate
Consumer and Other
Total
December 31, 2014
December 31, 2013
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
$
1,377
$
1,504
$
1,525
$
1,657
2,961
92
1,893
5
6,328
927
596
2,083
1,215
4,821
2,304
3,557
2,175
3,108
5
3,327
140
3,487
5
8,463
1,056
643
2,287
1,223
5,209
2,560
3,970
2,427
4,710
5
$
641
57
20
305
1,023
641
57
20
305
-
2,891
3,092
1,202
8
8,718
2,344
3,901
291
2,803
9,339
3,869
6,792
3,383
4,005
8
3,027
3,187
2,263
8
10,142
2,437
4,201
295
4,021
10,954
4,094
7,228
3,482
6,284
8
$
1,262
390
55
802
2,509
1,262
390
55
802
-
$
11,149
$
13,672
$
1,023
$
18,057
$
21,096
$
2,509
(Continued)
56
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 4 - ALLOWANCE FOR LOAN LOSSES (Continued)
For the year ended:
December 31, 2014
December 31, 2013
Average
Recorded
Investment
Interest
Income
Recognized
Average
Recorded
Investment
Interest
Income
Recognized
Commericial & Agriculture
Commercial Real Estate - Owner Occupied
Commercial Real Estate - Non-Owner Occupied
Residential Real Estate
Real Estate Construction
Consumer and Other
$
3,316
5,720
2,767
3,510
-
6
$
104
219
40
207
-
-
$
4,761
6,064
5,855
5,038
302
31
$
186
436
85
282
-
-
Total
$
15,319
$
570
$
22,051
$
989
(Continued)
57
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 5 – OTHER COMPREHENSIVE INCOME
The following table presents the changes in each component of accumulated other comprehensive loss,
net of tax, as of December 31, 2014 and December 31, 2013.
For the Year Ended
December 31, 2014
For the Year Ended
December 31, 2013
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
$
341
$
(4,588)
$
(4,247)
$
5,849
$
(7,496)
$
(1,647)
3,464
591
4,055
(5,373)
-
(5,373)
(75)
220
145
(135)
2,908
2,773
Beginning balance
Other comprehensive income
(loss) before reclassifications
Amounts reclassified from
accumulated other
comprehensive loss
Net current-period other
comprehensive income (loss)
3,389
811
4,200
(5,508)
2,908
(2,600)
Ending balance
$
3,730
$
(3,777)
$
(47)
$
341
$
(4,588)
$
(4,247)
Amounts in parentheses indicate increases in shareholders' equity.
(Continued)
58
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(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, 2014 and December 31, 2013:
Amout Reclassified from
Accumulated Other Comprehensive
Loss (a)
Details about Accumulated Other
Comprehensive Loss
Components
For the year
ended December
31, 2014
For the year
ended December
31, 2013
Affected Line Item in the
Statement Where Net Income
is Presented
Unrealized gains on
available-for-sale securities
Tax effect
Amortization of defined benefit
pension items
Actuarial losses
Tax effect
$
113
(38)
75
$
204
(69)
135
Net gain on sale of securities
Income taxes
Net of tax
(b)
(334)
114
(220)
(4,406)
1,498
(2,908)
(b) Salaries, wages and benefits
Income taxes
Net of tax
Total reclassifications for the period
$
(145)
$
(2,773)
Net of tax
(a) Amounts in parentheses indicate expenses and other amounts indicate income.
(b) These accumulated other comprehensive income components are included in the computation of net
periodic pension cost.
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
2014
$
3,770
17,373
13,942
2013
$
4,083
19,681
16,751
35,085
(20,685)
40,515
(24,202)
Premises and equipment, net
$
14,400
$
16,313
Depreciation expense was $1,176 and $1,334 for 2014 and 2013, respectively.
(Continued)
59
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 6 - PREMISES AND EQUIPMENT (Continued)
Rent expense was $377 and $367 for 2014 and 2013, respectively. Rent commitments under non-
cancelable operating leases at December 31, 2014 were as follows, before considering renewal options that
generally are present.
2015
2016
2017
2018
2019
Thereafter
Total
$
335
273
256
117
88
-
$
1,069
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, 2014 and December 31, 2013.
