CIVISTA BANCSHARES, INC. - FORM 10-Q

Attached files

file	filename
EX-32.2 - EXHIBIT 32.2 - CIVISTA BANCSHARES, INC.	c16761exv32w2.htm
EX-31.1 - EXHIBIT 31.1 - CIVISTA BANCSHARES, INC.	c16761exv31w1.htm
EX-31.2 - EXHIBIT 31.2 - CIVISTA BANCSHARES, INC.	c16761exv31w2.htm
EX-32.1 - EXHIBIT 32.1 - CIVISTA BANCSHARES, INC.	c16761exv32w1.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 31, 2011


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 0-25980

First Citizens Banc Corp

(Exact name of registrant as specified in its charter)


Ohio		34-1558688
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

100 East Water Street, Sandusky, Ohio		44870
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (419) 625-4121

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):


Large accelerated filer o	Accelerated filer o	Non-accelerated filer o	Smaller reporting company þ
		(Do not check if smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Common Shares, no par value, outstanding at May 6, 2011 — 7,707,917 shares

FIRST CITIZENS BANC CORP

Index


PART I. Financial Information

Item 1. Financial Statements:

Consolidated Balance Sheets (Unaudited) March 31, 2011 and December 31, 2010			3

Consolidated Statements of Income (Unaudited) Three months ended March 31, 2011 and 2010			4

Consolidated Comprehensive Income Statements (Unaudited) Three months ended March 31, 2011 and 2010			5

Condensed Consolidated Statement of Shareholders’ Equity (Unaudited) Three months ended March 31, 2011			6

Condensed Consolidated Statement of Cash Flows (Unaudited) Three months ended March 31, 2011 and 2010			7

Notes to Interim Consolidated Financial Statements (Unaudited)			8-30

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			31-37

Item 3. Quantitative and Qualitative Disclosures about Market Risk			38-40

Item 4. Controls and Procedures			41

PART II. Other Information

Item 1. Legal Proceedings			42

Item 1A. Risk Factors			42

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			42

Item 3. Defaults upon Senior Securities			42

Item 4. [Removed and Reserved]			42

Item 5. Other Information			42

Item 6. Exhibits			42

Signatures			43

Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

Part I — Financial Information


ITEM 1.		Financial Statements

FIRST CITIZENS BANC CORP

Consolidated Balance Sheets (Unaudited)

(In thousands, except share data)


	March 31,			December 31,
	2011			2010
ASSETS
Cash and due from financial institutions	$	93,843		$	79,030
Securities available for sale		199,779			184,952
Loans, net of allowance of $23,656 and $21,768		728,513			745,555
Other securities		15,267			15,344
Premises and equipment, net		18,028			18,129
Accrued interest receivable		5,345			4,382
Goodwill		21,720			21,720
Core deposit and other intangibles		4,984			5,275
Bank owned life insurance		17,455			12,320
Other assets		13,663			13,915

Total assets	$	1,118,597		$	1,100,622


LIABILITIES
Deposits
Noninterest-bearing	$	172,467		$	157,529
Interest-bearing		735,155			734,934

Total deposits		907,622			892,463
Federal Home Loan Bank advances		50,319			50,327
Securities sold under agreements to repurchase		21,484			21,842
U. S. Treasury interest-bearing demand note payable		1,392			2,008
Subordinated debentures		29,427			29,427
Accrued expenses and other liabilities		10,248			7,605

Total liabilities		1,020,492			1,003,672


SHAREHOLDERS’ EQUITY
Preferred stock, no par value, 200,000 shares authorized, 23,184 shares issued		23,138			23,134
Common stock, no par value, 20,000,000 shares authorized, 8,455,881 shares issued		114,447			114,447
Retained deficit		(19,759	)		(20,218	)
Treasury stock, 747,964 shares at cost		(17,235	)		(17,235	)
Accumulated other comprehensive loss		(2,486	)		(3,178	)

Total shareholders’ equity		98,105			96,950


Total liabilities and shareholders’ equity	$	1,118,597		$	1,100,622

See notes to interim unaudited consolidated financial statements

Page 3

FIRST CITIZENS BANC CORP

Consolidated Statements of Income (Unaudited)

(In thousands, except per share data)


	Three months ended March 31,
	2011		2010
Interest and dividend income
Loans, including fees	$	10,573	$	11,107
Taxable securities		1,398		1,593
Tax-exempt securities		427		470
Federal funds sold and other		16		3

Total interest income		12,414		13,173
Interest expense
Deposits		1,423		1,996
Federal Home Loan Bank advances		412		744
Subordinated debentures		195		208
Other		12		25

Total interest expense		2,042		2,973

Net interest income		10,372		10,200
Provision for loan losses		3,000		3,740

Net interest income after provision for loan losses		7,372		6,460

Noninterest income
Service charges		1,029		1,065
Net gain on sale of securities		—		15
ATM fees		432		411
Trust fees		552		440
Bank owned life insurance		135		120
Computer center item processing fees		68		69
Other		452		172

Total non-interest income		2,668		2,292
Noninterest expense
Salaries, wages and benefits		4,556		4,256
Net occupancy expense		634		661
Equipment expense		320		402
Contracted data processing		208		264
State franchise tax		241		277
Professional services		302		378
Amortization of intangible assets		290		305
FDIC assessment		355		391
ATM expense		144		177
Other real estate owned expense		—		51
Other operating expenses		2,138		1,834

Total noninterest expense		9,188		8,996

Income (loss) before income taxes		852		(244	)
Income tax expense (benefit)		99		(280	)

Net income	$	753	$	36

Preferred stock dividends		290		290

Net income (loss) available to common shareholders	$	463	$	(254	)

Earnings (loss) per common share, basic and diluted	$	0.06	$	(0.03	)

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

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

See notes to interim unaudited consolidated financial statements

Page 4

FIRST CITIZENS BANC CORP

Consolidated Comprehensive Income Statements (Unaudited)

(In thousands)


	Three months ended
	March 31,
	2011			2010
Net income	$	753		$	36

Unrealized holding gains on available for sale securities		1,049			1,215
Reclassification adjustment for gains later recognized in income		—			(15	)


Net unrealized gains		1,049			1,200
Tax effect		(357	)		(408	)

Total other comprehensive income		692			792

Comprehensive income	$	1,445		$	828

See notes to interim unaudited consolidated financial statements

Page 5

FIRST CITIZENS BANC CORP

Consolidated Statements of Shareholders’ Equity (Unaudited)

Form 10-Q

(In thousands, except share data)


															Accumulated
	Preferred Stock				Common Stock										Other			Total
	Outstanding				Outstanding				Retained			Treasury			Comprehensive			Shareholders’
	Shares		Amount		Shares		Amount		Deficit			Stock			Income/(Loss)			Equity

Balance, January 1, 2011		23,184	$	23,134		7,707,917	$	114,447	$	(20,218	)	$	(17,235	)	$	(3,178	)	$	96,950

Net Income		—		—		—		—		753			—			—			753

Change in unrealized gain/(loss) on securities available for sale, net of reclassifications and tax effects		—		—		—		—		—			—			692			692

Amortization of discount on preferred stock		—		4		—		—		(4	)		—			—			—

Preferred stock dividend		—		—		—		—		(290	)		—			—			(290	)


Balance, March 31, 2011		23,184	$	23,138		7,707,917	$	114,447	$	(19,759	)	$	(17,235	)	$	(2,486	)	$	98,105

See notes to interim unaudited consolidated financial statements

Page 6

FIRST CITIZENS BANC CORP

Condensed Consolidated Statement of Cash Flows (Unaudited)

(In thousands)


	Three months ended
	March 31,
	2011			2010

Net cash from operating activities	$	5,907		$	4,000

Cash flows from investing activities
Maturities and calls of securities, available-for-sale		15,130			22,900
Purchases of securities, available-for-sale		(28,782	)		(22,299	)
Security sales		300			5,865
Redemption of FRB stock		83			—
Purchases of FRB stock		(6	)		—
Purchase of bank owned life insurance		(5,000	)		—
Loans made to customers, net of principal collected		13,401			3,657
Proceeds from sale of OREO properties		150			258
Proceeds from sale of property		—			37
Net purchases of office premises and equipment		(257	)		(242	)

Net cash from investing activities		(4,981	)		10,176


Cash flows from financing activities
Repayment of FHLB borrowings		(8	)		(11	)
Net change in short-term FHLB advances		—			(5,000	)
Repayment of long-term FHLB advances		(22,500	)		(15,000	)
Proceeds from long-term FHLB advances		22,500			—
Net change in deposits		15,159			25,920
Change in securities sold under agreements to repurchase		(358	)		(2,277	)
Change in U. S. Treasury interest-bearing demand note payable		(616	)		(1,066	)
Dividends paid		(290	)		(290	)

