Civista Bancshares (CIVB) 10-Q 2005 Q2 Quarterly report

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: June 30, 2005

OR

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. Yesþ Noo

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of Exchange Act). Yesþ Noo

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 August 8, 2005
5,801,402 common shares

FIRST CITIZENS BANC CORP

Index

PART I. Financial Information
Item 1.	Financial Statements:
	Consolidated Balance Sheets (unaudited) June 30, 2005 and December 31, 2004	3
	Consolidated Statements of Income (unaudited) Three and six months ended June 30, 2005 and 2004	4
	Consolidated Statements of Comprehensive Income (unaudited) Three and six months ended June 30, 2005 and 2004	5
	Condensed Consolidated Statement of Shareholders’ Equity (unaudited) Six months ended June 30, 2005 and 2004	6
	Condensed Consolidated Statement of Cash Flows (unaudited) Six months ended June 30, 2005 and 2004	7
	Notes to Consolidated Financial Statements (unaudited)	8-16
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17-26
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	26-28
Item 4.	Controls and Procedures	28-29
PART II. Other Information
Item 1.	Legal Proceedings	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults upon Senior Securities	30
Item 4.	Submission of Matters to a Vote of Security Holders	30
Item 5.	Other Information	31
Item 6.	Exhibits	31
Signatures		32
EX-31.1 302 Certification for CEO
EX-31.2 302 Certification for CFO
EX-32.1 906 Certification for CEO
EX-32.2 906 Certification for CFO

FIRST CITIZENS BANC CORP

Consolidated Balance Sheets
(In thousands, except share data)

	(Unaudited)
	June 30,			December 31,
	2005			2004
ASSETS
Cash and due from financial institutions	$	24,328		$	25,661
Federal funds sold		17,558			9,947
Securities available for sale		139,707			154,468
Securities held to maturity (Fair value of $9 in 2005 and $11 in 2004)		9			11
Loans held for sale		56			8,886
Loans, net of allowance of $12,321 and $11,706		531,001			556,188
FHLB, FRB, GLBB and NCDC stock		9,138			8,972
Premises and equipment, net		12,508			11,824
Premises and equipment, held for sale, net		—			179
Accrued interest receivable		4,302			4,526
Goodwill		26,093			26,093
Core deposit and other intangibles		4,344			4,698
Other assets		7,002			6,057
Total assets	$	776,046		$	817,510
LIABILITIES
Deposits
Noninterest-bearing	$	98,454		$	104,873
Interest-bearing		508,407			542,172
Total deposits		606,861			647,045
Federal Home Loan Bank advances		30,689			30,855
Securities sold under agreements to repurchase		12,028			12,712
U. S. Treasury interest-bearing demand note payable		1,140			1,755
Notes payable		8,000			8,000
Subordinated debentures		25,000			25,000
Accrued expenses and other liabilities		6,571			3,930
Total liabilities		690,289			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		25,989			27,781
Treasury stock, 310,862 and 304,862 shares at cost		(7,623	)		(7,494	)
Accumulated other comprehensive (loss)		(1,039	)		(504	)
Total shareholders’ equity		85,757			88,213
Total liabilities and shareholders’ equity	$	776,046		$	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 June 30,					Six months ended June 30,
	2005			2004		2005			2004
Interest and dividend income
Loans, including fees	$	9,222		$	6,978	$	18,000		$	13,667
Taxable securities		988			645		2,010			1,333
Tax-exempt securities		250			285		502			602
Federal funds sold and other		165			2		198			—
Total interest income		10,625			7,910		20,710			15,602
Interest expense
Deposits		1,973			1,485		3,820			3,056
Federal Home Loan Bank advances		247			113		505			147
Subordinated debentures		395			142		768			280
Other		204			48		353			173
Total interest expense		2,819			1,788		5,446			3,656
Net interest income		7,806			6,122		15,264			11,946
Provision for loan losses		269			485		679			920
Net interest income after provision for loan losses		7,537			5,637		14,585			11,026
Noninterest income
Computer center data processing fees		233			281		486			571
Service charges		897			817		1,779			1,580
Net gain/ (loss) on sale of securities		(10	)		—		(18	)		106
Net gain on sale of loans		20			19		65			72
ATM fees		172			137		333			260
Trust fees		255			196		502			361
Gain on branch sale		—			—		766			—
Other		233			244		403			467
Total noninterest income		1,800			1,694		4,316			3,417
Noninterest expense
Salaries and wages		2,960			2,250		5,891			4,510
Benefits		733			567		1,529			1,045
Net occupancy expense		394			322		825			683
Equipment expense		330			282		631			558
Contracted data processing		320			225		671			429
State franchise tax		265			218		529			416
Professional services		367			155		657			420
Amortization of intangible assets		190			122		354			243
Advertising		120			97		237			196
ATM expense		141			83		274			185
Stationery and supplies		115			92		281			169
Courier		167			93		309			182
Other operating expenses		1,132			839		2,278			1,814
Total noninterest expense		7,234			5,345		14,466			10,850
Income before taxes		2,103			1,986		4,435			3,593
Income tax expense		632			585		1,348			1,029
Net Income	$	1,471		$	1,401	$	3,087		$	2,564
Earnings per share, basic	$	0.25		$	0.28	$	0.53		$	0.51
Earnings per share, diluted	$	0.25		$	0.28	$	0.53		$	0.51
Weighted average basic common shares		5,807,336			5,033,130		5,807,369			5,033,166
Weighted average diluted common shares		5,809,551			5,037,558		5,810,343			5,039,655

