Summary of FIRST CITIZENS BANC CORP /OH

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 First Citizens Banc Corp at March 31, 2009 compared to December 31, 2008 and the consolidated results of operations for the three-month period ending March 31, 2009 compared to the same period in 2008. This discussion should be read in conjunction with the consolidated financial statements and footnotes included in this Form 10-Q.
Forward-Looking Statements
When used in this Form 10-Q or future filings by the Corporation with the Securities and Exchange Commission, in press releases or other public or shareholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," "believe," or similar expressions are intended to identify "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The Corporation wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and to advise readers that various factors, including regional and national economic conditions, changes in levels of market interest rates, credit risks of lending activities and competitive and regulatory factors, could affect the Corporation's financial performance and could cause the Corporation's actual results for future periods to differ materially from those anticipated or projected. The Corporation does not undertake, and specifically disclaims, any obligation to publicly release the result of any revisions, which 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 to the extent required by law.
Financial Condition
Total assets of the Corporation at March 31, 2009 were $1,124,399 compared to $1,053,611 at December 31, 2008, an increase of $70,788, or 6.7 percent. The increase in total assets was mainly attributed to increases in cash and cash eqivalents, primarily overnight federal funds sold, and available for sale securities, offset by increases in interest-bearing deposits and preferred stock and decreases in notes payable and federal home loan bank advances. Net loans have decreased $4,934, or 0.6 percent since December 31, 2008. The commercial real estate portfolio increased by $6,565. The commercial and agricultural, real estate and real estate construction loan portfolios decreased $2,764, $5,741 and $474, respectively, while consumer loans and leases and other loans portfolios decreased a total of $994, $38 and $33, respectively. The current increase in commercial real estate loans is mainly due to aggressive calling efforts by the commercial lending officers. The current decrease in commercial and agriculture loans is the result of seasonality. The current decrease in real estate and consumer loans is mainly the result of a decline in the housing market and the Corporation's decision to originate and sell the majority of mortgage loans on the secondary market.

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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)
The Corporation had no loans held for sale at March 31, 2009 or December 31, 2008. At March 31, 2009, the net loan to deposit ratio was 88.5 percent compared to 97.3 percent at December 31, 2008. This ratio declined in 2009 due to increased deposits.
For the first three months of operations in 2009, $2,102 was placed into the allowance for loan losses from earnings, compared to $1,006 in the first quarter of 2008. Net charge-offs have increased compared to 2008. Nonperforming loans have increased by $3,981, of which $3,295 was due to increased loans on nonaccrual status. Impaired loans also increased, from $14,637 at December 31, 2008 to $19,927 at March 31, 2009. In general, the increase in these factors can be attributed to the overall decline in economic conditions. 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. Management analyzes commercial and commercial real estate loans, with balances of $350 or larger, on an individual basis and classifies a loan as impaired when an analysis of the borrower's operating results and financial condition indicates that underlying cash flows are not adequate to meet its debt service requirements. Often this is associated with a delay or shortfall in payments of 90 days or more. In addition, loans held for sale and leases are excluded from consideration as impaired. Loans are generally moved to nonaccrual status when 90 days or more past due. Impaired loans or portions thereof, are charged-off when deemed uncollectible. The March 31, 2009 allowance for loan losses as a percent of total loans was 1.30 percent compared to 1.11 percent at December 31, 2008.
Available for sale securities increased by $29,405 from $150,936 at December 31, 2008 to $180,341 at March 31, 2009. 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, 2009, the Corporation was in compliance with all pledging requirements.
Bank owned life insurance (BOLI) increased $121 from December 31, 2008 due to income earned on the investment. BOLI was purchased in 2006 as an alternative to replacing maturing securities, and is being used to help recover healthcare, group term life, and 401(k) expenses.
Office premises and equipment, net, have decreased $257 from December 31, 2008 to March 31, 2009, as a result of new purchases of $195 and depreciation of $452.