Net cash from financing activities		13,887			2,276


Net change in cash and due from banks		14,813			16,452
Cash and cash equivalents at beginning of period		79,030			26,942

Cash and cash equivalents at end of period	$	93,843		$	43,394


Cash paid during the period for:
Interest	$	2,049		$	2,753
Income taxes	$	—		$	—
Supplemental cash flow information:
Transfer of loans from portfolio to other real estate owned	$	452		$	393

See notes to interim unaudited consolidated financial statements

Page 7

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

(1) Consolidated Financial Statements

Nature of Operations and Principles of Consolidation: The Consolidated Financial Statements include the accounts of First Citizens Banc Corp (FCBC) and its wholly-owned subsidiaries: The Citizens Banking Company (Citizens), First Citizens Insurance Agency, Inc., and Water Street Properties, Inc. (Water St.). First Citizens Capital LLC (FCC) is wholly-owned by Citizens and holds inter-company debt. The operations of FCC are located in Wilmington, Delaware. First Citizens Investments, Inc. (FCI) is wholly-owned by Citizens and holds and manages Citizens’ securities portfolio. The operations of FCI are located in Wilmington, Delaware. The above companies together are referred to as the Corporation. Intercompany balances and transactions are eliminated in consolidation.

The consolidated financial statements have been prepared by the Corporation without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the Corporation’s financial position as of March 31, 2011 and its results of operations and changes in cash flows for the periods ended March 31, 2011 and 2010 have been made. The accompanying consolidated financial statements have been prepared in accordance with instructions of Form 10-Q, and therefore certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been omitted. The results of operations for the period ended March 31, 2011 are not necessarily indicative of the operating results for the full year. Reference is made to the accounting policies of the Corporation described in the notes to the financial statements contained in the Corporation’s 2010 annual report. The Corporation has consistently followed these policies in preparing this Form 10-Q.

The Corporation provides financial services through its offices in the Ohio counties of Erie, Crawford, Champaign, Franklin, Logan, Summit, Huron, Ottawa, and Richland. Its primary deposit products are checking, savings, and term certificate accounts, and its primary lending products are residential mortgage, commercial, and installment loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets and commercial and residential real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. There are no significant concentrations of loans to any one industry or customer. However, the customer’s ability to repay their loans is dependent on the real estate and general economic conditions in the area. Other financial instruments that potentially represent concentrations of credit risk include deposit accounts in other financial institutions and Federal Funds sold. First Citizens Insurance Agency Inc. was formed to allow the Corporation to participate in commission revenue generated through its third party insurance agreement. Insurance commission revenue is less than 1.0% of total revenue through March 31, 2011. Water St. revenue was less than 1.0% of total revenue through March 31, 2011. Management considers the Corporation to operate primarily in one reportable segment, banking.

Page 8

First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)

Use of Estimates: To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in financial statements and the disclosures provided, and future results could differ. The allowance for loan losses, impairment of goodwill, fair values of financial instruments, deferred taxes and pension obligations are particularly subject to change.

Income Taxes: Income tax expense is based on the effective tax rate expected to be applicable for the entire year. Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax basis of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

New Accounting Pronouncements:

In April 2010, the FASB issued ASU 2010-13, Compensation — Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades. ASU 2010-13 provides guidance on the classification of a share-based payment award as either equity or a liability. A share-based payment that contains a condition that is not a market, performance, or service condition is required to be classified as a liability. ASU 2010-13 is effective for fiscal years and interim periods within those fiscal years beginning on or after December 15, 2010 and adoption did not have a significant impact on the Corporation’s financial statements.

In July 2010, FASB issued ASU No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. ASU 2010-20 is intended to provide additional information to assist financial statement users in assessing an entity’s credit risk exposures and evaluating the adequacy of its allowance for credit losses. The disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. The amendments in ASU 2010-20 encourage, but do not require, comparative disclosures for earlier reporting periods that ended before initial adoption. However, an entity should provide comparative disclosures for those reporting periods ending after initial adoption. Adoption of the standard did not have a significant impact on the Corporation’s financial position or results of operations.

In December, 2010, the FASB issued ASU 2010-28, When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. This ASU modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that impairment may exist. The qualitative factors are consistent with the existing guidance, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. For public entities, the amendments in this Update are effective for fiscal year, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. For nonpublic entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. This ASU is not expected to have a significant impact on the Corporation’s financial statements.

Page 9

First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)

In December 2010, the FASB issued ASU 2010-29, Disclosure of Supplementary Pro Forma Information for Business Combinations. The amendments in this Update specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments in this Update are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. This ASU is not expected to have a significant impact on the Corporation’s financial statements.

Impact of Not Yet Effective Authoritative Accounting Pronouncements

In August, 2010, the FASB issued ASU 2010-21, Accounting for Technical Amendments to Various SEC Rules and Schedules. This ASU amends various SEC paragraphs pursuant to the issuance of Release No. 33-9026: Technical Amendments to Rules, Forms, Schedules, and Codification of Financial Reporting Policies and is not expected to have a significant impact on the Corporation’s financial statements.

In August, 2010, the FASB issued ASU 2010-22, Technical Corrections to SEC Paragraphs — An announcement made by the staff of the U.S. Securities and Exchange Commission. This ASU amends various SEC paragraphs based on external comments received and the issuance of SAB 112, which amends or rescinds portions of certain SAB topics and is not expected to have a significant impact on the Corporation’s financial statements.

In September, 2010, the FASB issued ASU 2010-25, Plan Accounting — Defined Contribution Pension Plans. The amendments in this ASU require that participant loans be classified as notes receivable from participants, which are segregated from plan investments and measured at their unpaid principal balance plus any accrued but unpaid interest. The amendments in this Update are effective for fiscal years ending after December 15, 2010 and are not expected to have a significant impact on the Corporation’s financial statements.

Page 10

First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)

In October, 2010, the FASB issued ASU 2010-26, Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts. This ASU addresses the diversity in practice regarding the interpretation of which costs relating to the acquisition of new or renewal insurance contracts qualify for deferral. The amendments are effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2011 and are not expected to have a significant impact on the Corporation’s financial statements.

In January 2011, the FASB issued ASU 2011-01, Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20. The amendments in this Update temporarily delay the effective date of the disclosures about troubled debt restructurings in Update 2010-20, enabling public-entity creditors to provide those disclosures after the FASB clarifies the guidance for determining what constitutes a troubled debt restructuring. The deferral in this Update will result in more consistent disclosures about troubled debt restructurings. This amendment does not defer the effective date of the other disclosure requirements in Update 2010-20. In the proposed Update for determining what constitutes a troubled debt restructuring, the FASB proposed that the clarifications would be effective for interim and annual periods ending after June 15, 2011. For the new disclosures about troubled debt restructurings in Update 2010-20, those clarifications would be applied retrospectively to the beginning of the fiscal year in which the proposal is adopted. The adoption of this guidance in not expected to have a significant impact on the Corporation’s financial statements.

In April 2011, the FASB issued ASU 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring. The amendments in this Update provide additional guidance or clarification to help creditors in determining whether a creditor has granted a concession and whether a debtor is experiencing financial difficulties for purposes of determining whether a restructuring constitutes a troubled debt restructuring. The amendments in this Update are effective for the first interim or annual reporting period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning annual period of adoption. As a result of applying these amendments, an entity may identify receivables that are newly considered impaired. For purposes of measuring impairment of those receivables, an entity should apply the amendments prospectively for the first interim or annual period beginning on or after June 15, 2011. The Corporation is currently evaluating the impact the adoption of the standard will have on the Corporation’s financial position or results of operations.

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First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)

(2) Securities

Available for sale securities at March 31, 2011 and December 31, 2010 were as follows:


			Gross		Gross
	Amortized		Unrealized		Unrealized
March 31, 2011	Cost		Gains		Losses			Fair Value
U.S. Treasury securities and obligations of U.S. government agencies	$	60,054	$	475	$	(308	)	$	60,221
Obligations of states and political subdivisions		61,067		949		(660	)		61,356
Mortgage-backed securities in government sponsored entities		75,374		2,198		(46	)		77,526

Total debt securities		196,495		3,622		(1,014	)		199,103

Equity securities in financial institutions		481		195		—			676


			Gross		Gross
	Amortized		Unrealized		Unrealized
December 31, 2010	Cost		Gains		Losses			Fair Value
U.S. Treasury securities and obligations of U.S. government agencies	$	55,398	$	616	$	(307	)	$	55,707
Obligations of states and political subdivisions		61,401		483		(1,415	)		60,469
Mortgage-backed securities in government sponsored entities		65,917		2,236		(53	)		68,100

Total debt securities		182,716		3,335		(1,775	)		184,276

Equity securities in financial institutions		481		195		—			676

Page 12

First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)

The fair value of securities at March 31, 2011, by contractual maturity, is shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Securities not due at a single maturity date, primarily mortgage-backed securities and equity securities are shown separately.