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 2014. 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, 2014.
Acquired Intangible Assets
Acquired intangible assets were as follows as of year end.
2014
2013
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
Core deposit and other intangibles
$
6,688
$
5,165
$
11,619
$
9,326
Aggregate amortization expense was $769 and $846 for 2014 and 2013.
(Continued)
60
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 7 – GOODWILL AND INTANGIBLE ASSETS (Continued)
Estimated amortization expense for each of the next three years and thereafter is as follows.
2015
2016
2017
Thereafter
$
554
522
447
-
$
1,523
NOTE 8 - INTEREST-BEARING DEPOSITS
Interest-bearing deposits as of December 31, 2014 and 2013 were as follows.
Demand
Statement and Passbook Savings
Certificates of Deposit:
In excess of $100
Other
Individual Retirement Accounts
2014
2013
$
179,388
318,859
$
168,113
303,037
53,669
139,531
26,770
66,561
139,586
30,202
Total
$
718,217
$
707,499
Scheduled maturities of certificates of deposit, including IRA’s at December 31, 2014 were as follows.
2015
2016
2017
2018
2019
Thereafter
Total
$
115,336
52,031
31,715
4,814
10,750
5,324
$
219,970
Deposits from principal officers, directors, and their affiliates at year-end 2014 and 2013 were $6,882 and
$8,606, respectively.
As of December 31, 20014, CDs and IRAs totaling $19,624 met or exceeded the FDIC’s insurance limit.
(Continued)
61
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 9 – SHORT-TERM BORROWINGS
Short-term borrowings, which consist of federal funds purchased and other short-term
borrowings are summarized as follows:
Outstanding balance at year end
Maximum indebtedness during the year
Average balance during the year
Average rate paid during the year
Interest rate on year end balance
Outstanding balance at year end
Maximum indebtedness during the year
Average balance during the year
Average rate paid during the year
Interest rate on year end balance
At December 31, 2014
Federal
Funds
Purchased
$ -
-
41
0.54%
-
Short-term
Borrowings
$ 42,700
42,700
1,951
0.19%
0.14%
At December 31, 2013
Federal
Funds
Purchased
$ -
10,000
28
0.53%
-
Short-term
Borrowings
$ -
-
-
-
-
Outstanding during the year represent daily averages. Average interest rates represent interest expense
divided by the related average balances.
These borrowing transactions can range from overnight to six months in maturity. The average maturity
was one day at December 31, 2014. There were no outstanding short-term borrowings at December 31,
2013.
(Continued)
62
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 10 - FEDERAL HOME LOAN BANK ADVANCES
Long term advances from the FHLB were $22,500 at December 31, 2014 and $37,726 at December 31, 2013.
Outstanding balances have maturity dates ranging March 2015 to October 2019 and fixed rates ranging
from 1.50% to 4.25%. The average rate on outstanding advances was 2.24%.
Scheduled principal reductions of FHLB advances at December 31, 2014 were as follows.
2015
2017
2018
2019
$
5,000
2,500
10,000
5,000
Total
$
22,500
In addition to the borrowings, the Company has outstanding letters of credit with the FHLB totaling
$22,700 at year-end 2014 and $23,300 at year-end 2013 used for pledging to secure public funds. FHLB
borrowings and the letters of credit are collateralized by FHLB stock and by $131,850 and $91,540 of
residential mortgage loans under a blanket lien arrangement at year-end 2014 and 2013, respectively.
The Company had a FHLB maximum borrowing capacity of $124,741 as of December 31, 2014, with
remaining borrowing capacity of approximately $36,841. The borrowing arrangement with the FHLB is
subject to annual renewal. The maximum borrowing capacity is recalculated at least quarterly.
NOTE 11 – SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Information concerning securities sold under agreements to repurchase was as follows.
2014
2013
Outstanding balance at year end
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
$ 21,613
19,759
0.10%
$ 33,764
0.10%
$ 20,053
20,749
0.10%
$ 24,257
0.10%
Securities underlying repurchase agreements had a fair value of $21,613 at December 31, 2014 and $20,053
at December 31, 2013.
(Continued)
63
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 12 – 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, 2014 on the
$7,500 debenture is 3.39% and the $5,000 debenture is 1.83%.
