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 June 30, 2009 compared to December 31, 2008 and the consolidated results of operations for the three and six month periods ended June 30, 2009 compared to the same periods in 2008. This discussion should be read in conjunction with the consolidated financial statements and footnotes included in this Form 10-Q.
The registrant is not aware of any trends, events or uncertainties that will have, or are reasonably likely to have, a material effect on its liquidity, capital resources, or operations except as discussed herein. Also, the registrant is not aware of any current recommendation by regulatory authorities, which would have a material effect on its liquidity, capital resources, or operations if implemented.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements that are provided to assist in the understanding of anticipated future financial performance. Forward-looking statements provide current expectations or forecasts of future events and are not guarantees of future performance. Examples of forward-looking statements include statements of future economic performance and projections of income or expense, earnings per share, the payment or non-payment of dividends and other financial items. 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 effect the Corporation's financial performance and could cause the Corporation's actual results for future periods to differ materially from those anticipated or projected. Additional detailed information concerning a number of important risk factors which could cause actual results to differ materially from the forward-looking statements contained in this Form 10-Q is available in the reports filed by the Corporation with the Securities and Exchange Commission under the Securities Exchange Act of 1934, including those risk factors described under the heading "Item 1A. Risk Factors" of Part I of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2008. 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 June 30, 2009 were $1,100,668 compared to $1,053,611 at December 31, 2008, an increase of $47,057, or 4.5 percent. The increase in total assets was mainly attributed to increases in cash and cash equivalents, 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 $14,990, or 1.9 percent since December 31, 2008. The commercial real estate portfolio increased by $12,674. The commercial and agricultural, real estate and real estate construction loan portfolios decreased $4,172, $16,031 and $2,875, respectively, while consumer loans and leases portfolios decreased a total of $1,520 and $39, respectively. Other loans increased by $348. The increase in commercial real estate loans is mainly due to aggressive calling efforts by the commercial lending officers. The decrease in commercial and agriculture loans is the result of seasonality. The 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.
The Corporation had no loans held for sale at June 30, 2009 or December 31, 2008. At June 30, 2009, the net loan to deposit ratio was 88.6 percent compared to 97.3 percent at December 31, 2008. The ratio declined in 2009 due to increased deposits
For the first six months of operations in 2009, $4,764 was placed into the allowance for loan losses from earnings, compared to $4,182 in the six months of 2008. Nonperforming loans have increased by $2,734 in 2009, of which $1,724 was due to increased loans on nonaccrual status. Impaired loans also increased, from $14,637 at December 31, 2008 to $22,756 at June 30, 2009. In general, the increase in nonperforming and impaired loans 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 for loan losses. 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, historical reserve allocations and general economic factors. 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. 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 June 30, 2009 allowance for loan losses as a percent of total loans was 1.56 percent compared to 1.11 percent at December 31, 2008. The increase as a percentage of total loans is due primarily to two factors. First, impaired loans increased, as did the specific reserves allocated to them. Second, the nonspecific historical allocation increased because recent net charge-offs have increased. The non-specific historical allocation is based on the last two years net charge-off history.
Available for sale securities increased by $27,710 from $150,936 at December 31, 2008 to $178,646 at June 30, 2009. The increase in the available for sale securities is the result of other changes to the balance sheet, which led to a large increase in cash and cash equivalents. However, in order to gain yield on earning assets, the Corporation invested a portion of the excess cash in the investment portfolio, while leaving the remainder in cash for liquidity purposes. Other securities decreased from December 31, 2008, due to the sale of Federal Reserve Bank Stock during the second quarter of 2009. In addition to securities, the Corporation also utilizes letters of credit from the Federal Home Loan Bank (FHLB) for pledging to public entities. As of June 30, 2009, the Corporation was in compliance with all pledging requirements.
Bank owned life insurance (BOLI) increased $243 from December 31, 2008 due to income earned on the investment. The purchase of BOLI, is an alternative to replacing maturing securities, and is being used to help recover costs associated with the Corporation's healthcare, group term life, and 401(k) plans. Office premises and equipment, net, have decreased $466 from December 31, 2008 to June 30, 2009. The decrease in office premises and equipment is attributed to depreciation of $916 offset by new purchases of $450.
Other assets have increased $2,831 from December 31, 2008 to June 30, 2009. The increase is the result of a change in the Corporation's current and deferred tax position from a net liability to a net asset of approximately $2,600 Total deposits at June 30, 2009 increased $62,320 from year-end 2008. Noninterest-bearing deposits increased $948 from year-end 2008 while interest-bearing deposits, including savings and time deposits, increased $61,372 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 $2,514 in interest-bearing demand accounts. Savings accounts increased $16,111 from year end 2008, which included increases of $5,918 in statement savings, $1,839 in corporate savings and

