CIVISTA BANCSHARES, INC. - Quarter Report: 2013 March (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: March 31, 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 May 8, 2013–7,707,917 shares

FIRST CITIZENS BANC CORP

Index


PART I. Financial Information

Item 1. Financial Statements:

Consolidated Balance Sheets (Unaudited) March 31, 2013 and December 31, 2012			3

Consolidated Statements of Income (Unaudited) Three months ended March 31, 2013 and 2012			4

Consolidated Comprehensive Income Statements (Unaudited) Three months ended March 31, 2013 and 2012			5

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) Three months ended March 31, 2013			6

Condensed Consolidated Statement of Cash Flows (Unaudited) Three months ended March 31, 2013 and 2012			7

Notes to Interim Consolidated Financial Statements (Unaudited)			8-36

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			37-46

Item 3. Quantitative and Qualitative Disclosures About Market Risk			47-49

Item 4. Controls and Procedures			49

PART II. Other Information

Item 1. Legal Proceedings			50

Item 1A. Risk Factors			50

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			50

Item 3. Defaults Upon Senior Securities			50

Item 4. Mine Safety Disclosures			50

Item 5. Other Information			50

Item 6. Exhibits			50

Signatures			51

Part I – Financial Information

ITEM 1.

Financial Statements

FIRST CITIZENS BANC CORP

Consolidated Balance Sheets (Unaudited)

(In thousands, except share data)


	March 31, 2013			December 31, 2012
ASSETS
Cash and due from financial institutions	$	90,492		$	46,131
Securities available for sale		205,372			203,961
Loans held for sale		272			1,873
Loans, net of allowance of $19,710 and $19,742		787,166			795,811
Other securities		15,550			15,567
Premises and equipment, net		16,963			17,166
Accrued interest receivable		4,381			3,709
Goodwill		21,720			21,720
Other intangibles		2,927			3,139
Bank owned life insurance		18,737			18,590
Other assets		10,106			9,304

Total assets	$	1,173,686		$	1,136,971

LIABILITIES
Deposits
Noninterest-bearing	$	223,012		$	202,416
Interest-bearing		742,804			723,973

Total deposits		965,816			926,389
Federal Home Loan Bank advances		40,253			40,261
Securities sold under agreements to repurchase		20,076			23,219
Subordinated debentures		29,427			29,427
Accrued expenses and other liabilities		13,061			13,695

Total liabilities		1,068,633			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, 10,000,000 shares authorized, 8,455,881 shares issued		114,365			114,365
Accumulated deficit		(13,295	)		(14,687	)
Treasury stock, 747,964 shares at cost		(17,235	)		(17,235	)
Accumulated other comprehensive loss		(1,966	)		(1,647	)

Total shareholders’ equity		105,053			103,980

Total liabilities and shareholders’ equity	$	1,173,686		$	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 March 31,
	2013		2012
Interest and dividend income
Loans, including fees	$	9,713	$	10,390
Taxable securities		1,006		1,273
Tax-exempt securities		524		426
Federal funds sold and other		44		29

Total interest and dividend income		11,287		12,118

Interest expense
Deposits		760		1,063
Federal Home Loan Bank advances		343		393
Subordinated debentures		190		212
Other		6		5

Total interest expense		1,299		1,673

Net interest income		9,988		10,445
Provision for loan losses		500		2,400

Net interest income after provision for loan losses		9,488		8,045

Noninterest income
Service charges		965		1,062
Net gain (loss) on sale of securities		17		(2	)
Net gain on sale of loans		199		108
ATM fees		460		444
Trust fees		603		525
Bank owned life insurance		147		164
Other		824		665

Total noninterest income		3,215		2,966

Noninterest expense
Salaries, wages and benefits		5,505		4,961
Net occupancy expense		611		553
Equipment expense		279		298
Contracted data processing		262		217
FDIC assessment		261		251
State franchise tax		264		253
Professional services		481		403
Amortization of intangible assets		212		278
ATM expense		155		147
Marketing		193		195
Other operating expenses		1,985		1,764

Total noninterest expense		10,208		9,320

Income before taxes		2,495		1,691
Income tax expense		582		398

Net Income		1,913		1,293
Preferred stock dividends and discount accretion		290		294

Net income available to common shareholders	$	1,623	$	999

Earnings per common share, basic and diluted	$	0.21	$	0.13

See notes to interim unaudited consolidated financial statements

Page 4

FIRST CITIZENS BANC CORP

Consolidated Comprehensive Income Statements (Unaudited)

(In thousands)


	Three months ended March 31,
	2013			2012
Net income	$	1,913		$	1,293
Other comprehensive income:
Unrealized holding gains (loss) on available for sale securities		(623	)		163
Tax effect of unrealized holdings gains (loss) on available for sale securities		211			(56	)
Reclassification adjustment for (gain) loss recognized in income		(17	)		2
Tax effect of reclassification adjustment for (gain) loss recognized in income		6			(1	)
Pension liability adjustment		158			90
Tax effect of pension liability adjustment		(54	)		(31	)

Total other comprehensive income (loss)		(319	)		167

Comprehensive income	$	1,594		$	1,460

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		—		—		—		—		1,913			—			—			1,913
Other comprehensive loss, net of reclassification and tax effect		—		—		—		—		—			—			(319	)		(319	)
Cash dividends ($.03 per share)		—		—		—		—		(231	)		—			—			(231	)
Preferred stock dividend		—		—		—		—		(290	)		—			—			(290	)

Balance, March 31, 2013		23,184	$	23,184		7,707,917	$	114,365	$	(13,295	)	$	(17,235	)	$	(1,966	)	$	105,053

See notes to interim unaudited consolidated financial statements

Page 6

FIRST CITIZENS BANC CORP

Condensed Consolidated Statement of Cash Flows (Unaudited)

(In thousands)


	Three months ended March 31,
	2013			2012
Net cash from operating activities	$	2,767		$	4,170