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 2.48%.
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 1.89%. 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
1.89%.
NOTE 13 – INCOME TAXES
Income taxes were as follows.
Current
Deferred
Income taxes
2014
$
3,151
11
3,162
2013
$
11
1,362
1,373
$
$
(Continued)
64
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 13 – INCOME TAXES (Continued)
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
2014
2013
$
4,315
$
2,568
(824)
(303)
(167)
141
3,162
$
(781)
(280)
(189)
55
1,373
$
There were no tax benefits attributable to security losses in 2014 and 2013.
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
2014
2013
$
4,851
1,386
-
198
-
122
$
5,620
1,223
50
996
146
133
6,557
8,168
(351)
(63)
(1,189)
(1,687)
(1,922)
(196)
(5,408)
(466)
(77)
(1,465)
(2,249)
(176)
(174)
(4,607)
Net deferred tax asset
$
1,149
$
3,561
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 2010 have been closed for purposes of
examination by the Internal Revenue Service.
(Continued)
65
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 14 - 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 $394 in 2014 and $204 in 2013. In conjunction with freezing the pension plan, the
Company changed the matching contribution calculation from twenty-five percent of the first six percent
of an employee’s contribution to 100% of an employee’s first three percent contributed and 50% of the
next two percent contributed. This change took place on July 1, 2014.
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. In
April 2014, the Company amended the pension plan again to provide that no additional benefits would
accrue beyond April 30, 2014. This curtailment resulted in a reduction to the projected benefit obligation
of $4,039. Also, the curtailment resulted in an increase in accumulated other comprehensive loss of
$2,666.
Information about the pension plan is as follows.
Change in benefit obligation:
Beginning benefit obligation
Service cost
Interest cost
Curtailment gain
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
2014
2013
$
18,456
306
639
(4,039)
55
3,007
(1,471)
$
21,604
1,204
884
-
821
(1,272)
(4,785)
16,953
18,456
15,466
703
1,515
(1,471)
(29)
16,184
13,441
1,943
4,900
(4,785)
(33)
15,466
Funded status at end of year
$
(769)
$
(2,990)
(Continued)
66
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 14 - RETIREMENT PLANS (Continued)
Amounts recognized in accumulated other comprehensive income at December 31, consist of
unrecognized actuarial loss of $3,777, net of $1,946 tax in 2014 and $4,588, net of $2,364 tax in 2013.
The accumulated benefit obligation for the defined benefit pension plan was $16,953 at December 31, 2014
and $14,537 at December 31, 2013.
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
2014
$
2013
$
306
639
(1,021)
334
258
1,204
884
(965)
698
1,821
$
$
Net loss (gain) recognized in other comprehensive income
(1,228)
(4,406)
Total recognized in net periodic benefit cost
and other comprehensive income (before tax)
$
(970)
$
(2,585)
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
$265.
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
2014
3.69%
7.00%
0.00%
2013
4.38%
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
2014
4.38%
7.00%
3.00%
2013
3.72%
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.
(Continued)
67
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 14 - RETIREMENT PLANS (Continued)
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. Since the
pension plan is frozen, the rate of compensation increase used to determine the benefit obligation for 2014
was zero.
The Company’s pension plan asset allocation at year-end 2013 and 2014 and target allocation for 2015 by
asset category are as follows.
Asset Category
Equity securities
Debt securities
Money market funds
Total
Target
Allocation
2015
20-50%
30-60
20-30
Percentage of Plan
Assets
at Year-end
2014
2013
%
46.7
48.3
5.0
%
46.5
53.0
0.5
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
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 2014 and 2013. This
return is based on the expected return for each of the asset categories, weighted based on the target
allocation for each class.
Since the plan is frozen, the Company does not expect to make a contribution to its pension plan in 2015.
Employer contributions totaled $1,515 in 2014. The decrease in the benefit obligation, contributions and
the increase in plan assets led to a change in funded status from $(2,990) to $(769).
