CIVISTA BANCSHARES, INC. - Quarter Report: 2012 September (Form 10-Q)

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if smaller reporting company)

Smaller reporting company

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2012

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 0-25980

First Citizens Banc Corp

(Exact name of registrant as specified in its charter)

Ohio

34-1558688

(State or other jurisdiction

of incorporation or organization)

(I.R.S. Employer

Identification Number)


100 East Water Street, Sandusky, Ohio		44870
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (419) 625-4121

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Common Shares, no par value, outstanding at November 7, 2012—7,707,917 shares

FIRST CITIZENS BANC CORP

Index



PART I. Financial Information

Item 1. Financial Statements:

Consolidated Balance Sheets (Unaudited) September 30, 2012 and December 31, 2011			3

Consolidated Statements of Income (Unaudited) Three and nine months ended September 30, 2012 and 2011			4

Consolidated Comprehensive Income Statements (Unaudited) Three and nine months ended September 30, 2012 and 2011			5

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) Nine months ended September 30, 2012			6

Condensed Consolidated Statement of Cash Flows (Unaudited) Nine months ended September 30, 2012 and 2011			7

Notes to Interim Consolidated Financial Statements (Unaudited)			8-35

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			36-48

Item 3. Quantitative and Qualitative Disclosures About Market Risk			49-51

Item 4. Controls and Procedures			51-52

PART II. Other Information

Item 1. Legal Proceedings			53

Item 1A. Risk Factors			53

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			53

Item 3. Defaults Upon Senior Securities			53

Item 4. Mine Safety Disclosures			53

Item 5. Other Information			53

Item 6. Exhibits			53

Signatures			54

Part I – Financial Information

ITEM 1.

Financial Statements

FIRST CITIZENS BANC CORP

Consolidated Balance Sheets (Unaudited)

(In thousands, except share data)


	September 30, 2012			December 31, 2011
ASSETS
Cash and due from financial institutions	$	38,861		$	52,127
Securities available for sale		210,344			204,633
Loans held for sale		749			598
Loans, net of allowance of $21,489 and $21,257		781,183			764,011
Other securities		15,573			15,388
Premises and equipment, net		17,380			17,774
Accrued interest receivable		4,709			3,787
Goodwill		21,720			21,720
Other intangibles		3,370			4,113
Bank owned life insurance		18,439			17,963
Other assets		9,547			10,863

Total assets	$	1,121,875		$	1,112,977

LIABILITIES
Deposits
Noninterest-bearing	$	195,788		$	189,382
Interest-bearing		719,449			711,864

Total deposits		915,237			901,246
Federal Home Loan Bank advances		40,270			50,295
Securities sold under agreements to repurchase		20,525			19,029
Subordinated debentures		29,427			29,427
Accrued expenses and other liabilities		11,521			10,452

Total liabilities		1,016,980			1,010,449

SHAREHOLDERS’ EQUITY
Preferred stock, no par value, 200,000 shares authorized, 23,184 shares issued		23,184			23,151
Common stock, no par value, 20,000,000 shares authorized, 8,455,881 shares issued		114,365			114,447
Accumulated deficit		(16,132	)		(17,667	)
Treasury stock, 747,964 shares at cost		(17,235	)		(17,235	)
Accumulated other comprehensive income (loss)		713			(168	)

Total shareholders’ equity		104,895			102,528

Total liabilities and shareholders’ equity	$	1,121,875		$	1,112,977

See notes to interim unaudited consolidated financial statements

Page 3

FIRST CITIZENS BANC CORP

Consolidated Statements of Income (Unaudited)

(In thousands, except per share data)


	Three months ended September 30,				Nine months ended September 30,
	2012		2011		2012		2011
Interest and dividend income
Loans, including fees	$	9,901	$	10,455	$	30,338	$	31,208
Taxable securities		1,120		1,367		3,608		4,213
Tax-exempt securities		490		419		1,376		1,250
Federal funds sold and other		18		26		83		54

Total interest and dividend income		11,529		12,267		35,405		36,725

Interest expense
Deposits		894		1,233		2,955		3,948
Federal Home Loan Bank advances		394		401		1,181		1,208
Subordinated debentures		208		189		635		578
Other		5		5		15		27

Total interest expense		1,501		1,828		4,786		5,761

Net interest income		10,028		10,439		30,619		30,964
Provision for loan losses		1,700		2,000		5,565		7,700

Net interest income after provision for loan losses		8,328		8,439		25,054		23,264

Noninterest income
Service charges		1,108		1,233		3,243		3,350
Net gain on sale of securities		—		—		40		3
Net gain on sale of loans		183		53		456		73
ATM fees		440		473		1,323		1,371
Trust fees		527		505		1,596		1,577
Bank owned life insurance		151		173		476		477
Computer center data processing fees		60		60		202		193
Other		158		167		997		814

Total noninterest income		2,627		2,664		8,333		7,858

Noninterest expense
Salaries, wages and benefits		5,207		5,144		15,603		14,588
Net occupancy expense		543		549		1,614		1,728
Equipment expense		293		343		897		1,059
Contracted data processing		246		200		705		612
FDIC assessment		212		240		714		971
State franchise tax		252		330		756		871
Professional services		676		509		2,080		1,505
Amortization of intangible assets		232		291		742		872
ATM expense		121		154		405		452
Marketing		193		157		581		540
Other operating expenses		1,166		1,682		4,648		5,071

Total noninterest expense		9,141		9,599		28,745		28,269

Income before taxes		1,814		1,504		4,642		2,853
Income tax expense		430		311		1,029		384

Net Income		1,384		1,193		3,613		2,469
Preferred stock dividends and discount accretion		316		293		903		881

Net income available to common shareholders	$	1,068	$	900	$	2,710	$	1,588

Earnings per common share, basic and diluted	$	0.14	$	0.12	$	0.35	$	0.21

See notes to interim unaudited consolidated financial statements

Page 4

FIRST CITIZENS BANC CORP

Consolidated Comprehensive Income Statements (Unaudited)

(In thousands)


	Three months ended September 30,						Nine months ended September 30,
	2012			2011			2012			2011
Net income	$	1,384		$	1,193		$	3,613		$	2,469
Other comprehensive income:
Unrealized holding gains on available for sale securities		758			2,719			1,375			6,042
Tax effect of unrealized holdings gains on available for sale securities		(259	)		(924	)		(468	)		(2,054	)
Reclassification adjustment for gain recognized in income		—			—			(40	)		(3	)
Tax effect of reclassification adjustment for gain recognized in income		—			—			14			1

Total other comprehensive income		499			1,795			881			3,986

Comprehensive income	$	1,883		$	2,988		$	4,494		$	6,455

See notes to interim unaudited consolidated financial statements

Page 5

FIRST CITIZENS BANC CORP

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)

(In thousands, except share data)


																Accumulated
	Preferred Stock				Common Stock											Other			Total
	Outstanding				Outstanding					Accumulated			Treasury			Comprehensive			Shareholders’
	Shares		Amount		Shares		Amount			Deficit			Stock			Income (Loss)			Equity
Balance, January 1, 2012		23,184	$	23,151		7,707,917	$	114,447		$	(17,667	)	$	(17,235	)	$	(168	)	$	102,528
Net Income		—		—		—		—			3,613			—			—			3,613
Other Comprehensive income, net of reclassification and tax effect		—		—		—		—			—			—			881			881
Accretion of discount on preferred stock		—		33		—		—			(33	)		—			—			—
Common stock warrant redemption		—		—		—		(82	)		(482	)		—			—			(564	)
Cash dividends ($.09 per share)		—		—		—		—			(694	)		—			—			(694	)
Preferred stock dividend		—		—		—		—			(869	)		—			—			(869	)

Balance, September 30, 2012		23,184	$	23,184		7,707,917	$	114,365		$	(16,132	)	$	(17,235	)	$	713		$	104,895

See notes to interim unaudited consolidated financial statements

Page 6

FIRST CITIZENS BANC CORP

Condensed Consolidated Statement of Cash Flows (Unaudited)

(In thousands)


	Nine months ended September 30,
	2012			2011
Net cash from operating activities	$	12,473		$	12,977

Cash flows used for investing activities
Maturities and calls of securities, available-for-sale		51,115			46,044
Purchases of securities, available-for-sale		(69,991	)		(64,624	)
Security sales		12,982			300
Redemption of FRB stock		—			83
Purchases of FRB stock		(185	)		(127	)
Purchase of bank owned life insurance		—			(5,000	)
Net loan originations		(23,346	)		(18,843	)
Proceeds from sale of OREO properties		1,048			785
Proceeds from sale of property		5			48
Purchases of office premises and equipment		(702	)		(1,102	)

Net cash used for by investing activities		(29,074	)		(42,436	)

Cash flows provided by financing activities
Repayment of FHLB borrowings		(25	)		(24	)
Proceeds from short-term FHLB advances		—			20,000
Repayment of long-term FHLB advances		(10,000	)		(22,500	)
Proceeds from long-term FHLB advances		—			22,500
Net change in deposits		13,991			19,299
Net change in securities sold under agreements to repurchase		1,496			(2,559	)
Repayment of U. S. Treasury interest-bearing demand note payable		—			331
Repurchase common stock warrant from U.S.Treasury		(564	)		—
Cash dividends paid on common stock and preferred stock		(1,563	)		(869	)

Net cash provided by financing activities		3,335			36,178

Net change in cash and due from financial institutions		(13,266	)		6,719
Cash and cash equivalents at beginning of period		52,127			79,030

Cash and cash equivalents at end of period	$	38,861		$	85,749

Cash paid during the period for:
Interest	$	4,812		$	5,779
Income taxes	$	—		$	—
Supplemental cash flow information:
Transfer of loans from portfolio to OREO	$	289		$	677

See notes to interim unaudited consolidated financial statements

Page 7

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

(1) Consolidated Financial Statements

Nature of Operations and Principles of Consolidation: The Consolidated Financial Statements include the accounts of First Citizens Banc Corp (FCBC) and its wholly-owned subsidiaries: The Citizens Banking Company (Citizens), First Citizens Insurance Agency, Inc., Water Street Properties, Inc. (Water St.) and FC Refund Solutions, Inc (FCRS). FCRS was formed to facilitate payment of individual state and federal income tax refunds. First Citizens Capital LLC (FCC) is wholly-owned by Citizens and holds inter-company debt. The operations of FCC are located in Wilmington, Delaware. First Citizens Investments, Inc. (FCI) is wholly-owned by Citizens and holds and manages Citizens’ securities portfolio. The operations of FCI are located in Wilmington, Delaware. The above companies together are referred to as the “Corporation”. Intercompany balances and transactions are eliminated in consolidation.