Cash flows used for investing activities
Maturities and calls of securities, available-for-sale		20,048			15,600
Purchases of securities, available-for-sale		(23,035	)		(28,314	)
Security sales		516			5,372
Redemption of FRB stock		17			—
Purchases of FRB stock		—			(86	)
Net loan originations		8,138			19,874
Proceeds from sale of OREO properties		197			279
Proceeds from sale of property		118			6
Purchases of office premises and equipment		(160	)		(179	)

Net cash provided by investing activities		5,839			12,552

Cash flows provided by financing activities
Repayment of FHLB borrowings		(8	)		(8	)
Net change in deposits		39,427			17,889
Net change in securities sold under agreements to repurchase		(3,143	)		722
Cash dividends paid on common stock and preferred stock		(521	)		(521	)

Net cash provided by financing activities		35,755			18,082

Net change in cash and due from financial institutions		44,361			34,804
Cash and cash equivalents at beginning of period		46,131			52,127

Cash and cash equivalents at end of period	$	90,492		$	86,931

Cash paid during the period for:
Interest	$	1,306		$	1,688
Income taxes	$	—		$	—
Supplemental cash flow information:
Transfer of loans from portfolio to OREO	$	99		$	79

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 March 31, 2013 and its results of operations and changes in cash flows for the periods ended March 31, 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 March 31, 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 March 31, 2013. Water St. revenue was less than 1.0% of total revenue through March 31, 2013. Management considers the Corporation to operate primarily in one reportable segment, banking.

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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.

Adoption of New Accounting Standards:

In December 2011, the FASB issued ASU 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. The amendments in this Update affect all entities that have financial instruments and derivative instruments that are either (1) offset in accordance with either Section 210-20-45 or Section 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement. The update amends the disclosure requirements on offsetting in Section 210-20-50. This information will enable users of an entity’s financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position, including the effect or potential effect of rights of setoff associated with certain financial instruments and derivative instruments in the scope of this Update. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. Adoption of this Update did not have a significant impact on the Corporation’s financial statements.

In July, 2012, the FASB issued ASU 2012-02, Intangibles – Goodwill and Other (Topic 350) – Testing Indefinite-Lived Intangible Assets for Impairment. ASU 2012-02 give entities the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that an indefinite-lived intangible asset is impaired. If, after assessing the totality of events or circumstances, an entity determines it is more likely than not that an indefinite-lived intangible asset is impaired, then the entity must perform the quantitative impairment test. If, under the quantitative impairment test, the carrying amount of the intangible asset exceeds its fair value, an entity should recognize an impairment loss in the amount of that excess. Permitting an entity to assess qualitative factors when testing indefinite-lived intangible assets for impairment results in guidance that is similar to the goodwill impairment testing guidance in ASU 2011-08. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012 (early adoption permitted). Adoption of this Update did not have a significant impact on the Corporation’s financial statements.

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First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

In October, 2012, the FASB issued ASU 2012-06, Business Combinations (Topic 805)—Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution. ASU 2012-06 requires that when a reporting entity recognizes an indemnification asset (in accordance with Subtopic 805-20) as a result of a government assisted acquisition of a financial institution and subsequently a change in the cash flows expected to be collected on the indemnification asset occurs (as a result of a change in cash flows expected to be collected on the assets subject to indemnification), the reporting entity should subsequently account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification. Any amortization of changes in value should be limited to the contractual term of the indemnification agreement (that is, the lesser of the term of the indemnification agreement and the remaining life of the indemnified assets). ASU 2012-06 is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2012. Early adoption is permitted. The amendments should be applied prospectively to any new indemnification assets acquired after the date of adoption and to indemnification assets existing as of the date of adoption arising from a government-assisted acquisition of a financial institution. Adoption of this Update did not have a significant impact on the Corporation’s financial statements.

In January 2013, the FASB issued ASU 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. The amendments clarify that the scope of Update 2011-11 applies to derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement. An entity is required to apply the amendments for fiscal years beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the required disclosures retrospectively for all comparative periods presented. The effective date is the same as the effective date of Update 2011-11. Adoption of this Update did not have a significant impact on the Corporation’s financial statements.

In February 2013, the FASB issued ASU 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The amendments in this Update require an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. generally accepted accounting principles (GAAP) to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. For public entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2012. The Corporation has provided the necessary disclosures in Note 6.

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First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

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.

(3) Securities

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


March 31, 2013	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury securities and obligations of U.S. government agencies	$	56,685	$	310	$	(11	)	$	56,984
Obligations of states and political subdivisions		73,393		6,545		(108	)		79,830
Mortgage-backed securities in government sponsored entities		66,590		1,754		(287	)		68,057

Total debt securities		196,668		8,609		(406	)		204,871
Equity securities in financial institutions		481		20		—			501

Total	$	197,149	$	8,629	$	(406	)	$	205,372

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First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)


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

The amortized cost and fair value of securities available for sale at March 31, 2013, by contractual maturity, are 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.


	Amortized Cost		Fair Value
Due in one year or less	$	6,864	$	6,907
Due after one year through five years		24,945		25,022
Due after five years through ten years		28,592		30,031
Due after ten years		69,677		74,854
Mortgage-backed securities		66,590		68,057
Equity securities		481		501

Total securities available for sale	$	197,149	$	205,372

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


	2013		2012
Sale proceeds	$	516	$	5,372
Gross realized gains		14		32
Gross realized losses		—		34
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 $152,023 and $147,204 as of March 31, 2013 and December 31, 2012, respectively.

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


March 31, 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	$	5,414	$	(11	)	$	—	$	—		$	5,414	$	(11	)
Obligations of states and political subdivisions		5,417		(106	)		455		(2	)		5,872		(108	)
Mortgage-backed securities in gov’t sponsored entities		12,651		(275	)		1,311		(12	)		13,962		(287	)

Total temporarily impaired	$	23,482	$	(392	)	$	1,766	$	(14	)	$	25,248	$	(406	)


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 March 31, 2013, there were twenty-nine securities in the portfolio with unrealized losses. Unrealized losses on securities have not been recognized into income because the 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.