(Continued)
68
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 14 - RETIREMENT PLANS (Continued)
The following tables set forth by level, within the fair value hierarchy, the Pension Plan’s assets at fair
value as of December 31, 2014 and 2013:
Assets:
Cash
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, 2014
Level 1
Level 2
Level 3
Total
$
3
91
23
-
$
-
-
-
$
-
-
$
3
91
23
7,802
6,383
19
342
1,150
253
118
-
-
-
-
-
-
-
-
-
-
-
-
-
-
7,802
6,383
19
342
1,150
253
118
Total assets at fair value
$
16,184
$
-
$
-
$
16,184
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
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.
(Continued)
69
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 14 - RETIREMENT PLANS (Continued)
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 Pension 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.
2015
2016
2017
2018
2019
2020 through 2024
$
234
297
457
481
581
3,843
Total
$
5,893
Supplemental Retirement Plan
Citizens established a supplemental retirement plan (“SERP”) in 2013, which covers key members of
management. Participants will receive annually a percentage of their base compensations at the time of
their retirement for a maximum of ten years. The SERP liability recorded at December 31, 2014, was
$1,498, compared to $1,111 at December 31, 2013. The expense related to the SERP was $398 for 2014 and
$412 for 2013. Distributions to participants made in 2014 totaled $11. No SERP distributions to
participants were made in 2013.
NOTE 15 – 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
2000 stock option plan expired in 2010, and no further stock options may be granted under the plan.
Additionally, all options outstanding under the 2000 plan expired on April 12, 2013.
At the Company’s annual meeting of shareholders held on April 15, 2014, the shareholders of the
Company approved the First Citizens Banc Corp 2014 Incentive Plan (“2014 Incentive Plan” and together
with the 2000 Stock Option Plan, the “Plans”). The 2014 Incentive Plan authorizes the Company to grant
options, stock awards, stock units and other awards for up to 375,000 common shares of the Company.
No options or awards have been granted under the 2014 Incentive Plan.
(Continued)
70
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 15 – STOCK OPTIONS (Continued)
A summary of the activity in the stock option plan is as follows.
2013
Weighted
Average
Exercise
Price
$
35.00
-
-
-
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, 2014 and
December 31, 2013, there were no options outstanding.
NOTE 16 – 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
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).
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).
(Continued)
71
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 16 – FAIR VALUE MEASUREMENT (Continued)
Fair value swap asset/liability: The fair value of the swap asset and liability is based on an external
derivative model using data inputs as of the valuation date and classified Level 2.
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.
Fair Value Measurements at December 31, 2014 Using:
(Level 1)
(Level 2)
(Level 3)
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
Fair value swap asset
Fair value swap liability
$
-
$
42,902
$
-
-
-
-
-
-
88,021
66,442
540
1,721
1,721
-
-
-
-
-
Assets measured at fair value on a nonrecurring basis:
Impaired Loans
Other Real Estate Owned
$
-
-
$
-
-
$
10,126
560
(Continued)
72
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 16 – FAIR VALUE MEASUREMENT (Continued)
Fair Value Measurements at December 31, 2013 Using:
(Level 1)
(Level 2)
(Level 3)
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
Fair value of swap asset
Fair value of swap liability
$
-
$
51,560
$
-
-
-
-
-
-
80,625
66,979
449
286
286
-
-
-
-
-
Assets measured at fair value on a nonrecurring basis:
Impaired Loans
Other Real Estate Owned
$
-
-
$
-
-
$
15,548
173
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, 2014 and 2013.
Quantitative Information about Level 3 Fair Value Measurements
December 31, 2014
Fair Value Valuation Technique Unobservable Input
Range
Impaired loans
$
10,126
Appraisal of collateral Appraisal
10% - 30%
adjustments
Liquidation expense
0% - 10%
Holding period
0 - 30 months
Other real estate owned
$
560
Appraisal of collateral Appraisal
10% - 30%
Discounted cash flows Discount rates
3.8% - 8.0%
adjustments
Liquidation expense
0% - 10%
(Continued)
73
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 16 – FAIR VALUE MEASUREMENT (Continued)
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
10% - 30%
Discounted cash flows Discount rates
2% - 8.5%
adjustments
Liquidation expense
0% - 10%
(Continued)
74
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 16 – FAIR VALUE MEASUREMENT (Continued)
The carrying amount and fair value of financial instruments were as follows.