Available for sale	Fair Value
Due in one year or less	$	779
Due after one year through five years		14,245
Due after five years through ten years		14,038
Due after ten years		92,515
Mortgage-backed securities		77,526
Equity securities		676

Total securities available for sale	$	199,779

Proceeds from the sale of securities during the quarter ended March 31, 2011 were $300. There were no gains from securities called, sold or settled by the issuer during the quarter ended March 31, 2011. Proceeds from the sale of securities during the quarter ended March 31, 2010 were $5,865. Gains were $15 during the quarter ended March 31, 2010.

Securities with a carrying value of approximately $140,635 and $158,940 were pledged as of March 31, 2011 and December 31, 2010, respectively, to secure public deposits, other deposits and liabilities as required by law.

Page 13

First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)

Securities with unrealized losses at March 31, 2011 and December 31, 2010 not recognized in income are as follows:


	12 Months or less					More than 12 months					Total
March 31, 2011	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Description of Securities	Value		Loss			Value		Loss			Value		Loss

U.S. Treasury securities and obligations of U.S. government agencies	$	14,081	$	(308	)	$	—	$	—		$	14,081	$	(308	)
Obligations of states and political subdivisions		24,001		(619	)		2,448		(41	)		26,449		(660	)
Mortgage-backed securities in gov’t sponsored entities		3,622		(44	)		1,039		(2	)		4,661		(46	)


Total temporarily impaired	$	41,704	$	(971	)	$	3,487	$	(43	)	$	45,191	$	(1,014	)


	12 Months or less					More than 12 months					Total
December 31, 2010	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Description of Securities	Value		Loss			Value		Loss			Value		Loss

U.S. Treasury securities and obligations of U.S. government agencies	$	10,257	$	(307	)	$	—	$	—		$	10,257	$	(307	)
Obligations of states and political subdivisions		34,938		(1,359	)		2,256		(56	)		37,194		(1,415	)
Mortgage-backed securities in gov’t sponsored entities		9,696		(53	)		—		—			9,696		(53	)


Total temporarily impaired	$	54,891	$	(1,719	)	$	2,256	$	(56	)	$	57,147	$	(1,775	)

There are seventy-seven securities in the portfolio with unrealized losses. Unrealized losses on securities have not been recognized into income because the issuers’ securities are of high credit quality, management has the intent and ability to hold these securities for the foreseeable future, and the decline in fair value is largely due to market yields increasing across the municipal sector partly due to higher risk premiums associated with municipal insurers. The fair value is expected to recover as the securities approach their maturity date or reset date. The Corporation does not intend to sell until recovery and does not believe selling will be required before recovery.

Page 14

First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)

(3) Loans

Loan balances were as follows:


	March 30,			December 31,
	2011			2010
Commercial and agriculture	$	78,564		$	84,913
Commercial real estate		338,239			336,251
Real estate — mortgage		287,563			295,038
Real estate — construction		36,639			39,341
Consumer		10,992			11,590
Other		172			190

Total loans		752,169			767,323
Allowance for loan losses		(23,656	)		(21,768	)

Net loans	$	728,513		$	745,555

(4) Allowance for Loan Losses

Management has an established methodology to determine the adequacy of the allowance for loan losses that assesses the risks and losses inherent in the loan portfolio. For purposes of determining the allowance for loan losses, the Corporation has segmented certain loans in the portfolio by product type. Loans are segmented into the following pools: Commercial and Agricultural loans, Commercial Real Estate loans, Real Estate mortgage loans, Real Estate Construction loans and Consumer loans. Historical loss percentages for each risk category are calculated and used as the basis for calculating allowance allocations. These historical loss percentages are calculated over a three year period for all portfolio segments. Certain economic factors are also considered for trends which management uses to establish the directionality of changes to the unallocated portion of the reserve. The following economic factors are analyzed:

•

Changes in economic and business conditions

•

Changes in lending policies and procedures

•

Changes in experience and depth of lending and management staff

•

Changes in concentrations within the loan portfolio

•

Changes in past due, classified and nonaccrual loans and Troubled Debt Restructurings (TDRs)

•

Changes in quality of Bank’s credit review system

•

Changes in competition or legal and regulatory requirements

Page 15

First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)

The allowance for loan losses activity is summarized as follows for the three months ended December 31, 2010.


	2010
Balance January 1,	$	15,271
Loans charged-off		(2,516	)
Recoveries		144
Provision for loan losses		3,740

Balance March 31,	$	16,639

The total allowance reflects management’s estimate of loan losses inherent in the loan portfolio at the balance sheet date. The Corporation considers the allowance for loan losses of $23,656 adequate to cover loan losses inherent in the loan portfolio, at March 31, 2011. The following tables present by portfolio segment, the changes in the allowance for loan losses and the loan balances outstanding for the period ended March 31, 2011 and December 31, 2010. Management has reviewed its analysis of the allowance for loan losses and made modifications to the beginning balances of this table. The analysis at December 31, 2010 was based on information available at the time. Since then, we have improved our information systems and management reporting tools to allow us to better segregate the portfolio. In order to consistently provide this information, we have adjusted the beginning balances to correspond to our current methodology. The allowance for Real estate construction was reduced not only by charge-offs, but also due to a decrease in both the loan balances outstanding and the historical charge-offs for this type. The net result of which was a reduction in the allowance. The allowance related to the unallocated segment was also reduced. While the segment itself is lower, the reduction was the effect of distributing the impact of economic factors among the loan segments as an adjustment to the historical loss factor.


	Commercial			Commercial			Residential			Real Estate
	& Agriculture			Real Estate			Real Estate			Construction			Consumer			Unallocated			Total

Allowance for loan losses:

Beginning balance	$	3,639		$	9,827		$	4,569		$	2,139		$	726		$	868		$	21,768
Charge-offs		(184	)		(130	)		(712	)		(249	)		(71	)		—			(1,346	)
Recoveries		54			67			86			—			27			—			234
Provision		—			1,916			2,028			(178	)		8			(774	)		3,000

Ending Balance	$	3,509		$	11,680		$	5,971		$	1,712		$	690		$	94		$	23,656

Page 16

First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)


	Commercial		Commercial		Residential		Real Estate
March 31, 2011	& Agriculture		Real Estate		Real Estate		Construction		Consumer		Unallocated		Total

Ending balance:
Individually evaluated for impairment	$	1,304	$	3,369	$	1,067	$	616	$	385	$	—	$	6,741


Ending balance:
Collectively evaluated for impairment	$	2,205	$	8,311	$	4,904	$	1,096	$	305	$	94	$	16,915


Loan balances outstanding:

Ending Balance	$	78,564	$	338,239	$	287,563	$	36,639	$	11,164			$	752,169


Ending balance:
Individually evaluated for impairment	$	5,823	$	12,339	$	3,210	$	2,719	$	1,183			$	25,274


Ending balance:
Collectively evaluated for impairment	$	72,741	$	325,900	$	284,353	$	33,920	$	9,981			$	726,895

Page 17

First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)


	Commercial		Commercial		Residential		Real Estate
December 31, 2010	& Agriculture		Real Estate		Real Estate		Construction		Consumer		Unallocated		Total

Ending balance:
Individually evaluated for impairment	$	1,322	$	1,384	$	355	$	375	$	427	$	—	$	3,863


Ending balance:
Collectively evaluated for impairment	$	3,055	$	4,220	$	8,307	$	1,156	$	299	$	868	$	17,905


Loan balances outstanding:

Ending Balance	$	84,913	$	336,251	$	295,038	$	39,341	$	11,780			$	767,323


Ending balance:
Individually evaluated for impairment	$	5,925	$	7,814	$	2,347	$	1,821	$	1,266			$	19,173


Ending balance:
Collectively evaluated for impairment	$	78,988	$	328,437	$	292,691	$	37,520	$	10,514			$	748,150

The following table represents credit exposures by internally assigned grades for the period ended March 31, 2011 and December 31, 2010. The grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all. The Corporation’s internal credit risk grading system is based on experiences with similarly graded loans.

The Corporation’s internally assigned grades are as follows:

•

Pass — loans which are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral.

•

Special Mention — loans where a potential weakness or risk exists, which could cause a more serious problem if not corrected.

•

Substandard — loans that have a well-defined weakness based on objective evidence and are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

•

Doubtful — loans classified as doubtful have all the weaknesses inherent in a substandard asset. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances.

