CIVISTA BANCSHARES, INC. - Quarter Report: 2013 June (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: June 30, 2013

¨	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 August 8, 2013 - 7,707,917 shares

FIRST CITIZENS BANC CORP

Index


PART I. Financial Information

Item 1. Financial Statements:
Consolidated Balance Sheets (Unaudited) June 30, 2013 and December 31, 2012			3
Consolidated Statements of Income (Unaudited) Three and six months ended June 30, 2013 and 2012			4
Consolidated Statements of Comprehensive Income (Unaudited) Three and six months ended June 30, 2013 and 2012			5
Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) Six months ended June 30, 2013			6
Condensed Consolidated Statement of Cash Flows (Unaudited) Six months ended June 30, 2013 and 2012			7
Notes to Interim Consolidated Financial Statements (Unaudited)			8-41

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			42-54

Item 3. Quantitative and Qualitative Disclosures about Market Risk			55-57

Item 4. Controls and Procedures			57-58

PART II. Other Information

Item 1. Legal Proceedings			59

Item 1A. Risk Factors			59

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			59

Item 3. Defaults Upon Senior Securities			59

Item 4. Mine Safety Disclosures [Not Applicable]			59

Item 5. Other Information			59

Item 6. Exhibits			59-60

Signatures			61

Part I – Financial Information

ITEM 1.

Financial Statements

FIRST CITIZENS BANC CORP

Consolidated Balance Sheets (Unaudited)

(In thousands, except share data)


	June 30, 2013			December 31, 2012
ASSETS
Cash and due from financial institutions	$	62,104		$	46,131
Securities available for sale		199,866			203,961
Loans held for sale		756			1,873
Loans, net of allowance of $19,405 and $19,742		790,701			795,811
Other securities		15,540			15,567
Premises and equipment, net		16,881			17,166
Accrued interest receivable		3,692			3,709
Goodwill		21,720			21,720
Other intangibles		2,715			3,139
Bank owned life insurance		18,881			18,590
Other assets		10,392			9,304

Total assets	$	1,143,248		$	1,136,971

LIABILITIES
Deposits
Noninterest-bearing	$	214,618		$	202,416
Interest-bearing		723,587			723,973

Total deposits		938,205			926,389
Federal Home Loan Bank advances		40,244			40,261
Securities sold under agreements to repurchase		19,421			23,219
Subordinated debentures		29,427			29,427
Accrued expenses and other liabilities		13,792			13,695

Total liabilities		1,041,089			1,032,991

SHAREHOLDERS’ EQUITY
Preferred stock, no par value, 200,000 shares authorized, 23,184 shares issued		23,184			23,184
Common stock, no par value, 20,000,000 shares authorized, 8,455,881 shares issued		114,365			114,365
Accumulated deficit		(12,544	)		(14,687	)
Treasury stock, 747,964 shares at cost		(17,235	)		(17,235	)
Accumulated other comprehensive income (loss)		(5,611	)		(1,647	)

Total shareholders’ equity		102,159			103,980

Total liabilities and shareholders’ equity	$	1,143,248		$	1,136,971

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				Six months ended
	June 30,				June 30,
	2013		2012		2013		2012
Interest and dividend income
Loans, including fees	$	9,537	$	10,047	$	19,250	$	20,437
Taxable securities		920		1,215		1,925		2,488
Tax-exempt securities		534		459		1,058		886
Federal funds sold and other		34		36		78		64

Total interest income		11,025		11,757		22,311		23,875

Interest expense
Deposits		699		998		1,459		2,061
Federal Home Loan Bank advances		346		393		690		787
Subordinated debentures		194		215		383		427
Other		5		5		11		10

Total interest expense		1,244		1,611		2,543		3,285

Net interest income		9,781		10,146		19,768		20,590
Provision for loan losses		300		1,465		800		3,865

Net interest income after provision for loan losses		9,481		8,681		18,968		16,725

Noninterest income
Service charges		1,066		1,073		2,032		2,135
Net gain on sale of securities		41		42		58		40
ATM fees		511		439		972		883
Trust fees		626		544		1,228		1,069
Bank owned life insurance		144		161		291		324
Computer center data processing fees		64		71		125		142
Other		379		522		1,341		1,168

Total noninterest income		2,831		2,852		6,047		5,761

Noninterest expense
Salaries, wages and benefits		5,581		5,434		11,088		10,396
Net occupancy expense		553		519		1,164		1,071
Equipment expense		288		306		567		604
Contracted data processing		263		242		525		459
FDIC Assessment		286		251		546		502
State franchise tax		300		252		564		505
Professional services		691		806		1,433		1,404
Amortization of intangible assets		212		232		424		510
ATM Expense		161		138		316		285
Marketing		192		192		385		387
Other operating expenses		1,819		2,023		3,542		3,535

Total noninterest expense		10,346		10,395		20,554		19,658

Income before taxes		1,966		1,138		4,461		2,828
Income tax expense		309		202		891		599

Net Income		1,657		936		3,570		2,229
Preferred stock dividends and discount accretion		290		294		580		588

Net income available to common shareholders	$	1,367	$	642	$	2,990	$	1,641

Earnings per common share, basic and diluted	$	0.18	$	0.08	$	0.39	$	0.21

See notes to interim unaudited consolidated financial statements

Page 4

FIRST CITIZENS BANC CORP

Consolidated Statements of Comprehensive Income (Unaudited)

(In thousands)


	Three months ended June 30,						Six months ended June 30,
	2013			2012			2013			2012
Net income	$	1,657		$	936		$	3,570		$	2,229
Other comprehensive (loss):
Unrealized holding gains (loss) on available for sale securities		(5,662	)		457			(6,286	)		617
Tax effect of unrealized holdings gains (loss) on available for sale securities		1,925			(156	)		2,137			(210	)
Reclassification adjustment for gain recognized in income		(41	)		(42	)		(58	)		(40	)
Tax effect of reclassification adjustment for gain recognized in income		14			14			20			14
Pension liability adjustment		180			90			338			180
Tax effect of pension liability adjustment		(61	)		(31	)		(115	)		(61	)

Total other comprehensive income (loss)		(3,645	)		332			(3,964	)		500

Comprehensive income (loss)	$	(1,988	)	$	1,268		$	(394	)	$	2,729

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			Loss			Equity
Balance, January 1, 2013		23,184	$	23,184		7,707,917	$	114,365	$	(14,687	)	$	(17,235	)	$	(1,647	)	$	103,980
Net Income		—		—		—		—		3,570			—			—			3,570
Other comprehensive loss		—		—		—		—		—			—			(3,964	)		(3,964	)
Cash dividends ($.07 per share)		—		—		—		—		(539	)		—			—			(539	)
Preferred stock dividend		—		—		—		—		(580	)		—			—			(580	)
Cash dividends declared ($.04 per share)		—		—		—		—		(308	)		—			—			(308	)

Balance, June 30, 2013		23,184	$	23,184		7,707,917	$	114,365	$	(12,544	)	$	(17,235	)	$	(5,611	)	$	102,159

See notes to interim unaudited consolidated financial statements

Page 6

FIRST CITIZENS BANC CORP

Condensed Consolidated Statement of Cash Flows (Unaudited)

(In thousands)


	Six months ended June 30,
	2013			2012
Net cash from operating activities	$	7,926		$	9,229
Cash flows used for investing activities
Maturities and calls of securities, available-for-sale		32,277			39,120
Purchases of securities, available-for-sale		(43,116	)		(59,169	)
Sale of securities available for sale		7,758			12,982
Redemption of FRB stock		27			—
Purchases of FRB stock		—			(136	)
Net loan originations		4,160			7,798
Proceeds from sale of OREO properties		370			801
Proceeds from sale of premises and equipment		118			6
Purchases of office premises and equipment		(429	)		(599	)

Net cash provided by investing activities		1,165			803

Cash flows provided by financing activities
Repayment of FHLB borrowings		(17	)		(17	)
Net change in deposits		11,816			(3,992	)
Net change in securities sold under agreements to repurchase		(3,798	)		(2,919	)
Cash dividends paid on common stock and preferred stock		(1,119	)		(1,042	)