December 31, 2014
Financial Assets:
Cash and due from financial
institutions
Securities available for sale
Loans, held for sale
Loans, net of allowance for
loan losses
Other securities
Bank owned life insurance
Accrued interest receivable
Swap asset
Financial Liabilities:
Nonmaturing deposits
Time deposits
Federal Home Loan Bank advances
Securities sold under agreement
to repurchase
Subordinated debentures
Accrued interest payable
Swap liability
Carrying
Amount
Total
Fair Value
Level 1
Level 2
Level 3
$
29,858
197,905
2,410
$
29,858
197,905
2,410
$
29,858
-
2,410
$
-
197,905
-
$
-
-
-
900,589
12,586
19,637
3,852
1,721
748,948
219,970
65,200
21,613
29,427
126
1,721
908,118
12,586
19,637
3,852
1,721
748,948
221,263
65,399
21,613
24,688
126
1,721
-
12,586
19,637
3,852
-
748,948
-
-
21,613
-
126
-
-
-
-
-
1,721
-
-
-
-
-
-
1,721
908,118
-
-
-
-
-
221,263
65,399
-
24,688
-
-
(Continued)
75
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 16 – FAIR VALUE MEASUREMENT (Continued)
December 31, 2013
Financial Assets:
Cash and due from financial
institutions
Securities available for sale
Loans, held for sale
Loans, net of allowance for
loan losses
Other securities
Bank owned life insurance
Accrued interest receivable
Fair value swap asset
Financial Liabilities:
Nonmaturing deposits
Time deposits
Federal Home Loan Bank advances
Securities sold under agreement
to repurchase
Subordinated debentures
Accrued interest payable
Fair value swap liability
Carrying
Amount
Total
Fair Value
Level 1
Level 2
Level 3
$
34,186
199,613
438
$
34,186
199,613
438
$
34,186
-
438
$
-
199,613
-
-
$
-
-
844,713
15,424
19,145
3,881
286
706,126
236,349
37,726
20,053
29,427
156
286
861,252
15,424
19,145
3,881
286
706,126
237,837
38,767
20,053
20,605
156
286
-
15,424
19,145
3,881
-
706,126
-
-
20,053
-
156
-
-
-
-
-
286
-
-
-
-
-
-
286
861,252
-
-
-
-
-
237,837
38,767
-
20,605
-
-
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.
(Continued)
76
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 17 - 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
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
2014
Fixed
Rate
Variable
Rate
2013
Fixed
Rate
Variable
Rate
$
9,405
4
200
$
160,718
22,122
1,007
$
11,866
18
200
$
151,332
21,084
2,411
$
9,609
$
183,847
$
12,084
$
174,827
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 8.75% at December 31, 2014 and
3.05% to 13.75% at December 31, 2013, respectively. 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
$3,259 on December 31, 2014 and $2,959 on December 31, 2013.
NOTE 18 – 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 2014 and 2013, the most
recent regulatory notifications categorized Citizens as well capitalized under the regulatory framework
(Continued)
77
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 18 – CAPITAL REQUIREMENTS AND RESTRICTION ON RETAINED EARNINGS (Continued)
for prompt corrective action. There are no conditions or events since that notification that management
believes have changed the institution's category.
The Company’s and Citizens’ actual capital levels and minimum required levels at December 31, 2014
and 2013 were as follows.
Actual
Amount
Ratio
For Capital
Adequacy Purposes
Amount
Ratio
To Be Well
Capitalized Under
Prompt Corrective
Action Purposes
Amount
Ratio
$
131,581
111,470
14.7 %
12.5
$
71,609
71,341
8.0 %
8.0
n/a
89,176
$
n/a
10.0 %
120,334
100,259
120,334
100,259
13.4
11.2
10.3
8.6
35,921
35,807
46,732
46,632
4.0
4.0
4.0
4.0
n/a
53,710
n/a
6.0
n/a
58,290
n/a
5.0
$
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
2014
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
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
(Continued)
78
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 18 – CAPITAL REQUIREMENTS AND RESTRICTION ON RETAINED EARNINGS (Continued)
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.