See notes to interim consolidated financial statements Page 4

FIRST CITIZENS BANC CORP

Consolidated Comprehensive Income Statements (Unaudited)
(In thousands)

	Three months ended						Six months ended
	June 30,						June 30,
	2005			2004			2005			2004
Net income	$	1,471		$	1,401		$	3,087		$	2,564
Unrealized holding gains and (losses) on available for sale securities		717			(1,732	)		(828	)		(1,562	)
Reclassification adjustment for (gains) and losses later recognized in income		10			—			18			(106	)
Net unrealized gains and (losses)		727			(1,732	)		(810	)		(1,668	)
Tax effect		(248	)		589			275			567
Total other comprehensive income (loss)		479			(1,143	)		(535	)		(1,101	)
Comprehensive income	$	1,950		$	258		$	2,552		$	1,463

See notes to interim consolidated financial statements Page 5

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		—			—		2,564			—			—			2,564
Change in unrealized (loss) on securities available for sale, net of reclassifications and tax effects		—			—		—			—			(1,101	)		(1,101	)
Purchase of treasury stock, at cost		(6,624	)		—		—			(142	)		—			(142	)
Cash dividends ($.54 per share)		—			—		(2,718	)		—			—			(2,718	)
Balance, June 30, 2004		5,026,579		$	47,370	$	28,458		$	(7,383	)	$	(717	)	$	67,728
Balance, January 1, 2005		5,807,402		$	68,430	$	27,781		$	(7,494	)	$	(504	)	$	88,213
Net income		—			—		3,087			—			—			3,087
Change in unrealized (loss) on securities available for sale, net of reclassifications and tax effects		—			—		—			—			(535	)		(535	)
Cash dividends ($.56 per share)		—			—		(3,252	)		—			—			(3,252	)
Dividends declared		—			—		(1,627	)		—			—			(1,627	)
Purchase of Treasury Stock		(6,000	)		—		—			(129	)		—			(129	)
Balance, June 30, 2005		5,801,402		$	68,430	$	25,989		$	(7,623	)	$	(1,039	)	$	85,757

See notes to interim consolidated financial statements Page 6

FIRST CITIZENS BANC CORP

Condensed Consolidated Statement of Cash Flows (Unaudited)
(In thousands)