Net cash provided by (used for) financing activities		6,882			(7,970	)

Net change in cash and due from financial institutions		15,973			2,062
Cash and cash equivalents at beginning of period		46,131			52,127

Cash and cash equivalents at end of period	$	62,104		$	54,189

Cash paid during the period for:
Interest	$	2,559		$	3,328
Income taxes	$	1,010		$	300
Supplemental cash flow information:
Transfer of loans from portfolio to OREO	$	187		$	144

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 June 30, 2013 and its results of operations and changes in cash flows for the periods ended June 30, 2013 and 2012 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 June 30, 2013 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 2012 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 June 30, 2013. Water St. revenue was less than 1.0% of total revenue through June 30, 2013. 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 February 2013, the FASB issued ASU 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date. The objective of the amendments in this Update is to provide guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, except for obligations addressed within existing guidance in U.S. generally accepted accounting principles (GAAP). Examples of obligations within the scope of this Update include debt arrangements, other contractual obligations, and settled litigation and judicial rulings. U.S. GAAP does not include specific guidance on accounting for such obligations with joint and several liability, which has resulted in diversity in practice. Some entities record the entire amount under the joint and several liability arrangements on the basis of the concept of a liability and the guidance that must be met to extinguish a liability. Other entities record less than the total amount of the obligation, such as an amount allocated, an amount corresponding to the proceeds received, or the portion of the amount the entity agreed to pay among its co-obligors, on the basis of the guidance for contingent liabilities. The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Adoption of 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 July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This Update applies to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. An unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Management is currently investigating the potential impact of this Update to the Corporation’s financial statements.

Page 10

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

(3) Securities

The amortized cost and fair market value of available for sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows:


June 30, 2013	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury securities and obligations of U.S. government agencies	$	51,409	$	187	$	(652	)	$	50,944
Obligations of states and political subdivisions		79,449		3,459		(1,259	)		81,649
Mortgage-backed securities in government sponsored entities		66,007		1,208		(463	)		66,752

Total debt securities		196,865		4,854		(2,374	)		199,345
Equity securities in financial institutions		481		40		—			521

Total	$	197,346	$	4,894	$	(2,374	)	$	199,866


December 31, 2012	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury securities and obligations of U.S. government agencies	$	53,919	$	375	$	(8	)	$	54,286
Obligations of states and political subdivisions		72,884		6,946		(24	)		79,806
Mortgage-backed securities in government sponsored entities		67,814		1,854		(233	)		69,435

Total debt securities		194,617		9,175		(265	)		203,527
Equity securities in financial institutions		481		—		(47	)		434

Total	$	195,098	$	9,175	$	(312	)	$	203,961

Page 11

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 June 30, 2013, 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	$	6,849	$	6,893
Due after one year through five years		20,474		20,217
Due after five years through ten years		28,975		29,482
Due after ten years		74,560		76,001
Mortgage-backed securities		66,007		66,752
Equity securities		481		521

Total securities available for sale	$	197,346	$	199,866

Proceeds from sales of securities, gross realized gains and gross realized losses were as follows.


	Three months ended				Six months ended
	June 30,				June 30,
	2013		2012		2013		2012
Sale proceeds	$	7,242	$	7,610	$	7,758	$	12,982
Gross realized gains		130		67		144		99
Gross realized losses		89		25		89		59
Gains from securities called or settled by the issuer		—		—		3		—

Securities were pledged to secure public deposits, other deposits and liabilities as required by law. The carrying value of pledged securities was approximately $151,060 and $147,204 as of June 30, 2013 and December 31, 2012, respectively.

Page 12

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 June 30, 2013 and December 31, 2012 not recognized in income are as follows:


June 30, 2013	12 Months or less					More than 12 months					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Description of Securities	Value		Loss			Value		Loss			Value		Loss
U.S. Treasury securities and obligations of U.S. government agencies	$	33,917	$	(652	)	$	—	$	—		$	33,917	$	(652	)
Obligations of states and political subdivisions		21,247		(1,257	)		444		(2	)		21,691		(1,259	)
Mortgage-backed securities in gov’t sponsored entities		27,094		(462	)		55		(1	)		27,149		(463	)

Total temporarily impaired	$	82,258	$	(2,371	)	$	499	$	(3	)	$	82,757	$	(2,374	)


December 31, 2012	12 Months or less					More than 12 months					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Description of Securities	Value		Loss			Value		Loss			Value		Loss
U.S. Treasury securities and obligations of U.S. government agencies	$	6,184	$	(8	)	$	—	$	—		$	6,184	$	(8	)
Obligations of states and political subdivisions		1,440		(22	)		465		(2	)		1,905		(24	)
Mortgage-backed securities in gov’t sponsored entities		7,907		(215	)		2,122		(18	)		10,029		(233	)
Equity securities in financial institutions		434		(47	)		—		—			434		(47	)

Total temporarily impaired	$	15,965	$	(292	)	$	2,587	$	(20	)	$	18,552	$	(312	)

At June 30, 2013 there were seventy-one securities in the portfolio with unrealized losses mainly due to higher market rates when compared to the time of purchase. 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 13

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:


	June 30,			December 31,
	2013			2012
Commercial and agriculture	$	110,551		$	100,661
Commercial real estate		421,265			434,808
Residential real estate		246,296			250,598
Real estate construction		22,651			19,677
Consumer and other		9,343			9,809

Total loans		810,106			815,553
Allowance for loan losses		(19,405	)		(19,742	)

Net loans	$	790,701		$	795,811

(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 Citizens’ 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 14

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 $19,405 adequate to cover loan losses inherent in the loan portfolio, at June 30, 2013. The following tables present by portfolio segment, the changes in the allowance for loan losses and the loan balances outstanding for the period ended June 30, 2013 and December 31, 2012.


	Commercial & Agriculture			Commercial Real Estate			Residential Real Estate			Real Estate Construction			Consumer			Unallocated		Total
For the six months ending June 30, 2013
Allowance for loan losses:
Beginning balance	$	2,811		$	10,139		$	5,780		$	349		$	246		$	417	$	19,742
Charge-offs		(92	)		(631	)		(1,021	)		—			(122	)		—		(1,866	)
Recoveries		62			223			301			106			37			—		729
Provision		994			(575	)		109			(271	)		(12	)		555		800

Ending Balance	$	3,775		$	9,156		$	5,169		$	184		$	149		$	972	$	19,405

For the six months ended June 30, 2013, the allowance for Commercial and Agriculture loans increased primarily as a result of reserves on specific loans. There was also an increase related to increased loan balances. The allowance for Commercial Real Estate loans was reduced not only by charge-offs, but also due to a decrease in both the loan balances outstanding and the specific reserve required for this type. The net result of these changes was represented as a decrease in the provision. The allowance for Residential Real Estate loans decreased as a result charged-off loans for which there had previously been a specific reserve. The allowance for Real Estate Construction loans was reduced as a result of changes to specific reserves required and the historical charge-offs for this type. The result of these changes was represented as a decrease in the provision. The allowance for Consumer loans was reduced as a result of changes to the historical charge-offs for this type. While we have seen improvement in asset quality, given the uncertainty in the economy, management determined that it was appropriate to maintain unallocated reserves at a higher level at this time.


