Exhibit 13.1

Five Year Condensed Consolidated Financial Summary

		2010				2009				2008				2007				2006
Earnigs
Net Income (000)		$	(1,268	)		$	1,655				(38,978	)		$	6,885			$	6,160
Preferred dividends and discount accretion on warrants (000)		$	(1,176	)		$	(955	)		$	—			$	—			$	—
Net Income/(loss) available to common shareholders (000)		$	(2,444	)		$	700				(38,978	)		$	6,885			$	6,160
Per Common Share (1)
Earnings/(loss) (basic and diluted)		$	(0.16	)		$	0.21			$	(5.06	)		$	1.25			$	1.12
Earnings/(loss), available to common shareholders (basic and diluted)		$	(0.32	)		$	0.09			$	(5.06	)		$	1.25			$	1.12
Book Value		$	12.58			$	12.82			$	9.94			$	16.37			$	14.53
Dividends Paid		$	0.00			$	0.25			$	0.91			$	1.12			$	1.12
Balances
Assets (millions)		$	1,100.7			$	1,102.8			$	1,053.6			$	1,119.3			$	749.0
Deposits (millions)		$	892.5			$	856.1			$	809.9			$	839.8			$	564.6
Net Loans (millions)		$	745.6			$	775.5			$	787.8			$	787.4			$	549.7
Shareholders’ Equity (millions)		$	97.0			$	98.8			$	76.6			$	126.2			$	79.5
Performance Ratios
Return on Average Assets			(0.11	)%			0.15	%			(3.54	)%			0.89	%			0.83	%
Return on Average Equity			(1.27	)%			1.68	%			(31.57	)%			8.78	%			7.68	%
Equity Capital Ratio			8.81	%			8.96	%			7.27	%			11.28	%			10.61	%
Net Loans to Deposit Ratio			83.54	%			90.59	%			97.27	%			93.76	%			97.36	%
Loss Allowance to Total Loans			2.84	%			1.93	%			1.11	%			0.93	%			1.45	%

Dear Shareholder:

     Although we recently reported a profitable fourth quarter, we had a loss of $1,268,000 or $.16 per share for the year 2010. Issues related to the economy have dragged our earnings down throughout the last three years. Below is a per share apples-to-apples comparison of items significant to our results during those years:

		2010				2009				2008*
Earnings Before Economic Issues		$	2.39			$	2.36			$	1.89
Provision for Loan Losses			2.33				1.73				1.06
FDIC Insurance Premiums			0.19				0.26				0.01
Collection and Repossession Expenses			0.20				0.19				0.08
Investment Security Impairment			0.07				0.19				0.08
Total Economic Issues			2.80				2.37				1.23
Taxes			0.24				0.03				(0.18	)
Net Income		$	(0.16	)		$	0.02			$	0.48

     We remain very pleased with the core operations and the earnings capacity of the company as reflected above in the Earnings Before Economic Issues. And, as we continue to report, the strength in our core earnings comes from our strong net interest margin. Based on the September 30, 2010 Bank Holding Company Performance Report (the latest published information) provided by the Federal Reserve, our net interest margin was 4.10%. The percentage for our peer group was 3.66%. Our strong interest margin has made a considerable difference in our ability to weather the downturn.

     While economists tell us that, statistically, the recession is over, there will be lingering effects as our markets adapt to the trauma of the last three years. Continuing, higher than normal unemployment, along with the soft real estate market will dampen dramatic recovery. Because of this, we will continue our short term focus on Capital, Liquidity, Asset Quality, and the adequacy of our Reserve for Loan Losses to deal with asset quality issues.

Capital

     Simplified for non-accountants, the capital of the company consists of the original investment by shareholders plus all of the accumulated earnings over the years less dividends paid. By all applicable standards, the bank is well capitalized. And while there are no standards for the parent company, it too would be classed as well capitalized if bank measures are used. In our October 2010 letter to shareholders, we mentioned that regulatory capital requirements were changing. The new requirements are being phased in over a number of years. While the standards currently proposed would raise capital requirements above the present level, we believe that we will have the ability to remain within the “well capitalized” range as the requirements increase. Our ability to do this may be subject to a number of conditions, such as continued improvement in the economy and a return to sustained profitability. To rely upon earnings to meet the new standards will also require a balance between earnings retained as increased capital and earnings paid out in the form of dividends. We hope to achieve this balance, which would improve the book value of your stock because of the earnings retained as capital and yet provide a cash dividend that we know our shareholders have been patiently awaiting.

     In 2009 we supplemented our capital position using the U.S. Treasury’s Capital Purchase Program. The $23,000,000 in preferred stock purchased by the Treasury bolstered our capital in light of the very uncertain times. However, this program, which was part of the original TARP legislation, has become socially and politically tainted. In view of the stabilizing signs in our economy, we are examining

avenues to end our involvement in the Capital Purchase Program. There are a number of short and long term considerations that enter any decision as to how this would be done. Fundamental to our consideration of the alternatives is our desire to avoid capital raising efforts that would seriously undermine or dilute the book value of our stock. We are sensitive to the potential harm to our shareholders.

Liquidity

      Liquidity is now less of a concern than it has been over the last two years. One reason is that our deposits have increased. On December 31, 2010, our deposits totaled over $892,000,000, an increase from the 2009 year-end balance of $856,000,000 and the 2008 year-end balance of $810,000,000. In addition to deposit growth, we maintain additional operational sources of liquidity, which on December 31, 2010 totaled approximately $244,000,000. These are readily available funds that we can use to make loans or investments. (And, to respond to an often asked question, we cannot use deposits or other liquidity sources to repurchase the CPP preferred stock.) Although we are enjoying deposit growth and deposits are our raw material, loan demand has become soft. Our total loans outstanding have decreased from $790,818,000 as of the end of 2009 to $767,323,000 at the end of 2010. People are saving money and paying down debt. While this may improve the liquidity of a bank, it will put pressure on the bank’s margin, as it cannot put its funds to work in higher yielding loans and it has limited profitable and safe fixed income investment alternatives right now. This is a temporary issue which occurs with the ebb and flow of the economy. In time, as the economy improves and businesses see opportunities to expand, loan demand should increase.

Asset Quality

      Asset quality had the greatest impact on our performance in 2010. During the year 2010, we charged $12,651,000 to the reserve for loan losses. This compares to $8,051,000 charged to the reserve in 2009. The amount charged to the reserve represents the total of the loans that were completely written off and the amount of the write-downs to loans on our books to recognize deterioration in the value of the loan collateral or to reduce the loan balance in an effort to salvage the loan. As we commented last year and as can be seen in the recap below, the losses are spread throughout the portfolio:

		12/31/2010				2010
		Balances				Charge-offs
Loan Type
Commercial and Agriculture		$	84,913,000			$	2,710,000
Commercial Real Estate			336,251,000				4,653,000
Residential Real Estate			295,038,000				4,029,000
Real Estate Construction			39,341,000				799,000
Consumer and Other			11,780,000				460,000
Total		$	767,323,000			$	12,651,000

     We have individual customers who have lost their jobs or are underemployed and just cannot make it. We also have businesses that have struggled through the downturn, have exhausted their resources and are unable to continue. While we experienced historic loan losses in 2010, the trend has improved regarding the total loans that are either past due or are not accruing interest for us because of doubtful performance. At year-end 2010, these loans represented 4.27% of our total loans. This was an improvement from 4.63% at the end of 2009 and 4.88% at the end of 2008. We are hopeful that this trend will continue and have dedicated significant resources to monitoring loans, collecting loans, and restructuring challenged loans. We have also dedicated resources to managing the real estate and other collateral obtained through foreclosure or repossession. While this is the option of last resort, we must properly manage these situations to limit our overall loss.