NOTE 19 - 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,
2014
2013
$ 13,663
540
117,364
12,605
3,003
$ 32,572
449
111,121
12,595
5,210
$ 147,175
$ 161,947
$ 1,839
29,427
23,132
114,365
(4,306)
(17,235)
(47)
$ 4,144
29,427
46,316
114,365
(10,823)
(17,235)
(4,247)
Total liabilities and shareholders’ equity
$ 147,175
$ 161,947
(Continued)
79
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 19 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (Continued)
Condensed Statements of Operations
Dividends from bank subsidiaries
Interest expense
Pension expense
Pension settlement 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
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,
2014
2013
$ 7,339
(777)
(236)
(161)
(1,150)
$ 7,888
(740)
(1,821)
(2,251)
(952)
5,015
763
2,124
1,960
3,750
$ 9,528
2,095
$ 6,179
For the years ended
December 31,
2014
2013
$
9,528
$
6,179
1,508
(1,620)
(3,750)
(2,095)
Net cash from operating activities
7,286
2,464
Financing activities:
Payment to repurchase preferred stock
Proceeds from issuance of preferred stock
Cash dividends paid
(22,857)
-
(3,338)
-
23,132
(2,315)
Net cash provided by (used for) financing activities
(26,195)
20,817
Net change in cash and cash equivalents
(18,909)
23,281
Cash and cash equivalents at beginning of year
32,572
9,291
Cash and cash equivalents at end of year
$
13,663
$
32,572
(Continued)
80
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 20 – EARNINGS PER COMMON SHARE
The factors used in the earnings per share computation follow.
2014
2013
Basic
Net income
Preferred stock dividends
Net income available to common shareholders - basic
Weighted average common shares outstanding - basic
Basic earnings per share
Diluted
Net income available to common shareholders - basic
Preferred stock dividends on convertible preferred stock
Net income available to common shareholders - diluted
Weighted average common shares outstanding
for earnings per common share basic
Add: dilutive effects of convertible preferred shares
Average shares and dilutive potential
common shares outstanding - diluted
Diluted earnings per share
$
$
9,528
1,873
7,655
7,707,917
0.99
$
$
$
6,179
1,159
5,020
7,707,917
0.65
$
$
$
7,655
1,606
9,261
5,020
-
5,020
$
$
7,707,917
3,196,931
7,707,917
113,863
10,904,848
7,821,780
$
0.85
$
0.64
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.
(Continued)
81
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 21 – QUARTERLY FINANCIAL DATA (UNAUDITED)
Interest
Income
Net Interest
Income
Net
Income
Basic
Earnings
per
Common
Share
Diluted
Earnings
per
Common
Share
2014
2013
(1)
(2)
(3)
(4)
(5)
(6)
(7)
First quarter (2)(4)
Second quarter (1)(2)
Third quarter (1)(2)
Fourth quarter (1)(2)
$
11,315
$
10,165
$
2,712
$
0.27
$
0.22
11,365
11,667
11,623
10,266
10,684
10,751
2,240
2,306
2,270
0.24
0.25
0.23
0.21
0.21
0.21
First quarter (2)(3)(4)
Second quarter (2)(3)(5)
Third quarter (2)(3)
Fourth quarter (2)(3)(6)(7)
$
11,286
$
9,987
$
1,913
$
0.21
$
0.21
11,025
11,127
11,443
9,781
9,917
10,289
1,657
1,566
1,043
0.18
0.17
0.09
0.18
0.17
0.08
Interest income and net interest income increased due to loan volume.
Interest expense decreased as deposits repriced downward and the deposit mix shifted
toward cheaper funding sources.
Interest income decreased as loans repriced downward.
Net income increased due to fees on tax refund program.
Net interest income and net income decreased due to reversed late charges.
Interest income and net interest income increased due to increased loan volume.
Net income decreased due to non cash charge to pension plan.