	Commercial & Agriculture			Commercial Real Estate			Residential Real Estate			Real Estate Construction			Consumer			Unallocated			Total
For the six months ending June 30, 2012
Allowance for loan losses:
Beginning balance	$	2,876		$	10,571		$	5,796		$	974		$	719		$	321		$	21,257
Charge-offs		(418	)		(1,639	)		(1,469	)		(105	)		(125	)		—			(3,756	)
Recoveries		100			175			161			113			16			—			565
Provision		(21	)		2,594			1,891			113			(348	)		(364	)		3,865

Ending Balance	$	2,537		$	11,701		$	6,379		$	1,095		$	262		$	(43	)	$	21,931

Page 15

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

For the six months ended June 30, 2012, the allowance for Commercial & Agriculture was reduced not only by charge-offs, but also due to decreases in both the loan balances outstanding and a reduction in specific reserves required. The allowance for Consumer loans were reduced not only by charge-offs, but also due to decreases in both the loan balances outstanding and the historical charge-offs for this type. The net result of these changes for both of loan types was a reduction in the allowance 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 June 30, 2013
Allowance for loan losses:
Beginning balance	$	2,937		$	9,924		$	5,414		$	314		$	225		$	896	$	19,710
Charge-offs		(92	)		(319	)		(534	)		—			(40	)		—		(985	)
Recoveries		21			133			145			54			27			—		380
Provision		909			(582	)		144			(184	)		(63	)		76		300

Ending Balance	$	3,775		$	9,156		$	5,169		$	184		$	149		$	972	$	19,405

For the three months ended June 30, 2013, the allowance for Commercial and Agriculture loans increased both as a result of increased reserves on specific loans and reserves related to increased loan balances. The allowance for Commercial Real Estate was reduced not only by charge-offs, but also due to a decrease in both the loan balances outstanding and the specific reserve required for this type. The allowance for Real Estate Construction was reduced as a result of changes to specific reserves required and the historical charge-offs for this type. The allowance for Consumer was reduced as a result of changes to the historical charge-offs for this type. The result of these changes for each loan type was represented as a decrease in the provision. While we have seen improvement in asset quality, given the uncertainty in the economy, management determined that it was appropriate to maintain unallocated reserves at a higher level at this time.


	Commercial & Agriculture			Commercial Real Estate			Residential Real Estate			Real Estate Construction		Consumer			Unallocated			Total
For the three months ending June 30, 2012
Allowance for loan losses:
Beginning balance	$	3,042		$	10,970		$	6,257		$	857	$	603		$	295		$	22,024
Charge-offs		(286	)		(863	)		(703	)		—		(81	)		—			(1,933	)
Recoveries		65			151			109			52		(2	)		—			375
Provision		(284	)		1,443			716			186		(258	)		(338	)		1,465

Ending Balance	$	2,537		$	11,701		$	6,379		$	1,095	$	262		$	(43	)	$	21,931

Page 16

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

For the three months ended June 30, 2012, the allowance for Commercial & Agriculture was reduced not only by charge-offs, but also due to decreases in both the loan balances outstanding and a reduction in specific reserves required. The net result of these changes was a reduction in the allowance and is represented as a decrease in the provision. The allowance for Commercial Real Estate increased as a result of both increased loan balances and increased specific reserves. The allowance for Consumer loans were reduced not only by charge-offs, but also due to decreases 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 and is represented as a decrease in the provision.


	Commercial & Agriculture		Commercial Real Estate		Residential Real Estate		Real Estate Construction		Consumer		Unallocated		Total
June 30, 2013
Allowance for loan losses:
Ending balance:
Individually evaluated for impairment	$	1,384	$	1,081	$	800	$	58	$	1	$	—	$	3,324
Ending balance:
Collectively evaluated for impairment	$	2,391	$	8,075	$	4,369	$	126	$	148	$	972	$	16,081

Ending Balance	$	3,775	$	9,156	$	5,169	$	184	$	149	$	972	$	19,405

Loan balances outstanding:
Ending balance:
Individually evaluated for impairment	$	4,956	$	12,588	$	5,724	$	480	$	22			$	23,770
Ending balance:
Collectively evaluated for impairment	$	105,595	$	408,677	$	240,572	$	22,171	$	9,321			$	786,336

Ending Balance	$	110,551	$	421,265	$	246,296	$	22,651	$	9,343			$	810,106

Page 17

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, 2012
Allowance for loan losses:
Ending balance:
Individually evaluated for impairment	$	286	$	2,354	$	1,199	$	107	$	60	$	—	$	4,006
Ending balance:
Collectively evaluated for impairment	$	2,525	$	7,785	$	4,581	$	242	$	186	$	417	$	15,736

Ending Balance	$	2,811	$	10,139	$	5,780	$	349	$	246	$	417	$	19,742

Loan balances outstanding:
Ending balance:
Individually evaluated for impairment	$	5,420	$	13,941	$	6,127	$	541	$	61			$	26,090
Ending balance:
Collectively evaluated for impairment	$	95,241	$	420,867	$	244,471	$	19,136	$	9,748			$	789,463

Ending Balance	$	100,661	$	434,808	$	250,598	$	19,677	$	9,809			$	815,553

Page 18

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 June 30, 2013 and December 31, 2012. 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. Additionally, residential real estate, real estate construction or consumer loans that are directly related to a commercial borrower that has been downgraded may be downgraded as well.

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.


June 30, 2013	Commercial & Agriculture		Commercial Real Estate		Residential Real Estate		Real Estate Construction		Consumer		Total
Pass	$	100,167	$	390,243	$	90,012	$	18,235	$	740	$	599,397
Special Mention		2,151		5,002		724		—		—		7,877
Substandard		8,233		26,020		15,216		766		74		50,309
Doubtful		—		—		—		—		—		—

Ending Balance	$	110,551	$	421,265	$	105,952	$	19,001	$	814	$	657,583


December 31, 2012	Commercial & Agriculture		Commercial Real Estate		Residential Real Estate		Real Estate Construction		Consumer		Total
Pass	$	90,159	$	397,657	$	89,896	$	16,594	$	994	$	595,300
Special Mention		1,653		6,371		1,944		352		—		10,320
Substandard		8,849		30,780		12,873		1,001		106		53,609
Doubtful		—		—		—		—		—		—

Ending Balance	$	100,661	$	434,808	$	104,713	$	17,947	$	1,100	$	659,229

Page 19

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 June 30, 2013 and December 31, 2012 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
June 30, 2013
Performing	$	140,344	$	3,650	$	8,529	$	152,523
Nonperforming		—		—		—		—

Total	$	140,344	$	3,650	$	8,529	$	152,523


	Residential Real Estate		Real Estate Construction		Consumer		Total
December 31, 2012
Performing	$	145,879	$	1,730	$	8,696	$	156,305
Nonperforming		6		—		13		19

Total	$	145,885	$	1,730	$	8,709	$	156,324

Page 20

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 June 30, 2013 and December 31, 2012.


June 30, 2013	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	$	83	$	1,224	$	822	$	2,129	$	108,422	$	110,551	$	—
Commercial Real Estate		895		163		6,052		7,110		414,155		421,265		—
Residential Real Estate		632		640		6,158		7,430		238,866		246,296		—
Real Estate Construction		—		—		243		243		22,408		22,651		—
Consumer		60		21		16		97		9,246		9,343		—

Total	$	1,670	$	2,048	$	13,291	$	17,009	$	793,097	$	810,106	$	—


December 31, 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	$	31	$	72	$	553	$	656	$	100,005	$	100,661	$	—
Commercial Real Estate		1,000		533		6,794		8,327		426,481		434,808		80
Residential Real Estate		2,843		1,214		8,527		12,584		238,014		250,598		—
Real Estate Construction		43		—		416		459		19,218		19,677		—
Consumer		127		20		29		176		9,633		9,809		—

Total	$	4,044	$	1,839	$	16,319	$	22,202	$	793,351	$	815,553	$	80

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 June 30, 2013 and December 31, 2012.