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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:


	March 31,			December 31,
	2013			2012
Commercial and agriculture	$	98,052		$	100,661
Commercial real estate		426,029			434,808
Residential real estate		249,261			250,598
Real estate construction		24,490			19,677
Consumer and other		9,044			9,809

Total loans		806,876			815,553
Allowance for loan losses		(19,710	)		(19,742	)

Net loans	$	787,166		$	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 Consolidated Balance Sheet date. The Corporation considers the allowance for loan losses of $19,710 adequate to cover loan losses inherent in the loan portfolio, at March 31, 2013. The following tables present, by portfolio segment, the changes in the allowance for loan losses and the loan balances outstanding for the periods ended March 31, 2013, March 31, 2012 and December 31, 2012.


For the three months ending March 31, 2013	Commercial & Agriculture		Commercial Real Estate			Residential Real Estate			Real Estate Construction			Consumer			Unallocated		Total
Allowance for loan losses:
Beginning balance	$	2,811	$	10,139		$	5,780		$	349		$	246		$	417	$	19,742
Charge-offs		—		(312	)		(487	)		—			(82	)		—		(881	)
Recoveries		41		90			156			52			10			—		349
Provision		85		7			(35	)		(87	)		51			479		500

Ending Balance	$	2,937	$	9,924		$	5,414		$	314		$	225		$	896	$	19,710

The allowances for Residential Real Estate was reduced not only by charge-offs, but also due to a decrease in both the loan balances outstanding and the historical charge-offs for this type. The net result of these changes was a reduction in the allowance for these loan types and is represented as a decrease in the provision. The allowance for Real Estate Construction was reduced as a result of changes to specific reserves required. The result of this change was represented as a decrease in the provision. While we have seen improvement in asset quality, given the uncertainty in the economy and the level of past due loans, management determined that it was appropriate to maintain unallocated reserves at a higher level this quarter.


For the three months ending March 31, 2012	Commercial & Agriculture			Commercial Real Estate			Residential Real Estate			Real Estate Construction			Consumer			Unallocated			Total
Allowance for loan losses:
Beginning balance	$	2,876		$	10,571		$	5,796		$	974		$	719		$	321		$	21,257
Charge-offs		(132	)		(776	)		(766	)		(105	)		(44	)		—			(1,823	)
Recoveries		35			24			52			61			18			—			190
Provision		263			1,151			1,175			(73	)		(90	)		(26	)		2,400

Ending Balance	$	3,042		$	10,970		$	6,257		$	857		$	603		$	295		$	22,024

The allowances for Consumer loans was reduced not only by charge-offs, but also due to a decrease in both the loan balances outstanding and the historical charge-offs for this type. The allowances for Real Estate Construction was reduced not only by charge-offs, but also due to a reduction in specific reserves required. 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.

Page 15

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)


March 31, 2013	Commercial & Agriculture		Commercial Real Estate		Residential Real Estate		Real Estate Construction		Consumer		Unallocated		Total
Allowance for loan losses:
Ending balance:
Individually evaluated for impairment	$	626	$	2,401	$	779	$	17	$	40	$	—	$	3,863
Ending balance:
Collectively evaluated for impairment	$	2,311	$	7,523	$	4,635	$	297	$	185	$	896	$	15,847

Ending Balance	$	2,937	$	9,924	$	5,414	$	314	$	225	$	896	$	19,710

Loan balances outstanding:
Ending balance:
Individually evaluated for impairment	$	5,345	$	12,880	$	5,808	$	486	$	40			$	24,559
Ending balance:
Collectively evaluated for impairment	$	92,707	$	413,149	$	243,453	$	24,004	$	9,004			$	782,317

Ending Balance	$	98,052	$	426,029	$	249,261	$	24,490	$	9,044			$	806,876

Page 16

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)


December 31, 2012	Commercial & Agriculture		Commercial Real Estate		Residential Real Estate		Real Estate Construction		Consumer		Unallocated		Total
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 17

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The following table represents credit exposures by internally assigned grades for the periods ended March 31, 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.

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.


March 31, 2013	Commercial & Agriculture		Commercial Real Estate		Residential Real Estate		Real Estate Construction		Consumer		Total
Pass	$	86,061	$	392,132	$	95,108	$	19,947	$	435	$	593,683
Special Mention		1,509		6,735		1,845		331		—		10,420
Substandard		10,482		27,162		12,342		945		88		51,019
Doubtful		—		—		—		—		—		—

Ending Balance	$	98,052	$	426,029	$	109,295	$	21,223	$	523	$	655,122


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 18

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The following tables present performing and nonperforming loans based solely on payment activity for the periods ended March 31, 2013 and December 31, 2012 that have not been assigned an internal risk grade. These loan types are generally not risk graded unless they are part of a commercial relationship. 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.


March 31, 2013	Residential Real Estate		Real Estate Construction		Consumer		Total
Performing	$	137,772	$	3,267	$	8,498	$	149,537
Nonperforming		2,194		—		23		2,217

Total	$	139,966	$	3,267	$	8,521	$	151,754


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

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

Page 19

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The following table includes an aging analysis of the recorded investment of past due loans outstanding as of March 31, 2013 and December 31, 2012.


March 31, 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	$	1,808	$	—	$	584	$	2,392	$	95,660	$	98,052	$	—
Commercial Real Estate		4,778		47		6,557		11,382		414,647		426,029		—
Residential Real Estate		2,449		417		6,212		9,078		240,183		249,261		—
Real Estate Construction		2,347		267		416		3,030		21,460		24,490		—
Consumer		14		13		29		56		8,988		9,044		—

Total	$	11,396	$	744	$	13,798	$	25,938	$	780,938	$	806,876	$	—


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. A loan may also be considered for nonaccrual status when it is not 90 days delinquent if deterioration in the borrower’s financial condition or other circumstances indicates that Citizens will receive less than full principal and interest payments for an extended period of time. When a loan is placed on nonaccrual status, previously accrued but unpaid interest is deducted from interest income.