•

Loss — loans classified as a loss are considered uncollectible, or of such value that continuance as an asset is not warranted.

•

Unrated— Generally, consumer loans are not risk-graded, except when collateral is used for a business purpose

Page 18

First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)


	Commercial
	&		Commercial		Residential		Real Estate
March 31, 2011	Agriculture		Real Estate		Real Estate		Construction		Consumer		Total

Pass	$	65,619	$	288,348	$	106,342	$	26,110	$	559	$	486,978
Special Mention		2,962		12,020		3,269		953		—		19,204
Substandard		9,964		37,793		14,212		7,285		—		69,254
Doubtful		—		78		—		—		—		78
Loss		—		—		—		—		—		—

Ending Balance	$	78,545	$	338,239	$	123,823	$	34,348	$	559	$	575,514


	Commercial
	&		Commercial		Residential		Real Estate
December 31, 2010	Agriculture		Real Estate		Real Estate		Construction		Consumer		Total

Pass	$	70,825	$	284,083	$	111,248	$	28,815	$	556	$	495,527
Special Mention		2,972		12,674		2,821		937		—		19,404
Substandard		11,116		39,416		16,482		7,492		44		74,550
Doubtful		—		78		—		—		—		78
Loss		—		—		—		—		—		—

Ending Balance	$	84,913	$	336,251	$	130,551	$	37,244	$	600	$	589,559

The following table present performing and nonperforming consumer loans based solely on payment activity for the period ended March 31, 2011 and December 31, 2010. Payment activity is reviewed by management on a monthly basis to determine how loans are performing. Loans are considered to be nonperforming when they become 90 days past due. Nonperforming loans also include certain loans that have been modified in TDRs where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Corporation’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months.


	Residential		Real Estate
March 31, 2011	Real Estate		Construction		Consumer		Total

Performing	$	162,183	$	2,291	$	10,605	$	175,079
Nonperforming		1,557		—		—		1,557

Total	$	163,740	$	2,291	$	10,605	$	176,636

Page 19

First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)


	Residential		Real Estate
December 31, 2010	Real Estate		Construction		Consumer		Total

Performing	$	162,702	$	2,097	$	11,169	$	175,968
Nonperforming		1,785		—		11		1,796

Total	$	164,487	$	2,097	$	11,180	$	177,764

Following is a table which includes an aging analysis of the recorded investment of past due loans outstanding as of March 31, 2011 and December 31, 2010.


	30-59		60-89		90 Days
	Days		Days		or		Total						Total
March 31, 2011	Past Due		Past Due		Greater		Past Due		Current		Nonaccrual		Loans

Commericial & Agriculture	$	504	$	497	$	499	$	1,500	$	74,651	$	2,413	$	78,564
Commercial Real Estate		5,081		817		348		6,246		319,093		12,900		338,239
Residential Real Estate		2,271		280		415		2,966		275,758		8,839		287,563
Real Estate Construction		45		604		—		649		33,457		2,533		36,639
Consumer and Other		82		21		—		103		11,061		—		11,164

Total	$	7,983	$	2,219	$	1,262	$	11,464	$	714,020	$	26,685	$	752,169


	30-59		60-89		90 Days
	Days		Days		or		Total						Total
December 31, 2010	Past Due		Past Due		Greater		Past Due		Current		Nonaccrual		Loans

Commericial & Agriculture	$	471	$	309	$	904	$	1,684	$	80,568	$	2,661	$	84,913
Commercial Real Estate		3,467		39		349		3,855		324,337		8,059		336,251
Residential Real Estate		3,042		340		382		3,764		281,688		9,586		295,038
Real Estate Construction		258		246		581		1,085		36,387		1,869		39,341
Consumer and Other		118		39		25		182		11,598		—		11,780

Total	$	7,356	$	973	$	2,241	$	10,570	$	734,578	$	22,175	$	767,323

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

Page 20

First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)

Nonaccrual Loans: Loans are considered for nonaccrual status upon reaching 90 days delinquency, unless the loan is well secured and in the process of collection, although the Corporation may be receiving partial payments of interest and partial repayments of principal on such loans. When a loan is placed on nonaccrual status, previously accrued but unpaid interest is deducted from interest income.

The following table includes the recorded investment and unpaid principal balances for impaired financing receivables with the associated allowance amount, if applicable as of March 31, 2011 and December 31, 2010.


			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
March 31, 2011	Investment		Balance		Allowance		Investment		Recognized

With no related allowance recorded:
Commericial & Agriculture	$	2,255	$	2,255	$	—	$	2,457	$	6
Commercial Real Estate		1,649		1,649		—		1,749		77
Residential Real Estate		833		833		—		734		16
Real Estate Construction		622		622		—		550		—
Consumer and Other		129		129		—		127		2

With an allowance recorded:
Commericial & Agriculture	$	2,652	$	3,568	$	1,304	$	3,000	$	61
Commercial Real Estate		7,321		10,690		3,369		5,952		197
Residential Real Estate		1,310		2,377		1,067		1,334		32
Real Estate Construction		1,481		2,097		616		1,225		29
Consumer and Other		1,058		1,054		385		1,052		9

Total:
Commericial & Agriculture	$	4,907	$	5,823	$	1,304	$	5,457	$	67
Commercial Real Estate		8,970		12,339		3,369		7,701		274
Residential Real Estate		2,143		3,210		1,067		2,068		48
Real Estate Construction		2,103		2,719		616		1,775		29
Consumer and Other		1,187		1,183		385		1,179		11

Page 21

First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)


			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
December 31, 2010	Investment		Balance		Allowance		Investment		Recognized

With no related allowance recorded:
Commericial & Agriculture	$	2,659	$	2,259	$	—	$	3,129	$	24
Commercial Real Estate		1,849		1,849		—		5,579		11
Residential Real Estate		635		635		—		2,035		31
Real Estate Construction		477		477		—		293		34
Consumer and Other		125		125		—		125		—

With an allowance recorded:
Commericial & Agriculture	$	3,346	$	3,665	$	1,322	$	1,612	$	191
Commercial Real Estate		4,582		5,966		1,384		4,569		256
Residential Real Estate		1,357		1,712		355		1,146		69
Real Estate Construction		969		1,344		375		1,377		7
Consumer and Other		1,145		1,141		427		1,145		31

Total:
Commericial & Agriculture	$	6,005	$	5,924	$	1,322	$	4,741	$	215
Commercial Real Estate		6,431		7,815		1,384		10,148		267
Residential Real Estate		1,992		2,347		355		3,181		100
Real Estate Construction		1,446		1,821		375		1,670		41
Consumer and Other		1,270		1,266		427		1,270		31

Page 22

First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)

(5) Earnings per Common Share:

Basic earnings per share are net income available to common shareholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share include the dilutive effect of additional potential common shares issuable under stock options, computed using the treasury stock method.


	Three months ended
	March 31,
	2011		2010
Basic
Net Income	$	753	$	36
Preferred stock dividends		290		290

Net Income (loss) available to common shareholders	$	463	$	(254	)


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


Basic earnings (loss) per common share	$	0.06	$	(0.03	)


Diluted
Net Income	$	753	$	36
Preferred stock dividends		290		290

Net Income (loss) available to common shareholders	$	463	$	(254	)

Weighted average common shares outstanding for basic earnings per common share		7,707,917		7,707,917
Add: Dilutive effects of assumed exercises of stock options		—		—


Average shares and dilutive potential common shares outstanding		7,707,917		7,707,917


Diluted earnings (loss) per common share	$	0.06	$	(0.03	)

Stock options for 29,500 shares of common stock and warrants for 469,312 shares of common stock were not considered in computing diluted earnings per common share for the three-month periods ended March 31, 2011 and March 31, 2010 because they were anti-dilutive.

Page 23

First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)

(6) Commitments, Contingencies and Off-Balance Sheet Risk

Some financial instruments, such as loan commitments, credit lines, letters of credit and overdraft protection are issued to meet customers’ financing needs. These are agreements to provide credit or to support the credit of others, as long as the conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance-sheet risk of credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of commitment. The contractual amount of financial instruments with off-balance-sheet risk was as follows for March 31, 2011 and December 31, 2010:


	Contract Amount
	March 31, 2011				December 31, 2010
	Fixed		Variable		Fixed		Variable
	Rate		Rate		Rate		Rate
Commitment to extend credit:
Lines of credit and construction loans	$	3,323	$	105,722	$	3,161	$	98,083
Overdraft protection		—		12,504		—		12,500
Letters of credit		275		670		275		1,288

	$	3,598	$	118,896	$	3,436	$	111,871

Commitments to make loans are generally made for a period of one year or less. Fixed rate loan commitments included in the table above had interest rates ranging from 3.25% to 9.50% at March 31, 2011 and December 31, 2010. Maturities extend up to 30 years.