The consolidated financial statements have been prepared by the Corporation without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the Corporation’s financial position as of September 30, 2012 and its results of operations and changes in cash flows for the periods ended September 30, 2012 and 2011 have been made. The accompanying Consolidated Financial Statements have been prepared in accordance with instructions of Form 10-Q, and therefore certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been omitted. The results of operations for the period ended September 30, 2012 are not necessarily indicative of the operating results for the full year. Reference is made to the accounting policies of the Corporation described in the notes to the financial statements contained in the Corporation’s 2011 annual report. The Corporation has consistently followed these policies in preparing this Form 10-Q.

The Corporation provides financial services through its offices in the Ohio counties of Erie, Crawford, Champaign, Franklin, Logan, Madison, Summit, Huron, Union, Ottawa, 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 customers’ ability to repay their loans is dependent on the real estate and general economic conditions in the area. Other financial instruments that potentially represent concentrations of credit risk include deposit accounts in other financial institutions and Federal Funds sold. First Citizens Insurance Agency, Inc. was formed to allow the Corporation to participate in commission revenue generated through its third party insurance agreement. Insurance commission revenue was less than 1.0% of total revenue through September 30, 2012. Water St. revenue was less than 1.0% of total revenue through September 30, 2012. Management considers the Corporation to operate primarily in one reportable segment, banking.

Page 8

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

(2) Significant Accounting Policies

Use of Estimates: To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in financial statements and the disclosures provided, and future results could differ. The allowance for loan losses, impairment of goodwill, fair values of financial instruments, deferred taxes and pension obligations are particularly subject to change.

Income Taxes: Income tax expense is based on the effective tax rate expected to be applicable for the entire year. Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax basis of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

Reclassifications: Some items in the prior year financial statements were reclassified to conform to the current presentation.

Effect of Newly Issued but Not Yet Effective Accounting Standards:

In December 2011, the FASB issued ASU 2011-10, Property, Plant, and Equipment (Topic 360): Derecognition of in Substance Real Estate-a Scope Clarification. The amendments in this update affect entities that cease to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt. Under the amendments in this update, when a parent (reporting entity) ceases to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt, the reporting entity should apply the guidance in Subtopic 360-20 to determine whether it should derecognize the in substance real estate. Generally, a reporting entity would not satisfy the requirements to derecognize the in substance real estate before the legal transfer of the real estate to the lender and the extinguishment of the related nonrecourse indebtedness. That is, even if the reporting entity ceases to have a controlling financial interest under Subtopic 810-10, the reporting entity would continue to include the real estate, debt, and the results of the subsidiary’s operations in its consolidated financial statements until legal title to the real estate is transferred to legally satisfy the debt. The amendments in this update should be applied on a prospective basis to deconsolidation events occurring after the effective date. Prior periods should not be adjusted even if the reporting entity has continuing involvement with previously derecognized in substance real estate entities. For public entities, the amendments in this update are effective for fiscal years, and interim periods within those years, beginning on or after June 15, 2012. Early adoption is permitted. This update is not expected to have a significant impact on the Corporation’s financial statements.

Page 9

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

In December 2011, the FASB issued ASU 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. The amendments in this update affect all entities that have financial instruments and derivative instruments that are either (1) offset in accordance with either Section 210-20-45 or Section 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement. The requirements amend the disclosure requirements on offsetting in Section 210-20-50. This information will enable users of an entity’s financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position, including the effect or potential effect of rights of setoff associated with certain financial instruments and derivative instruments in the scope of this update. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The Corporation is currently evaluating the impact the adoption of this update will have on the Corporation’s financial position or results of operations.

(3) 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 income (loss) were as follows:


September 30, 2012	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury securities and obligations of U.S. government agencies	$	52,482	$	381	$	—		$	52,863
Obligations of states and political subdivisions		72,576		7,112		(2	)		79,686
Mortgage-backed securities in government sponsored entities		75,194		2,367		(222	)		77,339

Total debt securities		200,252		9,860		(224	)		209,888

Equity securities in financial institutions		481		—		(25	)		456

Total	$	200,733	$	9,860	$	(249	)	$	210,344


December 31, 2011	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury securities and obligations of U.S. government agencies	$	49,305	$	399	$	—		$	49,704
Obligations of states and political subdivisions		61,508		5,240		(12	)		66,736
Mortgage-backed securities in government sponsored entities		85,063		2,582		(128	)		87,518

Total debt securities		195,876		8,221		(140	)		203,957

Equity securities in financial institutions		481		195		—			676

Total	$	196,357	$	8,416	$	(140	)	$	204,633

Page 10

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The fair value of securities at September 30, 2012, by contractual maturity, is shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Securities not due at a single maturity date, primarily mortgage-backed securities and equity securities, are shown separately.


Available for sale	Amortized Cost		Fair Value
Due in one year or less	$	5,157	$	5,190
Due after one year through five years		17,036		17,184
Due after five years through ten years		18,109		19,018
Due after ten years		84,756		91,157
Mortgage-backed securities		75,194		77,339
Equity securities		481		456

Total securities available for sale	$	200,733	$	210,344

Proceeds from the sale of securities were $12,982 for the nine-month period ended September 30, 2012. Included in those sales were gross gains of $99 and gross losses of $59. Proceeds from the sale of securities for the nine-month period ended September 30, 2011 were $300. There were no gains or losses on the sales during the period ended September 30, 2011. There were no gains or losses on securities settled by the issuer during the nine-month period ended September 30, 2012. Gains from securities settled by the issuer were $3 during the nine-month period ended September 30, 2011. No securities were sold during the quarters ended September 30, 2012 and 2011.

Securities were pledged to secure public deposits, other deposits and liabilities as required by law. The carrying value of pledged securities was approximately $148,811 and $156,114 as of September 30, 2012 and December 31, 2011, respectively.

Page 11

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

Securities with unrealized losses at September 30, 2012 and December 31, 2011 not recognized in income are as follows:


September 30, 2012	12 Months or less					More than 12 months					Total
September 30, 2012	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Description of Securities	Value		Loss			Value		Loss			Value		Loss
Obligations of states and political subdivisions	$	—	$	—		$	474	$	(2	)	$	474	$	(2	)
Mortgage-backed securities in gov’t sponsored entities		10,669		(210	)		1,426		(12	)		12,095		(222	)
Equity securities		481		(25	)		—		—			481		(25	)

Total temporarily impaired	$	11,150	$	(235	)	$	1,900	$	(14	)	$	13,050	$	(249	)


December 31, 2011	12 Months or less					More than 12 months					Total
December 31, 2011	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Description of Securities	Value		Loss			Value		Loss			Value		Loss
Obligations of states and political subdivisions	$	1,309	$	(10	)	$	160	$	(2	)	$	1,469	$	(12	)
Mortgage-backed securities in gov’t sponsored entities		20,915		(128	)		—		—			20,915		(128	)

Total temporarily impaired	$	22,224	$	(138	)	$	160	$	(2	)	$	22,384	$	(140	)

At September 30, 2012, there were sixteen securities in the portfolio with unrealized losses. Unrealized losses on securities have not been recognized into income because the issuers’ securities 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 market yields increasing across the municipal sector partly due to higher risk premiums associated with municipal insurers. The fair value is expected to recover as the securities approach their maturity date or reset date. The Corporation does not intend to sell until recovery and does not believe selling will be required before recovery.

Page 12

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

(4) Loans

Loan balances were as follows:


	September 30,			December 31,
	2012			2011
Commercial and agriculture	$	84,848		$	86,395
Commercial real estate		405,535			371,852
Real estate—mortgage		256,840			274,995
Real estate—construction		45,405			39,790
Consumer		10,044			12,236

Total loans		802,672			785,268
Allowance for loan losses		(21,489	)		(21,257	)

Net loans	$	781,183		$	764,011

(5) 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 Corporation has segmented certain loans in the portfolio by product type. Historical loss percentages for each risk category are calculated and used as the basis for calculating loan loss 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 Bank’s credit review system

•

Changes in 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

Page 13

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The total allowance reflects management’s estimate of loan losses inherent in the loan portfolio at the balance sheet date. The Corporation considers the allowance for loan losses of $21,489 adequate to cover loan losses inherent in the loan portfolio, at September 30, 2012. The following tables present by portfolio segment, the changes in the allowance for loan losses and the loan balances outstanding for periods ended September 30, 2012, September 30, 2011 and December 31, 2011. The allowance for Consumer loans was reduced not only by charge-offs, but also due to a decrease in both the loan balances outstanding and the historical charge-offs for this type.


	Commercial & Agriculture			Commercial Real Estate			Residential Real Estate			Real Estate Construction			Consumer			Unallocated		Total
For the nine months ending September 30, 2012

Allowance for loan losses:
Beginning balance	$	2,876		$	10,571		$	5,796		$	974		$	719		$	321	$	21,257
Charge-offs		(610	)		(2,463	)		(2,803	)		(297	)		(174	)		—		(6,347	)
Recoveries		280			371			208			104			51			—		1,014
Provision		23			2,748			2,758			284			(343	)		95		5,565

Ending Balance	$	2,569		$	11,227		$	5,959		$	1,065		$	253		$	416	$	21,489

The allowances for both Real Estate Construction and Consumer loans were reduced not only by charge-offs, but also due to a decrease in both the loan balances outstanding and the historical charge-offs for this type. The net result of these changes was a reduction in the allowance for these loan types and is represented as a decrease in the provision. The allowance related to the unallocated segment was also reduced.


	Commercial & Agriculture			Commercial Real Estate			Residential Real Estate			Real Estate Construction			Consumer			Unallocated			Total
For the nine months ending September 30, 2011

Allowance for loan losses:
Beginning balance	$	3,639		$	9,827		$	4,569		$	2,139		$	726		$	868		$	21,768
Charge-offs		(1,053	)		(2,926	)		(3,126	)		(778	)		(151	)		—			(8,034	)
Recoveries		284			299			245			348			77			—			1,253
Provision		1,079			3,253			4,265			(498	)		(18	)		(381	)		7,700

Ending Balance	$	3,949		$	10,453		$	5,953		$	1,211		$	634		$	487		$	22,687

Page 14

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)



	Commercial & Agriculture			Commercial Real Estate			Residential Real Estate			Real Estate Construction			Consumer			Unallocated			Total
For the three months ending September 30, 2012

Allowance for loan losses:
Beginning balance	$	2,537		$	11,701		$	6,379		$	1,095		$	262		$	(43	)	$	21,931
Charge-offs		(192	)		(824	)		(1,334	)		(192	)		(49	)					(2,591	)
Recoveries		180			196			47			(9	)		35						449
Provision		44			154			867			171			5			459			1,700

Ending Balance	$	2,569		$	11,227		$	5,959		$	1,065		$	253		$	416		$	21,489

The allowance for both Real Estate Construction and Consumer loans were reduced not only by charge-offs, but also due to a decrease in both the loan balances outstanding and the historical charge-offs for this type. The net result of these changes was a reduction in the allowance for these loan types and is represented as a decrease in the provision.