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 presents loans on nonaccrual status as of March 31, 2013 and December 31, 2012.


	March 31, 2013		December 31, 2012
Commericial & Agriculture	$	2,816	$	2,869
Commercial Real Estate		14,613		16,250
Residential Real Estate		10,561		9,701
Real Estate Construction		902		958
Consumer		57		77

Total	$	28,949	$	29,855

Loan modifications that are considered troubled debt restructurings (TDRs) completed during the quarter ended March 31, 2013 and March 31, 2012 were as follows:


	For the Three-Month Period Ended March 31, 2013						For the Three-Month Period Ended March 31, 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		—	$	—	$	—		3	$	45	$	37
Commercial Real Estate		1		125		125		3		1,206		1,206
Residential Real Estate		—		—		—		—		—		—
Real Estate Construction		—		—		—		—		—		—
Consumer and Other		—		—		—		—		—		—

Total Loan Modifications		1	$	125	$	125		6	$	1,251	$	1,243

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 newly originated loans.

During the three month periods ended March 31, 2013 and 2012, there were no defaults on any loans which were modified and considered TDRs during the twelve months previous to the respective periods ending March 31, 2013 or March 31, 2012.

Page 21

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

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

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


	March 31, 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	$	4,710	$	4,907	$	—	$	5,053	$	5,226	$	—
Commercial Real Estate		5,273		6,588		—		5,446		8,114		—
Residential Real Estate		3,451		6,102		—		2,566		5,346		—
Real Estate Construction		—		—		—		—		521		—
Consumer and Other		—		—		—		1		1		—

Total		13,434		17,597		—		13,066		19,208		—

With an allowance recorded:
Commericial & Agriculture		635		651		626		367		385		286
Commercial Real Estate		7,607		8,883		2,401		8,495		8,681		2,354
Residential Real Estate		2,357		2,581		779		3,561		4,554		1,199
Real Estate Construction		486		497		17		541		547		107
Consumer and Other		40		40		40		60		60		60

Total		11,125		12,652		3,863		13,024		14,227		4,006

Total:
Commericial & Agriculture		5,345		5,558		626		5,420		5,611		286
Commercial Real Estate		12,880		15,471		2,401		13,941		16,795		2,354
Residential Real Estate		5,808		8,683		779		6,127		9,900		1,199
Real Estate Construction		486		497		17		541		1,068		107
Consumer and Other		40		40		40		61		61		60

Total	$	24,559	$	30,249	$	3,863	$	26,090	$	33,435	$	4,006

Page 22

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)


For the quarter ended:	March 31, 2013				March 31, 2012
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commericial & Agriculture	$	5,301	$	68	$	3,895	$	90
Commercial Real Estate		13,584		205		17,672		259
Residential Real Estate		5,876		143		4,029		78
Real Estate Construction		514		5		456		1
Consumer and Other		50		—		—		—

Total	$	25,325	$	421	$	26,052	$	428

(6) Other Comprehensive Income

The following table presents the changes in each component of accumulated other comprehensive income, net of tax, for the three months ended March 31, 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		(412	)		—			(412	)
Amounts reclassified from accumulated other comprehensive income		(11	)		104			93

Net current-period other comprehensive income		(423	)		104			(319	)

Ending balance	$	5,426		$	(7,392	)	$	(1,966	)

Amounts in parentheses indicate debits.

Page 23

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 income for the three months ended March 31, 2013:


Details about Accumulated Other Comprehensive Income Components	Amout Reclassified from Accumulated Other Comprehensive Income ^(a)			Affected Line Item in the Statement Where Net Income is Presented
Unrealized gains and losses on available-for-sale securities	$	17		Net gain/(loss) on sale of securities

		17		Total before tax
		(6	)	Income tax expense

	$	11		Net of tax

Amortization of defined benefit pension items
Actuarial gains/(losses)	$	(158	)^(b)	Salaries, wages and benefits

		(158	)	Total before tax
		54		Income tax expense

	$	(104	)	Net of tax

Total reclassifications for the period	$	(93	)	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 24

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 March 31,
	2013		2012
Basic
Net income	$	1,913	$	1,293
Preferred stock dividends and discount accretion		290		294

Net income available to common shareholders	$	1,623	$	999

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

Basic earnings per common share	$	0.21	$	0.13

Diluted
Net income	$	1,913	$	1,293
Preferred stock dividends and discount accretion		290		294

Net income available to common shareholders	$	1,623	$	999

Weighted average common shares outstanding for basic earnings per common share		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

Diluted earnings per common share	$	0.21	$	0.13

Stock options for 10,000 common shares that have an exercise price of $35.00 were not considered in computing diluted earnings per common share for the three-month periods ended March 31, 2013 and March 31, 2012 because they were anti-dilutive.

Stock options for 19,500 common shares that have an exercise price of $20.50 were not considered in computing diluted earnings per common share for the three-month period ended March 31, 2012 because they were anti-dilutive.

(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.

Page 25

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The contractual amount of financial instruments with off-balance-sheet risk was as follows at March 31, 2013 and December 31, 2012:


	Contract Amount
	March 31, 2013				December 31, 2012
	Fixed		Variable		Fixed		Variable
	Rate		Rate		Rate		Rate
Commitment to extend credit:
Lines of credit and construction loans	$	7,027	$	136,330	$	9,378	$	118,182
Overdraft protection		47		17,558		51		19,726
Letters of credit		294		815		294		396

	$	7,368	$	154,703	$	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 March 31, 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 $1,407 on March 31, 2013 and $998 on December 31, 2012.

(9) Pension Information

Net periodic pension expense was as follows:


	Three months ended March 31,
	2013			2012
Service cost	$	273		$	235
Interest cost		201			229
Expected return on plan assets		(219	)		(215	)
Other components		158			90

Net periodic pension cost	$	413		$	339

The total amount of contributions expected to be paid by the Corporation in 2013 total $2,000, compared to $1,510 in 2012.

