EX-13.1 Annual Report

FIRST CITIZENS BANC CORP
100 East Water Street, Sandusky, Ohio 44870-2514

Dear Shareholders:

Interest rates have finally started to increase! The last two quarters of 2003 and the first two quarters of 2004 have been a challenge. While a number of factors effected our profitability, they can be broken down into three basic components – net interest margin, non-interest income, and non-interest expense.

Net Interest Margin

We have discussed in previous annual reports that, as interest rates fell to historic lows and stayed there for what seemed like an eternity (in fact the prime rate remained at 4% from July 2003 through July 2004), we intentionally made loans at variable rates. Variable rates are initially lower than fixed rates, but they provide the necessary protection when interest rates rise. Finally, in mid 2004, rates started to move upward, and we have started to experience an increase in net interest margins. As rates continue to increase, we anticipate a continuing positive impact on earnings because our loans generally reprice upward faster than our deposits.

While rates are increasing, we would like to fix the cost of our funding for a longer term, locking in more of our liabilities for terms in excess of 30 months. There are several ways that we might accomplish this, and we are considering which is likely to be the most cost effective.

As the economy improves and rates increase, we will attempt to increase our fixed rate consumer loan portfolio. The ultimate goal would be to have a total loan portfolio that has more balance between variable rates and fixed rates as prime moves closer to its historic average of 8%. Increasing our business in fixed rate consumer loans will involve introduction of new products and additional mortgage alternatives. We expect a coordinated effort involving both affiliate banks and the consumer operations of our Mr. Money affiliate. Our plan is to accomplish this while not being an active lender in either the direct or indirect new automotive market. Banks can’t compete with auto manufacturers willing to finance for minimal rates to sell cars.

The amount of money that needs to be set aside as reserves for potential loan losses can have a significant effect on our profitability. Economic slowdowns frequently increase losses on consumer loans, but the unevenness of the recovery presently experienced by commercial customers has made forecasting their potential losses an additional challenge. To help evaluate and monitor the risks of these transactions, we have strengthened the credit review of loans by investing in additional seasoned credit personnel. Unlike lending officers, these people do not directly generate revenues, but they pay for themselves by helping to minimize future loan losses.

The brokered mortgage portfolio of Mr. Money has also been a factor in our loan loss experience. While new loans of this type have not been originated for some time, the management of the existing loans and efforts to minimize the losses sustained were a burden on Mr. Money operations. In February 2005, we sold the balance of the portfolio at an after tax loss of approximately $680,000. Since this sale was discussed in 2004, it was appropriate to recognize the loss through a market value adjustment of these loans at year end, which reduced 2004 earnings by $.15 per share but which should put most of this problem behind us.

Non-Interest Income

We constantly monitor the services we provide our customers and the fees charged for those services to make sure we are appropriately priced compared to our competitors. For example, our income from service charges, ATM fees, and trust increased from $4,023,000 in 2003 to $4,791,000 in 2004. Moving into the new year, we are increasing our focus on two areas.

The first area is our mortgage operations. While we still make and hold mortgages for our own loan portfolio as we have for over 120 years, loans originated and sold to other companies play an ever increasing role in the mortgage business. The purchasers often package these loans with other brokered mortgages and sell them to investors. During 2003, which was the height of the mortgage refinancing boon, we sold over $30,000,000 of mortgages and received fees of approximately $700,000. During 2004, with the waning of the refinancing boon, that business dropped by 85%.

Utilizing in-house knowledge of the mortgage business (Mr. Money’s Jim Nabors is the incoming president of the National Association of Mortgage Brokers.), we are adding a number of innovative mortgage products, establishing new avenues to sell the loans, and increasing the training for our personnel. We need to make the transition from a mortgage maker limited to our customer base to a mortgage broker with options attractive to a larger audience.

The second area of significant potential for non-interest income is the development of First Citizens Advisors. Under the able leadership of George E. Steinemann, the amount of money that this part of our business manages has grown to over $140,000,000. This operation generated fee income of more than $830,000 in 2004.

Statistics indicate that approximately 30% of an individual’s investable assets are in bank deposits. Since the banks of First Citizens Banc Corp have deposits of over $650,000,000, it stands to reason that our customers may have one and a half billion dollars invested elsewhere. Attracting these dollars represents potential for significant growth for First Citizens Advisors.