	Commercial & Agriculture			Commercial Real Estate			Residential Real Estate			Real Estate Construction			Consumer			Unallocated		Total
For the three months ending September 30, 2011

Allowance for loan losses:
Beginning balance	$	2,821		$	10,713		$	6,184		$	1,196		$	670		$	165	$	21,749
Charge-offs		(145	)		(710	)		(703	)		—			(42	)		—		(1,600	)
Recoveries		111			166			136			98			27			—		538
Provision		1,162			284			336			(83	)		(21	)		322		2,000

Ending Balance	$	3,949		$	10,453		$	5,953		$	1,211		$	634		$	487	$	22,687

Page 15

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)


	Commercial & Agriculture		Commercial Real Estate		Residential Real Estate		Real Estate Construction		Consumer		Unallocated		Total
September 30, 2012

Allowance for loan losses:
Ending balance:
Individually evaluated for impairment	$	251	$	3,760	$	808	$	194	$	62	$	—	$	5,075

Ending balance:
Collectively evaluated for impairment	$	2,318	$	7,467	$	5,151	$	871	$	191	$	416	$	16,414

Ending Balance	$	2,569	$	11,227	$	5,959	$	1,065	$	253	$	416	$	21,489

Loan balances outstanding:
Ending balance:
Individually evaluated for impairment	$	5,264	$	18,150	$	6,219	$	885	$	63			$	30,581

Ending balance:
Collectively evaluated for impairment	$	79,584	$	387,385	$	250,621	$	44,520	$	9,981			$	772,091

Ending Balance	$	84,848	$	405,535	$	256,840	$	45,405	$	10,044			$	802,672

Page 16

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)


	Commercial & Agriculture		Commercial Real Estate		Residential Real Estate		Real Estate Construction		Consumer		Unallocated		Total
December 31, 2011

Allowance for loan losses:
Ending balance:
Individually evaluated for impairment	$	618	$	3,094	$	860	$	239	$	—	$	—	$	4,811

Ending balance:
Collectively evaluated for impairment	$	2,258	$	7,477	$	4,936	$	735	$	719	$	321	$	16,446

Ending Balance	$	2,876	$	10,571	$	5,796	$	974	$	719	$	321	$	21,257

Loan balances outstanding:
Ending balance:
Individually evaluated for impairment	$	5,258	$	17,700	$	3,846	$	576	$	—			$	27,380

Ending balance:
Collectively evaluated for impairment	$	81,137	$	354,152	$	271,149	$	39,214	$	12,236			$	757,888

Ending Balance	$	86,395	$	371,852	$	274,995	$	39,790	$	12,236			$	785,268

Page 17

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The following table represents credit exposures by internally assigned grades for the period ended September 30, 2012 and December 31, 2011. The grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all. Residential real estate loans with an internal credit risk grade include commercial loans that are secured by conventional 1-4 family residential properties. Real estate construction loans with an internal credit risk grade include commercial construction, land development and other land loans. The Corporation’s internal credit risk grading system is based on experiences with similarly graded loans.

The Corporation’s internally assigned grades are as follows:

•

Pass – loans which are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral.

•

Special Mention – loans where a potential weakness or risk exists, which could cause a more serious problem if not corrected.

•

Substandard – loans that have a well-defined weakness based on objective evidence and are characterized by the distinct possibility that Citizens will sustain some loss if the deficiencies are not corrected.

•

Doubtful – loans classified as doubtful have all the weaknesses inherent in a substandard asset. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances.

•

Loss – loans classified as a loss are considered uncollectible, or of such value that continuance as an asset is not warranted.

•

Unrated – Generally, consumer loans are not risk-graded, except when collateral is used for a business purpose.


September 30, 2012	Commercial & Agriculture		Commercial Real Estate		Residential Real Estate		Real Estate Construction		Consumer		Total
Pass	$	74,610	$	364,004	$	94,859	$	39,229	$	900	$	573,602
Special Mention		1,901		7,625		2,447		682		—		12,655
Substandard		8,337		33,906		14,156		2,339		67		58,805
Doubtful		—		—		—		—		—		—

Ending Balance	$	84,848	$	405,535	$	111,462	$	42,250	$	967	$	645,062


December 31, 2011	Commercial & Agriculture		Commercial Real Estate		Residential Real Estate		Real Estate Construction		Consumer		Total
Pass	$	73,011	$	319,084	$	92,577	$	31,697	$	2,208	$	518,577
Special Mention		4,358		15,321		5,071		702		—		25,452
Substandard		9,026		37,447		17,764		5,067		—		69,304
Doubtful		—		—		—		—		—		—

Ending Balance	$	86,395	$	371,852	$	115,412	$	37,466	$	2,208	$	613,333

Page 18

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The following tables present performing and nonperforming loans based solely on payment activity for the period ended September 30, 2012 and December 31, 2011 that have not been assigned an internal risk grade. Payment activity is reviewed by management on a monthly basis to determine how loans are performing. Loans are considered to be nonperforming when they become 90 days past due. 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 Corporation’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. 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		Total
September 30, 2012
Performing	$	145,378	$	3,155	$	9,077	$	157,610
Nonperforming		—		—		—		—

Total	$	145,378	$	3,155	$	9,077	$	157,610


	Residential Real Estate		Real Estate Construction		Consumer		Total
December 31, 2011
Performing	$	159,291	$	2,324	$	10,027	$	171,642
Nonperforming		292		—		1		293

Total	$	159,583	$	2,324	$	10,028	$	171,935

Page 19

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The following table includes an aging analysis of the recorded investment of past due loans outstanding as of September 30, 2012 and December 31, 2011.


September 30, 2012	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater		Total Past Due		Current		Total Loans		Past Due 90 Days and Accruing
Commericial & Agriculture	$	364	$	48	$	710	$	1,122	$	83,726	$	84,848	$	245
Commercial Real Estate		931		2,264		8,958		12,153		393,382		405,535		2,189
Residential Real Estate		736		1,047		7,857		9,640		247,200		256,840		262
Real Estate Construction		323		—		801		1,124		44,281		45,405		—
Consumer		48		26		—		74		9,970		10,044		—

Total	$	2,402	$	3,385	$	18,326	$	24,113	$	778,559	$	802,672	$	2,696


December 31, 2011	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater		Total Past Due		Current		Total Loans		Past Due 90 Days and Accruing
Commericial & Agriculture	$	229	$	174	$	509	$	912	$	85,483	$	86,395	$	19
Commercial Real Estate		4,156		1,369		9,466		14,991		356,861		371,852		737
Residential Real Estate		3,614		1,182		6,504		11,300		263,695		274,995		511
Real Estate Construction		—		—		45		45		39,745		39,790		45
Consumer		89		16		2		107		12,129		12,236		2

Total	$	8,088	$	2,741	$	16,526	$	27,355	$	757,913	$	785,268	$	1,314

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 Corporation 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.

The following table presents loans on nonaccrual status as of September 30, 2012 and December 31, 2011.


	September 30, 2012		December 31, 2011
Commericial & Agriculture	$	2,793	$	940
Commercial Real Estate		19,137		15,346
Residential Real Estate		10,408		8,915
Real Estate Construction		1,355		567
Consumer		55		—

Total	$	33,748	$	25,768

Page 20

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

Loan modifications that are considered troubled debt restructurings (TDRs) completed during the quarter ended September 30, 2012 and September 30, 2011 were as follows:


	For the Quarter Ended September 30, 2012
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commericial & Agriculture		2	$	197	$	497
Commercial Real Estate		—		—		—
Residential Real Estate		1		385		385
Real Estate Construction		—		—		—
Consumer		1		19		19

Total TDRs		4	$	601	$	901


	For the Quarter Ended September 30, 2011
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commericial & Agriculture		—	$	—	$	—
Commercial Real Estate		—		—		—
Residential Real Estate		1		143		144
Real Estate Construction		—		—		—
Consumer		—		—		—

Total TDRs		1	$	143	$	144

Page 21

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

Loan modifications that are considered troubled debt restructurings (TDRs) completed during the nine month periods ended September 30, 2012 and September 30, 2012 were as follows:


	For the Nine-Month Period Ended September 30, 2012
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commericial & Agriculture		6	$	983	$	976
Commercial Real Estate		3		1,206		1,206
Residential Real Estate		21		1,250		1,171
Real Estate Construction		—		—		—
Consumer		5		66		66

Total TDRs		35	$	3,505	$	3,419


	For the Nine-Month Period Ended September 30, 2011
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commericial & Agriculture		—	$	—	$	—
Commercial Real Estate		—		—		—
Residential Real Estate		1		143		144
Real Estate Construction		—		—		—
Consumer		—		—		—

TDRs		1	$	143	$	144

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 origination loans, so modified loans present a higher risk of loss than do new origination loans.

During the three and nine-month period ended September 30, 2012 and 2011, there were no defaults on any loans which were modified and considered TDRs during the twelve months previous to the respective periods ending September 30, 2012 or September 30, 2011.

Page 22

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

Impaired Loans: Larger (greater than $350) commercial loans and commercial real estate loans, many of which are 60 days or more past due, are tested for impairment. These loans are analyzed to determine if it is probable that all amounts will not be collected according to the contractual terms of the loan agreement. If management determines that the value of the impaired loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allowance estimate or a charge-off to the allowance.

The following tables include the recorded investment and unpaid principal balances for impaired financing receivables with the associated allowance amount, if applicable, as of September 30, 2012 and December 31, 2011.


	September 30, 2012						December 31, 2011
September 30, 2012	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commericial & Agriculture	$	5,003	$	5,339	$	—	$	2,914	$	3,010	$	—
Commercial Real Estate		8,030		9,192		—		3,804		4,739		—
Residential Real Estate		3,086		4,598		—		862		953		—
Real Estate Construction		—		—		—		—		—		—
Consumer and Other		1		1		—		—		—		—

Total	$	16,120	$	19,130	$	—	$	7,580	$	8,702	$	—

With an allowance recorded:
Commericial & Agriculture	$	261	$	271	$	251	$	2,344	$	3,645	$	618
Commercial Real Estate		10,120		12,194		3,760		13,896		16,534		3,094
Residential Real Estate		3,133		3,274		808		2,984		4,127		860
Real Estate Construction		885		1,413		194		576		1,103		239
Consumer and Other		62		62		62		—		—		—

Total	$	14,461	$	17,214	$	5,075	$	19,800	$	25,409	$	4,811

Total:
Commericial & Agriculture	$	5,264	$	5,610	$	251	$	5,258	$	6,655	$	618
Commercial Real Estate		18,150		21,386		3,760		17,700		21,273		3,094
Residential Real Estate		6,219		7,872		808		3,846		5,080		860
Real Estate Construction		885		1,413		194		576		1,103		239
Consumer and Other		63		63		62		—		—		—

Total	$	30,581	$	36,344	$	5,075	$	27,380	$	34,111	$	4,811

Page 23

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)


	September 30, 2012				September 30, 2011
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
For the quarter ended:
Commericial & Agriculture	$	5,366	$	26	$	5,112	$	168
Commercial Real Estate		16,448		329		13,953		666
Residential Real Estate		5,227		145		3,317		172
Real Estate Construction		608		11		849		9
Consumer and Other		54		1		—		—

Total	$	27,703	$	512	$	23,231	$	1,015


	September 30, 2012				September 30, 2011
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
For the nine months ended:
Commericial & Agriculture	$	4,631	$	205	$	4,618	$	330
Commercial Real Estate		17,060		995		12,975		934
Residential Real Estate		4,628		391		3,574		194
Real Estate Construction		531		11		1,560		41
Consumer and Other		28		1		—		—

Total	$	26,878	$	1,603	$	22,727	$	1,499

Page 24

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

(6) Earnings per Common Share

Basic earnings per share are net income available to common shareholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share include the dilutive effect, if any, of additional potential common shares issuable under stock options, computed using the treasury stock method.