Page 26

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

(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 did not grant any stock options during the first three months of 2013 or 2012, nor did any stock options become vested during the first three months of 2013 or 2012. 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.

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


	Three months ended				Three months ended
	March 31, 2013				March 31, 2012
			Weighted				Weighted
			Average				Average
			Price				Price
	Shares		Per Share		Shares		Per Share
Outstanding at beginning of period		10,000	$	35.00		29,500	$	25.42
Granted		—		—		—		—
Exercised		—		—		—		—
Forfeited		—		—		—		—

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

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

The following table details stock options outstanding:


	Outstanding Options
Exercise price	Number		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price
$35.00		10,000		0.5 mos.		35.00

Outstanding at quarter-end		10,000		0.5 mos.	$	35.00

The intrinsic value for stock options is calculated based on the exercise price of the underlying awards and the market price of our common shares as of the reporting date. As of March 31, 2013 and 2012, there were no options that had intrinsic value.

Page 27

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

(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.

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.

Page 28

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

Assets measured at fair value are summarized below.


	Fair Value Measurements at March 31, 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	$	—	$	56,984	$	—
Obligations of states and political subdivisions		—		79,373		457
Mortgage-backed securities in government sponsored entities		—		68,057		—
Equity securities in financial institutions		—		501		—
Assets measured at fair value on a nonrecurring basis:
Impaired loans	$	—	$	—	$	20,696
Other real estate owned		—		—		397


	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

Page 29

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 March 31, 2013.

Quantitative Information about Level 3 Fair Value Measurements

March 31, 2013

Fair Value
Estimate

Valuation Technique

Unobservable Input

Range

Obligations of states and political subdivisions

457

Appraisal of collateral

Appraisal adjustments

20% - 30%

Liquidation expense

8% - 12%

Impaired loans

20,696

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

397

Appraisal of collateral

Appraisal adjustments

10% - 30%

Liquidation expense

0% - 10%

Page 30

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The following table presents quantitative information about the Level 3 significant unobservable inputs for assets and liabilities measured at fair value on a nonrecurring basis at 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 March 31, 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
Settlement		(11	)

Ending balance March 31, 2013	$	457

Page 31

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

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


March 31, 2013	Carrying Amount		Total Fair Value		Quoted Prices in Active Markets for Identical Assets Level 1		Significant Other Observable Inputs Level 2		Significant Other Unobservable Inputs Level 3
Financial Assets:
Cash and due from financial institutions	$	90,492	$	90,492	$	90,492	$	—	$	—
Securities available for sale		205,372		205,372		—		204,915		457
Other securities		15,550		15,550		15,550		—		—
Loans, available for sale		272		272		272		—		—
Loans, net of allowance for loan losses		787,166		804,168		—		—		804,168
Bank owned life insurance		18,737		18,737		18,737		—		—
Accrued interest receivable		4,381		4,381		4,381		—		—
Mortgage servicing rights		391		391		391
Financial Liabilities:
Nonmaturing deposits		711,920		711,920		711,920		—		—
Time deposits		253,896		256,232		—		—		256,232
Federal Home Loan Bank advances		40,253		43,263		—		—		43,263
Securities sold under agreement to repurchase		20,076		20,076		20,076		—		—
Subordinated debentures		29,427		26,182		—		—		26,182
Accrued interest payable		178		178		178		—		—

Page 32

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		Quoted Prices in Active Markets for Identical Assets Level 1		Significant Other Observable Inputs Level 2		Significant Other Unobservable Inputs 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		—		—		53,947
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		—		—

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.

Page 33

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

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.

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.

Page 34

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

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.

On July 3, 2012, the U.S. Treasury completed the sale of all 23,184 of the Preferred Shares to various investors pursuant to a modified “Dutch auction” process. As a result of the U.S. Treasury’s sale of all of the Preferred Shares, the executive compensation and corporate governance standards which applied to the Corporation as a participant in the CPP, which standards were most recently set forth in the Interim Final Rule on TARP Standards for Compensation and Corporate Governance, published June 15, 2009, are no longer applicable to the Corporation.

Page 35

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

On September 5, 2012, the Corporation completed the repurchase of the Warrant from the U.S. Treasury in accordance with the terms of the Securities Purchase Agreement for an aggregate purchase price of $563,174. The purchase price was determined by the Board of Directors of the Corporation based on the Fair Market Value of the Warrant, as established by an appraisal conducted by a nationally recognized independent investment banking firm.

Page 36

First Citizens Banc Corp

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

Form 10-Q

(Amounts in thousands, except share data)

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 March 31, 2013 compared to December 31, 2012 and the consolidated results of operations for the three-month period ended March 31, 2013, compared to the same period 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, credit quality expectations, economic trends (including interest rates) and similar matters. Such statements are based upon the current beliefs and expectations of the Corporation’s management and are subject to risks and uncertainties. While the Corporation believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could prove to be inaccurate, and accordingly, actual results and experiences could differ materially from the anticipated results or other expectations expressed by the Corporation in its forward-looking statements. Factors that could cause actual results or experiences to differ from results discussed in the forward-looking statements include, but are not limited to, regional and national economic conditions; volatility and direction of market interest rates; credit risks of lending activities; governmental legislation and regulation, including changes in accounting regulation or standards; material unforeseen changes in the financial condition or results of operations of the Corporation’s clients; increases in FDIC insurance premiums and assessments; and other risks identified from time-to-time in the Corporation’s other public documents on file with the SEC, including those risks identified in Item 1A of Part 1 of the Corporation’s Annual Report on Form 10-K.

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

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements, and the purpose of this section is to secure the use of the safe harbor provisions.

Page 37

First Citizens Banc Corp

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

Form 10-Q

(Amounts in thousands, except share data)

Financial Condition

Total assets of the Corporation at March 31, 2013 were $1,173,686 compared to $1,136,971 at December 31, 2012, an increase of $36,715, or 3.2 percent. The increase in total assets was mainly attributed to an increase in cash and due from banks partially offset by a decrease in net loans. Total liabilities at March 31, 2013 were $1,068,633 compared to $1,032,991 at December 31, 2012, an increase of $35,642, or 3.5 percent. The increase in total liabilities was mainly attributed to increases in non interest-bearing deposits and interest–bearing deposits.