	June 30, 2013		December 31, 2012
Commericial & Agriculture	$	2,771	$	2,869
Commercial Real Estate		13,732		16,250
Residential Real Estate		10,555		9,701
Real Estate Construction		723		958
Consumer		36		77

Total	$	27,817	$	29,855

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 six month periods ended June 30, 2013 and June 30, 2012 were as follows:


	For the Six-Month Period Ended June 30, 2013						For the Six-Month Period Ended June 30, 2012
	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Commericial & Agriculture		—	$	—	$	—		4	$	487	$	479
Commercial Real Estate		1		125		125		3		1,206		1,206
Residential Real Estate		—		—		—		20		865		786
Real Estate Construction		—		—		—		—		—		—
Consumer and Other		—		—		—		4		46		46

Total Loan Modifications		1	$	125	$	125		31	$	2,604	$	2,517

Loan modifications that are considered troubled debt restructurings (TDRs) completed during the quarter ended June 30, 2013 and June 30, 2012 were as follows:


	For the Three-Month Period Ended June 30, 2013						For the Three-Month Period Ended June 30, 2012
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Commericial & Agriculture		—	$	—	$	—		1	$	442	$	442
Commercial Real Estate		—		—		—		—		—		—
Residential Real Estate		—		—		—		15		865		786
Real Estate Construction		—		—		—		—		—		—
Consumer and Other		—		—		—		4		46		46

Total Loan Modifications		—	$	—	$	—		20	$	1,353	$	1,274

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.

Page 22

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

During the six-month period ended June 30, 2013, there were two defaults, totaling $66, on loans which were modified and considered TDRs during the twelve months previous to the six-month period ending June 30, 2013.

During the six-month period ended June 30, 2012, there were no defaults on any loans which were modified and considered TDRs during the twelve months previous to the six-month period ending June 30, 2012.

During the three-month period ended June 30, 2013, there were two defaults, totaling $66, on loans which were modified and considered TDRs during the twelve months previous to the three-month period ending June 30, 2013.

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

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. Additionally, if a Residential Real Estate loan or Consumer loan is part of a relationship with a Commercial loan or Commercial Real Estate loan that is impaired, then the Residential Real Estate loan or Consumer loan is considered impaired as well.

Page 23

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The following tables include the recorded investment and unpaid principal balances for impaired financing receivables with the associated allowance amount, if applicable, as of June 30, 2013 and December 31, 2012.


	June 30, 2013						December 31, 2012
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commericial & Agriculture	$	1,472	$	1,608	$	—	$	5,053	$	5,226	$	—
Commercial Real Estate		7,254		9,490		—		5,446		8,114		—
Residential Real Estate		3,286		6,077		—		2,566		5,346		—
Real Estate Construction		—		—		—		—		521		—
Consumer and Other		—		—		—		1		1		—

Total		12,012		17,175		—		13,066		19,208		—

With an allowance recorded:
Commericial & Agriculture		3,484		3,588		1,384		367		385		286
Commercial Real Estate		5,334		5,750		1,081		8,495		8,681		2,354
Residential Real Estate		2,438		2,587		800		3,561		4,554		1,199
Real Estate Construction		480		497		58		541		547		107
Consumer and Other		22		22		1		60		60		60

Total		11,758		12,444		3,324		13,024		14,227		4,006

Total:
Commericial & Agriculture		4,956		5,196		1,384		5,420		5,611		286
Commercial Real Estate		12,588		15,240		1,081		13,941		16,795		2,354
Residential Real Estate		5,724		8,664		800		6,127		9,900		1,199
Real Estate Construction		480		497		58		541		1,068		107
Consumer and Other		22		22		1		61		61		60

Total	$	23,770	$	29,619	$	3,324	$	26,090	$	33,435	$	4,006

Page 24

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The following tables include the average recorded investment and interest income recognized for impaired financing receivables for the three month and six month periods ended June 30, 2013 and 2012.

For the six months ended:


	June 30, 2013				June 30, 2012
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commericial & Agriculture	$	5,178	$	131	$	4,372	$	180
Commercial Real Estate		13,292		409		16,832		703
Residential Real Estate		5,794		269		4,010		245
Real Estate Construction		503		11		414		2
Consumer and Other		40		—		16		—

Total	$	24,807	$	820	$	25,644	$	1,130

For the three months ended:


	June 30, 2013				June 30, 2012
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commericial & Agriculture	$	5,125	$	63	$	4,610	$	90
Commercial Real Estate		12,855		204		16,471		444
Residential Real Estate		5,671		126		4,092		167
Real Estate Construction		483		6		33		1
Consumer and Other		31		—		23		—

Total	$	24,165	$	399	$	25,229	$	702

Page 25

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

(6) Other Comprehensive Income

The following table presents the changes in each component of accumulated other comprehensive loss, net of tax, for the three months ended June 30, 2013:


	Unrealized Gains and Losses on Available- for-Sale Securities			Defined Benefit Pension Items			Total
Beginning balance	$	5,426		$	(7,392	)	$	(1,966	)

Other comprehensive income before reclassifications		(3,737	)		—			(3,737	)
Amounts reclassified from accumulated other comprehensive loss		(27	)		119			92

Net current-period other comprehensive income		(3,764	)		119			(3,645	)

Ending balance	$	1,662		$	(7,273	)	$	(5,611	)

Amounts in parentheses indicate debits.

Page 26

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The following table presents the amounts reclassified out of each component of accumulated other comprehensive loss for the three months ended June 30, 2013:


Details about Accumulated Other Comprehensive Income Components	Amout Reclassified from Accumulated Other Comprehensive Loss ^(a)			Affected Line Item in the Statement Where Net Income is Presented
Unrealized gains and losses on available-for-sale securities	$	41		Net gain on sale of securities

		41		Total before tax
		(14	)	Income tax expense

		27		Net of tax

Amortization of defined benefit pension items
Actuarial gains/(losses)		(180	)^(b)	Salaries, wages and benefits

		(180	)	Total before tax
		61		Income tax expense

		(119	)	Net of tax

Total reclassifications for the period	$	(92	)	Net of tax

^(a)	Amounts in parentheses indicate debits to profit/loss.

^(b)	These accumulated other comprehensive income components are included in the computation of net periodic pension cost.

Page 27

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The following table presents the changes in each component of accumulated other comprehensive loss, net of tax, for the six months ended June 30, 2013:


	Unrealized Gains and Losses on Available- for-Sale Securities			Defined Benefit Pension Items			Total
Beginning balance	$	5,849		$	(7,496	)	$	(1,647	)

Other comprehensive income before reclassifications		(4,149	)		—			(4,149	)
Amounts reclassified from accumulated other comprehensive income		(38	)		223			185

Net current-period other comprehensive income		(4,187	)		223			(3,964	)

Ending balance	$	1,662		$	(7,273	)	$	(5,611	)

Amounts in parentheses indicate debits.

Page 28

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The following table presents the amounts reclassified out of each component of accumulated other comprehensive loss for the six months ended June 30, 2013:


Details about Accumulated Other Comprehensive Income Components	Amout Reclassified from Accumulated Other Comprehensive Loss ^(a)			Affected Line Item in the Statement Where Net Income is Presented
Unrealized gains and losses on available-for-sale securities	$	58		Net gain on sale of securities

		58		Total before tax
		(20	)	Income tax expense

		38		Net of tax

Amortization of defined benefit pension items
Actuarial gains/(losses)		(338	)^(b)	Salaries, wages and benefits

		(338	)	Total before tax
		115		Income tax expense

		(223	)	Net of tax

Total reclassifications for the period	$	(185	)	Net of tax

^(a)	Amounts in parentheses indicate debits to profit/loss.

^(b)	These accumulated other comprehensive income components are included in the computation of net periodic pension cost.

Page 29

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

(7) 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 June 30,				Six months ended June 30,
	2013		2012		2013		2012
Basic
Net income	$	1,657	$	936	$	3,570	$	2,229
Preferred stock dividends and discount accretion		290		294		580		588

Net income available to common shareholders	$	1,367	$	642	$	2,990	$	1,641

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

Basic earnings per common share	$	0.18	$	0.08	$	0.39	$	0.21

Diluted
Net income	$	1,657	$	936	$	3,570	$	2,229
Preferred stock dividends and discount accretion		290		294		580		588

Net income available to common shareholders	$	1,367	$	642	$	2,990	$	1,641

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	$	0.18	$	0.08	$	0.39	$	0.21

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-month and six-month periods ended June 30, 2012 because they were anti-dilutive.