Citizens is required to maintain certain reserve balances on hand in accordance with the Federal Reserve Board requirements. The average reserve balance maintained in accordance with such requirements was $4,848 on March 31, 2011 and $3,585 on December 31, 2010.

Page 24

First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)

(7) Pension Information

Net periodic pension expense was as follows:


	Three months ended
	March 31
	2011			2010
Service cost	$	212		$	210
Interest cost		204			190
Expected return on plan assets		(207	)		(151	)
Other components		86			65

Net periodic pension cost	$	295		$	314

The total amount of contributions expected to be paid by the Corporation in 2011 total $1,152, compared to $2,016 in 2010.

(8) Stock Options

Options to buy stock may be granted to directors, officers and employees under the Corporation’s Stock Option and Stock Appreciation Rights Plan, which provided for issue of up to 225,000 options. The exercise price of stock options is determined based on the market price of the Corporation’s common stock at the date of grant. The maximum option term is ten years, and options normally vest after three years.

The Corporation did not grant any stock options during the first three months of 2011 and 2010, nor did any no stock options become vested during the first three months of 2011 and 2010. The Corporation’s Stock Option and Stock Appreciation Rights Plan expired in 2010, and no further stock options or other awards may be granted by the Corporation under such plan.

Page 25

First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)

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


	Three months ended				Three months ended
	March 31, 2011				March 31, 2010
	Total options				Total options
	outstanding				outstanding
			Weighted				Weighted
			Average				Average
			Price				Price
	Shares		Per Share		Shares		Per Share

Outstanding at beginning of year		29,500	$	25.42		29,500	$	25.42
Granted		—		—		—		—
Exercised		—		—		—		—
Forfeited		—		—		—		—

Options outstanding, end of period		29,500	$	25.42		29,500	$	25.42


Options exercisable, end of period		29,500	$	25.42		29,500	$	25.42

Page 26

First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)

The following table details stock options outstanding:


	Outstanding Options
			Weighted
			Average	Weighted
			Remaining	Average
			Contractual	Exercise
Exercise price	Number		Life	Price
$20.50		19,500	1 yr. 3 mos.	$	20.50
$35.00		10,000	2 yrs. 0.5 mos.		35.00

Outstanding at quarter-end		29,500	1 yr. 6 mos.	$	25.42

The intrinsic value for stock options is calculated based on the exercise price of the underlying awards and the market price of our common stock as of the reporting date. As of March 31, 2011 and December 31, 2010, the aggregate intrinsic value of outstanding stock options was $0.

(9) Fair Value Measurement

The Corporation uses a fair value hierarchy to measure fair value. The topic describes three levels of inputs that may be used to measure fair value. Level 1: Quoted prices or identical assets in active markets that are identifiable on the measurement date; Level 2: Significant other observable inputs, such as quoted prices for similar assets, quoted prices in markets that are not active and other inputs that are observable or can be corroborated by observable market data; Level 3: Significant unobservable inputs that reflect the Corporation’s own view about the assumptions that market participants would use in pricing an asset.

Securities: The fair values of securities available for sale are determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

Equity securities: The fair values of equity securities available for sale are determined by review of quoted prices for the specific securities, when available. (Level 2 inputs).

Impaired loans: The fair value of impaired loans is determined using the fair value of collateral for collateral dependent loans. The Corporation uses appraisals and other available data to estimate the fair value of collateral (Level 3 inputs).

Other real estate owned: The fair value of other real estate owned is determined using the fair value of collateral. The Corporation uses appraisals and other available data to estimate the fair value of collateral (Level 2 inputs).

Page 27

First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)

Assets measured at fair value are summarized below.


	Fair Value Measurements at March 31, 2011 Using:
	Quoted Prices in				Significant
	Active Markets for		Significant Other		Unobservable
	Identical Assets		Observable Inputs		Inputs
Assets:	(Level 1)		(Level 2)		(Level 3)

Assets measured at fair value on a recurring basis:

U.S. Treasury securities and obligations of U.S. Government agencies	$	—	$	60,221	$	—
Obligations of states and political subdivisions		—		60,814		542
Mortgage-backed securities		—		77,526		—
Equity securities		676		—		—

Assets measured at fair value on a nonrecurring basis:

Impaired loans	$	—	$	—	$	12,569
Other real estate owned		—		1,832		—
Mortgage servicing rights		—		3		—

	Fair Value Measurements at December 31, 2010 Using:
	Quoted Prices in				Significant
	Active Markets for		Significant Other		Unobservable
	Identical Assets		Observable Inputs		Inputs
Assets:	(Level 1)		(Level 2)		(Level 3)

Assets measured at fair value on a recurring basis:

U.S. Treasury securities and obligations of U.S. Government agencies	$	—	$	55,707	$	—
Obligations of states and political subdivisions		—		59,909		560
Mortgage-backed securities		—		68,100		—
Equity securities		676		—		—

Assets measured at fair value on a nonrecurring basis:

Impaired loans	$	—	$	—	$	13,281
Other real estate owned		—		1,795		—
Mortgage Servicing Rights		—		3		—

Page 28

First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)

The carrying amount and fair values of financial instruments not previously presented were as follows.


	March 31, 2011				December 31, 2010
	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
Financial Assets:
Cash and due from financial institutions	$	93,843	$	93,843	$	79,030	$	79,030
Loans, net of allowance for loan losses		728,513		747,418		745,555		763,768
Accrued interest receivable		5,345		5,345		4,382		4,382

Financial Liabilities:
Deposits		907,622		907,161		892,463		895,950
Federal Home Loan Bank advances		50,319		52,895		50,327		53,162
U.S. Treasury interest-bearing demand note payable		1,392		1,392		2,008		2,008
Securities sold under agreement to repurchase		21,484		21,484		21,842		21,842
Subordinated debentures		29,427		13,716		29,427		15,883
Accrued interest payable		355		355		362		362

The fair value approximates carrying amount for all items except those described below. The fair value for securities is based on quoted market values for the individual securities or for equivalent securities. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the cash flow analysis or underlying collateral values. Fair value of debt is based on current rates for similar financing. The fair value of off-balance-sheet items is based on the current fees or cost that would be charged to enter into or terminate such arrangements and are considered nominal.

For certain homogeneous categories of loans, such as some residential mortgages, credit card receivables, and other consumer loans, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics. The fair value of other types of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

Page 29

First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)

(10) Participation in the Treasury Capital Purchase Program

On January 23, 2009, the Corporation completed the sale to the U.S. Treasury of $23,184 of newly-issued non-voting preferred shares as part of the Capital Purchase Program (CPP) enacted by the U.S. Treasury as part of the Troubled Assets Relief Program (TARP) under the Emergency Economic Stabilization Act of 2008 (EESA). To finalize the Corporation’s participation in the CPP, the Corporation and the Treasury entered into a Letter Agreement, dated January 23, 2009, including the Securities Purchase Agreement — Standard Terms attached thereto. Pursuant to the terms of the Securities Purchase Agreement, the Corporation issued and sold to Treasury (1) 23,184 shares of Fixed Rate Cumulative Perpetual Preferred Shares, Series A, each without par value and having a liquidation preference of $1,000 per share (Series A Preferred Shares), and (2) a Warrant to purchase 469,312 common shares of the Corporation, each without par value, at an exercise price of $7.41 per share. The Warrant has a ten-year term. All of the proceeds from the sale of the Series A Preferred Shares and the Warrant by the Corporation to the U.S. Treasury under the CPP qualify as Tier 1 capital for regulatory purposes. Under the standardized CPP terms, cumulative dividends on the Series A Preferred Shares will accrue on the liquidation preference at a rate of 5% per annum for the first five years, and at a rate of 9% per annum thereafter, but will be paid only if, as and when declared by the Corporation’s Board of Directors. The Series A Preferred Shares have no maturity date and rank senior to the common shares with respect to the payment of dividends and distributions and amounts payable upon liquidation, dissolution and winding up of the Corporation.

Page 30

First Citizens Banc Corp
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)


ITEM 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction

The following discussion focuses on the consolidated financial condition of the Corporation at March 31, 2011 compared to December 31, 2010 and the consolidated results of operations for the three month period ended March 31, 2011 compared to the same period in 2010. This discussion should be read in conjunction with the consolidated financial statements and footnotes included in this Form 10-Q.

Forward-Looking Statements

This Quarterly Report on Form 10-Q includes forward-looking statements by the Corporation relating to 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 SEC, including those risks identified in Item 1A of Part 1 of the Corporation’s Annual Report on Form 10-K.