I have asked George Steinemann to summarize the activities and explain the success of First Citizens Advisors.

Dear Shareholders:

I welcome this opportunity to update you on our department, and to discuss how our business has grown so rapidly by offering unique benefits to our many satisfied clients.

Traditional trust work has long been the mainstay of departments such as ours, and we have established ourselves with the area attorneys and accountants who welcome a locally-owned bank with trust powers to serve their needs for a corporate fiduciary. With local trust officers who are available to clients and responsive to their needs, our Trust

Department offers clients the opportunity for long term relationships with individuals they know and trust. While traditional trust work plays an important part in our activities, the majority of our new business has been through Investment Agency accounts, which work the same as traditional brokerage accounts, but are administered within our Trust Department. These accounts are not managed on a commission basis, but are charged an annual fee based on the amount of assets under management. We build portfolios using either no-load mutual funds, which we select solely on the basis of their performance over a 3, 5, and 10-year period relative to their peers, or outside “Separate Account Managers”, also selected and monitored through our rigorous screening process. Unlike the case at traditional brokerage firms, we do not rely on compensation from the funds or managers we select, and therefore have no incentive to base our recommendations upon anything other than performance. While this does not guarantee you will make money, it does increase your chances of outperforming the relative benchmarks in both bull and bear markets.

If our clients hold individual stocks outside of separately managed accounts, we monitor them via our contractual relationship with Zacks, one of the world’s premier independent investment research firms. Through them, we are provided weekly customer reports on every one of our positions, with each security rated on both fundamental and technical factors. As our service agreement calls for monthly contact with most clients, if any security is flagged as a “Sell”, holders are alerted in a timely fashion to discuss a course of action.

For fixed income investments, we have the ability to buy individual issues of quality corporate and municipal bonds at institutional prices. We receive this favorable pricing due to a contractual relationship with a well-known Midwestern bond advisory firm that also provides us with research and advice concerning our clients’ holdings. We also offer access to specialty sectors, such as high yield, international and emerging market bonds through no-load mutual funds. Our fee structure allows our clients to benefit from the favorable pricing of these investments.

We hope this gives you a clear picture of what First Citizens Advisors can offer, and encourage you to call for an appointment to meet and discuss, with no obligation, any trust, investment, or financial planning needs.

Sincerely,

-s- George E. Steinemann

Sr. Vice President / Managing Director
First Citizens Advisors

Non-Interest Expense

We continually review and attempt to minimize our non-interest operating expenses. However, additional expenses related to regulatory burdens now affect all publicly traded companies. This area will continue to be adversely affected by the increased regulatory fervor. Unfortunately, too much money needs to be allocated to this. As just one example, we have spent approximately $200,000 during 2004 on additional CPA costs related to the 404 review requirements created by the Sarbanes Oxley Act or 2002. I do not believe these expenditures benefit our industry or, more importantly, our shareholders.

To offset the increased costs, we must constantly monitor our customer base and consider how to serve them more efficiently. During 2004, we invested in equipment and ATM upgrades at several facilities while closing offices in Sandusky and Norwalk. With the First National Bank of Shelby acquisition, we had excess office capacity in Crestline, Ohio and consolidated two offices into one. In the fall of 2004, we sold offices located in Richwood and Greencamp which were becoming less productive and, due to distance, were difficult to manage. These branches, sold as operating offices, resulted in after tax profit of approximately $500,000. We are continuing to utilize courier services to maintain larger relationships inconvenienced by our branch changes and have been successful in attracting new customers in locations that do not justify the cost of branches.

Looking ahead in 2005, we expect to focus on several areas that may offer the potential to limit expenses. The cost of our employee benefits, especially medical insurance, increased significantly in 2004. We will review ways to curtail these expenses. We also expect that planned consolidation of support functions, such as the loan collection department, and the reorganization of consumer lending should gain efficiencies.