Net loans have decreased $8,645 or 1.1 percent since December 31, 2012. The real estate construction portfolio increased $4,813 since December 31, 2012, while the commercial and agricultural, commercial real estate, real estate and consumer loan portfolios decreased $2,609, $8,779, $1,337 and $765, respectively. 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 and agricultural loans is the result of the pay down of loan balances on agricultural loans. The current decrease in real estate and consumer loans is mainly the result of the economic downturn and high unemployment rates in our market area, coupled with the Corporation’s decision to originate and sell the majority of mortgage loans in the secondary market.

Loans held for sale have decreased $1,601 or 85.5 percent since December 31, 2012. At March 31, 2013, the net loan to deposit ratio was 81.5 percent compared to 85.9 percent at December 31, 2012. This ratio has decreased in 2013 due to an increase in deposits.

For the three months of operations in 2013, $500 was placed into the allowance for loan losses from earnings, compared to $2,400 in the same period of 2012. Economic conditions and high unemployment rates in our market area continue to stress the ability of some customers to make payments on their loans. General and specific reserves decreased compared to December 31, 2012. Detailed analyses of potential losses in the loan portfolio indicated that a reduced provision was appropriate. Net charge-offs have decreased to $532, compared to $1,633 in 2012. For the first three months of 2013, the Corporation has charged off forty-three loans. Twenty-five real estate mortgage loans totaling $331 net of recoveries, eight commercial real estate loans totaling $222 net of recoveries, zero commercial and agriculture loans totaling $41 in recoveries, and zero real estate construction loans totaling $52 in recoveries were charged off in the first three months of the year. In addition, ten consumer loans totaling $71, 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 $986, of which $80 was due to a decrease in loans past due 90 days but still accruing and $906 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 38

First Citizens Banc Corp

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

Form 10-Q

(Amounts in thousands, except share data)

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. A loan may also be considered for nonaccrual status when it is not 90 days delinquent if deterioration in the borrower’s financial condition or other circumstances indicates that Citizens will receive less than full principal and interest payments for an extended period of time. Impaired loans, or portions thereof, are charged-off when deemed uncollectible. The allowance for loan losses as a percent of total loans was 2.44 percent at March 31, 2013 and 2.42 percent at December 31, 2012.

The available for sale security portfolio increased by $1,411, from $203,961 at December 31, 2012, to $205,372 at March 31, 2013. The increase is the result of additional securities purchases made in the first three months of 2013 above scheduled maturities and reinvestment of profits. The Corporation continued utilizing letters of credit from the Federal Home Loan Bank (FHLB) to replace maturing securities that were pledged for public entities. As of March 31, 2013, the Corporation was in compliance with all pledging requirements.

Bank owned life insurance (BOLI) increased $147 from December 31, 2012 to March 31, 2013 due to increases in the cash surrender value of the underlying insurance policies.

Office premises and equipment, net, have decreased $203 from December 31, 2012 to March 31, 2013, as a result of depreciation of $352 and disposals of $11, offset by new purchases of $160.

Total deposits at March 31, 2013 increased $39,427 from year-end 2012. Noninterest-bearing deposits increased $20,596 from year-end 2012, while interest-bearing deposits, including savings and time deposits, increased $18,831 from December 31, 2012. The primary reason for the increase in noninterest-bearing deposits was due to increased volume related to the Corporation’s processing of tax returns and an increase in commercial accounts, which tend to fluctuate. The interest-bearing deposit increase was due to an increase in savings accounts, interest-bearing demand accounts offset by decreases in time certificates and individual retirement accounts (IRA). Savings accounts increased $6,635 from year-end 2012, which included increases of $5,524 in statement savings, $907 in corporate savings and $1,386 in public fund money market savings, offset by a decrease of $1,430 in money market savings. Interest-bearing demand accounts increased $22,303 from year end 2012, which included increases of $2,055 in interest-bearing checking accounts, $3,298 in NOW accounts and $17,468 in interest-bearing public funds. Time certificates, individual retirement accounts (IRA) and Certificate of Deposit Account Registry Service (CDARS) accounts decreased $8,952, $421 and $734, respectively from year end 2012. The year-to-date average balance of total deposits increased $84,813 compared to the average balance for the same period in 2012. The increase in average balance is due to increases of $56,509 in demand deposits, $20,935 in interest-bearing public funds, $10,096 in brokered deposits, $10,063 in statement savings accounts, $9,263 in interest-bearing demand and $9,073 in NOW accounts, offset by decreases of $29,883 in time certificates, $6,501 in public fund money market accounts, $3,085 in IRA accounts and $1,780 in CDARS accounts.

Page 39

First Citizens Banc Corp

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

Form 10-Q

(Amounts in thousands, except share data)

Total borrowed funds have decreased $3,151 from December 31, 2012 to March 31, 2013. At March 31, 2013, the Corporation had $40,253 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 $3,143 from December 31, 2012 to March 31, 2013.

Shareholders’ equity at March 31, 2013 was $105,053, or 8.9 percent of total assets, compared to $103,981, or 9.1 percent of total assets at December 31, 2012. The increase in shareholders’ equity resulted from net income of $1,913 less the decrease in the fair value of securities available for sale, net of tax, of $423 and the Corporation’s pension liability, net of tax of $104 less preferred dividends and common dividends paid of $290 and $231, respectively. Total outstanding common shares at March 31, 2013 and 2012 were 7,707,917.

