First Citizens Banc Corp 10-Q

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: September 30, 2005


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		(I.R.S. Employer
or organization)		Identification Number)


100 East Water Street, Sandusky, Ohio		44870

(Address of principle executive offices)		(Zip Code)

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

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 is an accelerated filer (as defined in Rule 12b-2 of Exchange Act). Yes þ No o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange 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 Stock, no par value
Outstanding at November 9, 2005
5,801,402 common shares

FIRST CITIZENS BANC CORP

Consolidated Balance Sheets

(In thousands, except share data)


	(Unaudited)
	September 30,			December 31,
	2005			2004
ASSETS
Cash and due from financial institutions	$	18,764		$	25,661
Federal funds sold		21,670			9,947
Securities available for sale		137,578			154,468
Securities held to maturity (Fair value of $9 in 2005 and $11 in 2004)		8			11
Loans held for sale		—			8,886
Loans, net of allowance of $12,041 and $11,706		521,025			556,188
FHLB, FRB, GLBB and NCDC stock		9,231			8,972
Premises and equipment, net		12,335			11,824
Premises and equipment, held for sale, net		—			179
Accrued interest receivable		4,717			4,526
Goodwill		26,093			26,093
Core deposit and other intangibles		4,154			4,698
Other assets		7,536			6,057


Total assets	$	763,111		$	817,510


LIABILITIES
Deposits
Noninterest-bearing	$	97,689		$	104,873
Interest-bearing		489,613			542,172

Total deposits		587,302			647,045
Federal Home Loan Bank advances		30,604			30,855
Securities sold under agreements to repurchase		18,479			12,712
U. S. Treasury interest-bearing demand note payable		2,603			1,755
Notes payable		7,000			8,000
Subordinated debentures		25,000			25,000
Accrued expenses and other liabilities		6,620			3,930

Total liabilities		677,608			729,297

SHAREHOLDERS’ EQUITY
Common stock, no par value, 10,000,000 shares authorized, 6,112,264 shares issued		68,430			68,430
Retained earnings		25,932			27,781
Treasury stock, 310,862 and 304,862 shares at cost		(7,623	)		(7,494	)
Accumulated other comprehensive loss		(1,236	)		(504	)

Total shareholders’ equity		85,503			88,213


Total liabilities and shareholders’ equity	$	763,111		$	817,510



See notes to interim consolidated financial statements		Page 3

FIRST CITIZENS BANC CORP

Consolidated Statements of Income (Unaudited)
(In thousands, except per share data)


	Three months ended September 30,				Nine months ended September 30,
	2005		2004		2005			2004
Interest and dividend income
Loans, including fees	$	9,278	$	7,150	$	27,278		$	20,817
Taxable securities		992		589		3,002			1,922
Tax-exempt securities		239		263		741			865
Federal funds sold and other		243		5		441			5

Total interest income		10,752		8,007		31,462			23,609
Interest expense
Deposits		2,121		1,539		5,941			4,595
Federal Home Loan Bank advances		248		156		753			303
Subordinated debentures		407		158		1,175			438
Other		236		98		589			271

Total interest expense		3,012		1,951		8,458			5,607

Net interest income		7,740		6,056		23,004			18,002
Provision for loan losses		212		510		891			1,430

Net interest income after provision for loan losses		7,528		5,546		22,113			16,572
Noninterest income
Computer center data processing fees		220		298		706			869
Service charges		915		827		2,694			2,407
Net gain/ (loss) on sale of securities		3		1		(15	)		107
Net gain on sale of loans		10		45		75			117
ATM fees		179		150		512			410
Trust fees		295		224		797			585
Gain on branch sale		—		—		766			—
Other		146		328		549			795

Total noninterest income		1,768		1,873		6,084			5,290
Noninterest expense
Salaries and wages		3,098		2,245		8,989			6,755
Benefits		651		649		2,180			1,694
Net occupancy expense		359		305		1,184			988
Equipment expense		370		273		1,001			831
Contracted data processing		360		212		1,031			641
State franchise tax		251		193		780			609
Professional services		274		197		931			617
Amortization of intangible assets		190		121		544			364
Advertising		136		98		373			294
ATM expense		119		131		393			316
Stationery and supplies		114		98		395			267
Courier		173		105		482			287
Other operating expenses		934		887		3,212			2,701

Total noninterest expense		7,029		5,514		21,495			16,364

Income before taxes		2,267		1,905		6,702			5,498
Income tax expense		701		563		2,049			1,592

Net Income	$	1,566	$	1,342	$	4,653		$	3,906

Earnings per share, basic	$	0.27	$	0.27	$	0.80		$	0.78
Earnings per share, diluted	$	0.27	$	0.27	$	0.80		$	0.78
Weighted average basic common shares		5,801,402		5,026,579		5,805,358			5,030,946
Weighted average diluted common shares		5,802,649		5,032,251		5,807,156			5,036,209



See notes to interim consolidated financial statements		Page 4

FIRST CITIZENS BANC CORP

Condensed Consolidated Statement of Shareholders’ Equity (Unaudited)

(In thousands, except share data)


												Accumulated
	Common Stock											Other			Total
	Outstanding					Retained			Treasury			Comprehensive			Shareholders’
	Shares			Amount		Earnings			Stock			Income/(Loss)			Equity
Balance, January 1, 2004		5,033,203		$	47,370	$	28,612		$	(7,241	)	$	384		$	69,125

Net income		—			—		3,906			—			—			3,906

Change in unrealized gain (loss) on securities available for sale, net of reclassifications and tax effects		—			—		—			—			(676	)		(676	)

Purchase of treasury stock, at cost		(6,624	)		—		—			(142	)		—			(142	)

Cash dividends ($.81 per share)							(4,075	)								(4,075	)

Dividends declared ($.27 per share)		—			—		(1,357	)		—			—			(1,357	)


Balance, September 30, 2004		5,026,579		$	47,370	$	27,086		$	(7,383	)	$	(292	)	$	66,781


Balance, January 1, 2005		5,807,402		$	68,430	$	27,781		$	(7,494	)	$	(504	)	$	88,213

Net income		—			—		4,653			—			—			4,653

Change in unrealized (loss) on securities available for sale, net of reclassifications and tax effects		—			—		—			—			(732	)		(732	)

Cash dividends ($.84 per share)		—			—		(4,877	)		—			—			(4,877	)

Dividends declared ($.28 per share)		—			—		(1,625	)		—			—			(1,625	)

Purchase of Treasury Stock		(6,000	)		—		—			(129	)		—			(129	)


Balance, September 30, 2005		5,801,402		$	68,430	$	25,932		$	(7,623	)	$	(1,236	)	$	85,503



See notes to interim consolidated financial statements		Page 6

FIRST CITIZENS BANC CORP

Condensed Consolidated Statement of Cash Flows (Unaudited)

(In thousands)


	Nine months ended September 30,
	2005			2004
Net cash from operating activities	$	4,668		$	3,802