Reserve for Loan Losses

      During 2010, we placed $17,940,000 from earnings into the reserve for loan losses. During the same period (as discussed above) we charged off $12,651,000 from the reserve. At the end of the year, the balance in the reserve for loan losses was $21,768,000. This represents the accumulated amount that we believe may be necessary to cover potential losses. The total amount maintained in the reserve is determined as a result of an analytical process that involves senior management, senior lending officers, and senior credit officers. In 2010, we noticed that a number of banks took money out of their reserves, which increased their earnings by the amount taken out. While this certainly provides a one-time boost to earnings, we prefer to take a conservative approach in an effort to assure that our reserves are sufficient. We are comfortable with our process, which has been reviewed by our regulators and outside auditors. We will continue to take a prudent and conservative approach to maintaining reserves.

Outlook For 2011

     We believe that the local economy is stabilizing in our markets. Unemployment is historically high, but it appears to be gradually decreasing. Many of our business customers, particularly those involved in manufacturing, have seen a dramatic improvement in their operations. Most of our farming customers continue to enjoy strong results. Unfortunately, construction and development appear quite soft in most of our markets, and construction and development are key to a quick robust recovery. While the road to recovery may be long and may not be straight, we don’t envision further broad deterioration.

     Even though the demand for loans is currently soft, we are selectively adding experienced lenders to our staff. As business indicators stabilize and improve, we expect increasing opportunities to increase loan volume. This seems to be occurring in our more metropolitan markets such as Dublin, Hilliard, and Fairlawn (Akron), and we anticipate that demand will increase in our other markets as conditions improve.

     We are also introducing new products, such as account access through a customer’s smart phone. More and more customers are using electronic services and are looking for this type of product. During 2011, we will continue to encourage our customers to utilize the services that we offer electronically, including access to their checking and savings account statements by email. Currently 7% of our customers use this service, but increased use would significantly decrease our postage and handling costs.

     Finally, we continue to be alert for opportunities to expand. The increasing costs of regulation that disproportionally impact smaller institutions, the difficulty in attracting experienced staff in smaller communities, and the strain of managing through the economic downturn may cause many smaller institutions to look for partners. We believe we are in a position to take advantage of potential opportunities, if they will benefit our shareholders.

     Managing a banking institution during the last three years has been a mix of experiences- interesting, exciting, troubling, and educational — all at the same time. It reminds one of the old Chinese curse, “May you live in interesting times.” On behalf of management and the board, I want to thank you, the shareholder, for your very strong support and encouragement. Your support has made it much easier to face the challenges of these interesting times.

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ANNUAL REPORT

CONTENTS

Five —Year Selected Consolidated Financial Data			1
Common Stock and Shareholder Matters			3
General Development of Business			3
Management’s Discussion and Analysis of Financial Condition and Results of Operations			4
Quantitative and Qualitative Disclosures about Market Risk			16
Financial Statements
Management’s Report on Internal Control over Financial Reporting			20
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Statements			21
Report of Independent Registered Public Accounting Firm on Financial Statements			22
Consolidated Balance Sheets			23
Consolidated Statements of Operations			24
Consolidated Statements of Changes in Shareholders’ Equity			25
Consolidated Statements of Cash Flow			27
Notes to Consolidated Financial Statements			29

Five-Year Selected Consolidated Financial Data

(Dollars in thousands, except per share data)

		Year ended December 31,
		2010				2009				2008				2007				2006
Statements of income:
Total interest and dividend income		$	51,925			$	55,191			$	62,267			$	49,947			$	45,876
Total interest expense			10,464				14,918				21,780				20,371				15,615
Net interest income			41,461				40,273				40,487				29,576				30,261
Provision for loan losses			17,940				13,323				8,207				1,020				1,128
Net interest income after provision for loan losses			23,521				26,950				32,280				28,556				29,133
Security gains/(losses)			212				75				193				(1	)			—
Other noninterest income			9,269				9,558				9,463				7,506				6,670
Total noninterest income			9,481				9,633				9,656				7,505				6,670
Goodwill impairment			—				—				43,291				—				—
Other noninterest expense			36,101				35,165				36,254				26,163				26,977
Total noninterest expense			36,101				35,165				79,545				26,163				26,977
Income (loss) before federal income taxes			(3,099	)			1,418				(37,609	)			9,898				8,826
Federal income tax expense (benefit)			(1,831	)			(237	)			1,369				3,013				2,666
Net income (loss)		$	(1,268	)		$	1,655			$	(38,978	)		$	6,885			$	6,160
Preferred stock dividends and discount accretion			1,176				955				—				—				—
Net income (loss) available to common shareholders		$	(2,444	)		$	700			$	(38,978	)		$	6,885			$	6,160
Per share of common stock:
Earnings (loss) (basic and diluted)		$	(0.16	)		$	0.21			$	(5.06	)		$	1.25			$	1.12
Earnings (loss) (basic and diluted) available to common shareholders			(0.32	)			0.09				(5.06	)			1.25				1.12
Dividends			—				0.25				0.91				1.12				1.12
Book value			12.58				12.82				9.94				16.37				14.53
Average common shares outstanding:
Basic			7,707,917				7,707,917				7,707,917				5,505,023				5,520,692
Diluted			7,707,917				7,707,917				7,707,917				5,505,023				5,520,692
Year-end balances:
Loans, net		$	745,555			$	775,547			$	787,789			$	787,386			$	549,665
Securities			200,296				222,674				167,159				158,920				119,398
Total assets			1,100,622				1,102,812				1,053,611				1,119,257				748,986
Deposits			892,463				856,102				809,921				839,820				564,551
Borrowings			103,604				139,105				155,038				145,051				96,754
Shareholders’ equity			96,950				98,797				76,617				126,156				79,472
Average balances:
Loans, net		$	765,821			$	777,825			$	791,298			$	579,025			$	530,409
Securities			212,038				197,826				163,054				118,542				126,645
Total assets			1,121,105				1,102,779				1,099,943				780,769				739,571
Deposits			892,773				863,488				808,646				574,133				566,584
Borrowings			117,280				127,793				162,400				118,375				87,825
Shareholders’ equity			99,648				98,454				123,468				78,435				80,182

See accompanying notes to consolidated financial statements.

Five-Year Selected Ratios

		Year ended December 31,
		2010				2009				2008				2007				2006
Net yield on average interest-earning assets			3.94	%			3.91	%			4.18	%			4.17	%			4.49	%
Return on average total assets			(0.11	)			0.15				(3.54	)			0.89				0.83
Return on average shareholders’ equity			(1.27	)			1.68				(31.57	)			8.78				7.68
Average shareholders’ equity as a percent of average total assets			8.89				8.97				11.22				10.05				10.84
Net loan charge-offs as a percent of average total loans			1.46				0.87				0.84				0.52				0.42
Allowance for loan losses as a percent of loans at year-end			2.84				1.93				1.11				0.93				1.45
Shareholders’ equity as a percent of total year-end assets			8.81				8.96				7.27				11.28				10.61

A copy of the Corporation’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission, will be furnished, free of charge, to shareholders, upon written request to the Secretary of First Citizens Banc Corp, 100 East Water Street, Sandusky, Ohio 44870.

See accompanying notes to consolidated financial statements.