As mentioned in our November 2004 shareholder letter, we have made progress in reducing our capital levels. Since 1995, we have paid out total “special” dividends beyond regular dividends of $2.18 per share. At the same time, we have consistently increased the amount of our regular dividends from $.46 per share in 1995 to $1.08 in 2004. We have also repurchased 304,862 shares of our stock at an average cost of $24.58 per share. All of these actions effectively reduced capital levels. At year end 2001, our tangible common equity capital to tangible assets was 9.65% compared to peer of 8.17%. As of September 30, 2004, this had been reduced to 7.99% compared to peer of 8.03%. *

While First Citizens Banc Corp has become the 14th largest Ohio-based bank holding company, we are not aggressive buyers driven by the desire to become larger. Size certainly helps to spread some of the non-revenue producing operating expenses, but we expect a potential merger has to be beneficial “day one” to our shareholders. We will continue to review opportunities that meet that objective.

In concluding, I want to compliment the efforts of our Directors with regard to corporate governance. Using the Nominating and Corporate Governance Committee, a director evaluation program is on-going. The Committee has identified possible new directors with significant potential and recommended them to replace current directors who are leaving. The goal is to provide able leadership over a long period that is representative of the communities we serve.

* Ratios as reported in the September 2004 Bank Holding Company Performance Report which is prepared by the Federal Reserve Board’s Division of Banking Supervision and Regulation.

Very truly yours,

(-s- David A. Voight)
David A. Voight
President

Affiliated companies of First Citizens Banc Corp

The Citizens Banking Company
First Citizens Bank
Mr. Money Finance Co.
R.A. Reynolds Appraisal Service, Inc.
SCC Resources, Inc.

Five-Year Selected Consolidated Finacial Data


	Year ended December 31,
(Dollars in thousands, except per share data)	2004		2003		2002		2001		2000
Statements of income:
Total interest and dividend income	$	33,836	$	33,267	$	36,007	$	35,348	$	34,190
Total interest expense		8,163		8,417		11,724		15,453		15,756

Net interest income		25,673		24,850		24,283		19,895		18,434
Provision for loan losses		1,805		1,944		1,178		1,803		807

Net interest income after provision for loan losses		23,868		22,906		23,105		18,092		17,627

Security gains		107		301		8		863		1,080
Other noninterest income		6,094		7,423		6,823		5,254		4,583

Total noninterest income		6,201		7,724		6,831		6,117		5,663

Total noninterest expense		23,332		22,925		19,893		16,933		15,466

Income before federal income taxes		6,737		7,705		10,043		7,276		7,824
Federal income tax expense		1,924		2,138		2,916		1,983		2,132

Net income	$	4,813	$	5,567	$	7,127	$	5,293	$	5,692


Per share of common stock:
Basic earnings	$	0.92	$	1.11	$	1.48	$	1.30	$	1.39
Diluted earnings		0.92		1.10		1.48		1.30		1.39
Dividends		1.08		1.30		1.30		1.24		1.24
Book value		15.19		13.73		14.24		11.94		11.72

Average common shares outstanding:
Basic		5,211,904		5,033,203		4,811,591		4,082,879		4,107,269
Diluted ⁽¹⁾		5,216,557		5,041,877		4,812,664		4,082,879		4,107,269

Year-end balances:
Loans, net	$	556,188	$	462,878	$	415,682	$	334,347	$	341,982
Securities		163,451		116,733		161,962		113,726		115,792
Total assets		817,510		636,423		651,634		487,671		489,259
Deposits		647,045		510,172		539,899		410,178		391,968
Borrowings		78,322		53,529		36,692		25,842		46,153
Shareholders’ equity		88,213		69,125		71,689		48,727		47,925

Average balances:
Loans, net	$	499,284	$	439,261	$	424,947	$	342,443	$	309,878
Securities		120,088		140,418		138,062		114,072		135,129
Total assets		681,644		642,300		638,664		499,109		476,874
Deposits		539,635		530,801		533,869		412,385		400,921
Borrowings		68,110		36,766		30,983		33,321		26,541
Shareholders’ equity		71,422		71,192		69,767		49,693		47,062

⁽¹⁾

Prior to 2002, there were no additional potential common shares issuable under stock options.

Common Stock and Shareholder Matters

The common shares of First Citizens Banc Corp trade on The NASDAQ Stock Market under the symbol “FCZA”. As of December 31, 2004, there were 5,807,402 shares outstanding held by approximately 1,400 shareholders of record (not including the number of persons or entities holding stock in nominee or street name through various brokerage firms). Information below is the range of sales prices for each quarter for the last two years.