(Continued)
82
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 22 - DERIVATIVE HEDGING INSTRUMENTS
To accommodate customer need and to support the Company's asset/liability positioning, on occasion
we enter into interest rate swaps with a customer and a bank counterparty. The Company enters into a
floating rate loan and a fixed rate swap with our customer. Simultaneously, the Company enters into an
offsetting fixed rate swap with a bank counterparty. In connection with each swap transaction, the
Company agrees to pay interest to the customer on a notional amount at a variable interest rate and
receive interest from the customer on the same notional amount at a fixed interest rate. At the same time,
the Company agrees to pay a bank counterparty the same fixed interest rate on the same notional amount
and receive the same variable interest rate on the same notional amount. These transactions allow the
Company's customer to effectively convert variable rate loans to fixed rate loans. Since the Company acts
as an intermediary for its customer, changes in the fair value of the underlying derivative contracts offset
each other and do not significantly impact the Company's results of operations.
The following table summarizes the Company’s interest rate swap positions and the impact of a 1 basis
point change in interest rates as of December 31, 2014
Notional
Amount
Derivative Assets
Derivative Liabilities
Net Exposure
$
29,060
(29,060)
$
-
Weighted
Average Rate
Received/(Paid)
5.47%
-5.47%
Impact of a
1 basis point change
in interest rates
$
19
(19)
$
-
Repricing
Frequency
Monthly
Monthly
The Company monitors and controls all derivative products with a comprehensive Board of Director
approved commercial loan swap policy. All hedge transactions must be approved in advance by the
Lenders Loan Committee or the Directors Loan Committee of the Board of Directors.
NOTE 23 – 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
(Continued)
83
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 23 – PARTICIPATION IN THE TREASURY CAPITAL PURCHASE PROGRAM (Continued)
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.
Using proceeds from the sale of the depositary shares, the Company redeemed all of the Series A
Preferred Shares for an aggregate purchase price of $22,857, which redemption was completed as of
February 15, 2014.
NOTE 24 – SUBSEQUENT EVENTS
On September 11, 2014, FCBC and TCNB Financial Corp. (“TCNB”) issued a press release announcing the
signing of an Agreement and Plan of Merger (the “Merger Agreement”) by and among FCBC, FC Merger
Corp. (“Merger Corp.”), a newly-formed Ohio corporation and wholly-owned subsidiary of FCBC, and
TCNB pursuant to which FCBC will acquire TCNB and its wholly-owned subsidiary, The Citizens
National Bank of Southwestern Ohio (“Citizens National”).
Under the terms of the Merger Agreement, FCBC has agreed to pay $23.50 in cash for each of the 733,000
outstanding TCNB common shares. In addition, FCBC has agreed to cash out all of the 3,500 outstanding
TCNB stock options for an amount equal to the difference between $23.50 per share and the exercise price
of the stock options. The aggregate cash consideration to be paid by FCBC in respect of the outstanding
TCNB common shares and the cash-out of outstanding TCNB stock options is approximately $17.2
million.
It is anticipated that Citizens National will be merged with and into Citizens upon completion of the
transaction. At that time, Citizens National’s three banking offices located in Dayton, Ohio will become
branches of Citizens. As of December 31, 2014, TCNB and Citizens National had total consolidated assets
of $102.5 million, total loans of $78.2 million and total deposits of $90.4 million.
(Continued)
84
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 24 – SUBSEQUENT EVENTS (Continued)
First Citizens has received regulatory approval of the merger from the Board of Governors of the Federal
Reserve System and the Ohio Department of Financial Institutions and the shareholders of TCNB have
also approved the merger. The transaction closed at the close of business of March 6, 2015. Management
is still in the process of determining the fair value adjustments that will be applied as part of the business
combination accounting. As such, neither the selected pro forma balance sheet information nor the
selected pro forma income statement information presented as follows includes the impact of fair value
adjustments.