Cash flows from investing activities
Maturities and calls of securities, held-to-maturity		3			2
Maturities and calls of securities, available-for-sale		19,506			57,187
Purchases of securities, available-for-sale		(4,469	)		(34,305	)
Proceeds from sale of securities, available-for-sale		—			243
Purchases of FRB Stock		—			—
Loans made to customers, net of principal collected		28,054			(24,189	)
Loans sold from portfolio		9,505			—
Proceeds from sale of OREO properties		685			329
Change in federal funds sold		(11,723	)		—
Proceeds from sale of property and equipment		—			416
Net purchases of office premises and equipment		(1,265	)		(582	)

Net cash from investing activities		40,296			(899	)

Cash flows from financing activities
Repayment of FHLB borrowings		(251	)		—
Net change in short-term FHLB advances		—			(10,255	)
Proceeds from long-term FHLB advances		—			30,000
Net change in deposits		(40,916	)		(30,267	)
Change in securities sold under agreements to repurchase		5,767			(2,312	)
Change in U. S. Treasury interest-bearing demand note payable		848			780
Changes in notes payable		(1,000	)		(1,000	)
Cash paid in branch sale		(11,303	)		—
Purchases of treasury stock		(129	)		(142	)
Net proceeds from obligated mandatorily redeemable capital securities		—			12,500
Cash dividends paid		(4,877	)		(4,075	)

Net cash from financing activities		(51,861	)		(4,771	)


Net change in cash and due from banks		(6,897	)		(1,868	)
Cash and due from banks at beginning of period		25,661			21,983

Cash and due from banks at end of period	$	18,764		$	20,115


Cash paid during the period for:
Interest	$	8,495		$	6,095
Income taxes	$	2,045		$	1,684

Supplemental non-cash disclosures
Transfers to OREO	$	178		$	847



See notes to interim 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

The consolidated financial statements include the accounts of First Citizens Banc Corp (FCBC) and it wholly-owned subsidiaries: The Citizens Banking Company (Citizens), First Citizens Bank (First Citizens), SCC Resources, Inc. (SCC), R. A. Reynolds Appraisal Service, Inc., (Reynolds), Mr. Money Finance Company (Mr. Money), First Citizens Title Insurance Agency, Inc. (Title Agency), First Citizens Insurance Agency, Inc. (Insurance Agency), and Water Street Properties, Inc. (Water St.) together referred to as the Corporation. Reynolds was sold from the Corporation on July 1, 2005, but its income through June 30, 2005 is included in the consolidated financial statements. 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 September 30, 2005 and its results of operations and changes in cash flows for the periods ended September 30, 2005 and 2004 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 accounting principles generally accepted in the United States of America have been omitted. The results of operations for the period ended September 30, 2005 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 financial statements contained in the Corporation’s 2004 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, Huron, Marion, Ottawa, Richland and Union. 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. Other financial instruments that potentially represent concentrations of credit risk include deposit accounts in other financial institutions and Federal Funds sold. In 2005, SCC provided item processing for nine financial institutions in addition to the two subsidiary banks. SCC accounted for 1.9% of the Corporation’s total revenues through September 30, 2005. Reynolds provided real estate appraisal services for lending purposes to subsidiary banks and other financial institutions. Reynolds accounted for less than 1.0% of total Corporation revenues at the time of its sale. Mr. Money provides consumer finance loans that the subsidiary banks would not normally provide to B and C credits at a rate commensurate with the risk and accounted for approximately 2.2% of the Corporation’s total revenue. First Citizens Title Insurance Agency Inc. was formed to provide customers with a seamless mortgage product with improved service. First Citizens Insurance Agency Inc. was formed to allow the Corporation to participate in commission

Page 8

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

revenue generated through its third party insurance agreement. Insurance commission revenue is less than 1.0% of total revenue for the period ended September 30, 2005. Water St. Properties, Inc. was formed to hold repossessed assets of FCBC’s subsidiaries. Water St. revenue also totaled less than 1.0% of total revenue for the period ended September 30, 2005. Management considers the Corporation to operate primarily in one reportable segment, banking. 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, fair values of financial instruments, and status of contingencies are particularly subject to change.

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.

Employee compensation expense under stock options is reported using the intrinsic value method. No stock-based compensation cost is reflected in net income, as all options granted had an exercise price equal to or greater than the market price of the underlying common stock at date of grant. The following table illustrates the effect on net income and earnings per share if expense was measured using the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation.”


	Three Months ended				Nine Months ended
	September 30,				September 30,
	2005		2004		2005		2004
Net income as reported	$	1,566	$	1,342	$	4,653	$	3,906
Deduct: Stock-based compensation expense determined under fair value based method		9		19		42		57

Pro forma net income	$	1,557	$	1,323	$	4,611	$	3,849

Basic earnings per share as reported	$	0.27	$	0.27	$	0.80	$	0.78
Pro forma basic earnings per share		0.27		0.26		0.79		0.77
Diluted earnings per share as reported	$	0.27	$	0.27	$	0.80	$	0.78
Pro forma diluted earnings per share		0.27		0.26		0.79		0.76

Page 9

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

Adoption of New Accounting Standards: In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123 (revised 2004), “Share-Based Payment,” which revises SFAS No. 123, “Accounting for Stock-Based Compensation,” and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” This statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. This Statement requires an entity to recognize the cost of employee services received in share based payment transactions and measure the cost on a grant-date fair value of the award. That cost will be recognized over the period during which an employee is required to provide service in the exchange for the award. The provisions of SFAS No. 123 (revised 2004) will be effective beginning with the first interim reporting period of the Corporation’s first fiscal year beginning on or after June 15, 2005. The methodology and impact of adoption has not yet been determined.

2) Securities

Securities at September 30, 2005 and December 31, 2004 were as follows:


	September 30, 2005
			Gross		Gross
			Unrealized		Unrealized
Available for sale	Fair Value		Gains		Losses
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	$	106,874	$	1	$	(1,194	)

Obligations of states and political subdivisions		24,473		375		(39	)

Mortgage-back securities		5,750		22		(60	)


Total debt securities	$	137,097	$	398	$	(1,293	)

Equity securities		481		—		—


	$	137,578	$	398	$	(1,293	)

Page 10

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)


	September 30, 2005
			Gross		Gross
	Carrying		Unrecognized		Unrecognized
Held to Maturity	Value		Gains		Losses		Fair Value
Mortgage-backed securities	$	8	$	1	$	—	$	9


	December 31, 2004
			Gross		Gross
			Unrealized		Unrealized
Available for sale	Fair Value		Gains		Losses
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	118,100	$	8	$	(561	)
Corporate Bonds		512		—		(12	)
Obligations of states and political subdivisions		26,964		765		(10	)
Mortgage-back securities		8,411		66		(41	)

Total debt securities		153,987		839		(624	)
Equity securities		481		—		—

Total	$	154,468	$	839	$	(624	)


	December 31, 2004
			Gross		Gross
	Carrying		Unrecognized		Unrecognized
Held to Maturity	Value		Gains		Losses		Fair Value
Mortgage-backed securities	$	11	$	—	$	—	$	11

Page 11

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The amortized cost and fair value of securities at September 30, 2005, by contractual maturity, are 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	Amortized Cost		Fair Value
Due in one year or less	$	52,271	$	52,040
Due after one year through five years		74,542		73,912
Due after five years through ten years		3,597		3,623
Due after ten years		1,795		1,772
Mortgage-backed securities		5,787		5,750
Equity securities		481		481

Total securities available for sale	$	138,473	$	137,578


Held to maturity	Carrying		Estimated
	Amount		Fair Value
Mortgage-backed securities	$	8	$	9

Proceeds from sales of securities, gross realized gains and gross realized losses were as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2005		2004		2005			2004
Proceeds	$	—	$	2	$	—		$	243
Gross gains		—		1		—			104
Gross losses		—		—		(10	)		—
Security gains/(losses) due to calls prior to maturity		3		—		(5	)		3

Securities with a carrying value of approximately $110,101 and $96,951 were pledged as of September 30, 2005 and December 31, 2004, respectively, to secure public deposits, other deposits and liabilities as required by law.