2004
First Quarter	Second Quarter	Third Quarter	Fourth Quarter
$31.08 to $26.82	$27.77 to $20.67	$21.18 to $21.68	$21.51 to $24.70


2003
First Quarter	Second Quarter	Third Quarter	Fourth Quarter
$23.73 to $32.50	$25.06 to $35.57	$24.39 to $30.31	$26.37 to $31.08

Dividends per share declared by the Corporation on common shares were as follows:


	2004		2003
First quarter	$	.27	$	.26
Second quarter		.27		.26
Third quarter		.27		.26
Fourth quarter		.27		.52

	$	1.08	$	1.30

General Development of Business

(Dollars in thousands, except for per share data)

FIRST CITIZENS BANC CORP (FCBC) was organized under the laws of the State of Ohio on February 19, 1987 and is a registered financial holding company under the Gramm-Leach-Bliley Financial Modernization Act of 1999, as amended. The Corporation’s office is located at 100 East Water Street, Sandusky, Ohio. The Corporation had total consolidated assets of $817,510 at December 31, 2004. FCBC and its subsidiaries are referred to together as the Corporation.

THE CITIZENS BANKING COMPANY (Citizens), owned by the Corporation since 1987, opened for business in 1884 as The Citizens National Bank. In 1898, Citizens was reorganized under Ohio banking law and was known as The Citizens Bank and Trust Company. In 1908, Citizens surrendered its trust charter and began operation under its current name. Citizens is an insured bank under the Federal Deposit Insurance Act. Citizens maintains its main office at 100 East Water Street, Sandusky, Ohio and operates two branch banking offices in Perkins Township (Sandusky, Ohio), two branch banking offices in Norwalk, Ohio, one branch banking office in Berlin Heights, Ohio, one branch banking office in Huron, Ohio, one branch banking office in Castalia, Ohio and one loan production office in Port Clinton, Ohio. This subsidiary accounts for 59.6% of the Corporation’s consolidated assets at December 31, 2004.

FIRST CITIZENS BANK (First Citizens), formerly known as The Farmers State Bank and acquired by the Corporation in 1998, was organized and chartered under the laws of the State of Ohio in 1916. First

Citizens is an insured bank under the Federal Deposit Insurance Act. First Citizens maintains its main office at 102 South Kibler Street, New Washington, Ohio and operates branch offices in Willard, Ohio, Crestline, Ohio, and the Ohio villages of Chatfield, Tiro, Richwood, Green Camp and also has a loan production office in Marion, Ohio. Through a merger in 2004 with First National Bank of Shelby, First Citizens also operates branch offices in Shelby, Ohio, and the Ohio villages of Greenwich, Plymouth, and Shiloh. This subsidiary accounts for 38.1% of the Corporation’s consolidated assets at December 31, 2004. First Citizens sold the branches in the villages of Green Camp and Richwood in January 2005.

SCC RESOURCES INC. (SCC) is organized under the laws of the State of Ohio. Begun as a joint venture of three local Sandusky, Ohio banks in 1966, SCC provides item-processing services for financial institutions, including Citizens and First Citizens, and other nonrelated entities. The Corporation acquired total ownership of SCC in February 1993. On June 19, 1999, SCC entered into an agreement with Jack Henry & Associates, Inc. (JHA), whereby SCC agreed to sell all of its contracts for providing data processing services to community banks to JHA. JHA agreed to pay SCC a fee based upon annual net revenue under a new JHA contract for each bank that signed a five-year contract with JHA by January 31, 2000. This subsidiary accounts for less than one percent of the Corporation’s consolidated assets as of December 31, 2004.

R. A. REYNOLDS APPRAISAL SERVICE, INC. (Reynolds), owned by the Corporation since 1993, was organized under the laws of the State of Ohio in September 1993. Reynolds provides real estate appraisal services, for lending purposes, to the Citizens and First Citizens and to other financial institutions. Reynolds accounts for less than one percent of the Corporation’s consolidated assets as of December 31, 2004.