Results of Operations

Three Months Ended March 31, 2013 and 2012

The Corporation had net income of $1,913 for the three months ended March 31, 2013, an increase of $620 from net income of $1,293 for the same three months of 2012. Basic and diluted earnings per common share were $0.21 for the quarter ended March 31, 2013, compared to $0.13 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 March 31, 2013 was $9,988, a decrease of $457 from $10,445 in the same three months of 2012. Total interest income for the three months ended March 31, 2013 was $11,287, a decrease of $831 from $12,118 in the same three months of 2012. Average earning assets increased 4.6 percent during the quarter ended March 31, 2013 as compared to the same period in 2012. Average loans, non-taxable securities, and interest-bearing deposits in other banks for the first quarter of 2013 increased 5.4 percent, 25.5 percent, and 14.4 percent respectively compared to the first quarter of last year. These increases were offset by a decrease in average taxable securities of 8.5 percent compared to the same period of 2012. The yield on earning assets decreased 49 basis points for the first quarter of 2013 compared to the first quarter of last year. The yield on loans and taxable securities decreased 60 and 41 basis points respectively during the first quarter of 2013 compared to the first quarter of last year. The yield on non-taxable securities decreased 16 basis points during the first quarter of 2013 compared to the first quarter of last year. These factors combined resulted in the decrease in total interest income for the first quarter of 2013. Total interest expense for the three months ended March 31, 2013 was $1,299, a decrease of $374 from $1,673 in the same three months of 2012. Interest expense on time deposits decreased $291 or 31.3 percent in the first quarter of 2013 compared to the same period in 2012. The interest rate paid on time deposits during the first quarter of 2013 also decreased as compared to the same period in 2012 by 33 basis points. The Corporation’s net yield for the three months ended March 31, 2013 and 2012 was 3.44% and 3.74%, respectively.

Page 40

First Citizens Banc Corp

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

Form 10-Q

(Amounts in thousands, except share data)

The following table presents the condensed average balance sheets for the three months ended March 31, 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.

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)


	Three Months Ended March 31,
	2013								2012
	Average balance			Interest		Yield/ rate *			Average balance			Interest		Yield/ rate *
Assets:
Interest-earning assets:
Loans	$	810,117		$	9,713		4.87	%	$	768,930		$	10,390		5.48	%
Taxable securities		160,180			1,006		2.61	%		175,087			1,273		3.03	%
Non-taxable securities		57,610			524		6.02	%		45,891			426		6.26	%
Interest-bearing deposits in other banks		91,833			44		0.19	%		80,272			29		0.15	%

Total interest-earning assets	$	1,119,740			11,287		4.22	%	$	1,070,180			12,118		4.70	%

Noninterest-earning assets:
Cash and due from financial institutions		38,834								9,754
Premises and equipment, net		17,107								17,713
Accrued interest receivable		3,934								3,953
Intangible assets		24,783								25,735
Other assets		9,945								10,060
Bank owned life insurance		18,642								18,021
Less allowance for loan losses		(20,154	)							(21,320	)

Total Assets	$	1,212,831							$	1,134,096

Liabilities and Shareholders Equity:
Interest-bearing liabilities:
Demand and savings	$	485,617		$	120		0.10	%	$	440,457		$	132		0.12	%
Time		258,239			640		1.01	%		282,891			931		1.33	%
FHLB		40,258			343		3.46	%		50,292			393		3.17	%
Subordinated debentures		30,349			190		2.54	%		30,349			212		2.83	%
Other		22,393			6		0.11	%		17,638			5		0.11	%

Total interest-bearing liabilities	$	836,856			1,299		0.63	%	$	821,627			1,673		0.83	%

Noninterest-bearing deposits		258,139								193,834
Other liabilities		13,826								15,461
Shareholders’ Equity		104,010								103,174

Total Liabilities and Shareholders’ Equity	$	1,212,831							$	1,134,096

Net interest income and interest rate spread				$	9,988		3.59	%				$	10,445		3.87	%
Net yield on interest earning assets							3.75	%							4.06	%

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

Page 42

First Citizens Banc Corp

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

Form 10-Q

(Amounts in thousands, except share data)

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 March 31, 2013 and March 31, 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	$	536		$	(1,213	)	$	(677	)
Taxable securities		(106	)		(161	)		(267	)
Nontaxable securities		115			(17	)		98
Interest-bearing deposits in other banks		5			10			15

Total interest income	$	550		$	(1,381	)	$	(831	)

Interest expense:
Savings and interest-bearing demand accounts		13			(25	)		(12	)
Certificates of deposit		(76	)		(215	)		(291	)
Federal Home Loan Bank advances		(83	)		33			(50	)
Subordinated debentures		—			(22	)		(22	)
Other		1			—			1

Total interest expense	$	(145	)	$	(229	)	$	(374	)

Net interest income	$	695		$	(1,152	)	$	(457	)

(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 $500 for the three months ended March 31, 2013, compared to $2,400 for the same period in 2012. Although general reserves decreased compared to March 31, 2012, specific reserves increased during the same period. Management believes the overall adequacy of the reserve for loan losses supported a reduced provision, compared to March 31, 2012.

Noninterest income for the three months ended March 31, 2013 was $3,215, an increase of $249 or 8.4 percent from $2,966 for the same period of 2012. Service charge fee income for the period ended March 31, 2013 was $965, down $97 or 9.1 percent over the same period of 2012. Trust fee income was $603, up $78 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 was $460, up $16 or 3.6 percent over the same period of 2012. BOLI contributed $147 to non-interest income during the three months ended March 31, 2013. Net gain on sale of loans was $199, up $91 over the same period in 2012 as a result of the Corporation’s decision to sell a majority of consumer mortgage loan products originated. Other non-interest income was $763, up $169 over the same period in 2012 as a result of increased volume in processing tax refunds and the gain on the sale of fixed assets.