There were no dilutive or anti-dilutive securities at June 30, 2013

Page 30

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

(8) 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 June 30, 2013 and December 31, 2012:


	Contract Amount
	June 30, 2013				December 31, 2012
	Fixed		Variable		Fixed		Variable
	Rate		Rate		Rate		Rate
Commitment to extend credit:
Lines of credit and construction loans	$	6,755	$	137,493	$	9,378	$	118,182
Overdraft protection		46		20,275		51		19,726
Letters of credit		294		796		294		396

	$	7,095	$	158,564	$	9,723	$	138,304

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 June 30, 2013 and December 31, 2012, 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 $1,842 on June 30, 2013 and $1,217 on December 31, 2012.

Page 31

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

(9) Pension Information

Net periodic pension expense was as follows:


	Three months ended June 30,						Six months ended June 30,
	2013			2012			2013			2012
Service cost	$	310		$	235		$	583		$	470
Interest cost		228			229			428			458
Expected return on plan assets		(249	)		(215	)		(468	)		(229	)
Other components		180			90			338			180

Net periodic pension cost	$	469		$	339		$	881		$	879

The total amount of contributions expected to be paid by the Corporation in 2013 is $1,900, compared to $1,510 in 2012.

(10) 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’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 32

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:


	Six months ended June 30, 2013						Six months ended June 30, 2012
	Total options outstanding						Total options outstanding
				Weighted					Weighted
				Average					Average
				Price					Price
	Shares			Per Share			Shares		Per Share
Outstanding at beginning of year		10,000		$	35.00			29,500	$	25.42
Granted		—			—			—		—
Exercised		—			—			—		—
Forfeited		—			—			—		—
Expired		(10,000	)		(35.00	)		—		—

Options outstanding, end of period		—		$	—			29,500	$	25.42

Options exercisable, end of period		—		$	—			29,500	$	25.42

At June 30, 2013, all previously outstanding stock options had expired unexercised.

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 June 30, 2012, there were no options that had intrinsic value.

(11) 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.

Page 33

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

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).

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.

Assets measured at fair value are summarized below.


	Fair Value Measurements at June 30, 2013 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	$	—	$	50,944	$	—
Obligations of states and political subdivisions		—		81,202		447
Mortgage-backed securities in government sponsored entities		—		66,752		—
Equity securities in financial institutions		—		521		—
Assets measured at fair value on a nonrecurring basis:
Impaired loans	$	—	$	—	$	20,446
Other real estate owned		—		—		350

Page 34

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)


	Fair Value Measurements at December 31, 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	$	—	$	54,286	$	—
Obligations of states and political subdivisions		—		79,338		468
Mortgage-backed securities in government sponsored entities		—		69,435		—
Equity securities in financial institutions		—		434		—
Assets measured at fair value on a nonrecurring basis:
Impaired loans	$	—	$	—	$	22,084
Other real estate owned		—		—		471

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 June 30, 2013.


	Quantitative Information about Level 3 Fair Value Measurements
June 30, 2013	Fair Value Estimate		Valuation Technique	Unobservable Input	Range
Investments	$	447	Appraisal of collateral	Appraisal adjustments		20% - 30	%
				Liquidation expense		8% - 12	%
Impaired loans	$	20,321	Appraisal of collateral	Appraisal adjustments		10% - 30	%
				Liquidation expense		0% - 10	%
				Holding period		0 -30 months
			Discounted cash flows	Discount rates		3.8% - 8.3	%
Other real estate owned	$	350	Appraisal of collateral	Appraisal adjustments		10% - 30	%
				Liquidation expense		0% - 10	%

Page 35

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 December 31, 2012.


	Quantitative Information about Level 3 Fair Value Measurements
December 31, 2012	Fair Value Estimate		Valuation Technique	Unobservable Input	Range
Obligations of states and political subdivisions	$	468	Appraisal of collateral	Appraisal adjustments		20% - 30	%
				Liquidation expense		8% - 12	%
Impaired loans	$	22,084	Appraisal of collateral	Appraisal adjustments		10% - 30	%
				Liquidation expense		0% - 10	%
				Holding period		0 -30 months
			Discounted cash flows	Discount rates		2% - 8.5	%
Other real estate owned	$	471	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 June 30, 2013. 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, 2013	$	468
Purchases, issuances, and settlements		(21	)

Ending balance June 30, 2013	$	447

Page 36

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.


June 30, 2013	Carrying Amount		Total Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from financial institutions	$	62,104	$	62,104	$	62,104	$	—	$	—
Securities available for sale		199,866		199,866		—		199,419		447
Other securities		15,540		15,540		15,540		—		—
Loans, available for sale		756		756		756		—		—
Loans, net of allowance for loan losses		790,701		802,471		—		—		802,471
Bank owned life insurance		18,881		18,881		18,881		—		—
Accrued interest receivable		3,692		3,692		3,692		—		—
Mortgage servicing rights		426		426		426		—		—
Financial Liabilities:
Nonmaturing deposits		694,098		694,098		694,098		—		—
Time deposits		244,107		248,024		—		—		248,024
Federal Home Loan Bank advances		40,244		43,073		—		—		43,073
Securities sold under agreement to repurchase		19,421		19,421		19,421		—		—
Subordinated debentures		29,427		24,897		—		—		24,897
Accrued interest payable		169		169		169		—		—

Page 37

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)


December 31, 2012	Carrying Amount		Total Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from financial institutions	$	46,131	$	46,131	$	46,131	$	—	$	—
Securities available for sale		203,961		203,961		—		203,493		468
Other securities		15,567		15,567		15,567		—		—
Loans, available for sale		1,873		1,873		1,873		—		—
Loans, net of allowance for loan losses		795,811		812,950		—		—		812,950
Bank owned life insurance		18,590		18,590		18,590		—		—
Accrued interest receivable		3,709		3,709		3,709		—		—
Mortgage servicing rights		308		308		308
Financial Liabilities:
Nonmaturing deposits		662,387		662,387		662,387		—		—
Time deposits		264,002		265,974		—		—		265,974
Federal Home Loan Bank advances		40,261		41,658		—		—		41,658
Securities sold under agreement to repurchase		23,219		23,219		23,219		—		—
Subordinated debentures		29,427		26,855		—		—		26,855
Accrued interest payable		185		185		185		—		—

Page 38

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

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.

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.

Page 39

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

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.

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.

(12) 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.

Page 40

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

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.

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)

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 June 30, 2013 compared to December 31, 2012 and the consolidated results of operations for the three and six-month periods ended June 30, 2013, compared to the same periods in 2012. 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, business line results, credit quality expectations, prospects for new lines of business, 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 tax laws and 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 June 30, 2013 were $1,143,248 compared to $1,136,971 at December 31, 2012, an increase of $6,277, or 0.6 percent. The increase in total assets was mainly attributed to an increase in cash and due from banks, partially offset by a decrease in loans. Total liabilities at June 30, 2013 were $1,041,089 compared to $1,032,991 at December 31, 2012, an increase of $8,098, or 0.8 percent. The increase in total liabilities was mainly attributed to an increase in non interest-bearing deposits offset by a decrease in securities sold under agreements to repurchase.

Page 42

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

Net loans have decreased $5,110 or 0.6 percent since December 31, 2012. The commercial and agricultural and real estate construction loan portfolios increased $9,890 and $2,974, respectively since December 31, 2012, while the commercial real estate, residential real estate and consumer and other loan portfolios decreased $13,543, $4,302 and $466 respectively. The current increase in commercial and agricultural 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 loans is mainly due to an increase in the demand for construction loans and advances on existing construction loans. The current decrease in commercial real estate loans is the result of the pay-down or pay-off of loan balances. 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 decreased $1,117 or 59.6 percent since December 31, 2012. At June 30, 2013, the net loan to deposit ratio was 84.3 percent compared to 85.9 percent at December 31, 2012. This ratio has declined in 2013 due to a decrease in loans.