MR. MONEY FINANCE COMPANY (Mr. Money) was formed in 2000 to provide consumer lending products to customers who may not qualify for conventional commercial bank lending products. Mr. Money has its main office in Sandusky, Ohio and an office in Mansfield, Ohio. Loans for Mr. Money come from direct consumer lending to customers and loans from third party home improvement vendors. Mr. Money accounts for 1.9% of the Corporation’s consolidated assets as of December 31, 2004.

FIRST CITIZENS TITLE INSURANCE AGENCY INC. (Title Agency) has been formed to provide customers with a seamless mortgage product with improved service. Assets of the Title Agency are not significant at December 31, 2004.

FIRST CITIZENS INSURANCE AGENCY INC. (Insurance Agency) was formed to allow the Corporation to participate in commission revenue generated through its third party insurance agreement. Assets of the Insurance Agency are not significant at December 31, 2004.

WATER STREET PROPERTIES (Water St.) was formed to hold properties repossessed by FCBC subsidiaries. Water St. accounts for less than one percent of the Corporation’s consolidated assets as of December 31, 2004.

Management’s Discussion and Analysis of Financial Condition
and Results of Operations — As of December 31, 2004 and December 31, 2003
and for the Years Ending December 31, 2004, 2003 and 2002

(Dollars in thousands, except per share data)

General

The following paragraphs more fully discuss the significant highlights, changes and trends as they relate to the Corporation’s financial condition, results of operations, liquidity and capital resources as of December 31, 2004 and 2003, and during the three-year period ended December 31, 2004. This discussion should be read in conjunction with the consolidated financial statements and notes to the consolidated

financial statements, which are included elsewhere in this report.

Forward-Looking Statements

This report includes forward-looking statements by the Corporation relating to such matters as anticipated operating results, business line results, credit quality expectations, prospects for new lines of business, economic trends (including interest rates) and similar matters. Such statements are based upon the current beliefs and expectations of the Corporation’s management and are subject to risks and uncertainties. While the Corporation believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could prove to be inaccurate, and accordingly, actual results and experience could differ materially from the anticipated results or other expectations expressed by the Corporation in its forward-looking statements. Factors that could cause actual results or experience to differ from results discussed in the forward-looking statements include, but are not limited to, regional and national economic conditions; volatility and direction of market interest rates; credit risks of lending activities, governmental legislation and regulation, including changes in accounting regulation or standards; material unforeseen changes in the financial condition or results of operations of the Corporation’s clients; and other risks identified from time-to-time in the Corporation’s other public documents on file with the Securities and Exchange Commission.

The Corporation is not aware of any trends, events or uncertainties that will have or are reasonably likely to have a material effect on its liquidity, capital resources or operations except as discussed herein. The Corporation is not aware of any current recommendations by regulatory authorities that would have such effect if implemented. The Corporation does not undertake, and specifically disclaims, any obligation to publicly release the result of any revisions that may be made to any forward-looking statements to reflect occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

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

Financial Condition

At December 31, 2004, total assets were $817,510, compared to $636,423 at December 31, 2003. The increase in assets is primarily due to the merger of FNB Financial Corp. (FNB) with FCBC. FNB had assets totaling $196,691 at October 8, 2004, the date the merger was completed.

Net loans increased $93,310, or 20.2% from 2003 to 2004. This increase is primarily due to net loans totaling $87,610 at FNB at the date of the merger. The loans added in the merger did not materially change the loan mix of the Corporation nor is it expected to in future periods. Commercial real estate loans increased $44,491, or 28.1%, real estate construction loans increased $2,607 or 11.5% and commercial and agricultural loans increased $25,323, or 49.5% from 2003 to 2004. Residential real estate loans increased by $22,832, or 11.1%, from 2003 to total $228,467. Consumer loans increased $8,042, or 32.5% from 2003 to total $32,807. Lease loans decreased $570, or 24.9%, from 2003 to total $1,723. Credit card and other loans, which include overdraft protection (ODP) lines of credit, decreased $3,764 from 2003 to total $1,213.

At December 31, 2004, loans held for sale totaled $8,886. 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; therefore, the Corporation had no refinanced loans held for sale at December 31, 2004. The portfolio consisted of loans at First Citizens totaling $6,046, which are being sold in a branch sale in January 2005, and Mr. Money loans of $2,840 being sold in February 2005. Note 4 has additional information on these loans that are in held for sale.