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

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

Financial Condition

Total assets of the Corporation at March 31, 2011 were $1,118,597 compared to $1,100,622 at December 31, 2010, an increase of $17,975, or 1.6 percent. The increase in total assets was mainly attributed to increases in cash and investment securities. Total liabilities at March 31, 2011 were $1,020,492 compared to $1,003,672 at December 31, 2010, an increase of $16,820, or 1.7 percent. The increase in total liabilities was mainly attributed to increases in noninterest-bearing deposits.

Page 31

First Citizens Banc Corp
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)

Net loans have decreased $17,042 or 2.3 percent since December 31, 2010. The commercial real estate portfolio increased by $1,988 since December 31, 2010. The commercial and agricultural, real estate, real estate construction and consumer loan portfolios decreased $6,349, $7,475, $2,702 and $598, respectively. The current increase in commercial real estate loans is mainly due to increased opportunities from our larger markets and calling efforts by the commercial lending officers. The current decrease in commercial and agriculture loans is the result of commercial and agricultural credit lines being paid down and weak demand for commercial loan products. The current decrease in real estate, real estate construction and consumer loans is mainly the result of the Corporation’s decision to originate and sell the majority of mortgage loans in the secondary market and a decline in the demand for construction loans.

The Corporation had no loans held for sale at March 31, 2011 or December 31, 2010. At March 31, 2011, the net loan to deposit ratio was 80.3 percent compared to 83.5 percent at December 31, 2010. This ratio has declined in 2011 due to decreased loans and increased deposits.

For the first three months of operations in 2011, $3,000 was placed into the allowance for loan losses from earnings, compared to $3,740 in the same period of 2010. The economic downturn and high unemployment rates in our market area continue to stress the ability of some customers to make payments on their loans. However, detailed analyses of potential losses in the loan portfolio indicate a reduced provision is appropriate. Net charge-offs have decreased to $1,112, compared to $2,372 in 2010 as both the number and amount of gross charge-offs have decreased. For the year the Corporation has charged off sixty-three loans. Thirty-six Real Estate Mortgages totaling $626 net of recoveries, five Commercial Real Estate loans totaling $63 net of recoveries, and eight Commercial and Agriculture loans totaling $130 net of recoveries were charged off in the first quarter of the year. In addition, thirteen Consumer loans were charged off, although the net amount charged off was only $44. For each loan category, as well as in total, the percentage of net charge-offs to loans was less than one percent. Nonperforming loans have increased by $3,531, of which $979 was due to a decrease in loans past due 90 days but still accruing, offset by an increase in loans on nonaccrual status of $4,510. Each of these factors was considered by management as part of the examination of both the level and mix of the allowance by loan type as well as the overall level of the allowance. Management specifically evaluates loans that are impaired, or graded as doubtful by the internal grading function for estimates of loss. To evaluate the adequacy of the allowance for loan losses to cover probable losses in the portfolio, management considers specific reserve allocations for identified portfolio loans, reserves for delinquencies and historical reserve allocations. The composition and overall level of the loan portfolio and charge-off activity are also factors used to determine the amount of the allowance for loan losses.

Management analyzes commercial and commercial real estate loans, with balances of $350 or larger, on an individual basis and classifies a loan as impaired when an analysis of the borrower’s operating results and financial condition indicates that underlying cash flows are not adequate to meet its debt service requirements. Often this is associated with a delay or shortfall in payments of 90 days or more. In addition, loans held for sale and leases are excluded from consideration as impaired. Loans are generally moved to nonaccrual status when 90 days or more past due. Impaired loans or portions thereof, are charged-off when deemed uncollectible. The March 31, 2011 allowance for loan losses as a percent of total loans was 3.15 percent compared to 2.84 percent at December 31, 2010.

Page 32

First Citizens Banc Corp
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)

The available for sale security portfolio increased by $14,827, from $184,952 at December 31, 2010, to $199,779 at March 31, 2011. The increase is the result of additional securities purchases made in the first quarter above scheduled maturities. These purchases were made to generate additional asset yield but did not significantly change the characteristics of the portfolio. The Corporation continued utilizing letters of credit from the Federal Home Loan Bank (FHLB) to replace maturing securities that were pledged for public entities. As of March 31, 2011, the Corporation was in compliance with all pledging requirements.

Bank owned life insurance (BOLI) increased $5,135 from December 31, 2010 to March 31, 2011 due to the purchase of $5,000 of additional BOLI and to income earned on the existing BOLI investment. BOLI was purchased as an alternative to replacing maturing securities, and is being used to help recover healthcare, group term life, and 401(k) expenses.

Office premises and equipment, net, have decreased $101 from December 31, 2010 to March 31, 2011, as a result of depreciation of $358 offset by new purchases of $257.

Total deposits at March 31, 2011 increased $15,159 from year-end 2010. Noninterest-bearing deposits increased $14,938 from year-end 2010 while interest-bearing deposits, including savings and time deposits, increased $221 from December 31, 2010. The primary reason for the increase in noninterest-bearing deposits was due to the bank’s participation in an income tax refund facilitation program. The interest-bearing deposit increase was due to increases in savings accounts offset by a decrease in the Corporation’s participation in the Certificate of Deposit Account Registry Service (CDARS). Savings accounts increased $14,015 from year end 2010, which included increases of $5,664 in statement savings, $5,364 in money market savings and $3,765 in public fund money market savings. CDARS accounts decreased $11,768 from year end 2010. The year to date average balance of total deposits increased $57,020 compared to the average balance of the same period in 2010. The increase in average balance is due to increases of $49,998 in demand deposit accounts, $9,158 in statement savings accounts, $7,936 in money market savings, $4,440 in interest-bearing public funds, and $11,144 in public fund money market savings offset by decreases of $6,092 in time certificates, $18,507 in CDARS accounts and $1,090 in brokered deposits.

Total borrowed funds have decreased $982 from December 31, 2010 to March 31, 2011. At March 31, 2011, the Corporation had $50,319 in outstanding Federal Home Loan Bank advances compared to $50,327 at December 31, 2010. On February 15, 2011, the Corporation exchanged two FHLB advances with two new advances that are substantially different. The first advance, in the amount of $20,000, had a remaining term of nineteen months with a fixed rate of 4.40%. The second advance, in the amount of $2,500, had a remaining term of eleven months with a fixed rate of 4.74%. The advances had pre-payment penalties associated with them of $1,199 and $98, respectively. The pre-payment penalties will be amortized as an adjustment of interest expense over the remaining term of the replacement advances. The first new advance, in the amount of $20,000, has terms of forty-two months with a fixed rate of 2.06%. The second new advance, in the amount of $2,500, has terms of thirty months with a fixed rate of 1.49%. Securities sold under agreements to repurchase, which tend to fluctuate due to timing of deposits, have decreased $358 and U.S. Treasury Tax Demand Notes have decreased $616 from December 31, 2010 to March 31, 2011.

Page 33

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)

Shareholders’ equity at March 31, 2011 was $98,105, or 8.8 percent of total assets, compared to $96,950 at December 31, 2010, also 8.8 percent of total assets. The increase in shareholders’ equity resulted from net income of $753 plus the increase in the market value of securities available for sale, net of tax, of $692 less preferred dividends paid of $290. Total outstanding common shares at March 31, 2011 and 2010 were 7,707,917.

Under the Corporation’s stock repurchase program, the Corporation is authorized to buy up to 5.0 percent of the total common shares outstanding. However, the Corporation has participated in the U.S. Treasury’s Capital Purchase Program (CPP), which was announced by the U.S. Treasury on October 14, 2008 as part of the Troubled Asset Relief Program (“TARP”) established under the Emergency Economic Stabilization Act of 2008 (EESA). On January 23, 2009, the Corporation issued to the U.S. Treasury $23,184,000 of cumulative perpetual preferred shares (Senior Preferred Shares), with a liquidation preference of $1,000 per share, and a warrant to purchase 469,312 of the Corporation’s common shares at an exercise price of $7.41 (which is equal to 15% of the aggregate amount of the Senior Preferred Shares purchased by the U.S. Treasury). As a participant in the CPP, the Corporation is required to comply with a number of restrictions and provisions, including limits on executive compensation, stock redemptions and the declaration and payment of dividends. Due to these restrictions, the Corporation is precluded from repurchasing its common shares without the approval of the U.S. Treasury for a period of three years.

Results of Operations

Three Months Ended March 31, 2011 and 2010

The Corporation had net income of $753 for the three months ended March 31, 2011, an increase of $717 from net income of $36 for the first three months of 2010. Basic and diluted earnings per common share were $.06 for the first three months of 2011, compared to $(0.03) for the same period in 2010. The primary reasons for the changes in net income are explained below.