Page 12

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 September 30, 2005 and December 31, 2004 not recognized in income are as follows.


September 30, 2005	12 Months or less				More than 12 months				Total
	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	$	31,465	$	454	$	26,241	$	193	$	57,706	$	647
Obligations of states and political subdivisions		1,954		15		—		—		1,954		15
Mortgage-backed securities		592		—		—		—		592		—


Total temporarily impaired	$	34,011	$	469	$	26,241	$	193	$	60,252	$	662


December 31, 2004	12 Months or less				More than 12 months				Total
	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	$	108,096	$	526	$	5,896	$	35	$	113,992	$	561
Corporate bonds		—		—		512		12		512		12
Obligations of states and political subdivisions		2,907		10		750		1		3,657		11
Mortgage-backed securities		6		—		4,021		40		4,027		40


Total temporarily impaired	$	111,009	$	536	$	11,179	$	88	$	122,188	$	624

Unrealized losses on obligations of states and political subdivisions, and mortgage-backed securities have not been recognized into income because the issuers’ bonds 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 increase in market interest rates. The fair value is expected to recover as the securities approach their maturity date or reset date.

Page 13

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

(3) Loans

Loans at September 30, 2005 and December 31, 2004 were as follows:


	9/30/2005			12/31/2004
Commercial and Agriculture	$	66,643		$	76,469
Commercial real estate		196,454			202,616
Real Estate — mortgage		212,355			228,467
Real Estate — construction		30,011			25,315
Consumer		26,296			32,807
Credit card and other		676			1,213
Leases		1,198			1,723

Total loans		533,633			568,610
Allowance for loan losses		(12,041	)		(11,706	)
Deferred loan fees		(566	)		(711	)
Unearned interest		(1	)		(5	)

Net loans	$	521,025		$	556,188

(4) Allowance for Loan Losses

A summary of the activity in the allowance for loan losses was as follows:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2005			2004			2005			2004
Balance beginning of period	$	12,321		$	6,421		$	11,706		$	6,308
Loans charged-off		(807	)		(407	)		(1,964	)		(1,426	)
Recoveries		315			99			1,408			311
Provision for loan losses		212			510			891			1,430

Balance at September 30,	$	12,041		$	6,623		$	12,041		$	6,623

Page 14

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

Information regarding impaired loans was as follows for the three and nine months ended September 30.


	Three Months				Nine Months
	Ended September 30,				Ended September 30,
	2005		2004		2005		2004
Average investment in impaired loans	$	18,813	$	7,173	$	17,325	$	7,048
Interest income recognized on impaired loans including interest income recognized on cash basis		151		90		412		300
Interest income recognized on impaired loans on cash basis		142		90		389		300

Information regarding impaired loans at September 30, 2005 and December 31, 2004 was as follows:


	9/30/05		12/31/04
Balance impaired loans	$	18,944	$	15,430
Less portion for which no allowance for loan losses is allocated		—		—

Portion of impaired loan balance for which an allowance for credit losses is allocated	$	18,944	$	15,430

Portion of allowance for loan losses allocated to the impaired loan balance	$	6,791	$	5,910

Nonperforming loans were as follows.


	9/30/05		12/31/04
Loans past due over 90 days still on accrual	$	530	$	318
Nonaccrual	$	13,182	$	8,273

Nonperforming loans include both smaller balance homogeneous loans, such as residential mortgage and consumer loans, that are collectively evaluated for impairment and individual classified impaired loans.

Page 15

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

(5) 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 customer’s 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 September 30, 2005 and December 31, 2004.


	Contract Amount
	2005				2004
	Fixed		Variable		Fixed		Variable
	Rate		Rate		Rate		Rate
Commitment to extend credit:
Lines of credit and construction loans	$	9,894	$	63,309	$	4,396	$	53,130
Overdraft protection		—		6,636		—		6,643
Letters of credit		215		3,434		20		3,522

	$	10,109	$	73,379	$	4,416	$	63,295

Commitments to make loans are generally made for a period of one year or less. Fixed rate loan commitments above had interest rates ranging from 4.37% to 11.5% at September 30, 2005 and 3.50%to 8.00% at December 31, 2004. Maturities extend up to 30 years.

The subsidiary banks are 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 for the periods ended September 30, 2005 and December 31, 2004 approximated $3,588 and $10,176. The decrease in requirements is due to Citizens reclassifying certain deposit products as savings accounts which require no reserve requirement with the Federal Reserve.

Page 16

First Citizens Banc Corp

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

(6) Pension Information

Net periodic pension expense for:


	September 30
	2005			2004
Service cost	$	534		$	390
Interest cost		367			344
Expected return on plan assets		(289	)		(249	)
Other components		35			41

Net periodic pension cost	$	647		$	526

The total amount of contributions expected to be paid by the Corporation in 2005 total $672, compared the 2004 total of $1,196. In 2004, the Corporation was required to make four quarterly payments totaling $599 as well as a 2003 funding contribution of $597.

(7) Subordinated Debentures and Trust Preferred Securities

Trusts formed by the Corporation, in March 2003 and March 2002, issued $7,500 of 4.41% floating rate and $5,000 of 5.59% floating rate trust preferred securities through special purpose entities as part of pooled offerings of such securities. The Corporation issued subordinated debentures to the trusts in exchange for the proceeds of the offerings, which debentures represent the sole assets of the trusts. The Corporation may redeem the subordinated debentures, in whole but not in part, any time prior to March 26, 2008 and March 26, 2007, respectively at a price of 107.50% of face value for those issued in 2003 and 2002. After March 26, 2008 and March 26, 2007, respectively, subordinated debentures may be redeemed at face.

Additionally, a trust formed in September 2004 by the Corporation issued $12,500 of 6.05% fixed rate for five years, then becoming floating rate trust preferred securities through a special purpose entity as part of a pooled offering of such securities. The Corporation issued subordinated debentures to the trusts in exchange for the proceeds of the offerings, which debentures represent the sole assets of the trusts. The Corporation may redeem the subordinated debentures, in whole but not in part, any time prior to September 20, 2009 at a price of 107.50% of face value. After September 20, 2009 subordinated debentures may be redeemed at face.