For the six months of operations in 2013, $800 was placed into the allowance for loan losses from earnings, compared to $3,865 in the same period of 2012. 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 increases compared to December 31, 2012, specific reserves declined during the same period. However, detailed analyses of potential losses in the loan portfolio indicated that a reduced provision was appropriate. Net charge-offs have decreased to $1,137, compared to $3,191 in 2012. For the first six months of 2013, the Corporation has charged off one hundred and twenty-three loans. Forty-six real estate mortgage loans totaling $720 net of recoveries, seventeen commercial real estate loans totaling $408 net of recoveries and three commercial and agriculture loans totaling $30 net of recoveries were charged off in the first six months of the year. While no real estate construction loans were charged off, $105 was recovered. In addition, fifty-seven consumer loans totaling $85, 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 decreased by $2,118, of which $80 was due to a decrease in loans past due 90 days but still accruing and $2,038 was due to a decrease 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 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)

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 2.40 at June 30, 2013 and 2.42 percent at December 31, 2012.

The available for sale security portfolio decreased by $4,095, from $203,961 at December 31, 2012, to $199,866 at June 30, 2013. The decrease is the result of a decline in market value of the securities portfolio in the first six months of 2013. 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 June 30, 2013, the Corporation was in compliance with all pledging requirements.

Bank owned life insurance (BOLI) increased $291 from December 31, 2012 to June 30, 2013 due to increases in the cash surrender value of the underlying insurance policies.

Office premises and equipment, net, have decreased $285 from December 31, 2012 to June 30, 2013, as a result of depreciation of $703 and disposals of $11, offset by new purchases of $429.

Total deposits at June 30, 2013 increased $11,816 from year-end 2012. Noninterest-bearing deposits decreased $12,202 from year-end 2012, while interest-bearing deposits, including savings and time deposits, decreased $386 from December 31, 2012. 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 decrease was due to an increase in savings accounts and interest-bearing demand accounts offset by decreases in time certificates and individual retirement accounts (IRA). Savings accounts increased $8,171 from year-end 2012, which included increases of $4,126 in statement savings and $4,365 in public fund money market savings, offset by a decrease in money market savings of $1,058. Interest-bearing deposits increased $11,338 from year end 2012, which included an increase of $16,157 in interest-bearing public funds offset by a decrease of $3,408 in interest-bearing checking accounts and $3,860 in NOW accounts. Time certificates, individual retirement accounts (IRA) and Certificate of Deposit Account Registry Service (CDARS) decreased $17,403, $1,755 and $722 respectively from year end 2012. The year-to-date average balance of total deposits increased $62,230 compared to the average balance of the same period in 2012. The increase in average balance is due to increases of $44,919 in demand deposit accounts, $9,645 in statement savings accounts, $7,429 in interest-bearing demand, $8,584 in NOW accounts, $19,342 in interest-bearing public funds and $10,096 in brokered deposits, offset by decreases of $31,497 in time certificates and $1,814 in CDARS accounts.

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)

Total borrowed funds have decreased $3,815 from December 31, 2012 to June 30, 2013. At June 30, 2013, the Corporation had $40,244 in outstanding Federal Home Loan Bank advances compared to $40,261 at December 31, 2012. Securities sold under agreements to repurchase, which tend to fluctuate due to timing of deposits, have decreased $3,798 from December 31, 2012 to June 30, 2013.

Shareholders’ equity at June 30, 2013 was $102,159, or 8.9 percent of total assets, compared to $103,980, or 9.1 percent of total assets at December 31, 2012. The decrease in shareholders’ equity resulted from net income of $3,570 plus the increase in the Corporation’s pension liability, net of tax, of $223 less the decrease in the fair value of securities available for sale, net of tax, of $4,187, dividends declared on common shares of $308 and preferred dividends and common dividends paid of $580 and $539, respectively. Total outstanding common shares at June 30, 2013 and 2012 were 7,707,917.

Results of Operations

Six Months Ended June 30, 2013 and 2012

The Corporation had net income of $3,570 for the six months ended June 30, 2013, an increase of $1,341 from net income of $2,229 for the same six months of 2012. Basic and diluted earnings per common share were $.39 for the six months of 2013, compared to $0.21 for the same period in 2012. The primary reasons for the changes in net income are explained below.

Net interest income for the six months ended June 30, 2013 was $19,768, a decrease of $822 from $20,590 in the same six months of 2012. 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 six months ended June 30, 2013 was $22,311, a decrease of $1,564 from $23,875 in the same six months of 2012. Average earning assets increased 3.9 percent from the six month period last year. Average loans and interest-bearing deposits in other banks for the six months of 2012 increased 5.6 percent and 4.5 percent respectively compared to the six months of last year. These increases were offset by a decrease in average securities of 2.0 percent compared to the same period of 2012. The yield on earning assets decreased 31 basis points for the first six months of 2012 compared to the same period last year. The yield on loans and taxable securities decreased 53 and 44 basis points respectively during the first six months of 2013 compared to the first six months of last year. These factors combined resulted in the decrease in total interest income for the first six months of 2013. Total interest expense for the six months ended June 30, 2013 was $2,543, a decrease of $742 from $3,285 in the same six months of 2012. Interest expense on time deposits decreased $563 or 31.2 percent in the first six months of 2013 compared to the same period in 2012. Average time deposits for the first six months of 2013 decreased 9.4 percent compared to 2012. The interest rate paid on time deposits during the first six months of 2013 also decreased as compared to the same period in 2012 by 30 basis points. The Corporation’s net interest margin for the six months ended June 30, 2013 and 2012 was 3.75 and 3.90%, respectively.

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)

The following table presents the condensed average balance sheets for the six months ended June 30, 2013 and 2012. 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. Rates are annualized and taxable equivalent yields are computed using a 34% tax rate for tax-exempt interest income. The average yield has been computed using the historical amortized cost average balance for available-for-sale securities.


	Six Months Ended June 30,
	2013								2012
	Average balance			Interest		Yield/ rate *			Average balance			Interest		Yield/ rate *
Assets:
Interest-earning assets:
Loans	$	811,761		$	19,250		4.79	%	$	768,755		$	20,437		5.37	%
Taxable securities		161,225			1,925		2.46	%		175,948			2,488		2.92	%
Non-taxable securities		57,861			1,058		6.00	%		47,605			886		6.20	%
Interest-bearing deposits in other banks		71,609			78		0.22	%		68,541			64		0.19	%

Total interest-earning assets	$	1,102,456			22,311		4.22	%	$	1,060,849			23,875		4.67	%

Noninterest-earning assets:
Cash and due from financial institutions		26,809								9,844
Premises and equipment, net		17,042								17,726
Accrued interest receivable		4,165								4,480
Intangible assets		24,677								25,604
Other assets		9,300								9,987
Bank owned life insurance		18,716								18,156
Less allowance for loan losses		(19,943	)							(21,728	)

Total Assets	$	1,183,222							$	1,124,918

Liabilities and Shareholders Equity:
Interest-bearing liabilities:
Demand and savings	$	483,201		$	219		0.09	%	$	439,522		$	258		0.12	%
Time		253,460			1,240		0.99	%		279,822			1,803		1.30	%
FHLB		40,254			689		3.45	%		50,288			787		3.16	%
Subordinated debentures		30,349			384		2.55	%		30,349			427		2.84	%
Repuchase Agreements		20,781			11		0.11	%		17,701			10		0.11	%

Total interest-bearing liabilities	$	828,045			2,543		0.62	%	$	817,682			3,285		0.81	%

Noninterest-bearing deposits		238,287								190,682
Other liabilities		12,427								13,072
Shareholders’ Equity		104,463								103,482

Total Liabilities and Shareholders’ Equity	$	1,183,222							$	1,124,918

Net interest income and interest rate spread				$	19,768		3.60	%				$	20,590		3.86	%
Net yield on interest earning assets							3.75	%							4.04	%

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

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)

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 six months ended June 30, 2013 and 2012. 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	$	1,101		$	(2,288	)	$	(1,187	)
Taxable securities		(202	)		(361	)		(563	)
Nontaxable securities		202			(30	)		172
Interest-bearing deposits in other banks		3			11			14

Total interest income	$	1,104		$	(2,668	)	$	(1,564	)

Interest expense:
Demand and savings		24			(63	)		(39	)
Time		(158	)		(405	)		(563	)
FHLB		(167	)		69			(98	)
Subordinated debentures		—			(43	)		(43	)
Repurchase agreements		2			(1	)		1

Total interest expense	$	(299	)	$	(443	)	$	(742	)

Net interest income	$	1,403		$	(2,225	)	$	(822	)

(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.