	Six months ended June 30,
	2005			2004
Net cash from operating activities	$	3,114		$	4,070
Cash flows from investing activities
Maturities and calls of securities, held-to-maturity		2			2
Maturities and calls of securities, available-for-sale		16,865			40,024
Purchases of securities, available-for-sale		(3,405	)		(22,744	)
Proceeds from sale of securities, available-for-sale		—			241
Loans made to customers, net of principal collected		18,325			(20,125	)
Loans sold from portfolio		9,505			—
Proceeds from sale of OREO properties		566			127
Change in federal funds sold		(7,611	)		—
Proceeds from sale of property and equipment		—			416
Net purchases of office premises and equipment		(1,188	)		(382	)
Net cash from investing activities		33,059			(2,441	)
Cash flows from financing activities
Repayment of FHLB borrowings		(166	)		—
Net change in short-term FHLB advances		—			2,935
Net change in long-term FHLB advances		—			15,000
Net change in deposits		(21,357	)		(16,607	)
Change in securities sold under agreements to repurchase		(684	)		(1,604	)
Change in U. S. Treasury interest-bearing demand note payable		(615	)		587
Cash paid in branch sale		(11,303	)		—
Purchases of treasury stock		(129	)		(142	)
Dividends paid		(3,252	)		(2,718	)
Net cash from financing activities		(37,506	)		(2,549	)
Net change in cash and due from banks		(1,333	)		(920	)
Cash and due from banks at beginning of period		25,661			21,983
Cash and due from banks at end of period	$	24,328		$	21,063
Cash paid during the period for:
Interest	$	5,413		$	3,840
Income taxes	$	1,495		$	1,027
Supplemental cash flow information:
Transfer of loans from portfolio to other real estate owned	$	112		$	194

See notes to interim consolidated financial statements Page 7

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)

(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. 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 June 30, 2005 and its results of operations and changes in cash flows for the periods ended June 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 June 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 2.1% of the Corporation’s total revenues through June 30, 2005. Reynolds provides 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. Mr. Money provides consumer finance loans and real estate 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 2.0% 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 revenue generated through its third party insurance agreement. Insurance commission revenue is less than 1.0% of total revenue for the period ended June 30, 2005. Water St. Properties, Inc. was

Page 8

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)

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 June 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 SFAS No. 123.

	Three Months ended				Six Months ended
	June 30,				June 30,
	2005		2004		2005		2004
Net income as reported	$	1,471	$	1,401	$	3,087	$	2,564
Deduct: Stock-based compensation expense determined under fair value based method		17		19		34		38
Pro forma net income	$	1,454	$	1,382	$	3,053	$	2,526
Basic earnings per share as reported	$	0.25	$	0.28	$	0.53	$	0.51
Pro forma basic earnings per share		0.25		0.27		0.53		0.50
Diluted earnings per share as reported	$	0.25	$	0.28	$	0.53	$	0.51
Pro forma diluted earnings per share		0.25		0.27		0.53		0.50

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

Page 9

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)

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 June 30, 2005 and December 31, 2004 were as follows:

			June 30, 2005
			Gross		Gross
Available for sale			Unrealized		Unrealized
	Fair Value		Gains		Losses
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	$	107,133	$	—	$	(1,078	)
Obligations of states and political subdivisions		25,550		517		(17	)
Mortgage-back securities		6,543		38		(58	)
Total debt securities	$	139,226	$	555	$	(1,153	)
Equity securities		481		—		—
	$	139,707	$	555	$	(1,153	)

			June 30, 2005
			Gross		Gross
Held to Maturity	Amortized		Unrecognized		Unrecognized
	Cost		Gains		Losses		Fair Value
Mortgage-backed securities	$	9	$	—	$	—	$	9

Page 10

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)

			December 31, 2004
			Gross		Gross
Available for sale			Unrealized		Unrealized
	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
Held to Maturity	Amortized		Unrecognized		Unrecognized
	Cost		Gains		Losses		Fair Value
Mortgage-backed securities	$	11	$	—	$	—	$	11

Page 11

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 amortized cost and fair value of securities at June 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	Fair Value
Due in one year or less	$	46,758
Due after one year through five years		79,896
Due after five years through ten years		4,226
Due after ten years		1,803
Mortgage-backed securities		6,543
Equity securities		481
Total securities available for sale	$	139,707

			Estimated Fair
Held to maturity	Amortized Cost		Value
Mortgage-backed securities	$	9	$	9

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

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2005			2004		2005			2004
Proceeds	$	—		$	—	$	—		$	241
Gross gains		—			—		—			103
Gross losses		—			—		(10	)		—
Security (losses) due to calls prior to maturity		(10	)		—		(8	)		3

Securities with a carrying value of approximately $113,919 and $96,951 were pledged as of June 30, 2005 and December 31, 2004, respectively, to secure public deposits, other deposits and liabilities as required by law.