	Three months ended September 30,				Nine months ended September 30,
	2012		2011		2012		2011
Basic
Net income	$	1,384	$	1,193	$	3,613	$	2,469
Preferred stock dividends and discount accretion		316		293		903		881

Net income available to common shareholders	$	1,068	$	900	$	2,710	$	1,588

Weighted average common shares outstanding		7,707,917		7,707,917		7,707,917		7,707,917

Basic earnings per common share	$	0.14	$	0.12	$	0.35	$	0.21

Diluted
Net income	$	1,384	$	1,193	$	3,613	$	2,469
Preferred stock dividends and discount accretion		316		293		903		881

Net income available to common shareholders	$	1,068	$	900	$	2,710	$	1,588

Weighted average common shares outstanding for basic earnings per common share		7,707,917		7,707,917		7,707,917		7,707,917
Add: Dilutive effects of assumed exercises of stock options and warrants		—		—		—		—

Average shares and dilutive potential common shares outstanding		7,707,917		7,707,917		7,707,917		7,707,917

Diluted earnings per common share	$	0.14	$	0.12	$	0.35	$	0.21

Stock options for 10,000 common shares that have an exercise price of $35.00 were not considered in computing diluted earnings per common share for the three and nine-month periods ended September 30, 2012 because they were anti-dilutive.

Stock options for 19,500 common shares that have an exercise price of $20.50 were not considered in computing diluted earnings per common share for the nine-month period ended September 30, 2012 because they were anti-dilutive. These options expired during the three month period ended September 30, 2012.

Stock options for 29,500 common shares that have an exercise price ranging from $20.50 to $35.00 were not considered in computing diluted earnings per common share for the three and nine-month periods ended September 30, 2011 because they were anti-dilutive.

Page 25

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

(7) 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 customers’ financing needs. These are agreements to provide credit or to support the credit of others, as long as the conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance-sheet risk of 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 commitment. The contractual amount of financial instruments with off-balance-sheet risk was as follows for September 30, 2012 and December 31, 2011:


	Contract Amount
	September 30, 2012				December 31, 2011
	Fixed		Variable		Fixed		Variable
	Rate		Rate		Rate		Rate
Commitment to extend credit:
Lines of credit and construction loans	$	13,274	$	118,110	$	6,913	$	111,710
Overdraft protection		1,294		18,381		1,320		17,828
Letters of credit		294		406		200		424

	$	14,862	$	136,897	$	8,433	$	129,962

Commitments to make loans are generally made for a period of one year or less. Fixed rate loan commitments included in the table above had interest rates ranging from 2.25% to 15.0% at September 30, 2012 and December 31, 2011, 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 $1,240 on September 30, 2012 and $998 on December 31, 2011.

Page 26

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

(8) Pension Information

Net periodic pension expense was as follows:


	Three months ended September 30,						Nine months ended September 30,
	2012			2011			2012			2011
Service cost	$	235		$	212		$	704		$	635
Interest cost		229			203			686			611
Expected return on plan assets		(215	)		(206	)		(644	)		(620	)
Other components		90			85			270			257

Net periodic pension cost	$	339		$	294		$	1,016		$	883

The total amount of contributions expected to be paid by the Corporation in 2012 total $1,355, compared to $1,152 in 2011.

(9) Stock Options

Options to buy stock could be granted to directors, officers and employees under the Corporation’s Stock Option and Stock Appreciation Rights Plan, which provided for issue of up to 225,000 options. The exercise price of stock options is determined based on the market price of the Corporation’s common shares at the date of grant. The maximum option term is ten years, and options normally vest after three years.

The Corporation did not grant any stock options during the first nine months of 2012 or 2011, nor did any stock options become vested during the first nine months of 2012 or 2011. The Corporation’s Stock Option and Stock Appreciation Rights Plan expired in 2010, and no further stock options or other awards may be granted by the Corporation under such plan.

Page 27

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

A summary of the activity in the plan is as follows:


	Nine months ended					Nine months ended
	September 30, 2012					September 30, 2011
				Weighted				Weighted
				Average				Average
				Price				Price
	Shares			Per Share		Shares		Per Share
Outstanding at beginning of year		29,500		$	25.42		29,500	$	25.42
Granted		—			—		—		—
Exercised		—			—		—		—
Forfeited		(19,500	)		20.50		—		—

Options outstanding, end of period		10,000		$	35.00		29,500	$	25.42

Options exercisable, end of period		10,000		$	35.00		29,500	$	25.42

The following table details stock options outstanding:

Outstanding Options

Weighted

Average

Weighted

Remaining

Average

Contractual

Exercise

Exercise price

Number

Life

Price

$35.00

10,000

6.4 mos.

35.00

Outstanding at quarter-end

10,000

6.4 mos.

35.00

The intrinsic value for stock options is calculated based on the exercise price of the underlying awards and the market price of our common shares as of the reporting date. As of September 30, 2012 and December 31, 2011, the aggregate intrinsic value of outstanding stock options was $0. A total of 19,500 stock options with an exercise price of $20.50 expired on July 2, 2012.

Page 28

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

(10) Fair Value Measurement

The Corporation uses a fair value hierarchy to measure fair value. The topic describes three levels of inputs that may be used to measure fair value. 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 Corporation’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). Management uses significant unobservable inputs to determine the fair value of one security (Level 3 inputs). These inputs include appraised values of the underlying collateral and estimated costs to sell the collateral. The value of the collateral has been discounted to represent the value in a distressed sale situation.

Equity securities: The Corporation’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).

The fair value measurement for equity securities in financial institutions at December 31, 2011 was determined using Level 1 quoted market prices. No transactions have occurred since December 31, 2011 therefore the fair value of the equity securities in financial institutions at September 30, 2012 is measured using Level 2 observable market data inputs.

Impaired loans: The fair values of impaired loans are determined using the fair values of collateral for collateral dependent loans, or discounted cash flows. The Corporation 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 Corporation 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.

Page 29

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

Assets measured at fair value are summarized below.


	Fair Value Measurements at September 30, 2012 Using:
	(Level 1)		(Level 2)		(Level 3)
Assets:

Assets measured at fair value on a recurring basis:

U.S. Treasury securities and obligations of U.S. Government agencies	$	—	$	52,863	$	—
Obligations of states and political subdivisions		—		79,210		476
Mortgage-backed securities in government sponsored entities		—		77,339		—
Equity securities in financial institutions		—		456		—

Assets measured at fair value on a nonrecurring basis:

Impaired loans	$	—	$	—	$	25,506
Other real estate owned		—		—		464

	Fair Value Measurements at December 31, 2011 Using:
	(Level 1)		(Level 2)		(Level 3)
Assets:

Assets measured at fair value on a recurring basis:

U.S. Treasury securities and obligations of U.S. Government agencies	$	—	$	49,704	$	—
Obligations of states and political subdivisions		—		66,219		517
Mortgage-backed securities in government sponsored entities		—		87,518		—
Equity securities in financial institutions		676		—		—

Assets measured at fair value on a nonrecurring basis:

Impaired loans	$	—	$	—	$	22,569
Other real estate owned		—		—		1,097

Page 30

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The following table presents quantitative information about the Level 3 significant unobservable inputs for assets and liabilities measured at fair value on a nonrecurring basis at September 30, 2012.


	Quantitative Information about Level 3 Fair Value Measurements
September 30, 2012	Fair Value Estimate		Valuation Technique	Unobservable Input	Range
Investments	$	476	Appraisal of collateral	Appraisal adjustments	20% - 30%

				Liquidation expense	8% - 12%

Impaired loans	$	25,506	Appraisal of collateral	Appraisal adjustments	10% - 30%

				Liquidation expense	0% - 10%

				Holding period	0 - 30 months

			Discounted cash flows	Discount rates	3% - 8.4%

Other real estate owned	$	464	Appraisal of collateral	Appraisal adjustments	10% - 30%

				Liquidation expense	0% - 10%

The following table presents the changes in the Level 3 fair-value category for the period ended September 31, 2012. The Corporation classifies financial instruments in Level 3 of the fair value hierarchy when there is reliance on at least one significant unobservable input to the valuation model. In addition to the unobservable inputs, the valuation models for Level 3 financial instruments typically also rely on a number of inputs that are readily observable, either directly or indirectly.


Securities available for sale

Beginning balance January 1, 2012	$	517
Principal payments		(41	)

Ending balance September 31, 2012	$	476

Page 31

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The carrying amount and fair values of financial instruments are as follows.


					Quoted
					Prices in
					Active		Significant		Significant
					Markets for		Other		Other
					Identical		Observable		Unobservable
September 30, 2012	Carrying		Total		Assets		Inputs		Inputs
September 30, 2012	Amount		Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from financial institutions	$	38,861	$	38,861	$	38,861	$	—	$	—
Securities available for sale		200,733		210,344		—		209,868		476
Other securities		15,573		15,573		15,573		—		—
Loans, available for sale		749		749		749		—		—
Loans, net of allowance for loan losses		781,183		796,918		—		—		796,918
Bank owned life insurance		18,439		18,439		18,439		—		—
Accrued interest receivable		4,709		4,709		4,709		—		—

Financial Liabilities:
Nonmaturing deposits		644,430		644,430		644,430		—		—
Time deposits		270,807		273,037		—		—		273,037
Federal Home Loan Bank advances		40,270		41,816		—		—		41,816
Securities sold under agreement to repurchase		20,525		20,525		20,525		—		—
Subordinated debentures		29,427		27,360		—		—		27,360
Accrued interest payable		232		232		232		—		—

Page 32

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)


	December 31, 2011
	Carrying Amount		Fair Value
Financial Assets:
Cash and due from financial institutions	$	52,127	$	52,127
Securities, AFS		196,357		204,633
Other securities		15,388		15,388
Loans, available for sale		598		598
Loans, net of allowance for loan losses		764,011		785,900
Bank owned life insurance		17,963		17,963
Accrued interest receivable		3,787		3,787

Financial Liabilities:
Deposits		901,246		911,945
Federal Home Loan Bank advances		50,295		52,263
Securities sold under agreement to repurchase		19,029		19,029
Subordinated debentures		29,427		26,461
Accrued interest payable		258		258

Cash and due from financial institutions:

The carrying amounts for cash and due from financial institutions approximate fair value because they have original maturities of less than 90 days and do not present unanticipated credit concerns.