(8) Consolidation of Banks

The merger that was announced on June 24, 2005 by the Corporation, merging one of its banking affiliates, First Citizens, into its other banking affiliate, Citizens, was completed on

Page 17

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 Financial Condition and Results of Operations

Introduction

The following discussion focuses on the consolidated financial condition of First Citizens Banc Corp at September 30, 2005, compared to December 31, 2004 and the consolidated results of operations for the three month and nine month periods ending September 30, 2005 compared to the same periods in 2004. This discussion should be read in conjunction with the consolidated financial statements and footnotes included in this Form 10-Q.

The registrant is not aware of any trends, events or uncertainties that will have, or are reasonably likely to have, a material effect on the liquidity, capital resources, or operations except as discussed herein. Also, the registrant is not aware of any current recommendation by regulatory authorities, which would have a material effect if implemented.

When used in this Form 10-Q or future filings by the Corporation with the Securities and Exchange Commission, in press releases or other public or shareholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “believe,” or similar expressions are intended to identify “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The Corporation wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and to advise readers that various factors, including regional and national economic conditions, changes in levels of market interest rates, credit risks of lending activities and competitive and regulatory factors, could effect the Corporation’s financial performance and could cause the Corporation’s actual results for future periods to differ materially from those anticipated or projected. The Corporation does not undertake, and specifically disclaims, any obligation to publicly release the result of any revisions, which may be made to any forward-looking statements to reflect occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

Financial Condition

Total assets of the Corporation at September 30, 2005 were $763,111 compared to $817,510 at December 31, 2004. This was a decrease of $54,399. The decrease in total assets of the Corporation was primarily caused by three factors. First, in the first quarter of 2005, two branches of First Citizens were sold. With this sale, $6,046 in loans originated at the two branches were assumed by the acquiring entity. Deposits assumed by the acquiring entity totaled $18,851. Also, there was an $11,303 outlay of cash to complete the deal, which was financed by a reduction in the Corporation’s federal funds sold. Secondly, the Corporation

Page 19

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)

has allowed maturing and called securities to roll off without replacing them. Currently, the Corporation is in compliance with its pledging requirements, and has taken the strategy of reinvesting the funds rolling off in the security portfolio into the loan portfolio, which will earn a higher yield. The third factor was the decrease in the loan portfolio. The reasons for this decline are discussed below.

Net loans have decreased $35,163, or 6.3 percent since December 31, 2004. The commercial real estate portfolio decreased by $6,162 and the commercial and agriculture portfolio decreased $9,826, while residential real estate and consumer loans decreased by $16,112 and $6,511 respectively. The decrease in the residential real estate loans and consumer loans continues a trend the Corporation has been experiencing the last few years. The Corporation’s lending philosophy is to focus on the commercial loan portfolio and to attempt to grow the portfolio. The philosophy on the real estate portfolio is to book loans that can be sold on the secondary loan market. The decline in the Corporation’s installment portfolio can be attributed primarily to the tightening of underwriting standards. Although this tightening of standards has increased the credit quality of the loans in the installment portfolio, it has also decreased the volume of loans that are being closed in this portfolio. To attract and build the commercial loan portfolio, the Corporation has taken a proactive approach in contacting new and current clients to ensure that the Corporation is servicing its client’s needs. These lending relationships generally offer more attractive returns than residential loans and also offer opportunities for attracting larger balance deposit relationships. However, the shift in loan portfolio mix from residential real estate to commercial oriented loans may increase credit risk. The decrease of the Corporation’s commercial real estate portfolio was due primarily to scheduled pay-offs. Also, the Corporation has been restructuring its consumer loan area during 2005. As a part of the restructuring, Mr. Money became a subsidiary of First Citizens in August. This move has helped to reduce the cost of funding for Mr. Money. Mr. Money is expected to use First Citizens deposits and other financial funding instruments to support its loan growth. The Corporation introduced new consumer lending products late in the second quarter of 2005 and expects to use these products to begin growing the consumer loan portfolio. With the new products being introduced, a new rate structure for consumer loans has been developed. This rate structure is expected to increase the yield on the Corporation’s consumer portfolio.

Loans held for sale decreased $8,830 from year-end 2004. At December 31, 2004, the portfolio consisted of loans at First Citizens totaling $6,046, which were sold in a branch sale in January 2005, and Mr. Money loans of $2,840 of which $2,784 were sold in February 2005. Loans held for sale in previous years have primarily consisted of refinanced, fixed rate residential real estate loans. Over the past two years, the demand for refinancings has declined. There were no loans held for sale on the secondary market at September 30, 2005. At September 30, 2005, the net loan to deposit ratio was 89.0 percent compared to 86.0 percent at December 31, 2004.

Page 20

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)

For the nine months of operations in 2005, $891 was provided into the allowance for loan losses from earnings compared to $1,430 for the same period of 2004. The decrease in the provision was a combination of three items. First, Mr. Money’s reserve for loan losses decreased through September of 2005 compared to September 2004. The loan sale at Mr. Money in 2005 consisted of troubled loans, to which a large part of the reserve for loan losses was attributable. Subsequent to the loan sale, and after conducting its reserve adequacy calculation, management felt that the remaining reserve at Mr. Money was sufficient to cover any losses on its current portfolio. In 2004, Mr. Money had provided $515 into the allowance for loan losses for the first nine months of the year, while in 2005, only $15 was provided into the allowance. Secondly, First Citizens had a decrease in their reserve for loan losses. First Citizens provided $105 less into the allowance for loan losses in 2005 than in 2004. After the merger with FNB Financial Corporation (FNB) in 2004, First Citizens’ adequacy calculation showed that only $270 was needed to be provided into the allowance in 2005, compared to $375 that was provided into the allowance in 2004. Finally, FCBC provided $65 into its allowance for loan losses in 2005, compared to no reserves in 2004. A decrease in net charge-offs of $559 was experienced from 2004 to 2005 due primarily to a $429 loss recovery in 2005 as well as the sale of non-performing loans at Mr. Money. Non-accrual loans increased $4,909 from December 31, 2004 to September 30, 2005. This increase was primarily caused by two large commercial credits being placed on non-accrual status in March and June, respectively. As of September 30, 2005, impaired loans have increased $3,514 from December 31, 2004. This increase was primarily due to loans that were acquired from FNB with the 2004 merger. These loans had been adequately reserved for on FNB balance sheet. Efforts are continually made to examine 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 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. Smaller-balance homogeneous loans are evaluated for impairment in total. Such loans include residential first mortgage loans secured by one- to four-family residences, residential construction loans and consumer automobile, boat, home equity and credit card loans. 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. These loans are also often considered impaired. Impaired loans, or portions thereof, are charged-off when deemed uncollectible. The September 30, 2005 allowance for loan losses as a percent of total loans was 2.26 percent compared to 2.06 percent at December 31, 2004.

Page 21

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)

At September 30, 2005, available for sale securities totaled $137,578 compared to $154,468 at December 31, 2004, a decrease of $16,890. The decrease in securities was due to paydowns, calls, maturities and sales. Funds not used to replace these securities were used to partially fund the cash outlay of the branch sale as well as to fund other assets, such as loans. Bank stocks increased $259 from December 31, 2004 due to FHLB stock dividends received.