Common Stock and Shareholder Matters

The common shares of First Citizens Banc Corp (FCBC) trade on The NASDAQ Stock Market under the symbol “FCZA”. As of December 31, 2010, there were 7,707,917 shares outstanding held by approximately 1,386 shareholders of record (not including the number of persons or entities holding stock in nominee or street name through various brokerage firms). Information below is the range of sales prices for each quarter for the last two years.

2010

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

$4.05 to $5.64

$4.36 to $6.26

$4.00 to $5.30

$3.65 to $4.40

2009

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

$5.99 to $8.00

$5.01 to $8.42

$4.25 to $6.30

$4.27 to $5.90

FCBC did not declare any dividends on common shares in 2010. Dividends per share declared on common shares by FCBC were as follows:

		2010				2009
First quarter		$	—			$	0.15
Second quarter			—				0.07
Third quarter			—				0.01
Fourth quarter			—				0.02
		$	—			$	0.25

Information regarding potential restrictions on dividends paid can be found in Note 16 to the Consolidated Financial Statements.

General Development of Business
(Dollars in thousands, except for per share data)

FIRST CITIZENS BANC CORP (FCBC) was organized under the laws of the State of Ohio on February 19, 1987 and is a registered financial holding company under the Gramm-Leach-Bliley Financial Modernization Act of 1999, as amended. FCBC and its subsidiaries are sometimes referred to together as the Corporation. The Corporation’s office is located at 100 East Water Street, Sandusky, Ohio. The Corporation had total consolidated assets of $1,100,747 at December 31, 2010.

THE CITIZENS BANKING COMPANY (Citizens), owned by the Corporation since 1987, opened for business in 1884 as The Citizens National Bank. In 1898, Citizens was reorganized under Ohio banking law and was known as The Citizens Bank and Trust Company. In 1908, Citizens surrendered its trust charter and began operation under its current name. Citizens maintains its main office at 100 East Water Street, Sandusky, Ohio and operates branch banking offices in the following Ohio communities; Sandusky (2), Norwalk (2), Berlin Heights, Huron, Castalia, New Washington, Shelby (3), Willard, Chatfield, Tiro, Greenwich, Plymouth, Shiloh, Akron, Dublin, Hilliard, Plain City, Russells Point, Urbana (2), West Liberty and Quincy. Additionally, Citizens operates a loan production office in Port Clinton, Ohio. Citizens accounted for 99.6% of the Corporation’s consolidated assets at December 31, 2010.

See accompanying notes to consolidated financial statements.

SCC RESOURCES INC. (SCC) was organized under the laws of the State of Ohio. Begun as a joint venture of three local Sandusky, Ohio banks in 1966, SCC provided item-processing services for financial institutions, including Citizens, and other nonrelated entities. The Corporation acquired total ownership of SCC in February 1993. As of June 30, 2009, this subsidiary was merged with Citizens. Citizens has continued item-processing for the non-related financial institutions.

FIRST CITIZENS INSURANCE AGENCY INC. (Insurance Agency) was formed to allow the Corporation to participate in commission revenue generated through its third party insurance agreement. Assets of the Insurance Agency were less than one percent of the Corporation’s consolidated assets as of December 31, 2010.

WATER STREET PROPERTIES (Water St.) was formed to hold properties repossessed by FCBC subsidiaries. Water St. accounted for less than one percent of the Corporation’s consolidated assets as of December 31, 2010.

FIRST CITIZENS INVESTMENTS, INC. (FCI) is wholly-owned by Citizens and holds and manages its securities portfolio. The operations of FCI are located in Wilmington, Delaware.

FIRST CITIZENS CAPITAL LLC (FCC) is wholly-owned by Citizens and holds inter-company debt that is eliminated in consolidation. The operations of FCC are located in Wilmington, Delaware.

Management’s Discussion and Analysis of Financial Condition and Results of Operations — As of
December 31, 2010 and December 31, 2009 and for the Years Ending December 31, 2010 and 2009

(Dollars in thousands, except per share data)

General

The following paragraphs more fully discuss the significant highlights, changes and trends as they relate to the Corporation’s financial condition, results of operations, liquidity and capital resources as of December 31, 2010 and 2009, and during the two-year period ended December 31, 2010. This discussion should be read in conjunction with the Consolidated Financial Statements and notes to the Consolidated Financial Statements, which are included elsewhere in this report.

Forward-Looking Statements

This report includes forward-looking statements by the Corporation relating to such matters as anticipated operating results, business line results, credit quality expectations, prospects for new lines of business, economic trends (including interest rates) and similar matters. Such statements are based upon the current beliefs and expectations of the Corporation’s management and are subject to risks and uncertainties. While the Corporation believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could prove to be inaccurate, and accordingly, actual results and experience 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 experience 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 Securities and Exchange Commission.

See accompanying notes to consolidated financial statements.

The Corporation 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. 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 any events or circumstances occurring after the date of such statements, except as required by law.

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

Financial Condition

At December 31, 2010, total assets were $1,100,622, compared to $1,102,812 at December 31, 2009. The decrease in assets is primarily the result of a decrease in the investment and loan portfolios, which was partially offset by increased federal funds sold. Other factors contributing to the change in assets are discussed in the following sections.

At $745,555, net loans have declined from December 31, 2009 by 3.9%. The mix of the loan portfolio shifted in 2010 toward Commercial Real Estate and Real Estate Construction. The shift was made up by growth in Commercial Real Estate and Real Estate Construction of $10,320 and declines in Commercial, Residential Real Estate, Consumer and Other loans of $32,812. The decline in the consumer loan portfolio has continued largely as the result of a decline in the housing market and the Corporation’s decision to originate and sell the majority of mortgage loans in the secondary market. Additionally, other products such as same as cash loans and other lending alternatives in the market place are being used by consumers rather than the traditional consumer lending that the Corporation offers. These changes were also the product of management’s approach over the last year and a half. Our focus continues to be more about asset quality and less about loan growth. While the primary goal was to try to improve asset quality, a secondary result was that these measures helped preserve liquidity.

Year-end deposit balances totaled $892,463 in 2010 compared to $856,052 in 2009, an increase of $36,411, or 4.3%. Non-interest bearing demand deposits increased by $16,870, or 12.0%, savings accounts increased by $25,611 and interest bearing demand deposits increased by $6,455 from 2009 to 2010. Time deposit accounts decreased by $12,525, or 3.7% from 2009 to 2010. A primary factor of the increase in deposits, especially savings, can be attributed to the prolonged, dampened state of the economy. Customers seem to be staying out of the market, spending less and saving more. Average deposit balances for 2010 were $892,773 compared to $863,488 for 2009, an increase of 3.4%. Non-interest bearing deposits averaged $144,711 for 2010, compared to $126,934 for 2009, increasing $17,777, or 14.0%. Savings, NOW, and MMIA accounts averaged $406,909 for 2010 compared to $372,354 for 2009. Average certificates of deposit decreased $23,047 to total an average balance of $341,153 for 2010.

Borrowings from the Federal Home Loan Bank (FHLB) of Cincinnati were $50,327 at December 31, 2010. The detail of these borrowings can be found in Note 8 to the Consolidated Financial Statements. The decrease of $35,037 from year-end 2009 was the result of matured advances that were not replaced. Advances totaling $20,000 were part of a strategy to pre-fund two FHLB advances coming due in 2010 and were not expected to be replaced. The remaining maturities were not deemed to be needed, in light of our current federal funds sold position.

Citizens offers repurchase agreements in the form of sweep accounts to commercial checking account customers. These repurchase agreements totaled $21,842 at December 31, 2010 compared to $21,920 at December 31, 2009. Obligations of U.S. government agencies maintained under Citizens’ control are pledged as collateral for the repurchase agreements.