Net interest income for the first three months of 2011 was $10,372, an increase of $172 or 1.7 percent from $10,200 in the first three months of 2010. 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 3.6 percent from the first three months last year from organic growth. Average loans for the first three months of 2011 decreased 4.2 percent compared to the first three months of 2010. The Corporation’s net interest margin for the three months ended March 31, 2011 and 2010 was 3.88% and 3.95%, respectively. Net interest margin decreased 7 basis points as net interest income increased 1.7 percent while average earning assets increased 3.6 percent.

Page 34

First Citizens Banc Corp
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)

The Corporation 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 $3,000 for the first three months of 2011, compared to $3,740 for the same period in 2010. The Corporation’s provision for loan losses decreased during 2011 primarily as the result of net charge-offs decreasing. Although specific and general reserves required increased compared to December 31, 2010, the overall adequacy of the reserve for loan losses supported a reduced provision, compared to March 31, 2010.

Non-interest income for the first three months of 2010 was $2,668, an increase of $376 or 16.5 percent from $2,291 for the same period of 2010. Service charge fee income for the first three months of 2011 was $1,029, down $36 or 3.4 percent over the same period of 2010. The decline is related to a reduced number of accounts using our overdraft services resulting in a decrease in overdraft income. Trust fee income was $552, up $112 or 25.5 percent over the same period in 2010. 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 for the first three months of 2011 was $432, up $21 or 5.1 percent over the first three months of 2010. This increase can be attributed to a 25 percent increase in foreign transaction fees charged during the first quarter of 2010 and to increased volume. Bank owned life insurance contributed $135 to non-interest income during the first three months of 2011. Other non-interest income was $452, up $280 over the same period in 2010. This was the result of the bank’s participation in an income tax refund facilitation program, pursuant to which the Bank collected a fee for facilitating, and expediting, payment of refunds to tax payers.

Non-interest expense for the first three months of 2011 was $9,188, an increase of $192, from $8,996 reported for the same period of 2010. Salary and other employee costs were $4,556, up $300 or 7.0 percent as compared to the same period of 2010. This increase is mainly due to a change in staffing and higher health care costs for the first three months of 2011. The number of full-time equivalent employees increased during the first three months of 2011 to 291.8, up 9.1, compared to the same period of 2010. Occupancy and equipment costs were $954, down $109 or 10.3 percent compared to the same period in 2010. Contracted data processing costs were $208, down $56, or 21.2 percent compared to last year. State franchise taxes decreased by $36 compared to the same period of 2010. Amortization expense decreased $15, or 4.9 percent from the three months of 2010, as a result of scheduled amortization of intangible assets associated with mergers. FDIC assessments were down by $36 during the first three months of 2011 compared to the same period of 2010. The decrease is due to a decrease in the size of the assessment base. Professional service costs were $302, down $76 or 20.1 percent compared to the same period in 2010. The decrease is due to consulting services for loan work outs, core banking software analysis and the resolution of certain larger collection items in 2010 that were not recurring in 2011. Other operating expenses were $2,138, up $304 or 16.6 percent compared to the same period of 2010. This increase is mainly the result of the following: expenses related to repossessing collateral increased by $132 and losses sustained on the sale of OREO properties increased by $125 compared to the first three months of 2010.

Page 35

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)

Income tax expense for the first three months of 2011 totaled $99 compared to an income tax benefit of $280 for the first three months of 2010. This was an increase of $379. The increase in the federal income taxes is mainly a result of the increase in total noninterest income, coupled with a decrease in loan loss provision this year.

Capital Resources

Shareholders’ equity totaled $98,105 at March 31, 2011 compared to $96,950 at December 31, 2010. The increase in shareholders’ equity resulted from $753 of net income and a $692 net change in the unrealized gain on securities. This was offset by preferred dividends paid of $290. All of the Corporation’s capital ratios exceeded the regulatory minimum guidelines as of March 31, 2011 and December 31, 2010 as identified in the following table:


	Total Risk
	Based			Tier I Risk			Leverage
	Capital			Based Capital			Ratio
Corporation Ratios — March 31, 2011		14.9	%		13.0	%		8.7	%
Corporation Ratios — December 31, 2010		15.1	%		13.8	%		9.3	%
For Capital Adequacy Purposes		8.0	%		4.0	%		4.0	%
To Be Well Capitalized Under Prompt Corrective Action Provisions		10.0	%		6.0	%		5.0	%

The Corporation did not pay a cash dividend on its common shares during the first quarter of 2011 or 2010. The Corporation did pay a 5% cash dividend on its preferred shares in the amount of $290 on February 15, 2011.

Liquidity

Citizens maintains a conservative liquidity position. All securities are classified as available for sale. Securities with maturities of one year or less totaled $779, or 0.4 percent of the total security portfolio. The available for sale portfolio helps to provide the Corporation with the ability to meet its funding needs. The Consolidated Statements of Cash Flows (Unaudited) contained in the consolidated financial statements detail the Corporation’s cash flows from operating activities resulting from net earnings.

Page 36

First Citizens Banc Corp
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)

Cash from operations for the quarter ended March 31, 2011 was $5,907. This includes net income of $753 plus net adjustments of $5,154 to reconcile net earnings to net cash provided by operations. Cash from investing activities was $(4,981) for the three months ended March 31, 2011. The use of cash from investing activities is primarily due to securities purchases and the purchase of bank owned life insurance. Cash received from maturing and called securities and loans made to customers, net of principal collected totaled $15,130 and $13,401, respectively. This increase in cash was offset by the purchase of securities of $28,782 and the purchase of bank owned life insurance of $5,000. Cash from financing activities for the first three months of 2011 totaled $13,887. A major source of cash for financing activities is the net change in deposits. Cash provided by the net change in deposits was $15,159 for the first three months of 2011. The large increase in deposits was primarily due to the increase in noninterest-bearing deposits, which added $14,938 in deposits during the first three months of 2011. Cash was used by the early payoff of two FHLB long-term advances of $5,000 and $20,000, respectively offset by two new FHLB long-term advances. Cash and cash equivalents increased from $79,030 at December 31, 2010 to $93,843 at March 31, 2011 as a result of the increase in cash during the first three months.

Future loan demand of Citizens may be funded by increases in deposit accounts, proceeds from payments on existing loans, the maturity of securities, and the sale of securities classified as available for sale. Additional sources of funds may also come from borrowing in the Federal Funds market and/or borrowing from the FHLB. Citizens, through its correspondent banks, maintains federal funds borrowing lines totaling $10,000. As of March 31, 2011, Citizens had total credit availability with the FHLB of $114,243 of which $50,319 was outstanding.

Page 37

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


ITEM 3.		Quantitative and Qualitative Disclosures about Market Risk

The Corporation’s primary market risk exposure is interest-rate risk and, to a lesser extent, liquidity risk. All of the Corporation’s transactions are denominated in U.S. dollars with no specific foreign exchange exposure.

Interest-rate risk is the exposure of a banking organization’s financial condition to adverse movements in interest rates. Accepting this risk can be an important source of profitability and shareholder value. However, excessive levels of interest-rate risk can pose a significant threat to the Corporation’s earnings and capital base. Accordingly, effective risk management that maintains interest-rate risk at prudent levels is essential to the Corporation’s safety and soundness.

Evaluating a financial institution’s exposure to changes in interest rates includes assessing both the adequacy of the management process used to control interest-rate risk and the organization’s quantitative level of exposure. When assessing the interest-rate risk management process, the Corporation seeks to ensure that appropriate policies, procedures, management information systems and internal controls are in place to maintain interest-rate risk at prudent levels with consistency and continuity. Evaluating the quantitative level of interest rate risk exposure requires the Corporation to assess the existing and potential future effects of changes in interest rates on its consolidated financial condition, including capital adequacy, earnings, liquidity and, where appropriate, asset quality.

The Federal Reserve Board, together with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, adopted a Joint Agency Policy Statement on interest-rate risk, effective June 26, 1996. The policy statement provides guidance to examiners and bankers on sound practices for managing interest-rate risk, which will form the basis for ongoing evaluation of the adequacy of interest-rate risk management at supervised institutions. The policy statement also outlines fundamental elements of sound management that have been identified in prior Federal Reserve guidance and discusses the importance of these elements in the context of managing interest-rate risk. Specifically, the guidance emphasizes the need for active board of director and senior management oversight and a comprehensive risk-management process that effectively identifies, measures, and controls interest-rate risk. Financial institutions derive their income primarily from the excess of interest collected over interest paid. The rates of interest an institution earns on its assets and owes on its liabilities generally are established contractually for a period of time. Since market interest rates change over time, an institution is exposed to lower profit margins (or losses) if it cannot adapt to interest-rate changes. For example, assume that an institution’s assets carry intermediate- or long-term fixed rates and that those assets were funded with short-term liabilities. If market interest rates rise by the time the short-term liabilities must be refinanced, the increase in the institution’s interest expense on its liabilities may not be sufficiently offset if assets continue to earn at the long-term fixed rates. Accordingly, an institution’s profits could decrease on existing assets because the institution will have either lower net interest income or, possibly, net interest expense. Similar risks exist when assets are subject to contractual interest-rate ceilings, or rate sensitive assets are funded by longer-term, fixed-rate liabilities in a decreasing-rate environment.