Office premises and equipment, net, have increased $511. The increase in office premises and equipment is attributed to new purchases of $1,326, depreciation of $754 and disposals of $61. The new purchases include the purchase of a formerly leased branch office by Citizens located in Port Clinton, Ohio. Office premises and equipment, net held for sale, decreased $179 from December 31, 2004 due to the branch sale at First Citizens in January. Intangible assets decreased $544 due to amortization of the core deposit premium.

Total deposits at September 30, 2005 decreased $59,743 from year-end 2004. Noninterest-bearing deposits decreased $7,184 from year-end 2004. Interest-bearing deposits, including savings and time deposits, decreased $52,559 from year-end 2004. One cause of these decreases was due to the $18,851 in deposits sold during the First Citizens branch sale in January 2005. The year-to-date average balance of total deposits increased $112,936 compared to the average balance of the same period 2004. This increase in average balance was primarily due to the $165,261 of deposits acquired in a merger in October 2004. As the stock market stabilized and began to recover in mid 2003 and 2004, investors who had sought short-term financial institution deposit products as the market declined have continued to move out of deposits and into other financial instruments. A second cause of the decrease in certificates of deposit occurred as a result of management’s decision to allow higher rate certificates which were maturing to be withdrawn from the Corporation rather than trying to retain these deposits by paying above market rates. The year-to-date 2005 average balance of savings deposits has increased $25,421 compared to the average balance of the same period for 2004. The September 30, 2005 average rate on savings was 0.44 compared to the September 30, 2004 average rate of 0.41. The year-to-date 2005 average balance of time certificates has increased $44,299 compared to the average balance for the same period for 2004. Additionally, the year-to-date 2005 average balances compared to the same period in 2004 of Demand Deposits increased $23,519, while N.O.W. accounts increased $28,269, and Money Market Savings decreased $9,710. The increases in average balance are due to the merger that was completed in October 2004.

Total borrowed funds have increased $5,364 from December 31, 2004 to September 30, 2005. At September 30, 2005, the Corporation had $30,604 in outstanding FHLB advances compared to $30,855 at December 31, 2004, which was the result of scheduled pay downs of the outstanding advances. The Corporation had notes outstanding with other financial institutions totaling $7,000 at September 30, 2005 compared to $8,000 at December 31, 2004. The $1,000 decrease is due to a scheduled paydown of a note in July. These notes were primarily used to fund the loan growth at Mr. Money. Securities sold under agreements to

Page 22

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)

repurchase, which tend to fluctuate, have increased $5,767 and U.S. Treasury Tax Demand Notes have increased $848.

Shareholders’ equity at September 30, 2005 was $85,503, or 11.2 percent of total assets, compared to $88,213 at December 31, 2004, or 10.8 percent of total assets. The decrease in shareholders’ equity resulted from earnings of $4,653, less dividends paid of $4,877, dividends declared of $1,625, the decrease in the market value of securities available for sale, net of tax, of $732, and the purchase of $129 of treasury shares. The Corporation paid a cash dividend on February 1, 2005, May 1, 2005, and August 1, 2005 at a rate of $.28 per share compared to $.27 per share at February 1, 2004, May 1, 2004, and August 1, 2004. Total outstanding shares at September 30, 2005 were 5,801,402.

Results of Operations

Nine Months Ended September 30, 2005 and 2004

Net income for the nine months ended September 30, 2005 was $4,653 or $.80 per diluted share compared to $3,906, or $.78 per diluted share for the same period in 2004. This was an increase of $746, or 19.1 percent. Some of the reasons for the changes are explained below.

Total interest income for the first nine months of 2005 increased $7,853, or 33.3 percent compared to the same period in 2004. The average rate on earning assets on a tax equivalent basis for the first nine months of 2005 was 5.72 percent and 5.21 percent for the first nine months of 2004. The increase in yield is due to the change in the interest rate environment in which the Corporation has operated in 2005 and the increase in earning assets as a result of the merger completed in October 2004. Interest rate increases in 2005 have had a positive effect on the Corporation’s earning asset portfolio. Total interest expense for the first nine months of 2005 has increased by $2,851, or 50.8 percent compared to the same period of 2004. The increase of interest expense is due to the increase in balances of deposit products as a result of the merger of 2004 as well as the increase in interest rates experienced in 2005. Interest on deposits increased $1,346 compared to 2004, as the average balance increased $112,936 from September 30, 2004. Interest expense on FHLB borrowings increased $450 compared to the first nine months of 2004 primarily due to the increase in average balance of $10,068 in borrowings which were used to pay down the Corporation’s Federal Funds purchased position. In September 2004, a $12,500 trust preferred issuance was created to help fund the merger in 2004. The increase of average balance of $8,162 from 2004 to 2005 resulted in an increase in expense on subordinated debentures of $737. Interest on other borrowings increased $318 as rates increased during 2005. The average rate on interest-bearing liabilities for the first nine months of 2005 was 1.76 percent compared to 1.39 percent for the same period of 2004. The net interest margin on a tax equivalent basis was 4.48 percent for September 30, 2005 and 4.06 percent for September 30, 2004.

Noninterest income for the first nine months of 2005 totaled $6,090, compared to $5,290 for

Page 23

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 same period of 2004, an increase of $800. Service charges on deposit accounts increased $287 in 2005 compared to the same period in 2004. Check Protect generated an additional $200 in service charge income in the first nine months of the year 2005 compared to the same period in 2004 due to the additional customer base created by the merger in 2004. Computer processing fees and net gain on sale of loans decreased in the first nine months of 2005 compared to the same period in 2004. ATM fees increased $102 from the same period in 2004 as a result of the additional machines and customer base from the merger in 2004. Gain/(Loss) on sale of securities decreased $122 from 2004. In 2004, Citizens sold securities at a $103 gain, and used the proceeds to help fund its loan growth. Trust fees increased $212, up to $797 by September 30, 2005. The Trust department continues to add assets to its portfolio, resulting in increased revenue generated by the Trust department. The Corporation had a $766 gain on the sale of two branches of First Citizens in 2005. In the sections above, the loan and deposit effects of this branch sale are discussed. Other operating income declined $240 in 2005 compared with the same period of time in 2004. There are two main items that declined in the first nine months of 2005 that caused the reduced income. First, with the sale of Reynolds, appraisal fees generated by this affiliate ceased as of June 30, 2005. As a result of the sale, $127 less fees were generated. Secondly, FCBC received $76 through September 30, 2004, from management fees resulting from the merger with FNB in October 2004. In 2005, these fees were not earned with the merger being completed in 2004.