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First Citizens Banc Corp

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

(3) Loans

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

	6/30/2005			12/31/2004
Commercial and Agriculture	$	69,306		$	76,469
Commercial real estate		195,840			202,616
Real Estate — mortgage		219,946			228,467
Real Estate — construction		29,775			25,315
Consumer		26,895			32,807
Credit card and other		545			1,213
Leases		1,620			1,723
Total loans		543,927			568,610
Allowance for loan losses		(12,321	)		(11,706	)
Deferred loan fees		(604	)		(711	)
Unearned interest		(1	)		(5	)
Net loans	$	531,001		$	556,188

(4) Allowance for Loan Losses

A summary of the activity in the allowance for loan losses was as follows for the three and six months ended June 30.

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2005			2004			2005			2004
Balance beginning of period	$	12,289		$	6,521		$	11,706		$	6,308
Loans charged-off		(697	)		(682	)		(1,157	)		(1,019	)
Recoveries		460			97			1,093			212
Provision for loan losses		269			485			679			920
Balance June 30,	$	12,321		$	6,421		$	12,321		$	6,421

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First Citizens Banc Corp

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

Information regarding impaired loans was as follows for the three and six months ended June 30.

	Three Months				Six Months
	Ended June 30,				Ended June 30,
	2005		2004		2005		2004
Average investment in impaired loans	$	17,450	$	7,079	$	16,777	$	6,841
Interest income recognized on impaired loans including interest income recognized on cash basis		140		95		261		210
Interest income recognized on impaired loans on cash basis		126		95		247		210

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

	6/30/05		12/31/04
Balance impaired loans	$	18,657	$	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	$	18,657	$	15,430
Portion of allowance for loan losses allocated to impaired loans	$	6,876	$	5,910

Nonperforming loans were as follows:

	6/30/05		12/31/04
Loans past due over 90 days still on accrual	$	232	$	318
Nonaccrual	$	13,549	$	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.

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First Citizens Banc Corp

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

(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 June 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	$	11,055	$	60,058	$	4,396	$	53,130
Overdraft protection		—		7,336		—		6,643
Letters of credit		205		3,421		20		3,522
	$	11,260	$	70,815	$	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 June 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 June 30, 2005 and December 31, 2004 approximated $9,862 and $10,176.

(6) Consolidation of Banks

On June 24, 2005 the Corporation announced a plan to merge one of its banking affiliates, First Citizens, into its other banking affiliate, Citizens, effective October 15, 2005. Where practical and with regulatory approval, the name First Citizens Bank will continue to be used as a trade name in the First Citizens Bank markets. This merger is directly related to efforts to decrease operating costs of the Corporation. Also, as a result of the merging and organizational restructuring of the two banks, approximately thirty three jobs will be

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First Citizens Banc Corp

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

eliminated. The cost of the employment termination plan is estimated to range from $380 to $390 and will be expensed in 2005.

(7) Pension Information

Net periodic pension expense for:

	June 30
	2005			2004
Service cost	$	356		$	260
Interest cost		245			230
Expected return on plan assets		(193	)		(66	)
Other components		24			27
Net periodic pension cost	$	432		$	451

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

(8) 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.

Page 16

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.Managements Discussion and Analysis of Financial Condition and Results of Operations

Introduction

The following discussion focuses on the consolidated financial condition of First Citizens Banc Corp at June 30, 2005, compared to December 31, 2004 and the consolidated results of operations for the three month and six month periods ending June 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 June 30, 2005 were $776,046 compared to $817,510 at December 31, 2004. This was a decrease of $41,464. The decrease in total assets of the Corporation was primarily caused by two 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 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

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)

reinvesting the funds rolling off in the security portfolio into the loan portfolio, which will earn a higher yield.

Within the structure of the assets, net loans have decreased $25,187, or 4.5 percent since December 31, 2004. The commercial real estate portfolio decreased by $6,776 and the commercial and agriculture portfolio decreased $7,163, while residential real estate and consumer loans decreased by $8,521 and $5,912 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 will become a subsidiary of First Citizens, subject to regulatory approval. This move should help to reduce the cost of funding for Mr. Money, as Mr. Money will be able 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 increased $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. Loans held for sale on the secondary market totaled $56 at June 30, 2005. At June 30, 2005, the net loan to deposit ratio was 87.5 percent compared to 86.0 percent at December 31, 2004.

