October 7, 2011
Dear Shareholder:
In light of an improvement in our earnings and a positive trend in loan loss
provisions, the board of First Citizens Banc Corp. has authorized the payment of a
dividend of $.03 per share on November 1, 2011, to shareholders of record on
October 18, 2011.
Our preliminary estimate of our earnings for the third quarter 2011 is
$1,193,000 or $.15 per share. This compares to a loss of ($1,393,000) or ($.18) per
share for the third quarter of 2010. Our earnings of $2,469,000 for the year-to-date
2011 compare to a loss of ($1,616,000) for the same period last year.
The improvement in net income is largely the result of a decrease in the
need for loan loss provisions. During the year-to-date 2011, we have placed
$7,700,000 from earnings into the reserve. For the same time period last year, we
placed $14,400,000 into the reserve.
As we evaluate our loan portfolio today, we are not seeing the same level of
significant deterioration in our customer’s circumstances that we have seen in the
recent past. However, it will be a long road to recovery for the customers who
have had problems, have survived, and are working to rebuild. A significant
portion of our reserves are allocated to loans of customers who are trying to work
through their problems but have seen serious deterioration in the value of their
collateral – which requires a reserve. Our philosophy is still to work with our
customers who are willing to work with us. It may be a longer path, but we
believe it will lead to less long-term loss for both the customer and the bank.
We remain pleased with the core earnings of the bank. Our interest margin
at the bank through June, as reported in the Federal Reserve’s Uniform Bank
Performance Reporting, was 4.14% compared to the margin of 3.79% for banks our
size throughout the country. Our margin is slightly less than 2010 year-to-date
June margin of 4.23%. A reason for the decrease is that our customers continue to
save money and reduce their debt, so it is a challenge for us to put our cash to
work. This is a challenge for the entire banking industry.
Our lenders and business development staff have done a nice job in
attracting new opportunities to put this cash to work. You may recall comments
from our July letter that total loans at the end of June were less than the year-end
2010 balances of $767,323,000. At the end of September, loans totaled $778,251,000.
We are pleased with this increase considering the fact that we receive, each month,
approximately $14,000,000 in payments which reduces total loans.
I am sure you have seen the recent stories about the big banks and their
plans for service charges. This is a reaction to new regulations that limit service
charges and fees. At Citizens, we have seen a slight decrease in year-to-date
service charge income from $935,000 in 2010 to $911,000 in 2011. We have also
experienced a slight decrease in year-to-date overdraft income from $2,475,000 in
2010 to $2,440,000 in 2011. We believe we should be compensated for the value of
the products we provide our customers, and we look for ways to enhance our
revenue. But we also maintain a long term perspective considering the value of
our relationships with our customers. Many of our customers have multigeneration
relationships with us. We have maintained this by providing good
service at a fair price. It is not our style to overreact to market changes and
implement excessive fees that will alienate our customer base and destroy
valuable long term relationships. Short sighted reactions today will impact long
term deposit, loan, and trust opportunities later. We are working to take
advantage of the actions of the big banks.
You see and read many of the same news and economic reports we do. It is
certainly a roller coaster of information. One day is up and the next is down with
the occasional crises thrown in. However, we believe that it is time to provide a
dividend to our shareholders after quite a period of economic challenges. We are
cautiously hopeful that the trend in reserve needs will continue and cautiously
optimistic that our communities are economically stable. Let’s hope that everyone
working together can find positive solutions to help improve the economy and
that the European issues, so much in the news today, don’t create additional
problems for our economy.
Very truly yours,
James O. Miller
President & CEO