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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)
Total deposits at March 31, 2009 increased $74,426 from year-end 2008. Noninterest-bearing deposits increased $354 from year-end 2008 while interest-bearing deposits, including savings and time deposits, increased $74,072 from December 31, 2008. The interest-bearing deposit increase was due to increases in interest-bearing demand accounts; and savings accounts and the Corporation's participation in the Certificate of Deposit Account Registry Service (CDARS). This service allows the Corporation's large depositors to access full FDIC insurance on deposits of up to $50 million. Increases in deposits from public entities (such as municipalities and school systems) accounted for an increase of approximately $2,100 in interest-bearing demand accounts. Savings accounts increased $17,100 from year end 2008, which included increases of $3,200 in statement savings, $2,900 in corporate savings, $5,000 in money market savings and $6,000 in public fund money market savings. The year to date average balance of total deposits increased $25,944 compared to the average balance of the same period in 2008. The increase in average balance is due to the Corporation's participation in the CDARS program that started late in the fourth quarter of 2008 and has increased interest-bearing deposits by approximately $52,543 during the first quarter of 2009.
Total borrowed funds have decreased $31,331 from December 31, 2008 to March 31, 2009. At March 31, 2009, the Corporation had $60,434 in outstanding Federal Home Loan Bank advances compared to $69,982 at December 31, 2008. On March 11, 2009, an FHLB advance in the amount of $2,500 matured. This advance had terms of sixty months with a fixed rate of 3.24%. The advance was not replaced. In addition, during the first quarter of 2009 overnight advances in the amount of $7,000 were paid off. The Corporation paid off notes outstanding with other financial institutions during the first quarter of 2009 totaling $20,500. Securities sold under agreements to repurchase, which tend to fluctuate due to timing of deposits, have increased $1,199 and U.S. Treasury Tax Demand Notes have decreased $2,482 from December 31, 2008 to March 31, 2009.
Shareholders' equity at March 31, 2009 was $99,469, or 8.9 percent of total assets, compared to $76,617 at December 31, 2008, or 7.3 percent of total assets. The increase in shareholders' equity resulted from earnings of $759, less dividends paid of $1,227, and the increase in the market value of securities available for sale, net of tax, of $136. Additionally, on January 23, 2009, the Corporation issued $23,184 in preferred stock to the U.S. Treasury. The Corporation paid a cash dividend on February 1, 2009 and February 1, 2008 at a rate of $.15 and $.28 per share, respectively. Total outstanding common shares at March 31, 2009 and at March 31, 2007 were 7,707,917.
Under the Corporation's stock repurchase program, the Corporation is authorized to buy up to 5.0 percent of the total common shares outstanding. However, the Corporation has participated in the U.S. Treasury's Capital Purchase Program (CPP), which was announced by the U.S. Treasury on October 14, 2008 as part of the Troubled Asset Relief Program ("TARP") established under the Emergency Economic Stabilization Act of 2008 (EESA). On January 23, 2009, the Corporation issued to the U.S. Treasury $23,184,000 of cumulative perpetual preferred shares (Senior Preferred Shares), with a liquidation preference of $1,000 per share, and a warrant to purchase 469,312 of the Corporation's common shares at an exercise price of $7.41 (which is equal to 15% of the aggregate amount of the Senior Preferred Shares purchased by the U.S. Treasury). As a participant in the CPP, the Corporation is required to comply with a number of restrictions and provisions, including limits on executive compensation, stock redemptions and the declaration and payment of dividends. Due to these restrictions, the Corporation is precluded from repurchasing its common shares without the approval of the U.S. Treasury for a period of three years.

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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)
Results of Operations
Three Months Ended March 31, 2009 and 2008 Net income for the three months ended March 31, 2009 was $759, a decrease of $553 or 42.1 percent from $1,312 for the first three months of 2008. Basic and diluted earnings per common share were $0.10 for the first quarter of 2009, compared to $0.17 for the same period in 2008. The primary reasons for the changes in net income are explained below.
Net interest income for the first quarter of 2009 was $9,867, an increase of $225 or 2.3 percent from $9,642 in the first quarter of 2008. Net interest income, the difference between interest income earned on interest-earning assets and interest expense incurred on interest-bearing liabilities, is the most significant component of the Corporation's earnings. Net interest income is affected by changes in volume, rates and composition of interest-earning assets and interest-bearing liabilities. Average earning assets increased 5.3 percent from the first quarter last year from organic growth. Average loans for the quarter decreased 0.7 percent compared to the first quarter of 2008, as new loans written have not quite kept up with pay-downs and pay-offs over the last twelve months. The Corporation's net interest margin for the three months ended March 31, 2009 and 2008 was 3.91% and 4.03%, respectively. Net interest margin declined 12 basis points as net interest income increase 2.3 percent while average earning assets increased 5.3 percent.
Non-interest income for the first quarter of 2009 was $2,387, a decrease of $185 or 7.2 percent from the first quarter 2008. All non-interest income line items declined compared to 2008, except for ATM fees and other noninterest income. The declines in Trust fees of $113 and Service charges of $57 are related to current economic conditions. Net gain on sale of securities declined in 2009 because of a nonrecurring gain related to the redemption of VISA stock of $183 that was posted in 2008. ATM fee income for the first quarter of 2009 was $346, up $56 or 19.3 percent over the first quarter of 2008. This increase can be attributed to a change in ATM processing systems. The change resulted in increased interchange income, along with a $25 incentive to switch. Other non-interest income of $237, related to the resolution of three loans obtained in the Futura merger, was recorded in the first quarter of 2009. These loans were recorded at fair value at the time of the merger and have subsequently been settled at a higher value.