See accompanying notes to consolidated financial statements.

Securities available for sale decreased by $22,340, or 10.8%, from $207,292 on December 31, 2009 to $184,952 on December 31, 2010. U.S. Treasury securities and obligations of U.S. government agencies decreased $33,843, from $89,550 at December 31, 2009 to $55,707 at December 31, 2010. Most of this decrease was related to the FHLB Advance prefunding strategy and was expected. Obligations of states and political subdivisions available for sale increased $8,049 from 2009 to 2010. Mortgage-backed securities increased by $3,454 to total $68,100 at December 31, 2010. The shift toward Municipals and Mortgage-backed securities was intended to try to gain yield in the portfolio. The Corporation continues to utilize letters of credit from the FHLB to replace maturing securities that were pledged for public entities. As of December 31, 2010, the Corporation was in compliance with all pledging requirements.

Mortgage-backed securities totaled $68,100 at December 31, 2010 and none are considered unusual or “high risk” securities as defined by regulating authorities. Of this total, $41,459 are pass-through securities issued by the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC) and $26,641 are collateralized by mortgage-backed securities issued or guaranteed by FNMA, FHLMC, or Government National Mortgage Association (GNMA). The average interest rate of the mortgage-backed portfolio at December 31, 2010 was 5.33%. The average maturity at December 31, 2010 was approximately 3.96 years. The Corporation has not invested in any derivative securities.

Securities available for sale had an estimated fair value at December 31, 2010 of $184,952. This fair value includes unrealized gains of approximately $3,530 and unrealized losses of approximately $1,775. Net unrealized gains totaled $1,755 on December 31, 2010 compared to net unrealized gains of $1,817 on December 31, 2009. The change in unrealized gains is primarily due to changes in market interest rates. Note 2 to the Consolidated Financial Statements provides more information on unrealized gains and losses.

Premises and equipment, net of accumulated depreciation, decreased $1,573 from December 31, 2009 to December 31, 2010. The decrease in office premises and equipment is attributed to new purchases of $1,193, depreciation of $1,590 and disposals of $1,176.

Other assets have increased $1,453 from December 31, 2009 to December 31, 2010. The increase is primarily the result of increases in wholesale mortgage receivables.

Total shareholders’ equity decreased $1,847, or 1.9% during 2010 to $96,950. The change in shareholders’ equity resulted from a loss of $1,268, preferred dividends of $1,159, the decrease in the market value of securities available for sale, net of tax, of $41 and the change in the Corporation’s pension liability, net of tax of $621. For further explanation of these items, see Note 1 and Note 12 to the Consolidated Financial Statements. The Corporation paid no cash dividends on common shares in 2010. Total outstanding shares at December 31, 2010 were 7,707,917. The ratio of total shareholders’ equity to total assets was 8.8% at December 31, 2010 compared to 8.9% at December 31, 2009.

Results of Operations

The operating results of the Corporation are affected by general economic conditions, the monetary and fiscal policies of federal agencies and the regulatory policies of agencies that regulate financial institutions. The Corporation’s cost of funds is influenced by interest rates on competing investments and general market rates of interest. Lending activities are influenced by the demand for real estate loans and other types of loans, which in turn is affected by the interest rates at which such loans are made, general economic conditions and the availability of funds for lending activities.

The Corporation’s net income primarily depends on its net interest income, which is the difference between the interest income earned on interest-earning assets, such as loans and securities, and interest expense incurred on interest-bearing liabilities, such as deposits and borrowings. The level of net interest

See accompanying notes to consolidated financial statements.

income is dependent on the interest rate environment and the volume and composition of interest-earning assets and interest-bearing liabilities. Net income is also affected by provisions for loan losses, service charges, gains on the sale of assets, other income, noninterest expense and income taxes.

Comparison of Results of Operations for the Years Ended December 31, 2010 and December 31, 2009

Net Income (Loss)

The Corporation’s net loss for the year ended December 31, 2010 was $1,268, compared to net income of $1,655 for the year ended December 31, 2009. The change in net income was the result of the items discussed in the following sections.

Net Interest Income

Net interest income for 2010 was $41,461, an increase of $1,188, or 2.9% from 2009. Although average earning assets increased 2.0% from 2009, market rates in 2010 led to a decline in interest income, mostly in the loan portfolio. This decrease was offset by a decrease in interest expense on interest-bearing liabilities of $4,454, a 29.9% decline. The Corporation continually examines its rate structure to ensure that its interest rates are competitive and reflective of the current rate environment in which it competes.

Total interest income decreased $3,266, or 5.9% for 2010. The decrease was a result of the yield on earning assets more than offsetting the effect of the increase in volume of interest earning assets. Average loans decreased $5,084 from 2009 to 2010. Interest earned on the Corporation’s loan portfolio declined as both the average balances and yield declined. The average balance of the securities portfolio for 2010 compared to 2009 increased $14,212, due to the decline in loans and reallocation from federal funds sold to investments. Interest earned on the security portfolio, including bank stocks, decreased mainly due to decreases in yield. Average balances of Federal Funds sold increased in 2010 by $12,082.

Total interest expense decreased $4,454, or 29.9% for 2010 compared to 2009. The decrease in interest expense can be attributed to declines in market rates and the corresponding repricing of deposits and other sources of funding. Total average balance of interest-bearing liabilities increased $995 while the average rate decreased 52 basis points in 2010. Average interest-bearing deposits increased $11,508 from 2009 to 2010. The increase in average interest-bearing deposits, offset by a decline in rate of approximately 47 basis points, caused interest expense on deposits to decrease $4,454. Interest expense on FHLB borrowings decreased $454 due to a decrease in average volume of $3,035 and a decrease in average rate of 51 basis points. The average balance in subordinated debentures did not change from 2009 to 2010, but the rate on these securities decreased 156 basis points, resulting in a decrease in interest expense of $478. Other borrowings decreased $7,449 in balance from 2009 to 2010. The decrease in other borrowings is mainly the result of a decrease in repurchase agreements.

Refer to “Distribution of Assets, Liabilities and Shareholders’ Equity, Interest Rates and Interest Differential” and “Changes in Interest Income and Interest Expense Resulting from Changes in Volume and Changes in Rate” on pages 11 through 13 for further analysis of the impact of changes in interest-bearing assets and liabilities on the Corporation’s net interest income.

See accompanying notes to consolidated financial statements.

Provision and Allowance for Loan Losses

The following table contains information relating to the provision for loan losses, activity in and analysis of the allowance for loan losses as of and for each of the two years in the period ended December 31, 2010.

		As of and for year
		ended December 31,
		2010				2009
Net loan charge-offs		$	11,443			$	6,914
Provision for loan losses charged to expense			17,940				13,323
Net loan charge-offs as a percent of average outstanding loans			1.46	%			0.88	%
Allowance for loan losses		$	21,768			$	15,271
Allowance for loan losses as a percent of year-end outstanding loans			2.84	%			1.93	%
Allowance for loan losses as a percent of impaired loans			131.90	%			67.17	%
Impaired loans		$	16,504			$	22,736
Impaired loans as a percent of gross year-end loans (1)			2.15	%			2.87	%
Nonaccrual and 90 days or more past due loans		$	24,416			$	25,571
Nonaccrual and 90 days or more past due loans as a percent of gross year-end loans (1)			3.18	%			3.24	%

The Corporation’s policy is to maintain the allowance for loan losses at a level sufficient to provide for probable losses incurred in the current portfolio. 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 $17,940 and $13,323 in 2010 and 2009 respectively. This contributed to the strengthening of the allowance for loan losses by $6,522 at December 31, 2010 compared to the prior year.

