First Citizens Banc Corp. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2013; results are unaudited. The filing identifies the registrant as First Citizens Banc Corp., not Civista Bancshares, Inc.; verify that this is the intended filing. Unless noted otherwise, financial amounts below are in thousands of dollars.
Financial results and position
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Net interest income | $9,917 | $10,028 | $29,684 | $30,619 |
| Provision for loan losses | $300 | $1,700 | $1,100 | $5,565 |
| Noninterest income | $3,077 | $2,700 | $9,123 | $8,460 |
| Noninterest expense | $10,745 | $9,214 | $31,297 | $28,872 |
| Net income | $1,566 | $1,384 | $5,136 | $3,613 |
| Net income available to common shareholders | $1,277 | $1,068 | $4,267 | $2,710 |
| Basic and diluted EPS | $0.17 | $0.14 | $0.55 | $0.35 |
- Net interest margin was 3.78% for Q3 2013 versus 3.94% for Q3 2012. For the nine-month period, MD&A reports 3.77% versus 4.02%.
- At September 30, 2013, total assets were $1.148 billion, up 1.0% from year-end 2012. Net loans were $802.3 million, deposits $942.5 million, and shareholders’ equity $102.9 million, or 9.0% of assets.
- Cash and due from institutions were $50.1 million, up from $46.1 million at year-end. Nine-month operating cash flow was $6.8 million; investing activities used $12.2 million and financing activities provided $9.4 million.
- Interest-bearing borrowings included $37.7 million of FHLB advances, $20.8 million of repurchase agreements, and $29.4 million of subordinated debentures. Total deposits increased $16.1 million from year-end, principally due to an $18.4 million increase in noninterest-bearing deposits.
- Regulatory capital ratios at September 30 were 14.7% total risk-based, 13.3% Tier 1 risk-based, and 9.6% leverage; each exceeded the stated “well-capitalized” thresholds.
Changes versus comparable periods
- Q3 net income rose 13.2% year over year; nine-month net income rose 42.1%. Lower loan-loss provisions were a major contributor: the nine-month provision declined by $4.5 million.
- For the first nine months, net interest income fell $935, as lower asset yields outweighed growth in average earning assets. The filing attributes the decline in interest income mainly to lower yields on loans and taxable securities; lower funding costs partly offset the decrease.
- Nine-month noninterest income increased $663, including higher trust and ATM fees. Noninterest expense increased $2.4 million, with higher staff costs and other operating expenses among the drivers.
- Nonperforming loans decreased $9.2 million from year-end; nonaccrual loans fell to $20.7 million from $29.9 million. Total past-due loans declined to $10.8 million from $22.2 million.
- The allowance for loan losses declined to $17.3 million from $19.7 million, and to 2.11% of total loans from 2.42%. Net charge-offs for the first nine months were $3.5 million, down from $5.3 million.
- Accumulated other comprehensive loss increased to $6.1 million, mainly reflecting a $4.8 million after-tax decline in available-for-sale securities value during the first nine months.
Outlook, risks, and unusual items
- The filing provides no specific earnings or revenue guidance. Management describes improved asset quality but says economic uncertainty warrants maintaining higher unallocated loan-loss reserves.
- Management identifies interest-rate risk, local economic and real-estate conditions, credit quality, liquidity, regulatory change, competition, technology and cybersecurity, and litigation as material risks. Lending and deposits are concentrated in Central and North Central Ohio; real-estate loans make up a substantial share of the portfolio.
- Available-for-sale securities had $2.6 million of gross unrealized losses at September 30. Management attributed losses mainly to higher market rates and said it intended and was able to hold the securities until recovery; the filing says it did not expect to be required to sell before recovery.
- In Q3, the company moved certain impaired loans to held-for-sale after writing them down to expected fair value; loans held for sale rose to $4.9 million from $1.9 million at year-end. The filing does not provide a clear amount for the Q3 write-off of funds tied to fraud in the tax-refund program.
- A property-sale dispute is in litigation. The company intends to defend the claims and does not expect a material effect on financial condition, although the potential loss is unclear.
- Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter. The filing notes that new Basel III capital rules were expected to begin phasing in for smaller institutions in 2015.
Important facts for investors to verify
- Confirm the issuer identity: the supplied filing is for First Citizens Banc Corp., not Civista Bancshares, Inc.
- Reconcile the reported net interest margin: the filing gives 3.78% for Q3 in its quarterly table and 3.77% for the nine-month period, while the quarterly discussion contains potentially confusing period wording.
- Review the quality and sustainability of earnings, particularly the benefit from reduced loan-loss provisioning versus ongoing expense growth and lower net interest margin.
- Track nonaccrual and past-due loans, charge-offs, allowance coverage, and the performance of modified loans; the filing notes that redefaults on modified loans are more common than on new loans.
- Seek clarification on the amount and remaining exposure related to the tax-refund-program fraud write-off, and monitor the property litigation and securities’ unrealized losses.