For the six months of operations in 2005, $679 was provided into the allowance for loan losses from earnings compared to $920 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 in the first half of 2005 compared to the first half 2004. The loan sale at Mr. Money

Page 18

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)

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 $320 into the allowance for loan losses for the first six 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 $60 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 $180 was needed to be provided into the allowance in 2005, compared to $240 that was provided into the allowance in 2004. Finally, FCBC provided $140 into its allowance for loan losses in 2005, compared to $0 in 2004. FCBC has one participated loan in its loan portfolio. In 2005, the loan deteriorated, which led to the additional $140 provided into the allowance for loan loss. As of June 30, this loan is fully reserved. A decrease in net charge-offs of $743 was experienced from 2004 to 2005 due primarily to a $429 loss recovery in 2005. Non-accrual loans increased $5,276 from December 31, 2004 to June 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 June 30, 2005, impaired loans have increased $3,227 from December 31, 2004. Approximately 73.3% of impaired loans are related to five customers. 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 June 30, 2005 allowance for loan losses as a percent of total loans was 2.31 percent compared to 2.06 percent at December 31, 2004.

At June 30, 2005, available for sale securities totaled $139,707 compared to $154,468 at December 31, 2004, a decrease of $14,761. 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

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)

stocks increased $166 from December 31, 2004 due to FHLB stock dividends received.

Office premises and equipment, net, have increased $684. The increase in office premises and equipment is attributed to new purchases of $1,198, depreciation of $503 and disposals of $11. The new purchases include the purchase of a formerly leased branch office by Citizens located in Port Clinton, Ohio. By purchasing this branch, Citizens is now securely placed in the Port Clinton market. 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 $354 due to amortization of the core deposit premium.

Total deposits at June 30, 2005 decreased $40,184 from year-end 2004. Noninterest-bearing deposits decreased $6,419 from year-end 2004. Interest-bearing deposits, including savings and time deposits, decreased $33,765 from year-end 2004. The primary 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 $113,571 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. 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 $27,216 compared to the average balance of the same period for 2004. The June 30, 2005 and June 30, 2004 average rate of these deposits is 0.41. The year-to-date 2005 average balance of time certificates has increased $41,673 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 $23,562, while N.O.W. accounts increased $27,458, and Money Market Savings decreased $8,161. The increases in average balance are due to the merger that was completed in October 2004.

Total borrowed funds have decreased $1,465 from December 31, 2004 to June 30, 2005. At June 30, 2005, the Corporation had $30,689 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 $8,000 at both June 30, 2005 and December 31, 2004. These notes were primarily used to fund the loan growth at Mr. Money. The Corporation will be making a scheduled $1,000 principal pay down in July on these notes. Securities sold under agreements to repurchase, which tend to fluctuate, have decreased $684 and U.S. Treasury Tax Demand Notes have decreased $615.

Shareholders’ equity at June 30, 2005 was $85,757, or 11.1 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 $3,087, less dividends paid of $3,252, dividends declared of

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First Citizens Banc Corp

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

$1,627, the decrease in the market value of securities available for sale, net of tax, of $535, and the purchase of $129 of treasury shares. The Corporation paid a cash dividend on February 1, 2005 and May 1, 2005 at a rate of $.28 per share compared to $.27 per share at February 1, 2004 and May 1, 2004. Total outstanding shares at June 30, 2005 were 5,801,402.

Results of Operations

Six Months Ended June 30, 2005 and 2004

Net income for the six months ended June 30, 2005 was $3,087, or $.53 per diluted share compared to $2,564 or $.51 per diluted share for the same period in 2004. This was an increase of $523, or 20.4 percent. Some of the reasons for the changes are explained below.

