CIVB

Business Context and Reporting Period

Company: First Citizens Banc Corp (Note: Metadata listed "Civista Bancshares," but the filing text identifies the registrant as First Citizens Banc Corp).

Reporting Period: Quarterly period ended March 31, 2009.

Operations: The Corporation operates primarily in the banking sector through offices in various Ohio counties. It provides checking, savings, and term certificate accounts, as well as residential mortgage, commercial, and installment loans. The company operates as a single reportable segment.

Key Financial Metrics

Material Changes vs. Prior Period

• Profitability Decline: Net income decreased 42.1% to $759,000 from $1,312,000 in Q1 2008. Earnings per share dropped from $0.17 to $0.09.
• Provision for Loan Losses: The provision increased significantly to $2,102,000 (up from $1,006,000 in Q1 2008) due to deteriorating economic conditions and increased nonperforming loans.
• Asset Growth: Total assets increased 6.7% to $1.12 billion, driven by a $42.5 million increase in cash and cash equivalents and a $29.4 million increase in available-for-sale securities.
• Deposit Surge: Total deposits rose $74.4 million (9.2%) to $884.3 million. This was largely attributed to the Certificate of Deposit Account Registry Service (CDARS) program, which added approximately $52.5 million in deposits.
• Capital Injection: Shareholders' equity increased significantly due to the issuance of $23.2 million in Senior Preferred Shares to the U.S. Treasury under the Capital Purchase Program (CPP).
• Asset Quality: Nonperforming loans increased by $3.98 million, with nonaccrual loans rising to $21.2 million. Impaired loans increased to $19.9 million.

Guidance, Outlook, and Risks

• Capital Purchase Program (CPP): The company participated in the U.S. Treasury's CPP, issuing $23.2 million in preferred stock and a warrant to purchase 469,312 common shares. This participation imposes restrictions on executive compensation, stock redemptions, and dividend payments (capped at $0.15 per share).
• Interest Rate Risk: The company maintains an asset-sensitive gap position. An upward movement in interest rates is projected to increase net portfolio value, while a downward movement would also increase value due to the mix of assets and funding.
• Liquidity: The company maintains a conservative liquidity position with $69.1 million in cash and cash equivalents. It has $144.1 million in total credit availability with the Federal Home Loan Bank (FHLB), with $60.4 million outstanding.
• Forward-Looking Statements: Management cautions that regional and national economic conditions, credit risks, and competitive factors could cause actual results to differ materially from projections.
• Dividends: A cash dividend of $0.15 per common share was paid on February 1, 2009. Preferred stock dividends of $71,000 were also paid.

Investor Verification Checklist

• Credit Quality Trends: Verify the trajectory of nonperforming loans and the adequacy of the allowance for loan losses (currently 1.30% of total loans) given the rising provision expense.
• Deposit Stability: Assess the sustainability of the deposit growth driven by the CDARS program and whether these funds are stable or subject to rapid outflow.
• CPP Restrictions: Confirm the impact of the Treasury's Capital Purchase Program on future capital management, specifically the inability to repurchase common stock without Treasury approval for three years.
• Net Interest Margin Pressure: Monitor the net interest margin (3.91%) for further compression as the company manages the mix of earning assets and interest-bearing liabilities in a low-rate environment.
• Securities Portfolio: Review the unrealized losses on available-for-sale securities ($310,000) and the company's intent to hold these securities to maturity.