$7,664 in public fund money market savings accounts. The year to date average balance of total deposits increased $51,717 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 $44,297 during the first half of 2009.
Total borrowed funds have decreased $37,343 from December 31, 2008 to June 30, 2009. At June 30, 2009, the Corporation had $60,386 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 decreased $4,604 and U.S. Treasury Tax Demand Notes have decreased $2,643 from December 31, 2008 to June 30, 2009.
Shareholders' equity at June 30, 2009 was $98,695, or 9.0 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 $1,128, less dividends paid of $2,056, and a decrease in the market value of securities available for sale, net of tax, of $178. Additionally, on January 23, 2009, the Corporation issued $23,184 in preferred stock to the U.S. Treasury. The Corporation paid cash dividends to common shareholders of $.15 per common share on February 1, 2009 and $.07 per common share on May 1, 2009. The Corporation paid cash dividends to the U.S. Treasury of $71 on February 15, 2009 and $289 May 15, 2009. The result of the payment of these preferred dividends was a reduction in the earnings available to common shareholders of $.05 per share. The Corporation paid cash dividends of $.28 per common share on each of February 1, 2008 and May 1, 2008. Total outstanding shares at June 30, 2009 and June 30, 2008 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 established under the Emergency Economic Stabilization Act of 2008. 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. Results of Operations
Six Months Ended June 30, 2009 and 2008
Net income for the six months ended June 30, 2009 was $1,128, a decrease of $289 or 20.4 percent from $1,417 for the first six months of 2008. Basic and diluted earnings per common share were $0.10 for the first half of 2009, compared to $0.18 for the same period in 2008. The primary reasons for the changes in net income are explained below.
Net interest income for the first half of 2009 was $19,656, a decrease of $354 or 1.8 percent from $20,010 in the first half 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 6.0 percent compared to June 30 of last year. Average loans decreased 1.7 percent compared to June 30, 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 six months ended June 30, 2009 and 2008 were 3.84% and 4.20%, respectively. Net interest margin declined 36 basis points as net interest income decreased 3.4 percent while average earning assets increased 6.0 percent. The decrease in net interest margin in the first six months of 2009 compared to the same period of 2008 is due to the change in the interest rate environment in which the Corporation has operated in 2009. While management believes the cost of funds in markets in which the Corporation operates is at or near the bottom, yields on earnings assets continue to be influenced by market rates and competitive pressures.
Non-interest income for the first six months of 2009 was $4,863, a decrease of $46 or 0.9 percent from the same period in 2008. Declines in Trust fees of $206 and Service charges of $5 are related to current economic conditions. ATM fee income for the first half of 2009 was $822, up $175 or 27.0 percent over the first half of 2008. This increase can be attributed to a change in ATM processing systems. The change resulted in increased interchange income, along with a $125 incentive to switch. Computer center processing fee income for the first half of 2009 was $239, down $152 or 38.9 percent over the first half of 2008. This decrease is the result of restructuring communication lines, as well as the loss of service provided to one financial institution. Other non-interest income for the first half of 2009 was $444, up $337 or 315.0 percent over the first half of 2008. 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. Also, 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.

Non-interest expense for the first six months of 2009 was $18,560, a decrease of $465 or 2.4 percent, from $19,025 reported for the same period of 2008. Salary and other employee costs were $8,316, down $431 or 5.3 percent as compared to the first half of 2008. The Corporation has instituted a salary freeze for 2009, which has helped keep salary expenses in line with last year. In addition, the Corporation changed the commission structure and suspended the contribution into its profit sharing 401 (k) plan during 2009 resulting in approximately $543 in savings for the first half of 2009. Occupancy and equipment costs were $2,226, down $180 or 7.5 percent compared to the same period of 2008. Computer processing costs were $558, down $147, or 20.9 percent compared to last year as a result of conversion costs associated with acquisitions paid during 2008. State franchise taxes decreased by $199 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 prior to 2008 year end directly led to the decrease in franchise tax. Amortization expense decreased $96, or 13.0 percent from the first half of 2008, related to scheduled amortization of intangible assets associated with mergers. FDIC insurance assessments have increased by $1,125 during the first six months of 2009, as compared to the same period of 2008. The Corporation had been offsetting the FDIC assessment with a One-Time Assessment Credit issued in 2007. This credit was applied over eight quarters and ran out in the first quarter of 2009. Additionally, the increase is due to an increase in the assessment rate charged by the FDIC. Finally, the Corporation accrued $502 during the second quarter for the FDIC's special emergency assessment, which was charged to all depository institutions insured by the FDIC. Other operating expenses decreased $488, or 11.4 percent from the first half of 2008. A majority of the Corporation's other operating expenses declined compared to the first half of 2008.
Income tax expense for the first six months of 2009 totaled $67 compared to $295 for the first six months of 2008. This was a decrease of $228, or 77.3 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 six-month periods ended June 30, 2009 and June 30, 2008 were 5.6% and 17.3%, respectively.
Three Months Ended June 30, 2009 and 2008 Net income for the three months ended June 30, 2009 was $370, an increase of $265 or 252.4 percent from $105 for the same period in 2008. Basic and diluted earnings per common share was $.01 for the three months ended June 30, 2009 compared to $.01 for the same period in 2008. Other reasons for the changes are explained below.
Total interest income for the second quarter of 2009 decreased $2,113, or 13.4 percent compared to the same period in 2008. Average earning assets for the second quarter of 2009 increased 6.8 percent from the three months ended June 30, 2008. This increase can be attributed to increases in cash and cash equivalents, primarily overnight federal funds sold, and available for sale securities. The average rate on earning assets on a tax equivalent basis for the second quarter of 2009 was 5.26% and 6.49% for the second quarter of 2008. The decrease in yield in this year's second quarter is due to the change in the interest rate