In 2004, the Corporation continued its emphasis on increasing the Corporation’s share of the local market for commercial and commercial real estate loans. The Corporation has taken a proactive approach in contacting new and current clients to ensure that the Corporation is taking care of its clients 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.

Both year-end and average 2004 deposit balances increased from 2003. Deposit balances from the merger totaled $165,261, with non-interest bearing deposits totaling $54,204 and interest bearing deposits totaling $111,057. This mix of deposits from the merger was very similar to the Corporation’s mix before the merger. Year-end deposit balances totaled $647,045 in 2004 compared to $510,172 in 2003, an increase of $136,873, or 26.8%. 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 started to move out of deposits and into other financial instruments. Average deposit balances for 2004 were $539,635 compared to $530,801 for 2003, an increase of $8,834, or 1.7%. Non-interest bearing deposits averaged $82,860 for 2004, compared to $71,797 for 2003, increasing $11,063, or 15.4%. Savings, NOW, and MMIA accounts averaged $252,566 for 2004 compared to $244,778 for 2003. Average certificates of deposit decreased $10,017 to total an average balance of $204,209 for 2004. 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.

In 2004, the Corporation utilized alternative funding sources by drawing from the Corporation’s cash management advance availability from the Federal Home Loan Bank and by issuing subordinated debentures of $12,500. These funds were primarily used to cover the costs and funding of the FNB merger completed in October 2004. A trust was created in September 2004 by the Corporation. The terms of the trust can be found in Note 13 of the annual report. The Corporation issued subordinated debentures to the trust in exchange for the proceeds of the offerings. The debentures represent the sole assets of the trust. 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 value. If needed, management would consider using these alternative funding methods again in the future.

Borrowings from the Federal Home Loan Bank of Cincinnati were $30,855 at December 31, 2004. The detail of these borrowings can be found in Note 10. The increase of $11,880 from year-end 2003 was primarily a result of two $15,000 advances used to reduce the Corporation’s Federal Funds purchased position and $855 in advances acquired with the merger.

The Corporation also has a borrowing agreement for the purpose of funding loans originated by Mr. Money. FCBC has two borrowing arrangements from LaSalle Bank, NA consisting of a $5,000 line of credit and a $10,000 term note. At December 31, 2004, the Corporation had $0 drawn on its $5,000 line of credit. The total remaining debt on the Corporation’s term note was $8,000 at December 31, 2004 compared to $9,000 at December 31, 2003. During 2004, the Corporation made its $1,000 scheduled payment on the term loan. Note 12 in the consolidated financial statements provides further details regarding the borrowing arrangement.

Citizens and First Citizens offer repurchase agreements in the form of sweep accounts to commercial checking account customers. At December 31, 2004, total repurchase agreements in the form of sweep accounts totaled $12,712. This compares to $12,115 at December 31, 2003. U.S. Treasury securities and obligations of U.S. government agencies maintained under Citizens’ and First Citizens’ control are pledged as collateral for the repurchase agreements.

Securities available for sale, securities held to maturity and Federal Home Loan Bank (FHLB), Federal Reserve Bank (FRB), Great Lakes Bankers Bank (GLBB), Farmer MAC Stock (FMS), and Norwalk Community Development Corporation (NCDC) stock increased a total of $46,718, or 40.0% from $116,733 on December 31, 2003 to $163,451 on December 31, 2004. FNB’s security portfolio totaled approximately $81,000 at the time of the merger. U.S. Treasury securities and obligations of U.S. government agencies increased $53,767, from $64,333 at December 31, 2003 to $118,100 at December 31, 2004. Obligations of states and political subdivisions available for sale decreased $8,072 from 2003 to 2004. The Corporation has been allowing securities that are not needed for pledging requirements to roll off its portfolio. Instead of replacing these securities, the Corporation has used the funds to continue to grow the loan portfolio.

Mortgage-backed securities totaled $8,411 at December 31, 2004 and none are considered unusual or “high risk” securities as defined by regulating authorities. Of this total, $8,385 are pass-through securities issued by the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC) and $26 are privately issued and are collateralized by mortgage-backed securities issued or guaranteed by FNMA, FHLMC, or Government National Mortgage Association (GNMA). The average interest rate of the mortgage-backed portfolio at December 31, 2004 was 3.63%. The average maturity at December 31, 2004 was approximately 2.36 years. The Corporation has not invested in any derivative securities.