Available-for-sale securities:

The fair value of securities 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 specific securities. Instead, this method relies on the securities relationship to other benchmark quoted securities (Level 2 inputs). For equity securities, management uses market information related to the value of similar institutions to determine the fair value (Level 2 inputs). Management uses significant unobservable inputs to determine the fair value of one security (Level 3 inputs). These inputs include appraised values of the underlying collateral and estimated costs to sell the collateral. The value of the collateral has been discounted to represent the value in a distressed sale situation.

Other securities:

The carrying value of regulatory stock approximates fair value based on applicable redemption provisions.

Page 33

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

Loans, available-for-sale:

Loans held for sale are priced individually at market rates on the day that the loan is locked for commitment to an investor. Because the holding period of such loans is typically short, the carrying value generally approximates the fair value at the time the commitment is received. All loans in the held-for-sale account conform to Fannie Mae underwriting guidelines, with specific intent of the loan being purchased by an investor at the predetermined rate structure.

Loans, net of allowance for loan losses:

Fair values for loans, other than impaired, are estimated for portfolios of loans with similar financial characteristics. The fair value of performing loans has been estimated by discounting expected future cash flows of the underlying portfolios. The discount rates used in these calculations are generally derived from the treasury yield curve and are calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate inherent in the loan. The estimated maturity is based on the Corporation’s historical experience with repayments for each loan classification. The off-balance-sheet items are based on the current fees or cost that would be charged to enter into or terminate such arrangements and are considered nominal. Changes in these significant unobservable inputs used in discounted cash flow analysis, such as the discount rate or prepayment speeds, could lead to changes in the underlying fair value.

Bank owned life insurance:

The carrying value of bank owned life insurance approximates the fair value based on applicable redemption provisions.

Accrued interest receivable and payable and securities sold under agreements to repurchase:

The carrying amounts for accrued interest receivable, accrued interest payable and securities sold under agreements to repurchase approximate fair value because they are generally received or paid in 90 days or less and do not present unanticipated credit concerns.

Deposits:

The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, savings and NOW accounts, and money market accounts, is equal to the amount payable on demand.

The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.

The deposits’ fair value estimates do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market, commonly referred to as the core deposit intangible.

Federal Home Loan Bank advances:

Rates available to the Corporation for borrowed funds with similar terms and remaining maturities are used to estimate the fair value of borrowed funds.

Page 34

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

Subordinated debentures:

The fair value of subordinated debentures is based on the discounted value of contractual cash flows of the underlying debt agreements. The discount rate is estimated using the current rate for a 30 year mortgage-matched secured borrowing from the FHLB.

(11) Participation in the Treasury Capital Purchase Program

On January 23, 2009, the Corporation 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 Corporation’s participation in the CPP, the Corporation 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 Corporation issued and sold to Treasury (1) 23,184 Fixed Rate Cumulative Perpetual Preferred Shares, Series A, each without par value and having a liquidation preference of $1,000 per share (Preferred Shares), and (2) a Warrant to purchase 469,312 common shares of the Corporation, each without par value, at an exercise price of $7.41 per share. The Warrant has a ten-year term. All of the proceeds from the sale of the Preferred Shares and the Warrant by the Corporation to the U.S. Treasury under the CPP qualify as Tier 1 capital for regulatory purposes. Under the standardized CPP terms, cumulative dividends on the Preferred Shares will accrue 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, but will be paid only if, as and when declared by the Corporation’s Board of Directors. The Preferred Shares have no maturity date and rank 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 Corporation.

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. As a result of the U.S. Treasury’s sale of all of the Preferred Shares, the executive compensation and corporate governance standards which applied to the Corporation as a participant in the CPP, which standards were most recently set forth in the Interim Final Rule on TARP Standards for Compensation and Corporate Governance, published June 15, 2009, are no longer applicable to the Corporation.

On September 5, 2012, the Corporation 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. The purchase price was determined by the Board of Directors of the Corporation based on the Fair Market Value of the Warrant, as established by an appraisal conducted by a nationally recognized independent investment banking firm.

Page 35

First Citizens Banc Corp

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Form 10-Q

(Amounts in thousands, except share data)

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction

The following discussion focuses on the consolidated financial condition of the Corporation at September 30, 2012 compared to December 31, 2011 and the consolidated results of operations for the three and nine-month periods ended September 30, 2012, compared to the same periods in 2011. This discussion should be read in conjunction with the consolidated financial statements and footnotes included in this Form 10-Q.

Forward-Looking Statements

This Quarterly Report on Form 10-Q includes forward-looking statements by the Corporation relating to various matters, including, without limitation, anticipated operating results, credit quality expectations, economic trends (including interest rates) and similar matters. Such statements are based upon the current beliefs and expectations of the Corporation’s management and are subject to risks and uncertainties. While the Corporation believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could prove to be inaccurate, and accordingly, actual results and experiences could differ materially from the anticipated results or other expectations expressed by the Corporation in its forward-looking statements. Factors that could cause actual results or experiences to differ from results discussed in the forward-looking statements include, but are not limited to, regional and national economic conditions; volatility and direction of market interest rates; credit risks of lending activities; governmental legislation and regulation, including changes in accounting regulation or standards; material unforeseen changes in the financial condition or results of operations of the Corporation’s clients; increases in FDIC insurance premiums and assessments; and other risks identified from time-to-time in the Corporation’s other public documents on file with the SEC, including those risks identified in Item 1A of Part 1 of the Corporation’s Annual Report on Form 10-K.

The Corporation does not undertake, and specifically disclaims, any obligation to publicly release the result of any revisions that may be made to any forward-looking statements to reflect occurrence of anticipated or unanticipated events or circumstances after the date of such statements, 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

Total assets of the Corporation at September 30, 2012 were $1,121,875 compared to $1,112,977 at December 31, 2011, an increase of $8,898, or 0.8 percent. The increase in total assets was mainly attributed to an increase in loans, net of allowance and investment securities offset by a decrease in cash and due from banks. Total liabilities at September 30, 2012 were $1,016,980 compared to $1,010,449 at December 31, 2011, an increase of $6,531, or 0.6 percent. The increase in total liabilities was mainly attributed to increases in non interest-bearing deposits and interest–bearing deposits offset by a decrease in FHLB advances.

Page 36

First Citizens Banc Corp

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Form 10-Q

(Amounts in thousands, except share data)

Net loans have increased $17,172 or 2.2 percent since December 31, 2011. The commercial real estate and real estate construction portfolios increased $33,683 and $5,615, respectively since December 31, 2011, while the commercial and agricultural, real estate and consumer loan portfolios decreased $1,547, $18,155 and $2,192, respectively. The current increase in commercial real estate loans is mainly due to increased opportunities from our larger markets and calling efforts by the commercial lending officers. The current increase in real estate construction is mainly due to an increase in the demand for construction loans. The current decrease in commercial and agricultural loans is the result of the pay down of loan balances on agricultural loans. The current decrease in real estate and consumer loans is mainly the result of the economic downturn and high unemployment rates in our market area, coupled with the Corporation’s decision to originate and sell the majority of mortgage loans in the secondary market.

Loans held for sale have increased $151 or 25.3 percent since December 31, 2011. At September 30, 2012, the net loan to deposit ratio was 85.4 percent compared to 84.8 percent at December 31, 2011. This ratio has increased in 2012 due to an increase in loans.

For the nine months of operations in 2012, $5,565 was placed into the allowance for loan losses from earnings, compared to $7,700 in the same period of 2011. The economic downturn and high unemployment rates in our market area continue to stress the ability of some customers to make payments on their loans. Although general reserves required decreased compared to December 31, 2011, specific reserves increased during the same period. Detailed analyses of potential losses in the loan portfolio indicated that a reduced provision was appropriate. Net charge-offs have decreased to $5,333, compared to $6,781 in 2011. For the first nine months of 2012, the Corporation has charged off one hundred and ninety-three loans. One hundred and two real estate mortgage loans totaling $2,451 net of recoveries, thirty-four commercial real estate loans totaling $2,235 net of recoveries, twenty-three commercial and agriculture loans totaling $330 net of recoveries, and five real estate construction loan totaling $192 net of recoveries were charged off in the first nine months of the year. In addition, twenty-nine consumer loans totaling $124, net of recoveries, were charged off. For each loan category, as well as in total, the percentage of net charge-offs to loans was less than one percent. Nonperforming loans have increased by $7,966, of which $15 was due to a decrease in loans past due 90 days but still accruing and $7,981 was due to an increase in loans on nonaccrual status. Each of these factors was considered by management as part of the examination of both the level and mix of the allowance by loan type as well as the overall level of the allowance. Management specifically evaluates loans that are impaired, or graded as doubtful by the internal grading function for estimates of loss. To evaluate the adequacy of the allowance for loan losses to cover probable losses in the portfolio, management considers specific reserve allocations for identified portfolio loans, reserves for delinquencies and historical reserve allocations. 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.

Page 37

First Citizens Banc Corp

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Form 10-Q

(Amounts in thousands, except share data)

Management analyzes commercial and commercial real estate loans, with balances of $350 or larger, on an individual basis and classifies a loan as impaired 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. Often this is associated with a delay or shortfall in payments of 90 days or more. 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. The allowance for loan losses as a percent of total loans was 2.68 percent at September 30, 2012 and 2.71 percent at December 31, 2011.

The available for sale security portfolio increased by $5,711, from $204,633 at December 31, 2011, to $210,344 at September 30, 2012. The increase is the result of additional securities purchases made in the first nine months of 2012 above scheduled maturities and reinvestment of profits. The Corporation continued utilizing letters of credit from the Federal Home Loan Bank (FHLB) to replace maturing securities that were pledged for public entities. As of September 30, 2012, the Corporation was in compliance with all pledging requirements.

Bank owned life insurance (BOLI) increased $476 from December 31, 2011 to September 30, 2012 due to increases in the cash surrender value of the underlying insurance policies.

Office premises and equipment, net, have decreased $394 from December 31, 2011 to September 30, 2012, as a result of depreciation of $1,091 and disposals of $5, offset by new purchases of $702.