Noninterest expense for the nine months ended September 30, 2005 totaled $21,501 compared to $16,364 for the same period in 2004. This was an increase of $5,138, or 31.4 percent. Salaries and wages increased $2,234, or 33.1 percent compared to the first nine months of 2004. The increase in salaries was mainly attributable to the employees added by First Citizens when it completed its merger in October 2004. Benefits increased $486 in the first nine months of 2005 compared to the first nine months of 2004. The primary increase in benefits is due to the rising costs of the Corporation’s self-insured health plan. Compared to September 30, 2004, insurance costs are up approximately $314 in 2005. Approximately half of this cost is related to the increase in employees added through the merger in October 2004. Also included in the increase in benefits is an increase in costs of the Corporation’s pension plan of $131 in 2005 compared to the same period in 2004. Net occupancy expense increased from $988 for the first nine months of 2004, to $1,184 in 2005, an increase of $196. This increase is primarily due to the rise in utility payments and building depreciation associated with the new branches created from the merger with FNB in 2004. Equipment expense increased $170 primarily as a result of a remodeling project completed at First Citizens in 2005. Computer processing expense increased by $390 compared to last year primarily due the increase in size of First Citizens as a result of the FNB merger as well as the merger between the two Banks to be completed in October 2005. State franchise taxes increased $171 compared to the first nine months in 2004 due to the increase in capital position created by the merger in 2004. ATM expenses and advertising expenses increased slightly for the first nine months of 2005 compared to the same period in 2004. Professional services increased $320 from 2004 to 2005. The primary reason for the increase was due to the increase in fees

Page 24

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)

paid for compliance with section 404 of the Sarbanes-Oxley Act of 2002. With the increase in the Corporation’s core deposit intangible asset, the amortization of these assets increased $181 in 2005 compared to 2004. Stationery and supplies increased $128 from 2004 due primarily to the merger in 2004 and remodeling at First Citizens. With a change in bank name and the additional branches, items such as letterhead, envelopes, teller stamps and other items had to be ordered and restocked in the transition from the old bank name to the new name. The Corporation expects higher costs to continue in the near future with the merging of the two Banks in October 2005. Some of the items listed above will again have to be purchased with the two Banks becoming one. During the first nine months of 2005, courier expenses increased due to mobile banking being introduced to the First Citizens branches in 2005. This service allows commercial customers to make deposits from their own location instead of having to travel to a branch office of the Corporation. Other expenses increased by $511 for the first nine months of 2005 compared to the same period in 2004. A few of the larger increases are as follows. Bad check expense increased $122 in the first nine months of 2005 compared to the same period in 2004. This increase is due to a write-off of $111 for a fraudulent check that was cleared at one of the banks. The Corporation does expect to recover approximately $60 of this amount in the fourth quarter from its insurance company. Due to the merger in October 2004, two items, general insurance of the Corporation and correspondent bank fees, increased $136 from 2004.

Income tax expense for the first nine months of 2005 totaled $2,049 compared to $1,592 for the first nine months of 2004. This was an increase of $457, or 28.7 percent. The increase in the federal income taxes is a result of the increase in total income before taxes of $1,203. The effective tax rates were comparable for the nine-month periods ended September 30, 2005 and September 30, 2004, at 30.6% and 29.0%, respectively. The increase in the effective rate is due to the decline in the Municipal security portfolio in relation to total assets.

Three Months Ended September 30, 2005 and 2004

Net income for the three months ended September 30, 2005 was $1,566 or $.27 per diluted share compared to $1,342 or $.27 per diluted share for the same period in 2004. This was an increase of $224, or 16.7 percent. Some of the reasons for the changes are explained below.

Total interest income for the third quarter of 2005 increased $2,745, or 34.3 percent compared to the same period in 2004. The average rate on earning assets on a tax equivalent basis for the third quarter of 2005 was 5.91 percent and 5.21 percent for the third quarter of 2004. The increase in yield is due to the change in the interest rate environment in which the Corporation has operated in 2005, and which continued in the third quarter 2005. During the third quarter 2005, the fed funds rate increased 75 basis points. The increase in earning assets as a result of the merger completed in October 2004 also contributed heavily to the increase in interest earned on assets. Interest rate increases in the third quarter of 2005 have continued to have a positive effect on the Corporation’s earning asset portfolio. Interest and

Page 25

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)

fees on loans increased $2,128, or 29.8 percent compared to the same period in 2004. This increase is due to the continued increase in average yield of the loan portfolio as well as the increase in average loans of $48,645 over the average loan balance during the third quarter of 2004. This increase in loan balance is attributable to the merger completed in October 2004. Interest on securities increased $379 in the third quarter 2005 compared to the third quarter of 2004 primarily due to the securities acquired in the merger. Total interest expense for the third quarter of 2005 increased $1,061, or 27.8 percent compared to the same period of 2004. The increase of interest expense is due to the increase in balances of deposit products as a result of the merger as well as the increase in interest rates that continued in the second quarter of 2005. Interest on deposits increased $582 compared to 2004, as the rate paid on deposits increased from 1.37% in 2004 to 1.66% in 2005. Interest expense on FHLB borrowings increased $92 compared to the third quarter of 2004 primarily due to the increase in average balance in borrowings which were used to pay down the Corporation’s Federal Funds purchased position. In September 2004, a $12,500 trust preferred issuance was created to help fund the FNB merger. The increase of average balance of $11,005 from 2004 to 2005 resulted in an increase in expense on subordinated debentures of $249. Interest on other borrowings increased $138 as rates increased during the third quarter of 2005 on the Corporation’s other borrowings. The average rate on interest-bearing liabilities for the third quarter of 2005 was 1.89 percent compared to 1.61 percent for the same period of 2004. The net interest margin on a tax equivalent basis was 4.58 percent for September 30, 2005 and 4.04 percent for September 30, 2004.

Noninterest income for the third quarter of 2005 totaled $1,774, compared to $1,873 for the same period of 2004, a decrease of $99. Service charge fees increased $88 in the third quarter 2005 compared to the same period in 2004, as the Corporation’s check protect program generated an additional $70 in service charge income due to the increase in customer base created by the FNB merger. ATM fees also benefited from the increase in customer base as total ATM fee increased $29 in the third quarter 2005 compared to the third quarter 2004. Trust fees increased $71 as the Trust department continued to grow its asset portfolio in the third quarter of 2005 compared to the third quarter of 2004. Computer processing fees and losses on sale of loans decreased slightly in the third quarter 2005 compared to the same period in 2004. Other fees decreased $176, decreasing from $328 in 2004 to $152 in 2005. With the sale of Reynolds in July, the Corporation did not generate the $77 in fees as it did in 2004 during the third quarter. Also, during the third quarter of 2004, FCBC received $76 in management fees as a part of the FNB merger. These fees were not earned in the third quarter of 2005.