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)

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 $800 for the six months ended June 30, 2013, compared to $3,865 for the same period in 2012. Although general reserves increased compared to December 31, 2012, specific reserves declined during the same period. Management believes the overall adequacy of the reserve for loan losses supported a reduced provision, compared to June 30, 2012.

Non-interest income for the six months ended June 30, 2013 was $6,047, an increase of $286 or 5.0 percent from $5,761 for the same period of 2012. Service charge fee income for the first six months of 2013 was $2,032, down $103 or 4.8 percent over the same period of 2012. Trust fee income was $1,228, up $159 or 14.9 percent over the same period in 2012. The increase is related to a general increase in assets under management. ATM fee income for the first six months of 2013 was $972, up $89 or 10.1 percent over the same period of 2012. BOLI contributed $291 to non-interest income during the six months ended June 30, 2013. Other non-interest income was $1,524, up $174 over the same period in 2012 as a result of increased volume in processing tax refunds, the gain on the sale of fixed assets and gain on the sale of loans to the secondary market.

Non-interest expense for the six months ended June 30, 2013 was $20,554, an increase of $896, from $19,658 reported for the same period of 2012. The primary reasons for the increase follow. Salary and other employee costs were $11,088, up $692 or 6.7 percent as compared to the same period of 2012. The number of full-time equivalent employees increased during the first six months of 2013 to 309.7, up 6.9, compared to the same period of 2012. These increases are mainly due to an increase in staffing, higher insurance costs and higher pension costs for the first six months of 2013. Contracted data processing costs were $525, up $66 or 14.4 percent compared to the same period in 2012 due to increases in cost of technology services. State franchise taxes increased by $59 compared to the same period of 2012 due to increases in the taxable value to shareholder’s equity. Amortization expense decreased $86, or 16.9 percent from the same six months of 2012, as a result of scheduled amortization of intangible assets associated with mergers. FDIC assessments were up by $44 during the first six months of 2013 compared to the same period of 2012 due to increases in deposit balances.

Income tax expense for the six months ended June 30, 2013 totaled $891, up $292 or 48.7 percent compared to the same period in 2012. 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 six-month periods ended June 30, 2013 and June 30, 2012 were 20.0% and 21.2%, respectively.

Page 48

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 June 30, 2013 and 2012

The Corporation had net income of $1,657 for the three months ended June 30, 2013, an increase of $721 from net income of $936 for the same three months of 2012. Basic and diluted earnings per common share were $.18 for the quarter ended June 30, 2013, compared to $0.08 for the same period in 2012. The primary reasons for the changes in net income are explained below.

Net interest income for the three months ended June 30, 2013 was $9,781, a decrease of $365 from $10,146 in the same three months of 2012. Total interest income for the three months ended June 30, 2013 was $11,025, a decrease of $732 from $11,757 in the same three months of 2012. Average earning assets increased 2.6 percent during the quarter ended June 30, 2013 as compared to the same period in 2012. Average loans for the second quarter of 2013 increased 5.8 percent compared to the second quarter of last year. These increases were offset by a decrease in average securities and interest-bearing deposits in other banks of 2.6 percent and 19.9 percent respectively compared to the same period of 2012. The yield on earning assets decreased 21 basis points for the second quarter of 2013 compared to the second quarter of last year. The yield on loans and taxable securities decreased 52 and 50 basis points respectively during the second quarter of 2013 compared to the second quarter of last year. These factors combined resulted in the decrease in total interest income for the second quarter of 2013. Total interest expense for the three months ended June 30, 2013 was $1,244, a decrease of $367 from $1,611 in the same three months of 2012. Interest expense on time deposits decreased $272 or 31.2 percent in the second quarter of 2013 compared to the same period in 2012. Average time deposits for the second quarter of 2013 decreased 10.1 percent compared to the second quarter of 2012. The interest rate paid on time deposits during the second quarter of 2013 also decreased as compared to the same period in 2012 by 29 basis points. The Corporation’s net interest margin for the six months ended June 30, 2013 and 2012 was 3.77% and 3.88%, respectively.

Page 49

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 three months ended June 30, 2013 and 2012. 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. Rates are annualized and taxable equivalent yields are computed using a 34% tax rate for tax-exempt interest income. The average yield has been computed using the historical amortized cost average balance for available-for-sale securities.


	Three Months Ended June 30,
	2013								2012
	Average balance			Interest		Yield/ rate *			Average balance			Interest		Yield/ rate *
Assets:
Interest-earning assets:
Loans	$	813,386		$	9,537		4.71	%	$	768,581		$	10,047		5.25	%
Taxable securities		162,259			920		2.33	%		176,814			1,215		2.84	%
Non-taxable securities		58,110			534		5.97	%		49,320			459		6.15	%
Interest-bearing deposits in other banks		45,476			34		0.30	%		56,808			36		0.25	%

Total interest-earning assets	$	1,079,231			11,025		4.24	%	$	1,051,523			11,757		4.62	%

Noninterest-earning assets:
Cash and due from financial institutions		21,048								9,935
Premises and equipment, net		16,979								17,740
Accrued interest receivable		4,395								5,007
Intangible assets		24,571								25,474
Other assets		9,342								10,159
Bank owned life insurance		18,789								18,184
Less allowance for loan losses		(19,734	)							(22,135	)

Total Assets	$	1,154,621							$	1,115,887

Liabilities and Shareholders Equity:
Interest-bearing liabilities:
Demand and savings	$	480,812		$	99		0.09	%	$	438,585		$	126		0.12	%
Time		248,730			600		0.97	%		276,754			872		1.26	%
FHLB		40,250			346		3.45	%		50,284			393		3.14	%
Subordinated debentures		30,349			194		2.56	%		30,349			215		2.84	%
Repurchase Agreements		19,187			5		0.10	%		17,765			5		0.11	%

Total interest-bearing liabilities	$	819,328			1,244		0.61	%	$	813,737			1,611		0.79	%

Noninterest-bearing deposits		218,655								187,530
Other liabilities		11,727								10,828
Shareholders’ Equity		104,911								103,792

Total Liabilities and Shareholders’ Equity	$	1,154,621							$	1,115,887

Net interest income and interest rate spread				$	9,781		3.63	%				$	10,146		3.82	%
Net yield on interest earning assets							3.77	%							4.00	%

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

Page 50

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 June 30, 2013 and 2012. 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	$	564		$	(1,074	)	$	(510	)
Taxable securities		(97	)		(198	)		(295	)
Nontaxable securities		87			(13	)		74
Interest-bearing deposits in other banks		(8	)		7			(1	)

Total interest income	$	546		$	(1,278	)	$	(732	)

Interest expense:
Demand and savings		11			(38	)		(27	)
Time		(82	)		(190	)		(272	)
FHLB		(84	)		36			(48	)
Subordinated debentures		—			(21	)		(21	)
Repurchase agreements		—			—			—

Total interest expense	$	(155	)	$	(213	)	$	(368	)

Net interest income	$	701		$	(1,065	)	$	(364	)

(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 $300 for the three months ended June 30, 2013, compared to $1,465 for the same period in 2012. Although general reserves increased compared to December 31, 2012, specific reserves declined during the same period. Management believes the overall adequacy of the reserve for loan losses supported a reduced provision, compared to June 30, 2013.