Total interest income for the first six months of 2005 increased $5,108, or 32.7 percent compared to the same period in 2004. The average rate on earning assets on a tax equivalent basis for the first six months of 2005 was 5.73 percent and 5.04 percent for the first six 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 six months of 2005 has increased by $1,790, or 49.0 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 experienced in 2005. Interest on deposits increased $764 compared to 2004, as the rate paid on deposits increased from 1.37% in 2004 to 1.54% in 2005 and as the average balance increased $113,571 from June 30, 2004. Interest expense on FHLB borrowings increased $358 compared to the first six months of 2004 primarily due to the increase in average balance of $14,301 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. The increase of average balance of $12,500 from 2004 to 2005 resulted in an increase in expense on subordinated debentures of $488. Interest on other borrowings increased $180 as rates increased during 2005. The average rate on interest-bearing liabilities for the first six months of 2005 was 1.77 percent compared to 1.53 percent for the same period of 2004. The net interest margin on a tax equivalent basis was 4.44 percent for June 30, 2005 and 4.08 percent for June 30, 2004.

Noninterest income for the first six months of 2005 totaled $4,316, compared to $3,417 for the same period of 2004, an increase of $899. Revenue from computer operations and net gains on sale of loans decreased slightly in 2005 compared to the same period in 2004. Service charges increased $199 and ATM fees increased $73 compared to 2004 due to the increase in customer base created by the FNB merger with First Citizens in October 2004 and the additional ATM machines acquired in the merger. Gain on sale of securities decreased $124 from 2004. In 2004, Citizens sold securities at a $103 gain, and used the proceeds to help fund its loan growth. Trust fees increased $141, up to $502 by June 30, 2005. The Trust

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First Citizens Banc Corp

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

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 $64 in 2005 compared with the same period of time in 2004. The primary reason for this decline was losses of $29 that the Corporation has experienced while selling other real estate owned properties.

Noninterest expense for the six months ended June 30, 2005 totaled $14,466 compared to $10,850 for the same period in 2004. This was an increase of $3,616, or 33.3 percent. Salaries and wages increased $1,381, or 30.6 percent compared to the first six months of 2004. The increase in salaries was attributable to the employees added by First Citizens when it completed its merger in October 2004. Benefits increased $484 in the first six months of 2005 compared to the first six months of 2004. The primary increase in benefits is due to the rising costs of the Corporation’s self-insured health plan. Compared to the first quarter 2004, insurance costs are up approximately $243 in 2005. Approximately half of this cost is related to the increase in employees added through the merger in October. Also included in the increase in benefits is an increase in costs of the Corporation’s pension plan of $96 in 2005 compared to the same period in 2004. Net occupancy expense increased from $683 for the first six months of 2004, to $825 in 2005, an increase of $142. This increase is primarily due to the rise in utility payments and building depreciation associated with the new branches created from the merger. Equipment expense increased $73 as a result of a remodeling project at First Citizens. Computer processing expense increased by $242 compared to last year primarily due the increase in size of First Citizens as a result of the merger. State franchise taxes increased $113 compared to the first six months in 2004. ATM expenses and advertising expenses increased slightly for the first six months of 2005 compared to the same period in 2004. Professional services increased $237 from 2004 to 2005. The primary reason for the increase was due to the increase in fees paid to the Corporation’s external auditor, primarily due to compliance with section 404 of the Sarbanes-Oxley Acct of 2002. With the increase in the Corporation’s core deposit intangible asset, the amortization of these assets increased $111 in 2005 compared to 2004. Stationery and supplies increased $112 from 2004 due primarily to the merger 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. During the first six 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 $464 for the first six months of 2005 compared to the same period in 2004. Three of the larger increases are as follows. Bad check expense increased $121 in the first six 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. Due to the merger in October 2004, two items, general insurance of the Corporation and correspondent bank fees, increased $92 from 2004.

Income tax expense for the first six months of 2005 totaled $1,348 compared to $1,029 for the

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First Citizens Banc Corp

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

first six months of 2004. This was an increase of $319, or 31.0 percent. The increase in the federal income taxes is a result of the increase in total income before taxes of $842. The effective tax rates were comparable for the six-month periods ended June 30, 2005 and June 30, 2004, at 30.4% and 28.6%, respectively.

Three Months Ended June 30, 2005 and 2004

Net income for the three months ended June 30, 2005 was $1,471 or $.25 per diluted share compared to $1,401 or $.28 per diluted share for the same period in 2004. This was an increase of $70, or 5.0 percent. Some of the reasons for the changes are explained below.