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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)
Non-interest expense for the first quarter of 2009 was $9,246, a decrease of $204 or 2.2 percent, from $9,450 reported for the same quarter of 2008. Salary and other employee costs were $4,314, down $24 or 0.6 percent as compared to the first quarter of 2008. The Corporation has instituted a salary freeze for 2009, which has helped keep salary expenses in line with last year. Occupancy and equipment costs were $1,160, down $28 or 2.4 percent compared to the same period of 2008. Computer processing cost were $283, down $121, or 30.0 percent compared to last year as a result of conversion cost associated with acquisitions paid during 2008. State franchise taxes decreased by $187 compared to the same period of 2008. Franchise tax is based on the prior end-of-year capital of the Corporation. The large goodwill impairment charge booked directly led to the decrease in franchise tax. Amortization expense decreased $81, or 20.1 percent from the first quarter of 2008, related to scheduled amortization of intangible assets associated with mergers. FDIC assessment is up by $216. The increase is due to an increase in the assessment rate charged. While the assessment rate increased in 2007, it had been offset by credits received. These credits ran out in the second half of 2008, leading to the increase in the first quarter of 2009 compared to the first quarter of 2008.
Income tax expense for the first three months of 2009 totaled $147 compared to $446 for the first three months of 2008. This was a decrease of $299, or 67.0 percent. The decrease in the federal income taxes is mainly a result of total nontaxable securities income being a larger percentage of income before taxes. The effective tax rates for the three-month periods ended March 31, 2009 and March 31, 2008 were 16.2% and 25.3%, respectively. Capital Resources
Shareholders' equity totaled $99,469 at March 31, 2009 compared to $76,617 at December 31, 2008. The increase in shareholders' equity resulted primarily from the issuance to the U.S. Treasury of $23,184,000 of Senior Preferred Shares on January 23, 2009 pursuant to the CPP. All of the Corporation's capital ratios exceeded the regulatory minimum guidelines as of March 31, 2009 and December 31, 2008 as identified in the following table:

                                                                                 To Be Well
                                                                                 Capitalized
                                                                                Under Prompt
                                                               For Capital       Corrective
                                 Corporation Ratios             Adequacy           Action
                            3/31/2009         12/31/2008        Purposes         Provisions
Total Risk Based Capital          14.1 %             11.3 %             8.0 %            10.0 %
Tier I Risk Based Capital         11.4 %              7.9 %             4.0 %             6.0 %
Leverage Ratio                     8.5 %              5.8 %             4.0 %             5.0 %

The Corporation paid a cash dividend of $.15 per common share on February 1, 2009 and $.29 per common share on February 1, 2008. The Corporation also paid a 5% cash dividend on preferred shares of $71 on February 17, 2009.

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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)
Liquidity
Citizens maintains a conservative liquidity position. All securities are classified as available for sale. At March 31, 2009, securities with maturities of one year or less totaled $16,234, or 9.0 percent of the total security portfolio. The available for sale portfolio helps to provide the Corporation with the ability to meet its funding needs. The Consolidated Statements of Cash Flows (Unaudited) contained in the consolidated financial statements detail the Corporation's cash flows from operating activities resulting from net earnings. Cash from operations for the quarter ended March 31, 2009 was $3,549. This includes net income of $759 plus net adjustments of $2,790 to reconcile net earnings to net cash provided by operations. Cash from investing activities was $(26,114) for the quarter ended March 31, 2009. The use of cash from investing activities is primarily due to securities purchases. Cash received from maturing and called securities totaled $26,955. This increase in cash was offset by the purchase of securities of $55,582. Cash from financing activities in the first quarter of 2009 totaled $65,052. A major source of cash for financing activities is the net change in deposits. Cash provided by the net change in deposits was $74,426 in the first quarter of 2009. The large increase in deposits was primarily due to the Corporation's participation in the CDARS program, which added $52,543 in deposits during the first quarter of 2009. Cash was used by the decrease in long-term borrowings of $20,500. Cash of $23,184 was provided from the issuance of Senior Preferred Shares to the U.S. Treasury. Cash from operating activities and financing activities exceeded cash from investing activities by $42,487. Cash and cash eqivalents increased from $26,649 at December 31, 2008 to $69,136 at March 31, 2009 as a result of the increase in cash during the first quarter.
Future loan demand of Citizens may be funded by increases in deposit accounts, proceeds from payments on existing loans, the maturity of securities, the issuances of trust preferred obligations, 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. Citizens, through its correspondent banks, maintains federal funds borrowing lines totaling $30,000. As of March 31, 2009, Citizens had total credit availability with the FHLB of $144,134 of which $60,434 was outstanding.

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First Citizens Banc Corp Form 10-Q (Amounts in thousands, except share data)