Total deposits at September 30, 2012 increased $13,991 from year-end 2011. Noninterest-bearing deposits increased $6,406 from year-end 2011, while interest-bearing deposits, including savings and time deposits, increased $7,585 from December 31, 2011. The primary reason for the increase in noninterest-bearing deposits was due to an increase in commercial accounts, which tend to fluctuate. The interest-bearing deposit increase was due to an increase in savings accounts, interest-bearing demand accounts and brokered deposits offset by decreases in time certificates and individual retirement accounts (IRA). Savings accounts increased $6,979 from year-end 2011, which included increases of $8,244 in statement savings, offset by decreases of $725 in corporate savings, $988 in money market savings and $236 in public fund money market savings. Interest-bearing demand accounts increased $17,792 from year end 2011, which included increases of $9,930 in interest-bearing checking accounts, $7,831 in interest-bearing public funds, offset by a decrease of $1,532 in NOW public funds. Time certificates, individual retirement accounts (IRA) and Certificate of Deposit Account Registry Service (CDARS) accounts decreased $23,947, $2,162 and $1,169, respectively, while brokered deposits increased $10,096 from year end 2011. The year-to-date average balance of total deposits decreased $805 compared to the average balance for the same period in 2011. The decrease in average balance is due to decreases of $17,991 in time certificates and $13,290 in CDARS accounts, offset by increases of $16,201 in demand deposit accounts, $9,695 in statement savings accounts and $2,601 in money market savings.

Page 38

First Citizens Banc Corp

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Form 10-Q

(Amounts in thousands, except share data)

Total borrowed funds have decreased $8,529 from December 31, 2011 to September 30, 2012. At September 30, 2012, the Corporation had $40,270 in outstanding Federal Home Loan Bank advances compared to $50,295 at December 31, 2011. The Corporation had a FHLB advance mature during the nine months ended September 30, 2012. The advance matured on September 26, 2012, in the amount of $10,000. This advance had terms of thirty-seven months with a fixed rate of 1.91%. The advance was not replaced. Securities sold under agreements to repurchase, which tend to fluctuate due to timing of deposits, have increased $1,496 from December 31, 2011 to September 30, 2012.

Shareholders’ equity at September 30, 2012 was $104,895, or 9.4 percent of total assets, compared to $102,528, or 9.2 percent of total assets at December 31, 2011. The increase in shareholders’ equity resulted from net income of $3,613 plus the increase in the fair value of securities available for sale, net of tax, of $881 less preferred dividends and common dividends paid of $869 and $694, respectively. In addition, on July 3, 2012, the U.S. Treasury completed the sale of Preferred Shares and the Corporation paid $564 to redeem common stock warrants. Total outstanding common shares at September 30, 2012 and 2011 were 7,707,917.

Results of Operations

Nine Months Ended September 30, 2012 and 2011

The Corporation had net income of $3,613 for the nine months ended September 30, 2012, an increase of $1,144 from net income of $2,469 for the same nine months of 2011. Basic and diluted earnings per common share were $.36 for the nine months of 2012, compared to $0.21 for the same period in 2011. The primary reasons for the changes in net income are explained below.

Net interest income for the nine months ended September 30, 2012 was $30,619, a decrease of $345 from $30,964 in the same nine months of 2011. Net interest income, the difference between interest income earned on interest-earning assets and interest expense incurred on interest-bearing liabilities, is the most significant component of the Corporation’s earnings. Net interest income is affected by changes in volume, rates and composition of interest-earning assets and interest-bearing liabilities. Total interest income for the nine months ended September 30, 2012 was $35,405, a decrease of $1,320 from $36,725 in the same nine months of 2011. Average earning assets decreased 1.2 percent from the nine month period last year. Average loans, securities and interest-bearing deposits in other banks for the nine months of 2012 increased 2.0 percent, 4.7 percent and 14.3 percent respectively compared to the nine months of last year. These increases were offset by a decrease in average federal funds sold compared to the same period of 2011. The yield on earning assets decreased 9 basis points for the first nine months of 2012 compared to the same period last year. The yield on loans, taxable securities and non-taxable securities decreased 26, 47 and 11 basis points respectively during the first nine months of 2012 compared to the first nine months of last year. These factors combined resulted in the decrease in total interest income for the first nine months of 2012. Total interest expense for the nine months ended September 30, 2012 was $4,786, a decrease of $975 from $5,761 in the same nine months of 2011. Interest expense on certificates of deposit decreased $697 or 21.4 percent in the first nine months of 2012 compared to the same period in 2011. Average time deposits for the first nine months of 2012 decreased 10.9 percent compared to 2011. The interest rate paid on time deposits during the first nine months of 2012 also decreased as compared to the same period in 2011 by 16 basis points. The Corporation’s net yield on interest-earning assets for the nine months ended September 30, 2012 and 2011 was 3.94% and 3.91%, respectively.

Page 39

First Citizens Banc Corp

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Form 10-Q

(Amounts in thousands, except share data)

The following table presents the condensed average balance sheets for the nine months ended September 30, 2012 and 2011. Rates are computed on a tax equivalent basis. The daily average loan amounts outstanding are net of unearned income and include loans held for sale and nonaccrual loans. The average balance of securities is computed using the carrying value of securities.


	Nine Months Ended September 30,
	2012								2011
	(Dollars in thousands)
	Average balance			Interest		Yield/ rate *			Average balance			Interest		Yield/ rate *
Assets:
Interest-earning assets:
Loans	$	774,704		$	30,338		5.22	%	$	759,755		$	31,208		5.48	%
Taxable securities		174,499			3,608		2.83	%		173,413			4,213		3.30	%
Non-taxable securities		49,978			1,376		3.99	%		41,562			1,250		4.10	%
Federal funds sold		—			—		0.00	%		42,568			19		0.06	%
Interest-bearing deposits in other banks		47,436			83		0.23	%		41,512			35		0.11	%

Total interest-earning assets	$	1,046,617			35,405		4.55	%	$	1,058,810			36,725		4.64	%

Noninterest-earning assets:
Cash and due from financial institutions		22,570								9,422
Premises and equipment, net		17,673								18,078
Accrued interest receivable		4,358								4,907
Intangible assets		25,483								26,599
Other assets		9,907								10,810
Bank owned life insurance		18,182								17,527
Less allowance for loan losses		(21,816	)							(22,755	)

Total Assets	$	1,122,974							$	1,123,398

Liabilities and Shareholders Equity:

Interest-bearing liabilities:
Demand and savings	$	442,247		$	387		0.11	%	$	425,542		$	683		0.21	%
Time		274,866			2,568		1.25	%		308,597			3,265		1.41	%
US treasury demand		—			—		0.00	%		1,404			—		0.00	%
FHLB		50,108			1,181		3.14	%		55,176			1,208		2.92	%
Other		18,039			15		0.11	%		20,262			27		0.18	%
Subordinated debentures		30,349			635		2.79	%		30,349			578		2.54	%

Total interest-bearing liabilities	$	815,609			4,786		0.78	%	$	841,330			5,761		0.91	%

Noninterest-bearing deposits		191,134								174,352
Other liabilities		12,442								8,710
Shareholders’ Equity		103,789								99,006

Total Liabilities and Shareholders’ Equity	$	1,122,974							$	1,123,398

Net interest income and interest rate spread				$	30,619		3.77	%				$	30,964		3.73	%
Net yield on interest earning assets							3.94	%							3.91	%

*	- All yields and costs are presented on an annualized basis

Page 40

First Citizens Banc Corp

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Form 10-Q

(Amounts in thousands, except share data)

Net interest income may also be analyzed by comparing the volume and rate components of interest income and interest expense. The following table is an analysis of the changes in interest income and expense between the nine-month periods ended September 30, 2012 and September 30, 2011. The table is presented on a fully tax-equivalent basis.


	Increase (decrease) due to:
	Volume⁽¹⁾			Rate⁽¹⁾			Net
	(Dollars in thousands)
Interest income:
Loans	$	606		$	(1,476	)	$	(870	)
Taxable securities		27			(632	)		(605	)
Nontaxable securities		253			(127	)		126
Federal funds sold		(19	)		—			(19	)
Interest-bearing deposits in other banks		6			42			48

Total interest income	$	873		$	(2,193	)	$	(1,320	)

Interest expense:
Savings and interest-bearing demand accounts		26			(322	)		(296	)
Certificates of deposit		(337	)		(360	)		(697	)
Federal Home Loan Bank advances		(116	)		89			(27	)
Securities sold under repurchase agreements		(3	)		(9	)		(12	)
Subordinated debentures		—			57			57

Total interest expense	$	(430	)	$	(545	)	$	(975	)

Net interest income	$	1,303		$	(1,648	)	$	(345	)

(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.

The Corporation provides for loan losses through regular provisions to the allowance for loan losses. The provision is affected by net charge-offs on loans and changes in specific and general allocations required on the allowance for loan losses. Provisions for loan losses totaled $5,565 for the nine months ended September 30, 2012, compared to $7,700 for the same period in 2011. Although general reserves decreased compared to December 31, 2011, specific reserves increased during the same period. Management believes the overall adequacy of the reserve for loan losses supported a reduced provision, compared to September 30, 2011.

Non-interest income for the nine months ended September 30, 2012 was $8,333, an increase of $475 or 6.0 percent from $7,858 for the same period of 2011. Service charge fee income for the first nine months of 2012 was $3,243, down $107 or 3.2 percent over the same period of 2011. Trust fee income was $1,596, up $19 or 1.2 percent over the same period in 2011. ATM fee income for the first nine months of 2012 was $1,323, down $48 or 3.5 percent over the same period of 2011. BOLI contributed $476 to non-interest income during the nine months ended September 30, 2012. Net gain on sale of loans for the nine months ended September 30, 2012 was $456, up $383 over the same period in 2011. Other non-interest income was $1,239, up $229 over the same period in 2011 mainly as a result of the sale of loan collateral.

Page 41

First Citizens Banc Corp

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Form 10-Q

(Amounts in thousands, except share data)

Non-interest expense for the nine months ended September 30, 2012 was $28,745, an increase of $476, from $28,269 reported for the same period of 2011. Salary and other employee costs were $15,603, up $1,015 or 7.0 percent as compared to the same period of 2011. This increase is mainly due to an increase in staffing in the credit and special assets departments and higher insurance costs for the first nine months of 2012. The number of full-time equivalent employees increased during the first nine months of 2012 to 311.9, up 8.6, compared to the same period of 2011. Occupancy and equipment costs were $2,511, down $276 or 9.9 percent compared to the same period in 2011. This decrease is mainly due to decreases in utility, grounds maintenance and equipment depreciation expenses. The decrease in utility and grounds maintenance was the result of the mild winter weather. The decrease in equipment maintenance was the result of decreased depreciation costs as assets have aged. Contracted data processing costs were $705, up $93 or 15.2 percent compared to the same period in 2011. State franchise taxes decreased by $115 compared to the same period of 2011. Amortization expense decreased $130, or 14.9 percent from the same nine months of 2011, as a result of scheduled amortization of intangible assets associated with mergers. FDIC assessments were down by $257 during the first nine months of 2012 compared to the same period of 2011 as a result of a change in methodology used to calculate the assessment charged to banks. The change included both a new assessment base and a change in the assessment rate. Professional service costs were $2,080, up $575 or 38.2 percent compared to the same period in 2011. The increase is mainly due to consulting services for reducing communication expenses and streamlining the Corporation’s communication services and employment search firms. In addition, professional fees have increased due to expenses related to the U. S. Treasury’s auction of its preferred stock in the Corporation and professional services related to repossession expenses related to loans. Other operating expenses were $5,634, down $429 or 7.1 percent compared to the same period of 2011. The decrease in other operating expenses is due to losses on sale of OREO properties. During the nine month period ended September 30, 2012, the Corporation posted gains on the sale of OREO. For the same period in 2011, losses were posted for the sale of OREO properties. In addition, a majority of the Corporation’s other operating expenses declined compared to the same period in 2011.