Total interest income for the second quarter of 2005 increased $2,715, or 34.3 percent compared to the same period in 2004. The average rate on earning assets on a tax equivalent basis for the second quarter of 2005 was 5.76 percent and 5.17 percent for the second 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 second quarter 2005. 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 second quarter of 2005 have continued to have a positive effect on the Corporation’s earning asset portfolio. Interest and fees on loans increased $2,244, or 32.2 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 $65,836 over the average loan balance during the second quarter of 2004. This increase in loan balance is attributable to the merger completed in October 2004. Interest on securities increased $343 in the second quarter 2005 compared to the second quarter of 2004 primarily due to the securities acquired in the merger. Total interest expense for the second quarter of 2005 increased $1,031, or 57.72 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 $488 compared to 2004, as the rate paid on deposits increased from 1.39% in 2004 to 1.52% in 2005. Interest expense on FHLB borrowings increased $134 compared to the second 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 merger. The increase of average balance of $12,500 from 2004 to 2005 resulted in an increase in expense on subordinated debentures of $253. Interest on other borrowings increased $156 as rates increased during the second quarter of 2005 on the Corporation’s other borrowings. The average rate on interest-bearing liabilities for the second quarter of 2005 was 1.74 percent compared to 1.44 percent for the same period of 2004. The net interest margin on a tax equivalent basis was 4.54 percent for June 30, 2005 and 4.14 percent for June 30, 2004.

Noninterest income for the second quarter of 2005 totaled $1,800, compared to $1,694 for the same period of 2004, an increase of $106. Service charge fees increased $80 in the second quarter 2005 compared to the same period in 2004, as the Corporation’s check protect

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)

program generated an additional $34 in service charge income due to the increase in customer base created by the merger. Trust fees increased $59 as the Trust department continued to grow its asset portfolio in the second quarter of 2005 compared to the second quarter of 2004. ATM fees grew slightly with the additional customer base and additional machines added by the merger. Other fees, computer processing fees and losses on sale of securities all decreased slightly in the second quarter 2005 compared to the same period in 2004.

Noninterest expense for the quarter ended June 30, 2005 totaled $7,234 compared to $5,345 for the same period in 2004. This was an increase of $1,889, or 35.3 percent. Salaries and wages increased $710, or 31.6 percent compared to the first six months of 2005. The increase in salaries was attributable to the increase in employees at First Citizens due to the merger in October 2004. Benefits increased $166 in the second quarter of 2005 compared to the second quarter 2004. The primary increase in benefits is due to the rising costs of the Corporation’s self-insured health plan. Compared to the second quarter 2004, insurance costs are up approximately $114 in 2005. A portion of this increase is related to the increase in employees at First Citizens. Net occupancy expense increased $72 for the second quarter of 2005 compared to the second 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. Also, in the second quarter of 2005, First Citizens completed a remodeling project at its headquarters in New Washington which led to an increase in building, repair, and maintenance costs. The remodeling project at First Citizens also led to an increase in equipment expense in the second quarter of 2005. Additionally, increases in data processing expense, franchise tax, and ATM expenses were due to the addition of branches and ATM machines from the merger at First Citizens. Professional fees increased $212 in the second quarter 2005 compared to the second quarter 2004. Legal and audit fees accounted for $180 of this increase due to Sarbanes-Oxley compliance costs and also increased legal fees from impaired loans acquired through the merger. Director’s fees accounted for $25 of the increase due to additional board members needed after the merger. Courier expense for the second quarter 2005 totaled $167 compared to $93 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 $68 in 2005 compared to 2004. Finally, other operating expenses increased $293 in the second quarter 2005 compared to the second quarter 2004. This increase in expense was primarily caused by the increase in branches and customer base created in the merger.

Income tax expense for the second quarter totaled $632 compared to $585 for the same period in 2004. This was an increase of $47, or 8.0 percent. The effective tax rates were comparable for the three-month periods ended June 30, 2005 and June 30, 2004, were 30.1% and 29.4%, respectively.

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First Citizens Banc Corp

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

Capital Resources

Shareholders’ equity totaled $85,757, at June 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
	6/30/2005			12/31/04			Purposes			Provisions
Tier I Risk Based Capital		14.2	%		13.7	%		4.0	%		6.0	%
Total Risk Based Capital		16.1	%		15.5	%		8.0	%		10.0	%
Leverage Ratio		9.2	%		10.0	%		4.0	%		5.0	%

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

Liquidity

The banks maintain a conservative liquidity position. Liquidity is evidenced by all but $9 of securities being classified as available for sale. At June 30, 2005, securities with maturities of one year or less totaled $46,758.