The Corporation’s provision for loan losses increased during 2010 is in response to the challenging economic conditions and depressed collateral values in our market. As we have continued to strengthen our collection and loan workout process, we have written down the value of problem loans to reflect current conditions. In addition, we have enhanced our review process to assure that loan problems are identified. A number of factors impact the provisions for loan losses, such as the level of higher risk loans in the portfolio, changes in practices related to loans, changes in collateral values and other factors. We continue to actively manage this process and have provided to increase the reserve to assure adequate coverage ratios.

Efforts are continually made to analyze each segment of the loan portfolio and quantify risk to assure that reserves are appropriate for each segment and the allowance overall. Management specifically evaluates loans that are impaired, which includes restructured loans, to estimate potential loss. Management also calculates specific reserve allocations for identified problem loans, and reserves for pools of similar loans.

See accompanying notes to consolidated financial statements.

This analysis includes a review of the historical charge-off rates for all loan categories as well as fluctuations and trends in various risk factors that have occurred within the portfolios economic life cycle. The analysis also includes assessment of qualitative factors such as credit trends, unemployment trends, vacancy trends and loan growth. 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 each commercial and commercial real estate loan, with a balance of $350 or larger, on an individual basis and designates a loan as impaired when it is in nonaccrual status or 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. 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.

Noninterest Income

Noninterest income totaled $9,481 in 2010 compared to $10,147 in 2009, a decrease of 6.6%. The significant items contributing to this change are as follows.

Service charges paid to Citizens decreased $273 compared to 2009. The decline is related to a decline in the number of accounts paying service charges. In addition, the average service charge per account has decreased. Revenue from computer operations decreased in 2010, down $117 from 2009. Fewer items processed in general, and fewer paper items processed, led to this decline. Trust fees increased $276 compared to 2009. The increase is related to the recoveries in the financial markets and the related effect on assets under management, as well as a general increase in assets under management. ATM fee income increased in 2010, up $118 from 2009. This increase can be attributed to a 25 percent increase in the foreign transaction fee charged during the first quarter of 2010. Revenue from bank owned life insurance decreased $11 in 2010 compared to the same period in 2009, which is the net change related to interest and mortality cost.

Noninterest Expense

Noninterest expense totaled $36,101 in 2010, an increase of $422, or 1.2% over 2009. The following discussion highlights significant items that resulted in increases or decreases in the components of noninterest expense.

Salaries and wages totaled $13,923 in 2010 compared to $13,020 in 2009, an increase of $903. The increase is attributable to a small general salary increase as well as an increase in commission payments. Additionally, there was 1 additional full-time equivalent employee compared to 2009. The Corporation’s self-insured health plan costs increased $476 in 2010 as the plan experienced higher health care costs. The Corporation’s pension plan expenses increased $290 in 2010 compared to 2009.

Net occupancy expense was fairly flat from 2009 to 2010, up just $20, while Equipment expense decreased $362, as the cost of repairs and maintenance expense and depreciation expense decreased.

Professional service costs increased $244 in 2010 compared to the same period in 2009. The increase is due to consulting services for loan work outs and core banking software analysis and an increase related to hiring a consulting firm to assist with the resolution of certain larger collection items. Marketing expense increased this year by $216 to accommodate planned advertising initiatives. ATM expenses were down $49 compared to the same period in 2009. Other operating expenses were down $653 compared to the same period of 2009. This decrease is mainly the result of the following: courier expenses decreased by $195 and trust data processing decreased by $27 compared to 2009. Amortization of intangible assets decreased $70 from 2009. One intangible asset was completely amortized in 2009, while the others decreased in 2010 due to the accelerated nature of the amortization schedules.

See accompanying notes to consolidated financial statements.

FDIC assessments decreased $391 in 2010 to $1,580, from $1,971 in 2009. The decrease was the result of the FDIC’s Special Emergency Assessment, which resulted in $502 of additional expense in 2009 that was not required in 2010. This was offset by an increase in the assessment rate the FDIC charged to all institutions in 2010.

Sales of other real estate owned resulted in recognized losses of $320 on the sale of 29 properties in 2010 compared to losses of $500 on the sale of 35 properties in 2009.

Income Tax Expense

Income before federal income taxes amounted to ($3,099) in 2010 and $1,418 in 2009. The Corporation’s income tax benefit for 2010 was a result of the non-taxable BOLI income and nontaxable securities income being a larger percentage of income before taxes, coupled with the large increase in loan loss provision this year. The Corporation’s income tax benefit for 2009 was mainly the result of non-taxable BOLI income and nontaxable securities income being a larger percentage of income before taxes.

See accompanying notes to consolidated financial statements.

Distribution of Assets, Liabilities and Shareholders’ Equity,
Interest Rates and Interest Differential

The following table sets forth, for the years ended December 31, 2010 and 2009, the distribution of assets, including interest amounts and average rates of major categories of interest-earning assets and interest-bearing liabilities (Dollars in thousands):

		2010												2009
		Average								Yield/				Average								Yield/
		balance				Interest				rate				balance				Interest				rate
Assets
Interest-earning assets:
Loans (1)(2)(3)		$	784,263			$	44,252				5.64	%		$	789,347			$	46,715				5.92	%
Taxable securities (4)			168,224				5,813				3.52	%			156,536				6,759				4.37	%
Non-taxable securities (4)(5)			43,814				1,818				4.25	%			41,290				1,686				4.16	%
Federal funds sold			42,330				39				0.09	%			30,248				21				0.07	%
Interest-bearing deposits in other banks			14,099				3				0.02	%			14,701				10				0.07	%
Total interest-earning assets			1,052,730				51,925				4.94	%			1,032,122				55,191				5.36	%
Noninterest-earning assets:
Cash and due from financial institutions			8,241												7,403
Premises and equipment, net			19,010												20,521
Accrued interest receivable			5,303												5,885
Intangible assets			27,643												28,900
Other assets			14,540												7,872
Bank owned life insurance			12,080												11,598
Less allowance for loan losses			(18,442	)											(11,522	)
Total		$	1,121,105											$	1,102,779

See accompanying notes to consolidated financial statements.

Distribution of Assets, Liabilities and Shareholders’ Equity,
Interest Rates and Interest Differential (Continued)

The following table sets forth, for the years ended December 31, 2010 and 2009, the distribution of liabilities and shareholders’ equity, including interest amounts and average rates of major categories of interest-earning assets and interest-bearing liabilities (Dollars in thousands):

		2010												2009
		Average								Yield/				Average								Yield/
		balance				Interest				rate				balance				Interest				rate
Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Savings and interest- bearing demand accounts		$	406,909			$	1,526				0.38	%		$	372,354			$	2,027				0.54	%
Certificates of deposit			341,153				5,657				1.66	%			364,200				8,508				2.34	%
Federal Home Loan Bank advances			64,126				2,394				3.73	%			67,179				2,848				4.24	%
Securities sold under repurchase agreements			21,519				66				0.31	%			26,676				133				0.50	%
Federal funds purchased			—				—				0.00	%			11				—				0.00	%
Notes payable			—				—				0.00	%			2,247				108				4.81	%
Subordinated debentures			30,349				821				2.71	%			30,349				1,295				4.27	%
U.S. Treasury demand notes payable			1,286				—				0.00	%			1,331				—				0.00	%
Total interest- bearing liabilities			865,342				10,464				1.21	%			864,347				14,919				1.73	%
Noninterest-bearing liabilities:
Demand deposits			144,711												126,934
Other liabilities			11,404												13,044
			156,115												139,978
Shareholders’ equity			99,648												98,454
Total		$	1,121,105											$	1,102,779
Net interest income and interest rate spread						$	41,461				3.73	%						$	40,272				3.63	%
Net yield on interest- earning assets											3.94	%											3.91	%

See accompanying notes to consolidated financial statements.