Securities available for sale had an estimated fair value at December 31, 2004 of $154,468. This fair value includes unrealized gains of approximately $839 and unrealized losses of approximately $624. Net unrealized gains of $215 on December 31, 2004 was a decrease over net unrealized gains of $2,156 at December 31, 2003 primarily due to changes in market interest rates. Note 3 has more information on unrealized gains and losses.

Premises and equipment, net of accumulated depreciation, increased $1,343 from December 31, 2003 to December 31, 2004. FCBC’s merger with FNB added $1,788 in fixed assets, consisting of several branches and the equipment within those branches. Also, the main branch of First Citizens is undergoing remodeling due to the merger and the reallocation of staff among their branches. The renovation project is scheduled to be completed in the second quarter of 2005. Premises and equipment, net, held for sale totaled $179 at December 31, 2004. These fixed assets are to be sold in 2005 as part of the sale of two branches as detailed in Note 7.

Goodwill increased from $15,052 in 2003 to $26,093 in 2004. This increase was due to the goodwill created from the merger with FNB. Other intangible assets increased $2,192 from 2003 to 2004. This increase includes $2,690 of customer relationship intangible assets from the merger with FNB. The amortization on intangibles was $498 for 2004.

Total shareholders’ equity increased $19,088, or 27.6% during 2004 to $88,213. The merger with FNB resulted in the issuance of common shares with a fair value of $21,060. The change in shareholders’ equity is also made up of earnings of $4,813, less dividends paid of $5,644 and the decrease in the market value of securities available for sale, net of tax, of $1,281. During 2004, the Corporation’s additional minimum pension liability, net of tax, decreased $393, which increased equity. See Note 15 for further explanation. During 2004, treasury shares increased 11,624, or $253. The Corporation will, from time to time, buy back shares when it results in a benefit to the remaining shareholders. The Corporation paid cash dividends on February 1, 2004, May 1, 2004, August 1, 2004 and November 1, 2004 each at a rate of $.27 per share. Total outstanding common shares at December 31, 2004 were 5,807,402. The ratio of total shareholders’ equity to total assets was 10.8% at December 31, 2004 and December 31, 2003

Results of Operations

The operating results of the Corporation are affected by general economic conditions, the monetary and fiscal policies of federal agencies and the regulatory policies of agencies that regulate financial

institutions. The Corporation’s cost of funds is influenced by interest rates on competing investments and general market rates of interest. Lending activities are influenced by the demand for real estate loans, and other types of loans, which in turn is affected by the interest rates at which such loans are made, general economic conditions and the availability of funds for lending activities.

The Corporation’s net income primarily depends on its net interest income, which is the difference between the interest income earned on interest-earning assets, such as loans and securities, and interest expense incurred on interest-bearing liabilities, such as deposits and borrowings. The level of net interest income is dependent on the interest rate environment and the volume and composition of interest-earning assets and interest-bearing liabilities. Net income is also affected by provisions for loan losses, service charges, gains on the sale of assets, other income, noninterest expense and income taxes.

Comparison of Results of Operations for the Year Ended December 31, 2004 and December 31,2003

Net Income

The Corporation’s net income for the year ended December 31, 2004 was $4,813, compared to $5,567 for the year ended December 31, 2003, a decrease of $754 or 13.5%. The decrease in net income was the result of the items discussed in the following sections.

Net Interest Income

Net interest income for 2004 was $25,673, an increase of $823, or 3.3% from 2003. The change in net interest income for 2004 was the result of an increase in interest earned on loans and a decrease in the interest paid out on deposit products. The decline in the yield on interest earning assets and interest-bearing liabilities is the result of continued repricing of assets and liabilities in the low interest rate environment that existed throughout 2004. The Corporation continues to examine its rate structure to ensure that its interest rates are competitive and reflective of the current rate environment in which it competes.