Page 38

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

Several techniques may be used by an institution to minimize interest-rate risk. One approach used by the Corporation is to periodically analyze its assets and liabilities and make future financing and investment decisions based on payment streams, interest rates, contractual maturities, and estimated sensitivity to actual or potential changes in market interest rates. Such activities fall under the broad definition of asset/liability management. The Corporation’s primary asset/liability management technique is the measurement of the Corporation’s asset/liability gap, that is, the difference between the cash flow amounts of interest sensitive assets and liabilities that will be refinanced (or repriced) during a given period. For example, if the asset amount to be repriced exceeds the corresponding liability amount for a certain day, month, year, or longer period, the institution is in an asset sensitive gap position. In this situation, net interest income would increase if market interest rates rose or decrease if market interest rates fell. If, alternatively, more liabilities than assets will reprice, the institution is in a liability sensitive position. Accordingly, net interest income would decline when rates rose and increase when rates fell. Also, these examples assume that interest rate changes for assets and liabilities are of the same magnitude, whereas actual interest rate changes generally differ in magnitude for assets and liabilities.

Several ways an institution can manage interest-rate risk include selling existing assets or repaying certain liabilities; matching repricing periods for new assets and liabilities, for example, by shortening terms of new loans or securities; and hedging existing assets, liabilities, or anticipated transactions. An institution might also invest in more complex financial instruments intended to hedge or otherwise change interest-rate risk. Interest rate swaps, futures contracts, options on futures, and other such derivative financial instruments often are used for this purpose. Because these instruments are sensitive to interest rate changes, they require management expertise to be effective. The Corporation has not purchased derivative financial instruments in the past and does not currently intend to purchase such instruments in the near future. Financial institutions are also subject to prepayment risk in falling rate environments. For example, mortgage loans and other financial assets may be prepaid by a debtor so that the debtor may refinance its obligations at new, lower rates. Prepayments of assets carrying higher rates reduce the Corporation’s interest income and overall asset yields. A large portion of an institution’s liabilities may be short-term or due on demand, while most of its assets may be invested in long-term loans or securities. Accordingly, the Corporation seeks to have in place sources of cash to meet short-term demands. These funds can be obtained by increasing deposits, borrowing, or selling assets. FHLB advances and wholesale borrowings may also be used as important sources of liquidity for the Corporation.

Page 39

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

The following table provides information about the Corporation’s financial instruments that were sensitive to changes in interest rates as of December 31, 2010 and March 31, 2011, based on certain prepayment and account decay assumptions that management believes are reasonable. The table shows the changes in the Corporation’s net portfolio value (in amount and percent) that would result from hypothetical interest rate increases of 200 basis points and 100 basis points and an interest rate decrease of 100 basis points at March 31, 2011 and December 31, 2010. The Corporation had no derivative financial instruments or trading portfolio as of December 31, 2010 or March 31, 2011. Expected maturity date values for interest-bearing core deposits were calculated based on estimates of the period over which the deposits would be outstanding. The Corporation’s borrowings were tabulated by contractual maturity dates and without regard to any conversion or repricing dates.

Net Portfolio Value


	March 31, 2010							December 31, 2010
	Dollar		Dollar		Percent			Dollar		Dollar		Percent
Change in Rates	Amount		Change		Change			Amount		Change		Change
+200bp		145,939		2,062		1	%		145,476		160		0	%
+100bp		148,079		4,202		3	%		150,062		4,746		3	%
Base		143,877		—		—			145,316		—		—
-100bp		152,253		8,376		6	%		154,728		9,412		6	%

The change in net portfolio value from December 31, 2010 to March 31, 2011, is primarily a result of two factors. The yield curve has shifted upward 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 toward securities and cash. Funding sources increased while the funding mix shifted from CDs and borrowed money to deposits. The shifts in mixes led to the small decrease in the base. Beyond the change in the base level of net portfolio value, overall projected movements, given specific changes in rates, would lead to similar changes in the net portfolio value as the end of 2010. The change in the rates up 200 basis point scenario is larger than last year due to changes in the asset mix. A 100 basis point upward movement in rates would lead to a faster decrease in the fair value of liabilities, compared to assets, which would lead to an increase in the net portfolio value. This effect is opposite for a 200 basis point movement in rates, due to projected changes related to the loan and investment portfolios. 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.

Page 40

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


ITEM 4.		Controls and Procedures Disclosure

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of March 31, 2011, were effective.

Changes in Internal Control over Financial Reporting

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

Page 41

First Citizens Banc Corp
Other Information
Form 10-Q

Part II — Other Information


Item 1.		Legal Proceedings

In December, 2010, The Citizens Banking Company initiated a legal action to collect debts from Real America, Inc., Edward V. Gudenas and Hazards Adventure Company. The action sought judgments against those parties and foreclosure upon real estate that served as collateral for the debts. In January, 2011, the defendants in the action filed a counterclaim that alleges that representatives of Citizens fraudulently failed to disclose contents of a forbearance agreement executed by the defendants and Citizens breached an agreement to enter into additional forbearance agreements with defendants. The defendants request “an amount in excess of $1,000,000.00 in compensatory damages, $5,000,000.00 in punitive damages, attorneys fees, costs and such other and further relief as [the] Court deems proper”. Citizens believes the claims of the defendants are meritless, and it plans to vigorously defend against them while pursuing its action to collect from the defendants.


Item 1A.		Risk Factors

There were no material changes to the risk factors as presented in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2010.


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

None


Item 3.		Defaults Upon Senior Securities

None


Item 4.		[Removed and Reserved]


Item 5.		Other Information

None


Item 6.		Exhibits


Exhibit No. 31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.

Exhibit No. 31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.

Exhibit No. 32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit No. 32.2		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Page 42

First Citizens Banc Corp

Signatures
Form 10-Q

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


First Citizens Banc Corp

/s/ James O. Miller James O. Miller				May 10, 2011 Date
President, Chief Executive Officer

/s/ Todd A. Michel Todd A. Michel				May 10, 2011 Date
Senior Vice President, Controller

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First Citizens Banc Corp

Index to Exhibits

Form 10-Q

Exhibits


Exhibit			Description	Location
	3.1	(a)	Articles of Incorporation, as amended, of First Citizens Banc Corp.	Filed as Exhibit 3.1 to First Citizens Banc Corp’s Form 10-K for the year ended December 31, 2005, filed on March 16, 2006 and incorporated herein by reference. (File No. 0-25980)
	3.1	(b)	Certificate of Amendment by Shareholders or Members as filed with the Ohio Secretary of State on January 12, 2009, evidencing the adoption by the shareholders of First Citizens Banc Corp on January 5, 2009 of an amendment to Article FOURTH to authorize the issuance of up to 200,000 preferred shares, without par value.	Filed as Exhibit 3.1(b) to First Citizens Banc Corp’s Form 10-K for the year ended December 31, 2008, filed on March 16, 2009 and incorporated herein by reference. (File No. 0-25980)
	3.1	(c)	Certificate of Amendment by Directors or Incorporators to Articles, filed with the Ohio Secretary of State on January 21, 2009, evidencing adoption of an amendment by the Board of Directors of First Citizens Banc Corp to Article FOURTH to establish the express terms of the Fixed Rate Cumulative Perpetual Preferred Shares, Series A, of First Citizens.	Filed as Exhibit 3.1 to First Citizens Banc Corp’s Current Report on Form 8-K dated and filed January 26, 2009, and incorporated herein by reference. (File No. 0-25980)
	3.2		Amended and Restated Code of Regulations of First Citizens Banc Corp (adopted April 17, 2007).	Filed as Exhibit 3.2 to First Citizens Banc Corp’s Form 10-K for the year ended December 31, 2008, filed on March 16, 2009 and incorporated herein by reference. (File No. 0-25980)
	31.1		Rule 13a-14(a)/15-d-14(a) Certification of Chief Executive Officer.	Included herewith
	31.2		Rule 13a-14(a)/15-d-14(a) Certification of Chief Financial Officer.	Included herewith
	32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Included herewith
	32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Included herewith

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CIVISTA BANCSHARES, INC. - FORM 10-Q - May 10, 2011

Attached files

CIVISTA BANCSHARES, INC. Reports

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