Changes in Interest Income and Interest Expense
Resulting from Changes in Volume and Changes in Rate

The following table sets forth, for the periods indicated, a summary of the changes in interest income and interest expense resulting from changes in volume and changes in rate.

		2010 compared to 2009
		Increase (decrease) due to:
		Volume(1)				Rate(1)				Net
		(Dollars in thousands)
Interest income:
Loans		$	(299	)		$	(2,164	)		$	(2,463	)
Taxable securities			517				(1,463	)			(946	)
Nontaxable securities			113				19				132
Federal funds sold			10				8				18
Interest-bearing deposits in other banks			—				(7	)			(7	)
Total interest income		$	341			$	(3,607	)		$	(3,266	)
Interest expense:
Savings and interest -bearing demand accounts			175				(676	)			(501	)
Certificates of deposit			(510	)			(2,341	)			(2,851	)
Federal Home Loan Bank advances			(126	)			(328	)			(454	)
Securities sold under repurchase agreements			(22	)			(45	)			(67	)
Note payable			(108	)			—				(108	)
Subordinated debentures			—				(473	)			(473	)
U.S. Treasury demand notes payable			—				—				—
Total interest expense		$	(591	)		$	(3,863	)		$	(4,454	)
Net interest income		$	932			$	256			$	1,188

See accompanying notes to consolidated financial statements.

Liquidity and Capital Resources

Citizens maintains a conservative liquidity position. All securities are classified as available for sale. At December 31, 2010, securities with maturities of one year or less, totaled $783, or 0.4%, of the total security portfolio. The available for sale portfolio helps to provide Citizens with the ability to meet its funding needs. The Consolidated Statements of Cash Flows contained in the Consolidated Financial Statements detail the Corporation’s cash flows from operating activities resulting from net earnings.

Cash from operations for 2010 was $19,079. The primary additions to cash from operating activities are from changes in amortization of intangible assets, the provision for loan losses, depreciation and changes in prepaid FDIC premiums. The primary use of cash from operating activities is from changes in other and changes in taxes and other expenses. Cash from investing activities was $33,258 in 2010. Security and property and equipment purchases were offset by security maturities, proceeds from the sale of OREO properties and decreases in loans. Cash from financing activities in 2010 totaled $(249). A major source of cash for financing activities is the net change in deposits. Cash provided by the net change in deposits was $36,411 in 2010. The large increase in deposits was primarily due to increases in noninterest-bearing deposits, money market savings accounts and public money market savings accounts, which added $13,024, $5,455 and $14,518, respectively, in deposits during 2010. This increase was offset by the decreases in FHLB overnight funds and a maturity of two FHLB long-term advances of $5,000 and $30,000, respectively. The primary uses of cash in financing activities include changes in securities sold under repurchase agreements, changes in U.S. Treasury interest-bearing demand notes payable and the payment of dividends. Cash and cash equivalents increased from $26,942 at December 31, 2009 to $79,030 at December 31, 2010.

Future loan demand of Citizens can 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. As of December 31, 2010, Citizens had total credit availability with the FHLB of $105,242 of which $50,327 was outstanding.

On a separate entity basis, the Corporation’s primary source of funds is dividends paid primarily by Citizens. Generally, subject to applicable minimum capital requirements, Citizens may declare a dividend without the approval of the Federal Reserve Bank of Cleveland and the State of Ohio Department of Commerce, Division of Financial Institutions, provided the total dividends in a calendar year do not exceed the total of its profits for that year combined with its retained profits for the two preceding years. At December 31, 2010, Citizens was unable to pay dividends to the Corporation without obtaining regulatory approval. During 2010, Citizens did not pay a dividend to the Corporation. Accumulated cash at the Corporation was sufficient for general corporate purposes, so management opted to preserve capital at the Bank.

In addition to the restrictions placed on dividends by banking regulations, the Corporation is subject to restrictions on the payment of dividends as a result of the Corporation’s issuance of $23 million of Senior Preferred Shares and related warrants under the U.S. Department of Treasury’s voluntary CPP on January 23, 2009. As long as the Senior Preferred Shares remain outstanding, the Corporation is permitted to declare and pay dividends on its common shares only if all accrued and unpaid dividends for all past dividend periods on the Senior Preferred Shares are fully paid. In addition, until the third anniversary of the sale of the Senior Preferred Shares, unless such shares have been transferred or redeemed in whole, any increase in dividends on the Corporation’s common shares above the amount of the last quarterly cash dividend per share declared prior to October 14, 2008 ($0.15 per share) will require prior approval of Treasury.

The Corporation manages its liquidity and capital through quarterly Asset/Liability Committee (ALCO) meetings. The ALCO discusses issues like those in the above paragraphs as well as others that will affect

See accompanying notes to consolidated financial statements.

future liquidity and capital position of the Corporation. The ALCO also examines interest rate risk and the effect that changes in rates will have on the Corporation. For more information about interest rate risk, please refer to the “Quantitative and Qualitative Disclosures about Market Risk” section.

Capital Adequacy

The Corporation’s policy is, and always has been, to maintain its capital levels above the well capitalized regulatory standards. Under the regulatory capital standards, total capital has been defined as Tier I (core) capital and Tier II (supplementary) capital. The Corporation’s Tier I capital includes shareholders’ equity (net of unrealized security gains and losses) and subordinated debentures (subject to certain limits) while Tier II capital also includes the allowance for loan losses. The definition of risk-adjusted assets has also been modified to include items both on and off the balance sheet. Each item is then assigned a risk weight or risk adjustment factor to determine ratios of capital to risk adjusted assets. The standards require that total capital (Tier I plus Tier II) be a minimum of 8.0% of risk-adjusted assets, with at least 4.0% being in Tier I capital. To be well capitalized, a company must have a minimum of 10.0% of risk adjusted assets, with at least 6.0% being Tier I capital. The Corporation’s ratios as of December 31, 2010 and 2009 were 15.1% and 14.3% respectively for total risk-based capital, and 13.8% and 13.0% respectively for Tier I risk-based capital. The Corporation’s participation in the U.S. Treasury’s CPP led to improvement of the Corporation’s capital ratios by adding $23,184 in additional Tier I capital.

Additionally, the Federal Reserve Board has adopted minimum leverage-capital ratios. These standards were established to supplement the previously issued risk based capital standards. The leverage ratio standards use the existing Tier I capital definition, but the ratio is applied to average total assets instead of risk-adjusted assets. The standards require that Tier I capital be a minimum of 4.0% of total average assets for high rated entities such as the Corporation and a minimum of 5.0% of total average assets to be well capitalized. The Corporation’s leverage ratio was 9.3% and 9.6% at December 31, 2010 and 2009. As with the risk-based capital ratios above, the leverage ratio also improved as a result of the Corporation’s participation in the Treasury’s CPP.

Effects of Inflation

The Corporation’s balance sheet is typical of financial institutions and reflects a net positive monetary position whereby monetary assets exceed monetary liabilities. Monetary assets and liabilities are those which can be converted to a fixed number of dollars and include cash assets, securities, loans, money market instruments, deposits and borrowed funds.