Noninterest expense for the quarter ended September 30, 2005 totaled $7,035 compared to $5,514 for the same period in 2004. This was an increase of $1,521, or 27.6 percent. Salaries and wages increased $853, or 38.0 percent compared to the third quarter of 2004. The increase in salaries was attributable to the increase in employees at First Citizens due to the merger in October 2004. Benefits only increased $2 in the third quarter of 2005 compared to the third quarter 2004. Net occupancy expense increased $54 for the third quarter of 2005

Page 26

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)

compared to the third quarter 2004. This increase was primarily caused by the increase in depreciation and utility payments made for the additional branches acquired by First Citizens in the merger. A remodeling project at First Citizens was the primary cause for the increase of $97 in equipment expense in the third quarter of 2005. Additionally, increases in data processing expense and franchise taxes were due to the addition of branches and increase in capital from the merger in 2004 at First Citizens. Data processing also increased due to fees related to the two Banks being merged in October. The merger in October is expected to cause a slight increase in expense during the fourth quarter as well. Professional fees increased $83 in the third quarter 2005 compared to the third quarter 2004. Legal and audit fees accounted for $82 of this increase due to Sarbanes-Oxley compliance related costs as well as other legal matters the Corporation addressed. Courier expense for the third quarter 2005 totaled $173 compared to $105 in 2004. The introduction of mobile banking to the branches at First Citizens as well as the increased usage of this service at Citizens branches resulted in this increase in courier expense. With the increase in the Corporation’s core deposit intangible asset, the amortization of these assets increased $69 in 2005 compared to 2004. Advertising expense increased $38 in the third quarter 2005 compared to the third quarter 2004 due the introduction of a new website for the Banks. The new website is more informative and more functional than the prior website and was introduced during the third quarter. ATM fees decreased $16 due to the removal of ATM’s that were not profitable. The Banks constantly review current and potential ATM locations to ensure the current locations are profitable and if there are any new areas in which an ATM would be a positive for the Corporation. Finally, other operating expenses increased $47 in the third quarter 2005 compared to the third quarter 2004. This increase in expense was primarily caused by increases in correspondent bank charges and general insurance due to the increase in size of the Corporation.

Income tax expense for the third quarter totaled $701 compared to $563 for the same period in 2004. This was an increase of $138, or 24.5 percent. The effective tax rates were comparable for the three-month periods ended September 30, 2005 and September 30, 2004, at 30.9% and 29.6%, respectively. The decrease in the Municipal security portfolio in relation to asset size is the primary factor in the increase in the effective tax rate.

Page 27

First Citizens Banc Corp

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Form 10-Q

(Amounts in thousands, except share data)

Capital Resources

Shareholders’ equity totaled $85,503 at September 30, 2005 compared to $88,213 at December 31, 2004. All of the capital ratios exceed the regulatory minimum guidelines as identified in the following table:


										To Be Well
										Capitalized
										Under Prompt
							For Capital			Corrective
	Corporation Ratios						Adequacy			Action
	9/30/2005			12/31/04			Purposes			Provisions
Tier I Risk Based Capital		13.3	%		13.7	%		4.0	%		6.0	%
Total Risk Based Capital		15.8	%		15.5	%		8.0	%		10.0	%
Leverage Ratio		9.8	%		10.0	%		4.0	%		5.0	%

The Corporation paid a cash dividend of $.28 per common share on February 1, 2005, May 1, 2005 and August 1, 2005 compared to $.27 per common share on February 1, 2004, May 1, 2004 and August 1, 2004.

Liquidity

The banks maintain a conservative liquidity position. Liquidity is evidenced by all but $8 of securities being classified as available for sale. At September 30, 2005, securities with maturities of one year or less totaled $52,041.

Cash from operations for September 30, 2005 was $4,668. This includes net income of $4,653 plus net adjustments of $15 to reconcile net earnings to net cash provided by operations. Cash from investing activities was $40,296 at September 30, 2005, resulting from allowing maturing securities to roll-off the portfolio and only replacing securities that are needed for pledging requirements. Also, loans payments continued to exceed the amount of loans generated. The Corporation had an increase in its federal funds sold as excess funds were realized as loans and securities declined. Cash from financing activities in the first nine months of 2005 totaled $(51,861). This decrease in cash is primarily due to the decrease in interest-bearing deposits at the banks. Secondly, the three payments of dividends made in February, May, and August decreased the amount of cash from financing activities. Finally, the cash paid out to complete the branch sale in January caused a decrease in cash from financing activities. Cash from operating activities and investing activities was less than financing activities by $6,897, which resulted in a decrease in cash and cash equivalents to $18,764.

Page 28

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)

Future loan demand of the banks can 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 Federal Home Loan Bank (FHLB). The banks, through their respective correspondent banks, maintain federal funds borrowing lines totaling $34,250 and the banks have additional borrowing availability at the Federal Home Loan Bank of Cincinnati of $62,930 at September 30, 2005.

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

Page 29

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)

and a comprehensive risk-management process that effectively identifies, measures, and controls interest-rate risk. Financial institutions derive their income primarily from the excess of interest collected over interest paid. The rates of interest an institution earns on its assets and owes on its liabilities generally are established contractually for a period of time. Since market interest rates change over time, an institution is exposed to lower profit margins (or losses) if it cannot adapt to interest-rate changes. For example, assume that an institution’s assets carry intermediate- or long-term fixed rates and that those assets were funded with short-term liabilities. If market interest rates rise by the time the short-term liabilities must be refinanced, the increase in the institution’s interest expense on its liabilities may not be sufficiently offset if assets continue to earn at the long-term fixed rates. Accordingly, an institution’s profits could decrease on existing assets because the institution will have either lower net interest income or, possibly, net interest expense. Similar risks exist when assets are subject to contractual interest-rate ceilings, or rate sensitive assets are funded by longer-term, fixed-rate liabilities in a decreasing-rate environment.

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

Several ways an institution can manage interest-rate risk include selling existing assets or repaying certain liabilities; matching repricing periods for new assets and liabilities, for example, by shortening terms of new loans or securities; 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. Financial institutions are also subject to prepayment risk in falling rate environments. For example, mortgage loans and other financial assets may be prepaid by a debtor so that the debtor may refund its obligations at new, lower rates. The Corporation has not purchased derivative financial

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)

instruments in the past but may purchase such instruments in the future. Prepayments of assets carrying higher rates reduce the Corporation’s interest income and overall asset yields. A large portion of an institution’s liabilities may be short-term or due on demand, while most of its assets may be invested in long-term loans or securities. Accordingly, the Corporation seeks to have in place sources of cash to meet short-term demands. These funds can be obtained by increasing deposits, borrowing, or selling assets. Also, FHLB advances and wholesale borrowings may also be used as important sources of liquidity for the Corporation.

The following table provides information about the Corporation’s financial instruments that are sensitive to changes in interest rates as of December 31, 2004 and September 30, 2005, based on certain prepayment and account decay assumptions that management believes are reasonable. The Corporation had no derivative financial instruments or trading portfolio as of December 31, 2004 or September 30, 2005. 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


	September 30, 2005								December 31, 2004
Change in	Dollar		Dollar			Percent			Dollar		Dollar			Percent
Rates	Amount		Change			Change			Amount		Change			Change
+200bp		90,496		(15,144	)		-14	%		93,190		(6,159	)		-6	%
+100bp		101,477		(4,163	)		-4	%		96,222		(3,127	)		-3	%
Base		105,640		—			—			99,349		—			—
-100bp		106,683		1,043			1	%		100,832		1,483			1	%
-200bp		106,323		683			1	%		101,589		2,240			2	%

The change we see in the base from December 31, 2004 to September 30, 2005, is the result of the fair value of assets increasing than liabilities. This change was influenced by both the ongoing flat yield curve and the makeup of the Corporation’s asset portfolio. A rise in rates of 200 basis points would cause the fair value of assets to fall faster than liabilities, which results in the net portfolio value decreasing.

