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 September 30, 2009 compared to December 31, 2008 and the consolidated results of operations for the three and nine month periods ended September 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 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. 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 and "Item 1A. Risk Factors" of Part II of this Quarterly Report on Form 10-Q. 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.

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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)
Financial Condition
Total assets of the Corporation at September 30, 2009 were $1,103,720 compared to $1,053,611 at December 31, 2008, an increase of $50,109, or 4.8 percent. Total liabilities at September 30, 2009 were $1,003,467 compared to $976,994 at December 31, 2008, an increase of $26,473, or 2.7 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, while increases in interest-bearing deposits, federal home loan Bank advances and preferred stock and a decrease in notes payable are the reason for the increase in liabilities.
Net loans have decreased $10,361, or 1.3 percent since December 31, 2008. The commercial real estate portfolio increased by $25,183. The commercial and agricultural, real estate and real estate construction loan portfolios decreased $9,174, $13,383 and $5,666, respectively, while consumer loans and leases portfolios decreased a total of $2,226 and $75, respectively. Other loans increased by $148. 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 rising unemployment rate in Ohio.
The Corporation had no loans held for sale at September 30, 2009 or December 31, 2008. At September 30, 2009, the net loan to deposit ratio was 91.4 percent compared to 97.3 percent at December 31, 2008. The ratio declined in 2009 due to increased deposits.
For the first nine months of operations in 2009, $8,216 was placed into the allowance for loan losses from earnings, compared to $6,513 in the first nine months of 2008. Nonperforming loans have increased by $5,010 in 2009, of which $6,864 was due to increased loans on nonaccrual status, offset by a decrease of $1,854 in loans past due 90 days still on accrual. Impaired loans also increased, from $14,637 at December 31, 2008 to $23,647 at September 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.

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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)
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 September 30, 2009 allowance for loan losses as a percent of total loans was 1.78 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 $51,373 from $150,936 at December 31, 2008 to $202,309 at September 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 September 30, 2009, the Corporation was in compliance with all pledging requirements. Bank owned life insurance (BOLI) increased $360 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 $864 from December 31, 2008 to September 30, 2009. The decrease in office premises and equipment is attributed to depreciation of $1,364 and disposals of $1 offset by new purchases of $501.
Other assets have increased $2,324 from December 31, 2008 to September 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 $2,000. Total deposits at September 30, 2009 increased $40,687 from year-end 2008. Noninterest-bearing deposits increased $3,555 from year-end 2008 while interest-bearing deposits, including savings and time deposits, increased $37,132 from December 31, 2008. The interest-bearing deposit increase was primarily due to increases in 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. Savings accounts increased $21,470 from year end 2008, which included increases of $7,947 in statement savings, $1,305 in corporate savings, $3,533 in money market accounts and $8,117 in public fund money market savings accounts. The year to date average balance of total deposits increased $61,261 compared to the average balance of the same period in 2008. The increase in average balance is mainly 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 $46,453 during the first nine months of 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)
Total borrowed funds have decreased $17,387 from December 31, 2008 to September 30, 2009. At September 30, 2009, the Corporation had $80,375 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. On September 10, 2009 the Corporation executed a strategy to pre-fund replacement funding of $20,000 for a portion of two FHLB Advances coming due in 2010. By doing so, we locked in a relatively low fixed rate on replacement FHLB Advances, while also extending the term. At the same time, we also purchased a like amount of government agency bonds to help offset the cost of the replacement FHLB Advances between now and the maturity dates of the original FHLB advances. The first advance is a $10,000, thirty-seven month advance that has a fixed rate of 1.91%. The second advance is a $10,000, sixty month advance that has a fixed rate of 2.96%. 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 $4,762 and U.S. Treasury Tax Demand Notes have decreased $2,518 from December 31, 2008 to September 30, 2009.
Other liabilities have increased $3,173 from December 31, 2008 to September 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 $2,000.
Shareholders' equity at September 30, 2009 was $100,253, or 9.1 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 $1,627, less dividends paid of $2,423 and accretion of the discount on the warrant of $11, and an increase in the market value of securities available for sale, net of tax, of $1,248. 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, $.07 per common share on May 1, 2009 and $.01 per common share on August 1, 2009. The Corporation paid cash dividends to the U.S. Treasury of $71 on February 15, 2009, and $289 each on May 15 and August 15, 2009. The result of the payment of these preferred dividends was a reduction in the earnings available to common shareholders of $.08 per share. The Corporation paid cash dividends of $.28 per common share on each of February 1, 2008 and May 1, 2008 and $.20 per common share on August 1, 2008. Total outstanding common shares at September 30, 2009 and September 30, 2008 were 7,707,917.

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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)
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
Nine Months Ended September 30, 2009 and 2008 Net income for the nine months ended September 30, 2009 was $1,627, a decrease of $1,021 or 38.6 percent from $2,648 for the nine months of 2008. Basic and diluted earnings per common share were $0.13 for the nine months of 2009, compared to $0.34 for the same period in 2008. The primary reasons for the changes in net income are explained below.
Net interest income for the first nine months of 2009 was $29,712, a decrease of $831 or 2.7 percent from $30,543 in the first nine months 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 6.3 percent compared to September 30 of last year. Average loans decreased 1.7 percent compared to September 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 nine months ended September 30, 2009 and 2008 were 3.85% and 4.20%, respectively. Net interest margin declined 35 basis points as net interest income decreased 2.7 percent while average earning assets increased 6.3 percent. The decrease in net interest margin in the first nine 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 earning assets continue to be influenced by market rates and competitive pressures.