Income tax expense for the nine months ended September 30, 2012 totaled $1,029, up $645 or 168.0 percent compared to the same period in 2011. The increase in the federal income tax expense is mainly a result of an increase in taxable income, primarily due to reduced provision for loan losses, this year compared to last. The effective tax rates for the nine-month periods ended September 30, 2012 and September 30, 2011 were 22.2% and 13.5%, respectively. The increase in the effective tax rate is the result of an increase in taxable income compared to last year.

Page 42

First Citizens Banc Corp

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Form 10-Q

(Amounts in thousands, except share data)

Three Months Ended September 30, 2012 and 2011

The Corporation had net income of $1,384 for the three months ended September 30, 2012, an increase of $191 from net income of $1,193 for the same three months of 2011. Basic and diluted earnings per common share were $0.14 for the quarter ended September 30, 2012, compared to $0.12 for the same period in 2011. The primary reasons for the changes in net income are explained below.

Net interest income for the three months ended September 30, 2012 was $10,028, a decrease of $411 from $10,439 in the same three months of 2011. Total interest income for the three months ended September 30, 2012 was $11,529, a decrease of $738 from $12,267 in the same three months of 2011. Average earning assets decreased 1.9 percent during the quarter ended September 30, 2012 as compared to the same period in 2011. Average loans and non-taxable securities for the third quarter of 2012 increased 1.9 percent and 29.9 percent respectively compared to the third quarter of last year. These increases were offset by a decrease in average taxable securities and interest-bearing deposits in other banks of 6.1 percent and 52.7 percent respectively compared to the same period of 2011. In addition, average federal funds sold decreased compared to the same period of 2011. The yield on earning assets decreased 18 basis points for the third quarter of 2012 compared to the third quarter of last year. The yield on loans and taxable securities decreased 38 and 39 basis points respectively during the third quarter of 2012 compared to the third quarter of last year. The yield on non-taxable securities increased 176 basis points during the third quarter of 2012 compared to the third quarter of last year. These factors combined resulted in the decrease in total interest income for the third quarter of 2012. Total interest expense for the three months ended September 30, 2012 was $1,501, a decrease of $327 from $1,828 in the same three months of 2011. Interest expense on time deposits decreased $297 or 28.0 percent in the third quarter of 2012 compared to the same period in 2011. Average time deposits for the third quarter of 2012 decreased 14.3 percent compared to the third quarter of 2011. The interest rate paid on time deposits during the third quarter of 2012 also decreased as compared to the same period in 2011 by 22 basis points. The Corporation’s net yield for the three months ended September 30, 2012 and 2011 was 3.87% and 3.94%, respectively.

The following table presents the condensed average balance sheets for the three months ended September 30, 2012 and 2011. Rates are computed on a tax equivalent basis. The daily average loan amounts outstanding are net of unearned income and include loans held for sale and nonaccrual loans. The average balance of securities 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.

Page 43

First Citizens Banc Corp

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Form 10-Q

(Amounts in thousands, except share data)


	Three Months Ended September 30,
	2012								2011
	(Dollars in thousands)
	Average balance			Interest		Yield/ rate *			Average balance			Interest		Yield/ rate *
Assets:
Interest-earning assets:
Loans	$	786,471		$	9,901		5.04	%	$	771,505		$	10,455		5.42	%
Taxable securities		171,632			1,120		2.69	%		181,654			1,367		3.08	%
Non-taxable securities		54,671			490		5.92	%		42,075			419		4.16	%
Federal funds sold		—			—		0.00	%		978			—		0.00	%
Interest-bearing deposits in other banks		32,748			18		0.22	%		69,276			26		0.15	%

Total interest-earning assets	$	1,045,522		$	11,529		4.45	%	$	1,065,488		$	12,267		4.63	%

Noninterest-earning assets:
Cash and due from financial institutions		20,684								9,545
Premises and equipment, net		17,567								18,134
Accrued interest receivable		4,118								4,653
Intangible assets		25,241								26,311
Other assets		18,340								17,687
Bank owned life insurance		9,650								11,013
Less allowance for loan losses		(21,992	)							(22,376	)

Total Assets	$	1,119,130							$	1,130,455

Liabilities and Shareholders Equity:
Interest-bearing liabilities:
Demand and savings		447,637			129		0.11	%		428,783			172		0.16	%
Time		265,058			765		1.15	%		309,106			1,062		1.37	%
US treasury demand		—			—		0.00	%		1,280			—		0.00	%
FHLB		49,754			394		3.17	%		64,664			400		2.47	%
Other		18,708			5		0.11	%		19,342			6		0.12	%
Subordinated debentures		30,349			208		2.74	%		30,349			188		2.48	%

Total interest-bearing liabilities	$	811,506			1,501		0.74	%	$	853,524			1,828		0.86	%

Noninterest-bearing deposits		192,015								169,818
Other liabilities		11,213								6,570
Shareholders’ Equity		104,396								100,543

Total Liabilities and Shareholders’ Equity	$	1,119,130							$	1,130,455

Net Interest Income and interest rate spread				$	10,028		3.71	%				$	10,439		3.77	%
Net yield on interest earning assets							3.87	%							3.94	%

*	- All yields and costs are presented on an annualized basis

Page 44

First Citizens Banc Corp

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Form 10-Q

(Amounts in thousands, except share data)

Net interest income may also be analyzed by comparing the volume and rate components of interest income and interest expense. The following table is an analysis of the changes in interest income and expense between the three months ended September 30, 2012 and September 30, 2011. The table is presented on a fully tax-equivalent basis.


	Increase (decrease) due to:
	Volume⁽¹⁾			Rate⁽¹⁾			Net
	(Dollars in thousands)
Interest income:
Loans	$	200		$	(754	)	$	(554	)
Taxable securities		(74	)		(173	)		(247	)
Nontaxable securities		124			(53	)		71
Interest-bearing deposits in other banks		(17	)		9			(8	)

Total interest income	$	233		$	(971	)	$	(738	)

Interest expense:
Savings and interest-bearing demand accounts		7			(50	)		(43	)
Certificates of deposit		(140	)		(157	)		(297	)
Federal Home Loan Bank advances		(104	)		98			(6	)
Securities sold under repurchase agreements		—			(1	)		(1	)
Subordinated debentures		—			20			20

Total interest expense	$	(237	)	$	(90	)	$	(327	)

Net interest income	$	470		$	(881	)	$	(411	)

(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.

The Corporation provides for loan losses through regular provisions to the allowance for loan losses. The provision is affected by net charge-offs on loans and changes in specific and general allocations required on the allowance for loan losses. Provisions for loan losses totaled $1,700 for the three months ended September 30, 2012, compared to $2,000 for the same period in 2011. Although general reserves decreased compared to December 31, 2011, specific reserves increased during the same period. Management believes the overall adequacy of the reserve for loan losses supported a reduced provision, compared to September 30, 2011.

Non-interest income for the three months ended September 30, 2012 was $2,627, a decrease of $37 or 1.4 percent from $2,664 for the same period of 2011. Service charge fee income for the period ended September 30, 2012 was $1,108, down $125 or 10.1 percent over the same period of 2011. Trust fee income was $527, up $22 or 4.4 percent over the same period in 2011. The increase is related to a general increase in assets under management. ATM fee income was $440, down $33 or 7.0 percent over the same period of 2011. BOLI contributed $151 to non-interest income during the three months ended September 30, 2012. Other non-interest income was $401, up $121 over the same period in 2011 as a result of gain on sale of loans.

Page 45

First Citizens Banc Corp

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Form 10-Q

(Amounts in thousands, except share data)

Non-interest expense for the three months ended September 30, 2012 was $9,141, a decrease of $458, from $9,599 reported for the same period of 2011. Salary and other employee costs were $5,207, up $63 or 1.2 percent as compared to the same period of 2011. This increase is mainly due to an increase in staffing in the credit and special assets departments and higher insurance costs for the quarter ended September 30, 2012. The number of full-time equivalent employees increased during the quarter ended September 30, 2012 to 311.9, up 8.6, compared to the same period of 2011. Occupancy and equipment costs were $836, down $56 or 6.3 percent compared to the same period in 2011. This decrease is mainly due to a decrease in equipment depreciation compared to the same period in 2011. Contracted data processing costs were $246, up $46 or 23.0 percent compared to the same period in 2011. State franchise taxes decreased by $78 compared to the same period of 2011. Amortization expense decreased $59, or 20.3 percent from the same three months of 2011, as a result of scheduled amortization of intangible assets associated with mergers. FDIC assessments were down by $28 during the three months ended September 30, 2012 compared to the same period of 2011 as a result of a change in methodology used to calculate the assessment charged to banks. The change included both a new assessment base and a change in the assessment rate. Professional service costs were $676, up $167 or 32.8 percent compared to the same period in 2011. The increase is mainly due to consulting services for reducing communication expenses and streamlining the Corporation’s communication services and employment search firms. In addition, professional fees have increased due to expenses related to the U. S. Treasury’s auction of its preferred stock in the Corporation. Other operating expenses were $1,480, down $513 or 25.8 percent compared to the same period of 2011. The decrease in other operating expenses is due to an allowance for loss on unused commitments reversal posted in the third quarter of 2012 and losses on the sales of OREO.

Income tax expense for the three months ended September 30, 2012 totaled $430, up $119 compared to the same period in 2011. The increase in the federal income tax expense is mainly a result of an increase in taxable income, primarily due to reduced provision for loan losses. The effective tax rates for the three-month periods ended September 30, 2012 and September 30, 2011 were 23.7% and 20.7%, respectively. The increase in the effective tax rate is the result of an increase in taxable income compared to last year.

Page 46

First Citizens Banc Corp

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Form 10-Q

(Amounts in thousands, except share data)

Capital Resources

Shareholders’ equity totaled $104,895 at September 30, 2012 compared to $102,528 at December 31, 2011. The increase in shareholders’ equity resulted from $3,613 of net income and $881 net increase in the unrealized gain on securities. This was offset by preferred dividends and common dividends paid of $869 and $694, respectively. In addition, on July 3, 2012, the U.S. Treasury completed the sale of all of the TARP preferred shares and the Corporation paid $564 to redeem common stock warrants. All of the Corporation’s capital ratios exceeded the regulatory minimum guidelines as of September 30, 2012 and December 31, 2011 as identified in the following table:


	Total Risk Based Capital			Tier I Risk Based Capital			Leverage Ratio
Corporation Ratios - September 30, 2012		15.0	%		13.3	%		9.4	%
Corporation Ratios - December 31, 2011		15.1	%		13.8	%		9.3	%
For Capital Adequacy Purposes		8.0	%		4.0	%		4.0	%
To Be Well Capitalized Under Prompt Corrective Action Provisions		10.0	%		6.0	%		5.0	%

The Corporation paid a cash dividend of $.03 per common share each on February 1, May 1, and August 1, 2012. The Corporation did not pay a cash dividend on its common shares during the first nine months of 2011. The Corporation paid a 5% cash dividend on its preferred shares issued to the U.S. Treasury pursuant to TARP in the amount of approximately $290 each on February 15, May 15, and August 15, 2012 and February 15, May 15, and August 15, 2011.