environment in which the Corporation has operated in 2009. Total interest expense for the second quarter of 2009 decreased $1,535, or 28.4 percent compared to the same period of 2008. Average interest-bearing liabilities for the second quarter of 2009 increased 10.7 percent from the three months ended June 30, 2008 mainly from 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. The average rate on interest-bearing liabilities for the second quarter of 2009 was 1.48% and was 2.23% for the second quarter of 2008. The decrease in cost in this year's second quarter is due to the change in the interest rate environment.
Noninterest income for the three months ended June 30, 2009 was $2,476, an increase of $138 or 5.9 percent compared to the three months ended June 30, 2008. ATM fee income for the second quarter of 2009 was $476, up $119 or 33.3 percent over the second 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 $100 incentive to switch. Trust fee income for the second quarter of 2009 was $354, down $147 or 29.3 percent over the second quarter of 2008. Bank owned life insurance contributed $123 to non-interest income in the second quarter of 2009.
Noninterest expense for the second quarter of 2009 was $9,313, a decrease of $262 or 2.7 percent, from $9,575 reported for the same period in 2008. Salaries and other employee costs were $4,002, down $406 or 9.2 percent as compared to the same period in 2008. The Corporation has instituted a salary freeze for 2009, which has helped keep salary expenses in line with last year. In addition, the Corporation changed the commission structure and suspended the contribution into its profit sharing 401 (k) plan during 2009 resulting in approximately $412 in savings for the second quarter of 2009. Occupancy and equipment costs were $1,065, down $153 or 12.6 percent compared to the same period of 2008. Computer processing costs were $275, down $26 or 8.6 percent compared to last year's second quarter. FDIC insurance assessments were $932, up $908 compared to the second quarter of 2008. The Corporation had been offsetting the FDIC assessment with a One-Time Assessment Credit issued in 2007. This credit was applied over eight quarters and ran out in the first quarter of 2009. Additionally, the increase is due to an increase in the assessment rate charged by the FDIC. State franchise taxes decreased $12 compared to the second quarter of 2008. Amortization expense in the second quarter decreased $15 or 4.5 percent from the same period of 2008. Finally, other operating expenses were $1,711, down $577 or 25.2 percent as compared to the second quarter of 2008. A majority of the Corporation's other operating expenses declined compared to the second quarter of 2008.
Income tax benefit the second quarter totaled $80 compared to a benefit of $151 for the same period in 2008. This was a decrease of $71, or 47.0 percent. The decrease in the federal income tax benefit is a result of the increase in total income before taxes of $336. The effective tax rates for the three-month periods ended June 30, 2009 and June 30, 2008, were 27.6% and 328.3%, respectively. Non-taxable BOLI income and non-taxable security income being a larger portion of income both led to the income tax benefit.

                            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 $98,695 at June 30, 2009 compared to $76,617 at
December 31, 2008. All of the Corporation's capital ratios exceeded the
regulatory minimum guidelines as of June 30, 2009 and December 31, 2008 as
identified in the following table:

                                                              Total Risk         Tier I Risk
                                                                 Based              Based            Leverage
                                                                Capital            Capital            Ratio
Corporation Ratios - June 30, 2009                                 14.6 %              11.9 %            8.5 %
Corporation Ratios - December 31, 2008                             11.3 %               7.9 %            5.8 %
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 $.15 per common share on February 1, 2009 and $.07 per common share on May 1, 2009, and $.28 per common share on each of February 1 and May 1, 2008.
Liquidity
All securities are classified as available for sale. At June 30, 2009, securities with maturities of one year or less, totaled $17,736, or 9.9 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 six months ended June 30, 2009 was $4,239. This includes net income of $1,128 plus net adjustments of $3,111 to reconcile net earnings to net cash provided by operations. Cash from investing activities was $(16,629) for the six months ended June 30, 2009. The use of cash from investing activities is primarily due to securities purchases. Cash received from maturing and called securities totaled $63,036. This increase in cash was offset by the purchase of securities of $89,495. Additionally, cash was increased by the net . . .