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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 income for the first nine months of 2009 was $7,141, a decrease of $198 or 2.7 percent from the same period in 2008. Declines in Trust fees of $387 are related to current economic conditions. Service charge fee income for the first nine months of 2009 was $3,589, up $30 or 0.8 percent over the first nine months of 2008. ATM fee income for the first nine months of 2009 was $1,234, up $205 or 19.9 percent over the first nine months 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 nine months of 2009 was $311, down $276 or 47.0 percent over the first nine months of 2008. This decrease is the result of restructuring communication lines, as well as the loss of income related to providing services to one less financial institution in 2009. Other non-interest income for the first nine months of 2009 was $889, up $230 or 34.9 percent over the first nine months 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 nine months of 2009 was $26,962, a decrease of $1,068 or 3.8 percent, from $28,030 reported for the same period of 2008. Salary and other employee costs were $12,004, down $1,287 or 9.7 percent as compared to the first nine months 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 $883 in savings for the first nine months of 2009. Occupancy and equipment costs were $3,232, down $318 or 9.0 percent compared to the same period of 2008. Computer processing costs were $809, down $135, or 14.3 percent compared to last year as a result of conversion costs associated with acquisitions paid during 2008. State franchise taxes decreased by $128 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 $132, or 12.0 percent from the first nine months of 2008, related to scheduled amortization of intangible assets associated with mergers. FDIC insurance assessments have increased by $1,512 during the first nine 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 $508, or 7.1 percent from the first nine months of 2008. A majority of the Corporation's other operating expenses declined compared to the first nine months of 2008.
Income tax expense for the first nine months of 2009 totaled $48 compared to $691 for the first nine months of 2008. This was a decrease of $643, or 93.1 percent. The decrease in the federal income taxes is mainly a result of nontaxable BOLI income and nontaxable securities income being a larger percentage of income before taxes. The effective tax rates for the nine-month periods ended September 30, 2009 and September 30, 2008 were 2.9% and 20.7%, respectively.

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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)
Three Months Ended September 30, 2009 and 2008 Net income for the three months ended September 30, 2009 was $499, a decrease of $731 or 59.4 percent from $1,230 for the same period in 2008. Basic and diluted earnings per common share was $.03 for the three months ended September 30, 2009 compared to $.16 for the same period in 2008. Reasons for the changes are explained below.
Total interest income for the third quarter of 2009 decreased $1,831, or 11.8 percent compared to the same period in 2008. Average earning assets for the third quarter of 2009 increased 7.6 percent from the three months ended September 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 was 5.25% for the third quarter of 2009 and 6.40% for the third quarter of 2008. The decrease in yield in this year's third quarter is due to the change in the interest rate environment in which the Corporation has operated in 2009. Total interest expense for the third quarter of 2009 decreased $1,353, or 27.4 percent compared to the same period of 2008. Average interest-bearing liabilities for the third quarter of 2009 increased 3.3 percent from the three months ended September 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 was 1.64% for the third quarter of 2009 and was 2.34% for the third quarter of 2008. The decrease in cost in this year's third quarter is due to the change in the interest rate environment.
Noninterest income for the three months ended September 30, 2009 was $2,276, a decrease of $153 or 6.3 percent compared to the three months ended September 30, 2008. ATM fee income for the third quarter of 2009 was $411, up $29 or 7.6 percent over the third quarter of 2008. This increase can be attributed to a change in ATM processing systems. The change resulted in increased interchange income. Trust fee income for the third quarter of 2009 was $381, down $127 or 25.0 percent over the third quarter of 2008, due largely to market conditions and the resulting negative impact this had on assets under management. Bank owned life insurance contributed $117 to non-interest income in the third quarter of 2009. Loss on sale of other real estate owned for the third quarter of 2009 was $163, an increase of $100 or 158.7 percent compared the same period in 2008.

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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)
Noninterest expense for the third quarter of 2009 was $8,400, a decrease of $606 or 6.7 percent, from $9,006 reported for the same period in 2008. Salaries and other employee costs were $3,688, down $857 or 18.9 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 $390 in savings for the third quarter of 2009. Occupancy and equipment costs were $1,006, down $138 or 12.1 percent compared to the same period of 2008. Computer processing costs were $251, up $12 or 5.0 percent compared to last year's third quarter. FDIC insurance assessments were $424, up $386 compared to the third 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 increased $71 compared to the third quarter of 2008. Amortization expense in the third quarter decreased $37 or 10.3 percent from the same period of 2008. Finally, other operating expenses were $2,444, down $43 or 1.7 percent as compared to the third quarter of 2008. A majority of the Corporation's other operating expenses declined compared to the third quarter of 2008. Income tax benefit the third quarter totaled $19 compared to an income tax expense of $396 for the same period in 2008. This was a decrease of $415, or 104.8 percent. The decrease in the federal income tax expense is a result of the decrease in total income before taxes of $1,146. The effective tax rates for the three-month periods ended September 30, 2009 and September 30, 2008, were (4.0)% and 24.4%, respectively. Non-taxable BOLI income and non-taxable security income being a larger portion of income both led to the income tax benefit. Capital Resources
Shareholders' equity totaled $100,253 at September 30, 2009 compared to $76,617 at December 31, 2008. The increase in equity is primarily the result of the issuance of $23.184 of preferred stock to the Treasury. All of the Corporation's capital ratios exceeded the regulatory minimum guidelines as of September 30, 2009 and December 31, 2008 as identified in the following table:

                                                  Total Risk        Tier I Risk
                                                     Based             Based           Leverage
. . .