During periods of inflation, a net positive monetary position may result in an overall decline in purchasing power of an entity. No clear evidence exists of a relationship between the purchasing power of an entity’s net positive monetary position and its future earnings. Moreover, the Corporation’s ability to preserve the purchasing power of its net positive monetary position will be partly influenced by the effectiveness of its asset/liability management program. Management does not believe that the effect of inflation on its nonmonetary assets (primarily bank premises and equipment) is material as such assets are not held for resale and significant disposals are not anticipated.

Fair Value of Financial Instruments

The Corporation has disclosed the estimated fair value of its financial instruments at December 31, 2010 and 2009 in Note 14 of the Consolidated Financial Statements. The fair value of loans at December 31, 2010 was 102.4% of the carrying value compared to 102.7% at December 31, 2009. The fair value of deposits at December 31, 2010 was 100.0% of the carrying value compared to 100.9% at December 31, 2009.

See accompanying notes to consolidated financial statements.

Contractual Obligations

The following table represents significant fixed and determinable contractual obligations of the Corporation as of December 31, 2010.

		One year				One to				Three to				Over five
Contractual Obligations		or less				three years				five years				years				Total
Deposits without a stated maturity		$	568,840			$	—			$	—			$	—			$	568,840
Certificates of deposit			208,375				82,676				21,424				11,148				323,623
FHLB advances, securities sold under agreements to repurchase and U.S. Treasury interest- bearing demand note			23,885				32,569				15,223				2,500				74,177
Subordinated debentures (1)			—				—				—				29,427				29,427
Operating leases			339				583				376				175				1,473

The Corporation has retail repurchase agreements with clients within its local market areas. These borrowings are collateralized with securities owned by the Corporation. See Note 9 of the Consolidated Financial Statements for further detail. The Corporation also has a cash management advance line of credit and outstanding letters of credit with the FHLB. For further discussion, refer to Note 8 of the Consolidated Financial Statements.

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

See accompanying notes to consolidated financial statements.

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.

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. 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 refund its obligations at new, lower rates. The Corporation has not purchased derivative financial instruments in the past and does not intend to purchase such instruments in the near future. 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. Also, 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 are sensitive to changes in interest rates as of December 31, 2010 and 2009, based on certain prepayment and account decay assumptions that management believes are reasonable. The Corporation had no derivative financial instruments or trading portfolio as of December 31, 2010 or 2009. 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.

See accompanying notes to consolidated financial statements.

						Net Portfolio Value
						December 31, 2010												December 31, 2009
Change in						Dollar				Dollar				Percent				Dollar				Dollar				Percent
Rates						Amount				Change				Change				Amount				Change				Change
+200bp						$	145,476			$	160				0	%		$	143,173			$	(6,648	)			-4	%
+100bp							150,062				4,746				3	%			151,656				1,835				1	%
Base							145,316				—				—				149,821				—				—
-100bp							154,728				9,412				6	%			157,937				8,116				5	%

The change in net portfolio value from December 31, 2009 to December 31, 2010, is primarily a result of two factors. The yield curve has shifted downward slightly since the end of the year and both the mix and overall size of assets and funding sources have changed. Assets have increased and the mix also shifted away from loans and securities toward cash. Funding sources increased while the funding mix shifted from borrowed money to deposits. Beyond the change in the base level of net portfolio value, overall projected movements, given specific changes in rates, would lead to similar changes in the net portfolio value as of the end of 2009, but larger in magnitude for both rates up and rates down. A 100 basis point upward movement in rates would lead to a slower decrease in the fair value of liabilities, compared to assets, which would lead to an increase in the net portfolio value. For a 200 basis point upward movement in rates, the change from the base is nearly neutral due to projected changes related to the loan and investment portfolios being nearly equal to the projected changes in funding. 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.

Critical Accounting Policies

Allowance for Loan Losses

The allowance for loan losses is regularly reviewed by management to determine whether or not the amount is considered adequate to absorb probable losses in the loan portfolio. If not, an additional provision is made to increase the allowance. This evaluation includes specific loss estimates on certain individually reviewed loans, the pooling of commercial credits risk graded as special mention and substandard that are not individually examined, and general loss estimates that are based upon the size, quality, and concentration characteristics of the various loan portfolios, adverse situations that may affect a borrower’s ability to repay, and current economic and industry conditions, among other items.

Those judgments and assumptions that are most critical to the application of this accounting policy are assessing the initial and on-going credit-worthiness of the borrower, the amount and timing of future cash flows of the borrower that are available for repayment of the loan, the sufficiency of underlying collateral, the enforceability of third-party guarantees, the frequency and subjectivity of loan reviews and risk gradings, emerging or changing trends that might not be fully captured in the historical loss experience, and charges against the allowance for actual losses that are greater than previously estimated. These judgments and assumptions are dependent upon or can be influenced by a variety of factors including the breadth and depth of experience of lending officers, credit administration and the corporate loan review staff that periodically review the status of the loan, changing economic and industry conditions, changes in the financial condition of the borrower and changes in the value and availability of the underlying collateral and guarantees.

Management completes a similar process as above when the Corporation is in its due diligence phase of a potential merger. The allowance for loan losses at the target bank is evaluated for adequacy based on the

See accompanying notes to consolidated financial statements.

same factors as used in the Corporations’ own allowance calculation. Upon completion of the merger, this process is repeated and any excess or deficiency in the allowance is recognized.

Note 1 and Note 4 in the Notes to Consolidated Financial Statements provide additional information regarding Allowance for Loan Losses.

Goodwill

FASB ASC Topic 350 requires an annual evaluation of goodwill for impairment, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Management performed an evaluation of the Corporation’s goodwill during the fourth quarter of 2010. In performing its evaluation, management obtained several commonly used financial ratios from pending and completed purchase transactions for banks based in the Midwest. Management used these ratios to determine an implied market value for the Corporation. The implied market value exceeded the carrying value. Therefore management concluded that goodwill was not impaired and made no adjustment in 2010.

See accompanying notes to consolidated financial statements.

Management’s Report on Internal Control over Financial Reporting

We, as management of First Citizens Banc Corp, are responsible for establishing and maintaining effective internal control over financial reporting that is designed to produce reliable financial statements in conformity with United States generally accepted accounting principles. The system of internal control over financial reporting as it relates to the financial statements is evaluated for effectiveness by management and tested for reliability through a program of internal audits. Actions are taken to correct potential deficiencies as they are identified. Any system of internal control, no matter how well designed, has inherent limitations, including the possibility that a control can be circumvented or overridden and misstatements due to error or fraud may occur and not be detected. Also, because of changes in conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to financial statement preparation.

Management assessed the Corporation’s system of internal control over financial reporting as of December 31, 2010, in relation to criteria for effective internal control over financial reporting as described in “Internal Control — Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concludes that, as of December 31, 2010, its system of internal control over financial reporting is effective and meets the criteria of the “Internal Control — Integrated Framework”. S.R. Snodgrass, A.C., independent registered public accounting firm, has issued an audit report on the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2010.

Management is responsible for compliance with the federal and state laws and regulations concerning dividend restrictions and federal laws and regulations concerning loans to insiders designated by the FDIC as safety and soundness laws and regulations.

Management has assessed compliance by the Company with the designated laws and regulations relating to safety and soundness. Based on the assessment, management believes that the Company complied, in all significant respects, with the designated laws and regulations related to safety and soundness for the year ended December 31, 2010.