Non-interest income for the three months ended June 30, 2013 was $2,831, a decrease of $21 or 0.7 percent from $2,852 for the same period of 2012. Service charge fee income for the period ended June 30, 2013 was $1,066, down $7 or 0.7 percent over the same period of 2012. Trust fee income was $626, up $82 or 15.1 percent over the same period in 2012. The increase is related to a general increase in assets under management. ATM fee income was $511, up $72 or 16.4 percent over the same period of 2012. BOLI contributed $144 to non-interest income during the three months ended June 30, 2013. Other non-interest income was $484, down $151 over the same period in 2012 as a result of reduced gains on the sale of OREO for the first six months of 2013.

Page 51

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 June 30, 2013 was $10,346, a decrease of $49, from $10,395 reported for the same period of 2012. The primary reasons for the decrease follow. Salary and other employee costs were $5,581, up $147 or 2.7 percent as compared to the same period of 2012. The number of full-time equivalent employees increased during the quarter ended June 30, 2013 to 311.2, up 6.3, compared to the same period of 2012. These increases are mainly due to an increase in staffing, higher insurance costs and pension costs for the quarter ended June 30, 2013. Contracted data processing costs were $263, up $21 or 8.7 percent compared to the same period in 2012 due to increases in the cost of technology services. State franchise taxes increased by $48 compared to the same period of 2012 due to increases in the taxable value of shareholder’s equity. Amortization expense decreased $20, or 8.6 percent from the same three months of 2012, as a result of scheduled amortization of intangible assets associated with mergers. FDIC assessments were up by $35 during the first three months ended June 30, 2013 compared to the same period of 2012 due to increases in deposit balances. Professional service costs were $691, down $115 or 14.3 percent compared to the same period in 2012. The decrease is mainly due to reduced collection and repossessions fees. Other operating expenses were $2,172, down $181 or 7.7 percent compared to the same period of 2012. The decrease in other operating expenses is due to expenses posted to the allowance for loss on unused commitments in 2013 compared to the same period in 2012.

Income tax expense for the three months ended June 30, 2013 totaled $309, up $107 compared to the same period in 2012. 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 June 30, 2013 and June 30, 2012 were 15.7% and 17.8%, respectively.

Page 52

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 $102,159 at June 30, 2013 compared to $103,980 at December 31, 2012. The decrease in shareholders’ equity resulted from $3,570 of net income and a $223 net increase in the Corporation’s pension liability. This was offset by unrealized losses on securities, preferred dividends paid, common dividends paid and common dividends declared of $4,187, $580, $539 and $308, respectively. All of the Corporation’s capital ratios exceeded the regulatory minimum guidelines as of June 30, 2013 and December 31, 2012 as identified in the following table:


	Total Risk Based Capital			Tier I Risk Based Capital			Leverage Ratio
Corporation Ratios—June 30, 2013		14.9	%		13.4	%		9.4	%
Corporation Ratios—December 31, 2012		14.8	%		13.3	%		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 $0.03 per common share on February 1, 2013 and $0.04 per common share on May 1, 2013. In 2012, the Corporation paid cash dividends of $0.03 per common share on both February 1 and May 1. The Corporation paid a 5% cash dividend on its preferred shares in the amount of approximately $290 each on February 15, and May 15, 2013 and February 15, and May 15, 2012.

Liquidity

Citizens maintains a conservative liquidity position. All securities are classified as available for sale. Securities, with maturities of one year or less, totaled $6,893, or 3.5 percent of the total security portfolio. 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.

Cash from operations for the period ended June 30, 2013 was $7,926. This includes net income of $3,570 plus net adjustments of $4,357 to reconcile net earnings to net cash provided by operations. Cash provided by investing activities was $1,165 for the period ended June 30, 2013. The use of cash from investing activities is primarily due to securities purchases. Cash received from maturing, called and sold securities totaled $32,227. Cash also was received from loans made to customers, net of principal collected and security sales, of $4,160 and $7,798, for the periods ended June 30, 2013 and June 30, 2012, respectively. This increase in cash was offset by the purchase of securities of $43,116. Cash provided from financing activities for the first six months of 2013 totaled $6,882. The increase of cash from financing activities is due to the net change in deposits. The net change in deposits was $11,816 for the first six months of 2013. The increase in deposits was primarily due to an increase of $12,200 in non interest-bearing deposits during the first six months of 2013. Securities sold under agreements to repurchase decreased $3,798 and $1,119 was used to pay dividends. Cash and cash equivalents increased from $46,131 at December 31, 2012 to $62,104 at June 30, 2013.

Page 53

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)

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 $35,000. As of June 30, 2013, Citizens had total credit availability with the FHLB of $129,750, of which $40,244 was outstanding.

Page 54

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 55

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, 2012 and June 30, 2013, 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 June 30, 2013 and December 31, 2012.

Page 56

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, 2012 or June 30, 2013. 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, 2013							December 31, 2012
Change in Rates	Dollar Amount		Dollar Change		Percent Change			Dollar Amount		Dollar Change		Percent Change
+200bp		132,305		10,608		9	%		134,494		3,367		3	%
+100bp		127,162		5,465		4	%		131,217		90		0	%
Base		121,697		—		—			131,127		—		—
-100bp		139,842		18,145		15	%		152,511		21,384		16	%

The change in net portfolio value from December 31, 2012 to June 30, 2013, can be attributed to two factors. The yield curve has seen an upward, nearly parallel, shift since the end of the year, although the shorter end of the curve shifted less. Additionally, both the mix and/or volume of assets and funding sources have changed. While the volume of assets decreased slightly, the mix has shifted away from loans and securities toward cash, which leads to less 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 liabilities. The change in the rates up scenarios for both the 100 and 200 basis point movements would lead to a faster decrease in the fair value of liabilities, compared to assets. Accordingly we would see an increase in the net portfolio value. A downward change in rates would lead to an increase in the net portfolio value as the fair value of assets would increase much more quickly than the fair value of the liabilities.

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 June 30, 2013, were effective.

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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.

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First Citizens Banc Corp

Other Information

Form 10-Q

Part II—Other Information

Item 1.

Legal Proceedings

Citizens has been engaged in a legal action with the Ohio Department of Agriculture (“ODA”) over proceeds from the sale of grain that served as collateral for a loan made by Citizens. Most of the money that is the subject of the litigation is held in an account pending the outcome of the litigation. However, the ODA also claimed that Citizens received and applied some proceeds of earlier grain sales. The Common Pleas Court of Erie County rendered a decision that the ODA was entitled to approximately $163,000 in addition to the funds held in the account. Citizens appealed the decision, which was recently upheld by a 2-1 vote in the Court of Appeals. Citizens is currently requesting reconsideration of that decision.

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, 2012.

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 June 30, 2013, formatted in XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets as of June 30, 2013 (Unaudited) and December 31, 2012; (ii) Consolidated Statements of Income (Unaudited) for the three and six months ended June 30, 2013 and 2012; (iii) Consolidated Comprehensive Income Statements (Unaudited) for the three and six months ended June 30, 2013 and 2012; (iv) Condensed Consolidated Statement of Shareholders’ Equity (Unaudited) for the six months ended June 30, 2013; (v) Condensed Consolidated Statement of Cash Flows (Unaudited) for the six months ended June 30, 2013 and 2012; and (vi) Notes to Interim Consolidated Financial Statements (Unaudited).*

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First Citizens Banc Corp

Other Information

Form 10-Q

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.

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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				August 9, 2013
James O. Miller				Date
President, Chief Executive Officer

/s/ Todd A. Michel				August 9, 2013
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

Page 62

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 June 30, 2013, formatted in XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets (Unaudited) as of June 30, 2012 and December 31, 2011; (ii) Consolidated Statements of Income (Unaudited) for the three and six months ended June 30, 2012 and 2011; (iii) Consolidated Comprehensive Income Statements (Unaudited) for the three and six months ended June 30, 2012 and 2011; (iv) Condensed Consolidated Statement of Shareholders’ Equity (Unaudited) for the three and six months ended June 30, 2012; (v) Condensed Consolidated Statement of Cash Flows (Unaudited) for the three and six months ended June 30, 2012 and 2011; and (vi) Notes to Interim Consolidated Financial Statements (Unaudited).*	Included herewith

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