First Citizens Banc Corp and TCNB Financial Corp
Pro Forma Selected Balance Sheet Items (unaudited)
ASSETS
Cash and due from financial institutions
Securities available for sale
Loans, net of allowance
Premises and equipment, net
LIABILITIES
Total deposits
Federal Home Loan Bank advances
Securities sold under agreements to repurchase
Subordinated debentures
SHAREHOLDERS' EQUITY
Total shareholders' equity
2014
2013
$
22,898
205,819
978,802
16,285
$
27,481
208,082
921,597
18,317
1,059,286
62,589
21,613
29,427
1,032,755
37,726
20,053
29,427
114,548
126,294
(Continued)
85
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
(Amounts in thousands, except share data)
NOTE 24 – SUBSEQUENT EVENTS (Continued)
First Citizens Banc Corp and TCNB Financial Corp
Pro Forma Condensed Income Statement (unaudited)
Total interest and dividend income
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Total noninterest income
Total noninterest expense
Income before income taxes
Income taxes
Net income
Preferred stock dividends and discount accretion
Net income available to common shareholders
Earnings per common share, basic
Earnings per common share, diluted
2014
2013
50,597
4,440
46,157
1,535
44,622
14,316
45,220
13,718
3,483
10,235
1,873
49,668
5,280
44,388
1,180
43,208
12,506
46,833
8,881
1,710
7,171
1,159
$
$
$
8,362
1.08
0.91
$
$
$
6,012
0.78
0.77
(Continued)
86
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First Citizens Banc Corp
Directors
Thomas A. Depler
Attorney, Poland, Depler & Shepherd Co., LPA
Allen R. Nickles, CPA, CFE, FCPA, CFF, CICA
Partner, Payne, Nickles & Company
Allen R. Maurice
Attorney, Wagner, Maurice, & Davidson Co., LPA
David A. Voight
Former Chairman of the Board, First Citizens Banc Corp
James O. Miller
Chairman, President & CEO, First Citizens Banc Corp
Chairman & CEO, The Citizens Banking Company
Daniel J. White
International Business Consultant;
Retired President of Norwalk Furniture and Geotrac
W. Patrick Murray
Attorney, Murray and Murray Company, LPA
Officers
James O. Miller
Chairman of the Board, President and
Chief Executive Officer
Dennis G. Shaffer
Executive Vice President
John A. Betts
Senior Vice President
Richard J. Dutton
Senior Vice President
James E. McGookey
Senior Vice President, General Counsel and
Corporate Secretary
Todd A. Michel
Senior Vice President, Controller
Paul J. Stark
Senior Vice President
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
Blythe A. Friedley
Owner/President, Friedley & Co. Insurance Agency, Inc.
Allen R. Maurice
Attorney, Wagner, Maurice, & Davidson Co., LPA
James O. Miller
Chairman & CEO, The Citizens Banking Company
Chairman, President & CEO, First Citizens Banc Corp
Dennis E. Murray, Jr.
Attorney, Murray and Murray Company, LPA
Allen R. Nickles, CPA, CFE, FCPA, CFF, CICA
Partner, Payne, Nickles & Company
Dennis G. Shaffer
President, The Citizens Banking Company
Harry Singer
President & CEO, Sandusco, Inc.
and ICM Distrubuting Co., Inc.
J. William Springer
President & CEO, Industrial Nut Corporation
Daniel J. White
International Business Consultant
Retired President of Norwalk Furniture and Geotrac
Gerald B. Wurm
President, Wurms Woodworking Co.
Directors Emeritus - First Citizens Banc Corp and The Citizens Banking Company
James D. Heckelman
Founder, Dan-Mar Co., Inc
George L. Mylander
Retired Educator and City Official,
Chair Emeritus, Firelands Regional Medical Center
Shareholder Information
Annual Meeting of the First Citizens Banc Corp Shareholders
Tuesday, April 21, 2015 at 10:00 a.m.
Bowling Green State University, Firelands College, Huron, OH
First Citizens Banc Corp
100 East Water Street
Sandusky, OH 44870
Tel:
Toll Free:
Fax:
www.fcza.com
(419) 625-4121
(888) 645-4121
(419) 627-3359
As a First Citizens Banc Corp shareholder, we encourage you to access your account(s) online at
www.amstock.com. Here you can easily initiate a number of transactions and inquiries as well
as access important details about your portfolio and general stock transfer information.
• Update your mailing address
• Access statement information
• Print a duplicate 1099 tax form
• Consolidate accounts
• Enroll in our Direct Stock Purchase Plan
• Request a replacement dividend check
• Download stock transfer forms
• And more
You may also access this information via the Interactive Voice Response (IVR) system by calling
(800) 937-5449. Outside of the US, dial (718) 921-8124.
By mail, contact our Transfer Agent at the below address:
First Citizens Banc Corp
c/o American Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219