ITEM 4.

Controls and Procedures Disclosure

The Corporation maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Corporation’s reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported

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)

within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

As of the end of the period covered by this quarterly report, an evaluation was carried out under the supervision and with the participation of First Citizens Banc Corp’s management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(e) and 15d-14(e) under the Securities Exchange Act of 1934). Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are, to the best of their knowledge, effective to ensure that information required to be disclosed by First Citizens Banc Corp in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Subsequent to the date of their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that there were no significant changes in First Citizens Banc Corp’s internal control or in other factors that could significantly affect its internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

A material weakness is a significant deficiency (as defined in Public Company Accounting Oversight Board Auditing Standard No. 2), or a combination of significant deficiencies, that results in there being more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by management or employees in the normal course of performing their assigned functions. As of December 31, 2004, the Corporation had not completed all of the documentation and testing required by section 404 of the Sarbanes-Oxley Act of 2002 as it pertained to one of its banking affiliates, First Citizens Bank. However, during the second quarter of 2005, all of the documentation and testing required by section 404 was completed and this weakness was determined to be remediated as of June 30, 2005.

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 32

First Citizens Banc Corp

Other Information

Form 10-Q


Part II —		Other Information


Item 1.		Legal Proceedings
		None


Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds
		None


Item 3.		Defaults Upon Senior Securities
		None


Item 4.		Submissions of Matters to a Vote of Security Holders
		None


Item 5.		Other Information
		None


Item 6.		Exhibits

		(a) Exhibit No. 31.1 Certification of Chief Executive Officer pursuant Section 302 of the Sarbanes-Oxley Act of 2002.

		(b) Exhibit No. 31.2 Certification of Chief Financial Officer pursuant Section 302 of the Sarbanes-Oxley Act of 2002.

		(c) 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.

		(d) 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 33

First Citizens Banc Corp

Index to Exhibits

Form 10-Q

Exhibits


(2.1)		Agreement and Plan of Merger dated as of November 1, 2001 between First Citizens Banc Corp and Independent Community Banc Corp. (filed as Exhibit 2 to the Registration Statement on Form S-4 filed on December 14, 2001 and incorporated herein by reference.)

(2.2)		Agreement and Plan of Merger dated as of March 3, 2004 between First Citizens Banc Corp and FNB Financial Corporation (filed as Exhibit 9 to the Registration Statement on Form S-4 filed on July 19, 2004 and incorporated herein by reference.)

(3)(i)		Articles of Incorporation, as amended, of First Citizens Banc Corp are incorporated by reference to First Citizens Banc Corp’s Form 10-K for the year ended December 31, 2000, filed on March 24, 2001.

(3)(ii)		Code of Regulations of First Citizens Banc Corp is incorporated by reference to First Citizens Banc Corp’s Form 10-K for the year ended December 31, 2000, filed on March 24, 2001.

(4)		Certificate for Registrant’s Common Stock is incorporated by reference to First Citizens Banc Corp’s Form 10-K for the year ended December 31, 2000, filed on March 24, 2001.

(10.1)		First Citizens Banc Corp Stock Option and Stock Appreciation Rights Plan dated April 18, 2000 is incorporated by reference to First Citizens Banc Corp 2000 DEF 14/A filed on March 24, 2000.

(10.2)		Employment agreement with James E. McGookey, incorporated by reference to First Citizens Banc Corp’s Form 10-K, filed on March 16, 2005.

(10.3)		Employment agreement with James L. Nabors II, incorporated by reference to First Citizens Banc Corp’s Form 10-K, filed on March 16, 2005.

(10.4)		Employment agreement with George E. Steinemann, incorporated by reference to First Citizens Banc Corp’s Form 10-K, filed on March 16, 2005.

(10.5)		Change in Control Agreement — David A. Voight, incorporated by reference to First Citizens Banc Corp’s Form 10-K, filed on March 16, 2005.

(10.6)		Change in Control Agreement — James O. Miller, incorporated by reference to First Citizens Banc Corp’s Form 10-K, filed on March 16, 2005.

(10.7)		Change in Control Agreement — Charles C. Riesterer, incorporated by reference to First Citizens Banc Corp’s Form 10-K, filed on March 16, 2005.

Page 35


	Three months ended						Nine months ended
	September 30,						September 30,
	2005			2004			2005			2004
Net income	$	1,566		$	1,342		$	4,653		$	3,906

Unrealized holding gains and (losses) on available for sale securities		(296	)		645			(1,124	)		(917	)
Reclassification adjustment for gains later recognized in income		(3	)		(1	)		15			(107	)

Net unrealized gains and (losses)		(299	)		644			(1,109	)		(1,024	)
Tax effect		102			(219	)		377			348

Total other comprehensive income (loss)		(197	)		425			(732	)		(676	)

Comprehensive income	$	1,369		$	1,767		$	3,921		$	3,230


First Citizens Banc Corp

/s/ David A. Voight		November 9, 2005

David A. Voight		Date
President , Chief Executive Officer

/s/ James O. Miller		November 9, 2005

James O. Miller		Date
Executive Vice President


(10.8)		Change in Control Agreement — Todd A. Michel, incorporated by reference to First Citizens Banc Corp’s Form 10-K, filed on March 16, 2005.

(10.9)		Change in Control Agreement — Leroy C. Link, incorporated by reference to First Citizens Banc Corp’s Form 10-K, filed on March 16, 2005.

(31.1)		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

(31.2)		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

(32.1)		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(32.2)		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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PART I.	Financial Information

Item 1.	Financial Statements:
	Consolidated Balance Sheets (unaudited) September 30, 2005 and December 31, 2004	3

	Consolidated Statements of Income (unaudited) Three and nine months ended September 30, 2005 and 2004	4

	Consolidated Statements of Comprehensive Income (unaudited) Three and nine months ended September 30, 2005 and 2004	5

	Condensed Consolidated Statement of Shareholders’ Equity (unaudited) Nine months ended September 30, 2005 and 2004	6

	Condensed Consolidated Statement of Cash Flows (unaudited) Nine months ended September 30, 2005 and 2004	7

	Notes to Interim Consolidated Financial Statements (unaudited)	8-18

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19-29

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	29-31

Item 4.	Controls and Procedures	31-32

PART II.	Other Information

Item 1.	Legal Proceedings	33

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33

Item 3.	Defaults upon Senior Securities	33

Item 4.	Submission of Matters to a Vote of Security Holders	33

Item 5.	Other Information	33

Item 6.	Exhibits	33

Signatures		34
Exhibit 31.1 Certification 302-CEO
Exhibit 31.2 Certification 302-CFO
Exhibit 32.1 Certification 906-CEO
Exhibit 32.2 Certification 906-CFO



See notes to interim consolidated financial statements		Page 5