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)

Non-interest expense for the three months ended March 31, 2013 was $10,208, an increase of $888, from $9,320 reported for the same period of 2012. Salary and other employee costs were $5,505, up $544 or 11.0 percent as compared to the same period of 2012. This increase is mainly due to an increase in staffing and higher pension costs for the quarter ended March 31, 2013. The number of full-time equivalent employees increased during the quarter ended March 31, 2013 to 308.3, up 7.6, compared to the same period of 2012. Occupancy and equipment costs were $890, up $39 or 4.6 percent compared to the same period in 2012. This increase is mainly due to an increase in grounds maintenance. Grounds maintenance expenses for the first three months of 2012 were unusually low due to mild winter weather. Contracted data processing costs were $262, up $45 or 20.7 percent compared to the same period in 2012. State franchise taxes increased by $11 compared to the same period of 2012. Amortization expense decreased $66, or 23.7 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 $10 during the three months ended March 31, 2013 compared to the same period of 2012. Professional service costs were $481, up $78 or 19.4 percent compared to the same period in 2012. The increase is mainly due to legal and audit fees. Other operating expenses were $1,985, up $221 or 12.5 percent compared to the same period of 2012. The increase in other operating expenses is due to an allowance for loss on unused commitments, loan collection and repossession expenses and expenses related to the sale of loans posted in the first quarter of 2013.

Income tax expense for the three months ended March 31, 2013 totaled $582, up $184 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 March 31, 2013 and March 31, 2012 were 23.3% and 23.5%, respectively.

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)

Capital Resources

Shareholders’ equity totaled $104,895 at March 31, 2013 compared to $103,981 at December 31, 2012. The increase in shareholders’ equity resulted from $1,913 of net income and $423 net decrease in the unrealized gain on securities. This was offset by preferred dividends and common dividends paid of $290 and $231, respectively. All of the Corporation’s capital ratios exceeded the regulatory minimum guidelines as of March 31, 2013 and December 31, 2012 as identified in the following table:


	Total Risk Based Capital			Tier I Risk Based Capital			Leverage Ratio
Corporation Ratios—March 31, 2013		15.1	%		13.6	%		9.1	%
Corporation Ratios—December 31, 2012		15.0	%		13.2	%		9.2	%
For Capital Adequacy Purposes		8.0	%		4.0	%		4.0	%
To Be Well Capitalized Under Prompt
Corrective Action Provisions		10.0	%		6.0	%		5.0	%

The Corporation paid a cash dividend of $.03 per common share each on February 1, 2013 and February 1, 2012. The Corporation paid a 5% cash dividend on its preferred shares issued to the U.S. Treasury pursuant to TARP in the amount of approximately $290 each on February 15, 2013 and February 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 $6,864, or 3.5 percent of the total security portfolio at March 31, 2013. 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 March 31, 2013 was $2,767. This includes net income of $1,913 plus net adjustments of $854 to reconcile net earnings to net cash provided by operations. The increase in cash from investing activities was $5,839 for the period ended March 31, 2013. The increase of cash from investing activities is primarily due to cash received from maturing, called and sold securities totaling $20,048 and loan payments by customers of $8,138. This increase in cash was offset by the purchase of securities of $23,035. Cash provided from financing activities for the first three months of 2012 totaled $12,552. The increase of cash from financing activities is due to the net change in deposits and change in securities sold under agreements to repurchase. The increase was offset by dividends paid. The net change in deposits was $39,427 for the first three months of 2013. The increase in deposits was primarily due to increases of $20,596 in non interest-bearing deposits, $5,524 in savings deposits and $22,303 in interest-bearing demand deposits offset by a decrease of $8,952 in time certificates during the first three months of 2013. Securities sold under agreements to repurchase increased $3,143. The payment of dividends used $523. Cash and cash equivalents increased from $46,131 at December 31, 2012 to $90,492 at March 31, 2013.

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)

Future loan demand of Citizens may be funded by increases in deposit accounts, proceeds from payments on existing loans, the maturity of securities, and the sale of securities classified as available for sale. Additional sources of funds may also come from borrowing in the Federal Funds market and/or borrowing from the FHLB. Through its correspondent banks, Citizens maintains federal funds borrowing lines totaling $20,000. As of March 31, 2013, Citizens had total credit availability with the FHLB of $130,178, of which $40,253 was outstanding.

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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 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 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)

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 March 31, 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 March 31, 2013 and December 31, 2012.

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)

The Corporation had no derivative financial instruments or trading portfolio as of December 31, 2012 or March 31, 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


	March 31, 2013							December 31, 2012
Change in Rates	Dollar Amount		Dollar Change		Percent Change			Dollar Amount		Dollar Change		Percent Change
+200bp		137,146		9,029		7	%		134,494		3,367		3	%
+100bp		131,326		3,209		3	%		131,217		90		0	%
Base		128,117		—		—			131,127		—		—
-100bp		150,086		21,969		17	%		152,511		21,384		16	%

The change in net portfolio value from December 31, 2012 to March 31, 2013, is primarily a result of changes in both asset and liability mixes. While the yield curve has remained virtually unchanged, the mix and/or volume of assets and funding sources have changed. While the volume of earning assets has increased, the mix has shifted toward cash and securities and away from loans. Funding sources have increased while the funding mix shifted from CDs and borrowed money to deposits. The shifts in mixes led to the small decrease in the base. Beyond the change in the base level of net portfolio value, 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 liabilities would increase much more slowly than the fair value of the asset portfolio.

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of March 31, 2013, were effective.

Changes in Internal Control over Financial Reporting

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

Page 49

First Citizens Banc Corp

Other Information

Form 10-Q

Part II—Other Information

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

There were no material changes to the risk factors as presented in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 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 March 31, 2013, formatted in XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets (Unaudited) as of March 31, 2013 and December 31, 2012; (ii) Consolidated Statements of Income (Unaudited) for the three months ended March 31, 2013 and 2012; (iii) Consolidated Comprehensive Income Statements (Unaudited) for the three months ended March 31, 2013 and 2012; (iv) Condensed Consolidated Statement of Shareholders’ Equity (Unaudited) for the three months ended March 31, 2013; (v) Condensed Consolidated Statement of Cash Flows (Unaudited) for the three months ended March 31, 2013 and 2012; and (vi) Notes to Interim Consolidated Financial Statements (Unaudited).*

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

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

/s/ Todd A. Michel				May 9, 2013
Todd A. Michel				Date
Senior Vice President, Controller

Page 51

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 52

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

Page 53