Liquidity

Citizens maintains a conservative liquidity position. All securities are classified as available for sale. Securities, with maturities of one year or less, totaled $5,190, or 2.5 percent of the total security portfolio at September 30, 2012. The available for sale portfolio helps to provide the Corporation with the ability to meet its funding needs. The Consolidated Statements of Cash Flows (Unaudited) contained in the consolidated financial statements detail the Corporation’s cash flows from operating activities resulting from net earnings.

Page 47

First Citizens Banc Corp

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Form 10-Q

(Amounts in thousands, except share data)

Cash from operations for the period ended September 30, 2012 was $12,473. This includes net income of $3,613 plus net adjustments of $8,860 to reconcile net earnings to net cash provided by operations. Cash used by investing activities was $29,074 for the period ended September 30, 2012. The use of cash from investing activities is primarily due to securities purchases and loans made to customers, net of principal collected. Cash received from maturing, called and sold securities totaled $64,097. This increase in cash was offset by the purchase of securities of $69,991 and loans made to customers, net of principal collected, of $23,346. Cash provided from financing activities for the first nine months of 2012 totaled $3,335. The increase of cash from financing activities is due to the net change in deposits and change in securities sold under agreements to repurchase. The increase was offset by the repayment of a FHLB advance and dividends paid. The net change in deposits was $13,991 for the first nine months of 2012. The increase in deposits was primarily due to increases of $6,406 in non interest-bearing deposits, $6,979 in savings deposits, $17,792 in interest-bearing demand deposits and $10,096 in brokered deposits offset by decreases of $23,947 in time certificates and $2,162 in individual retirement accounts (IRA) during the first nine months of 2012. Securities sold under agreements to repurchase increased $1,496. The payment of dividends used $1,563. Cash and cash equivalents decreased from $52,127 at December 31, 2011 to $38,861 at September 30, 2012.

Future loan demand of Citizens may be funded by increases in deposit accounts, proceeds from payments on existing loans, the maturity of securities, 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. Through its correspondent banks, Citizens maintains federal funds borrowing lines totaling $20,000. As of September 30, 2012, Citizens had total credit availability with the FHLB of $98,908, of which $40,270 was outstanding.

Page 48

First Citizens Banc Corp

Form 10-Q

(Amounts in thousands, except share data)

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

The Corporation’s primary market risk exposure is interest-rate risk and, to a lesser extent, liquidity risk. All of the Corporation’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 Corporation’s earnings and capital base. Accordingly, effective risk management that maintains interest-rate risk at prudent levels is essential to the Corporation’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 Corporation 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 Corporation 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.

Page 49

First Citizens Banc Corp

Form 10-Q

(Amounts in thousands, except share data)

Several techniques may be used by an institution to minimize interest-rate risk. One approach used by the Corporation 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 Corporation’s primary asset/liability management technique is the measurement of the Corporation’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, 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; and hedging existing assets, liabilities, or anticipated transactions. An institution might also invest in more complex financial instruments intended to hedge or otherwise change interest-rate risk. Interest rate swaps, futures contracts, options on futures, and other such derivative financial instruments often are used for this purpose. Because these instruments are sensitive to interest rate changes, they require management expertise to be effective. The Corporation has not purchased derivative financial instruments in the past and does not currently intend to purchase such instruments in the near future. 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 refinance its obligations at new, lower rates. Prepayments of assets carrying higher rates reduce the Corporation’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 Corporation 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. FHLB advances and wholesale borrowings may also be used as important sources of liquidity for the Corporation.

The following table provides information about the Corporation’s financial instruments that were sensitive to changes in interest rates as of December 31, 2011 and September 30, 2012, based on certain prepayment and account decay assumptions that management believes are reasonable. The table shows the changes in the Corporation’s net portfolio value (in amount and percent) that would result from hypothetical interest rate increases of 200 basis points and 100 basis points and an interest rate decrease of 100 basis points at September 30, 2012 and December 31, 2011.

Page 50

First Citizens Banc Corp

Form 10-Q

(Amounts in thousands, except share data)

The Corporation had no derivative financial instruments or trading portfolio as of December 31, 2011 or September 30, 2012. Expected maturity date values for interest-bearing core deposits were calculated based on estimates of the period over which the deposits would be outstanding. The Corporation’s borrowings were tabulated by contractual maturity dates and without regard to any conversion or repricing dates.

Net Portfolio Value


	June 30, 2012								December 31, 2011
Change in Rates	Dollar Amount		Dollar Change			Percent Change			Dollar Amount		Dollar Change		Percent Change
+200bp		126,167		(3,320	)		-3	%		135,092		669		0	%
+100bp		125,316		(4,171	)		-3	%		135,299		876		1	%
Base		129,487		—			—			134,423		—		—
-100bp		154,626		25,139			19	%		153,916		19,493		15	%

The change in net portfolio value from December 31, 2011 to September 30, 2012, is primarily a result of two factors. The yield curve has shifted downward slightly and become slightly steeper, on the short end, since the end of the year. Additionally, the mix and/or volume of assets and funding sources have changed. While the volume of earning assets has increased, the mix has shifted toward loans and securities and away from cash, which leads to greater volatility. Funding sources have increased while the funding mix shifted from CDs and borrowed money to deposits. The shifts in mixes led to the decrease in the base. Beyond the change in the base level of net portfolio value, overall projected movements, given specific changes in rates, would lead to generally larger changes in the value of assets. 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 assets, compared to liabilities. Accordingly we would see a decrease 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 liabilities would increase much more slowly than the fair value of the asset portfolio.

ITEM 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of September 30, 2012, were effective.

Page 51

First Citizens Banc Corp

Form 10-Q

(Amounts in thousands, except share data)

Changes in Internal Control over Financial Reporting

There have not been any changes in the Corporation’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the Corporation’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

Page 52

First Citizens Banc Corp

Other Information

Form 10-Q

Part II – Other Information

Item 1.

Legal Proceedings

There were no new material legal proceedings or material changes to existing legal proceedings during the current period.

Item 1A.

Risk Factors

There were no material changes to the risk factors as presented in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2011.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3.

Defaults Upon Senior Securities

None

Item 4.

Mine Safety Disclosures

N/A

Item 5.

Other Information

None

Item 6.

Exhibits

31.1

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.

31.2

Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.

32.1

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section

906 of the Sarbanes-Oxley Act of 2002.

32.2

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101

The following materials from First Citizens Banc Corp’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2012, formatted in XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets (Unaudited) as of September 30, 2012 and December 31, 2011; (ii) Consolidated Statements of Income (Unaudited) for the three and nine months ended September 30, 2012 and 2011; (iii) Consolidated Comprehensive Income Statements (Unaudited) for the three and nine months ended September 30, 2012 and 2011; (iv) Condensed Consolidated Statement of Shareholders’ Equity (Unaudited) for the nine months ended September 30, 2012; (v) Condensed Consolidated Statement of Cash Flows (Unaudited) for the nine months ended September 30, 2012 and 2011; and (vi) Notes to Interim Consolidated Financial Statements (Unaudited).*

Pursuant to Rule 406T of SEC Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are furnished and not deemed filed or part of a registration statement or prospectus for purposes of Sections 11 and 12 of the Securities Act of 1933, as amended, and are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those Sections.

Page 53

First Citizens Banc Corp

Signatures

Form 10-Q

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

First Citizens Banc Corp


/s/ James O. Miller				November 8, 2012
James O. Miller				Date
President, Chief Executive Officer

/s/ Todd A. Michel				November 8, 2012
Todd A. Michel				Date
Senior Vice President, Controller

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First Citizens Banc Corp

Index to Exhibits

Form 10-Q

Exhibits


Exhibit	Description	Location
3.1(a)	Articles of Incorporation, as amended, of First Citizens Banc Corp.	Filed as Exhibit 3.1 to First Citizens Banc Corp’s Form 10-K for the year ended December 31, 2005, filed on March 16, 2006 and incorporated herein by reference. (File No. 0-25980)

3.1(b)	Certificate of Amendment by Shareholders or Members as filed with the Ohio Secretary of State on January 12, 2009, evidencing the adoption by the shareholders of First Citizens Banc Corp on January 5, 2009 of an amendment to Article FOURTH to authorize the issuance of up to 200,000 preferred shares, without par value.	Filed as Exhibit 3.1(b) to First Citizens Banc Corp’s Form 10-K for the year ended December 31, 2008, filed on March 16, 2009 and incorporated herein by reference. (File No. 0-25980)

3.1(c)	Certificate of Amendment by Directors or Incorporators to Articles, filed with the Ohio Secretary of State on January 21, 2009, evidencing adoption of an amendment by the Board of Directors of First Citizens Banc Corp to Article FOURTH to establish the express terms of the Fixed Rate Cumulative Perpetual Preferred Shares, Series A, of First Citizens.	Filed as Exhibit 3.1 to First Citizens Banc Corp’s Current Report on Form 8-K dated and filed January 26, 2009, and incorporated herein by reference. (File No. 0-25980)

3.2	Amended and Restated Code of Regulations of First Citizens Banc Corp (adopted April 17, 2007).	Filed as Exhibit 3.2 to First Citizens Banc Corp’s Form 10-K for the year ended December 31, 2008, filed on March 16, 2009 and incorporated herein by reference. (File No. 0-25980)

31.1	Rule 13a-14(a)/15-d-14(a) Certification of Chief Executive Officer.	Included herewith

31.2	Rule 13a-14(a)/15-d-14(a) Certification of Chief Financial Officer.	Included herewith

32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Included herewith

32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Included herewith

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First Citizens Banc Corp

Index to Exhibits

Form 10-Q


101		The following materials from First Citizens Banc Corp’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2012, formatted in XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets (Unaudited) as of September 30, 2012 and December 31, 2011; (ii) Consolidated Statements of Income (Unaudited) for the three and nine months ended September 30, 2012 and 2011; (iii) Consolidated Comprehensive Income Statements (Unaudited) for the three and nine months ended September 30, 2012 and 2011; (iv) Condensed Consolidated Statement of Shareholders’ Equity (Unaudited) for the three and nine months ended September 30, 2012; (v) Condensed Consolidated Statement of Cash Flows (Unaudited) for the three and nine months ended September 30, 2012 and 2011; and (vi) Notes to Interim Consolidated Financial Statements (Unaudited).*		Included herewith

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