James O. Miller President, Chief Executive Officer		Todd A. Michel Senior Vice President, Controller

Sandusky, Ohio
March 9, 2011

See accompanying notes to consolidated financial statements.

Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting

To the Board of Directors and Shareholders
First Citizens Banc Corp
Sandusky, Ohio

We have audited First Citizens Banc Corp and subsidiaries’ internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). First Citizens Banc Corp’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report on Management’s Assessment of Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, First citizens Banc Corp maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of First Citizens Banc Corp and subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for the year then ended, and our report dated March 9, 2011, expressed an unqualified opinion.

Wexford, Pennsylvania
March 9, 2011

See accompanying notes to consolidated financial statements.

Report of Independent Registered Public Accounting Firm on Financial Statements

Board of Directors and Stockholders
First Citizens Banc Corp
Sandusky, Ohio

We have audited the accompanying consolidated balance sheets of First Citizens Banc Corp and subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of operation, shareholders’ equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of First Citizens Banc Corp and subsidiaries as of December 31, 2010 and 2009, and the consolidated results of their operations and their cash flows for each of the years then ended, in conformity with U.S. generally accepted accounting principles.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), First Citizens Banc Corp and subsidiaries’ internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 9, 2011, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Wexford, Pennsylvania
March 9, 2011

See accompanying notes to consolidated financial statements.

FIRST CITIZENS BANC CORP
CONSOLIDATED BALANCE SHEETS
December 31, 2010 and 2009
(In thousands, except share data)

		2010				2009
ASSETS
Cash and due from financial institutions		$	79,030			$	26,942
Securities available for sale			184,952				207,292
Loans, net of allowance of $21,768 and $15,271			745,555				775,547
Other securities			15,344				15,382
Premises and equipment, net			18,129				19,702
Accrued interest receivable			4,382				5,425
Goodwill			21,720				21,720
Other intangible assets			5,275				6,492
Bank owned life insurance			12,320				11,848
Other assets			13,915				12,462
Total assets		$	1,100,622			$	1,102,812
LIABILITIES
Deposits
Noninterest-bearing		$	157,529			$	140,659
Interest-bearing			734,934				715,393
Total deposits			892,463				856,052
Federal Home Loan Bank advances			50,327				85,364
Securities sold under agreements to repurchase			21,842				21,920
U. S. Treasury interest-bearing demand note payable			2,008				2,394
Subordinated debentures			29,427				29,427
Accrued expenses and other liabilities			7,605				8,858
Total liabilities			1,003,672				1,004,015
SHAREHOLDERS’ EQUITY
Preferred stock, 200,000 shares authorized, 23,184 shares issued			23,134				23,117
Common stock, no par value, 20,000,000 shares authorized, 8,455,881 shares issued			114,447				114,447
Accumulated deficit			(20,218	)			(17,774	)
Treasury stock, 747,964 shares at cost			(17,235	)			(17,235	)
Accumulated other comprehensive loss			(3,178	)			(3,758	)
Total shareholders’ equity			96,950				98,797
Total liabilities and shareholders’ equity		$	1,100,622			$	1,102,812

See accompanying notes to consolidated financial statements.

FIRST CITIZENS BANC CORP
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2010 and 2009
(In thousands, except per share data)

		2010				2009
Interest and dividend income
Loans, including fees		$	44,252			$	46,715
Taxable securities			5,813				6,759
Tax-exempt securities			1,818				1,686
Federal funds sold and other			42				31
Total interest income			51,925				55,191
Interest expense
Deposits			7,183				10,535
Federal Home Loan Bank advances			2,394				2,848
Subordinated debentures			817				1,295
Other			70				240
Total interest expense			10,464				14,918
Net interest income			41,461				40,273
Provision for loan losses			17,940				13,323
Net interest income after provision for loan losses			23,521				26,950
Noninterest income
Computer center item processing fees			257				374
Service charges			4,556				4,829
Net gains on sale of securities			212				75
ATM fees			1,752				1,634
Trust fees			1,864				1,588
Bank owned life insurance			472				483
Impairment loss on investment securities			(575	)			—
Other			943				1,164
Total noninterest income			9,481				10,147
Noninterest expense
Salaries, wages and benefits			17,212				15,631
Net occupancy expense			2,356				2,336
Equipment expense			1,522				1,884
Contracted data processing			929				1,091
FDIC Assessment			1,580				1,971
State franchise tax			984				1,086
Professional services			1,383				1,139
Amortization of intangible assets			1,218				1,288
ATM expense			688				737
Telephone			534				612
Marketing expense			630				414
Repossession expense			944				679
Loss on sale of fixed assets			79				14
Loss on sale of other real estate owned			320				500
Other operating expenses			5,722				6,297
Total noninterest expense			36,101				35,679
Income (loss) before income taxes (benefit)			(3,099	)			1,418
Income tax benefit			(1,831	)			(237	)
Net income (loss)		$	(1,268	)		$	1,655
Preferred stock dividends and discount accretion			1,176				955
Net income (loss) available to common shareholders		$	(2,444	)		$	700
Earnings (loss) per common share, basic and diluted		$	(0.32	)		$	0.09
Weighted average basic common shares			7,707,917				7,707,917

See accompanying notes to consolidated financial statements.

FIRST CITIZENS BANC CORP
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Years ended December 31, 2010 and 2009
(In thousands, except per share data)

																										Accumulated
																										Other				Total
		Preferred Stock								Common Stock								(Accumulated				Treasury				Comprehensive				Shareholders’
		Shares				Amount				Shares				Amount				deficit)				Stock				Income (Loss)				Equity
Balance, December 31, 2008			—			$	—				7,707,917			$	114,365			$	(16,546	)		$	(17,235	)		$	(3,967	)		$	76,617
Comprehensive Income:
Net income																			1,655												1,655
Change in funded status on pension benefits, net of tax																											578				578
Unrealized loss on securities available for sale, net of reclassification and tax effects																											(369	)			(369	)
Total Comprehensive income																															1,864
Preferred stock issued			23,184				23,184																								23,184
Discount on preferred stock issued							(82	)																							(82	)
Amortization of discount on preferred stock							15												(15	)											—
Common stock warrant issued															82																82
Cash dividends ($0.25 per share)																			(1,928	)											(1,928	)
Preferred stock dividends																			(940	)											(940	)
Balance, December 31, 2009			23,184			$	23,117				7,707,917			$	114,447			$	(17,774	)		$	(17,235	)		$	(3,758	)		$	98,797

See accompanying notes to consolidated financial statements.

FIRST CITIZENS BANC CORP
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Continued)
Years ended December 31, 2010 and 2009
(In thousands, except per share data)

																										Accumulated
																										Other				Total
		Preferred Stock								Common Stock								(Accumulated				Treasury				Comprehensive				Shareholders’
		Shares				Amount				Shares				Amount				deficit)				Stock				Income (Loss)				Equity
Balance, December 31, 2009			23,184			$	23,117				7,707,917			$	114,447			$	(17,774	)		$	(17,235	)		$	(3,758	)		$	98,797
Comprehensive Loss:
Net income																			(1,268	)											(1,268	)
Change in funded status on pension benefits, net of tax																											621				621
Unrealized loss on securities available for sale, net of reclassification and tax effects																											(41	)			(41	)
Total comprehensive loss																															(688	)
Amortization of discount on preferred stock							17												(17	)											—
Preferred stock dividends																			(1,159	)											(1,159	)
Balance, December 31, 2010			23,184			$	23,134				7,707,917			$	114,447			$	(20,218	)		$	(17,235	)		$	(3,178	)		$	96,950