Cash from operations for June 30, 2005 was $3,114. This includes net income of $3,087 plus net adjustments of $27 to reconcile net earnings to net cash provided by operations. Cash from investing activities was $33,059 at June 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 exceeded the amount of loans made. 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 six months of 2005 totaled $(37,506). This decrease in cash is primarily due to the decrease in deposits at the banks. Secondly, the two payments of dividends made in February and May 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 $1,333, which resulted in a decrease in cash and cash equivalents to $24,328.

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

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First Citizens Banc Corp

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

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 $25,250 and the banks have additional borrowing availability at the Federal Home Loan Bank of Cincinnati of $67,465 at June 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 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.

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First Citizens Banc Corp

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

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 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

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First Citizens Banc Corp

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

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 June 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 June 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
	June 30, 2005								December 31, 2004
Change in	Dollar		Dollar			Percent			Dollar		Dollar			Percent
Rates	Amount		Change			Change			Amount		Change			Change
+200bp		93,348		(11,603	)		-11	%		93,190		(6,159	)		-6	%
+100bp		101,307		(3,644	)		-3	%		96,222		(3,127	)		-3	%
Base		104,951		—			—			99,349		—			—
-100bp		105,965		1,014			1	%		100,832		1,483			1	%
-200bp		105,579		628			1	%		101,589		2,240			2	%

The relatively minor change in net portfolio value from December 31, 2004 to June 30, 2005, is primarily a result of two factors. First, the yield curve has flattened, with short-term interest rates increasing, while long-term rates have decreased slightly. As a result, the Corporation has seen an increase in the base level of net portfolio value, due to a decrease in the fair value of loans, a decrease in the fair value of investments, offset by larger a decrease in the fair value of deposits.

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 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

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First Citizens Banc Corp

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

management, 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.

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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

During the second quarter of 2005, we purchased shares of our common stock as follows:

					Total Number of		Maximum Number
	Total				Shares Purchased as		(or Approximate Dollar
	Number		Average		Part of Publicly		Value) of Shares (Units)
	of Shares		Price Paid		Announced Plans or		that May Yet Be Purchased
Period	Purchased		per Share		Programs		Under the Plans or Programs
June 1, 2005 through June 30, 2005		6,000	$	21.55		0	No publicly announced repurchase program in place

Item 3. Defaults Upon Senior Securities

None

Item 4. Submissions of Matters to a Vote of Security Holders

First Citizens Banc Corp held its annual meeting on April 19, 2005, for the purpose of considering and voting on the following:

1.)	To elect four Class II directors to serve terms of three years or until their successors are elected and qualified.
	The summary of the voting of common shares outstanding was as follows:

Director Candidate	For		Withheld
Robert L. Bordner		4,713,913.47		59,294.95
Ronald E. Dentinger		4,655,315.04		117,893.38
George Mylander		4,641,988.16		131,220.26
J. George Williams		4,605,972.64		167,235.78

The following directors’ terms of office continued after the meeting:

Blythe A. Friedley, W. Patrick Murray, Allen R. Nickles, Robert L Ransom Leslie D. Stoneham, David A. Voight, Daniel J. White

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First Citizens Banc Corp

Other Information
Form 10-Q

Item 5. Other Information

None

Item 6.	(a) Exhibit No. 31.1 Certification of Chief Executive Officer pursuant Section 302 of the Sarbanes-Oxley Act of 2002.
	(b) Exhibit No. 31.2Certification of Chief Financial Officer pursuant Section 302 of the Sarbanes-Oxley Act of 2002.
	(c) Exhibit No. 32.1Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	(d) Exhibit No. 32.2Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Page 31

First Citizens Banc Corp

Index to Exhibits
Form 10-Q

Signatures

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

First Citizens Banc Corp

/s/ David A. Voight	August 9, 2005
David A. Voight	Date
President
/s/ James O. Miller	August 9, 2005
James O. Miller	Date
Executive Vice President

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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.

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First Citizens Banc Corp

Index to Exhibits
Form 10-Q

(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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