Net interest income and net interest margin were also affected by amortization of purchase accounting adjustments of earning assets and liabilities as a result of the merger. Refer to Note 2 of the consolidated financial statements for further discussion on the acquisition. Under the purchase method of accounting, assets and liabilities of acquired businesses are required to be recognized at their estimated fair value at the date of acquisition. Purchase accounting adjustments are recognized at the time of acquisition and represent the difference between the estimated fair value and the carrying value of assets and liabilities acquired. These adjustments are amortized into interest income and expense based upon the estimated remaining lives of the assets and liabilities acquired.

Total interest income increased $569, or 1.7% for 2004. The increase in income was a result of the merger which caused average interest earning-assets to increase from $592,863 in 2003 to $632,020 in 2004, offsetting the decline in the yield earned on those assets. Average loans increased $61,959 from 2003 to 2004. Income earned on the loan portfolio increased $1,584 from 2003 to 2004 due to the increase in balances offsetting the decline in yield experienced on the loan portfolio. The average balance of the securities portfolio for 2004 compared to 2003 decreased $20,330. The decrease in interest income on securities was primarily due to the decline in balances. Average balances of Federal Funds sold and interest-bearing deposits in other banks declined which was the primary reason for the interest earned on these assets declining $10.

Total interest expense decreased $254, or 3.0% for 2004 compared to 2003. The decrease in interest expense can be attributed to a decrease in the rate on interest-bearing liabilities from 1.70% in 2003 to 1.56% in 2004, which offset the effect of an increase in average balance of $29,115. Average interest-bearing deposits declined $2,229 from 2003 to 2004. This decline combined with a 25 basis point drop in

the cost of deposits caused interest expense on deposits to decrease $1,189. Interest expense on FHLB borrowings increased $646 due primarily to the increase in average balance of $25,082 in borrowings which were used to pay down the Corporations Federal Fund purchased position. In September 2004, a $12,500 trust preferred issuance was created to help fund the merger with FNB. The increase of average balance of $5,406 from 2003 to 2004, along with the increase of 36 basis points in yield, resulted in an increase in expense on subordinated debentures of $301. Other borrowings increased in balance from $13,285 in 2003 to $15,539, but the yield decline on these borrowings offset this increase to result in $12 less expense in 2004 compared to 2003.

Refer to “Distribution of Assets, Liabilities and Shareholders’ Equity, Interest Rates and Interest Differential” and “Changes in Interest Income and Interest Expense Resulting from Changes in Volume and Changes in Rate” on pages 16 through 18 for further analysis of the impact of changes in interest-bearing assets and liabilities on the Corporation’s net interest income.

Provision and Allowance for Loan LossesThe following table contains information relating to the provision for loan losses, activity in and analysis of the allowance for loan losses as of and for each of the three-years in the period ended December 31,2004.


	As of and for year ended December 31,
	2004			2003			2002
Net loan charge offs	$	2,153		$	1,961		$	1,144

Provision for loan losses charged to expense		1,805			1,944			1,178

Net loan charge offs as a percent of average outstanding loans		0.43	%		0.44	%		0.27	%

Allowance for loan losses	$	11,706		$	6,308		$	6,325

Allowance for loan losses as a percent of year end outstanding loans		2.06	%		1.34	%		1.50	%

Allowance for loan losses as a percent of impaired loans		75.86	%		99.10	%		91.28	%

Impaired loans	$	15,430		$	6,365		$	6,929

Impaired loans as a percent of gross year end loans ⁽¹⁾		2.72	%		1.36	%		1.64	%

Nonaccrual and 90 days or more past due loans as a percent of gross year end loans ⁽¹⁾		1.51	%		1.37	%		1.39	%

⁽¹⁾

Nonperforming loans and impaired loans are defined differently. Some loans may be included in both categories, whereas other loans may only be included in one category.

The Corporation’s policy is to maintain the allowance for loan losses at a level to provide for probable incurred losses. Management’s periodic evaluation of the adequacy of the allowance is based on past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral and current economic conditions.

The provision for loan losses decreased by $139 in 2004, from $1,944 in 2003 to $1,805 in 2004. The decrease in the provision was a result of the reserve adequacy calculations in the fourth quarter of 2003. In the fourth quarter 2003, additional reserves over and above the monthly accruals were added to the allowance due to specific loan credits whose financial position had changed negatively. In the fourth quarter of 2004, these additional reserves were not needed based on the calculation. Also, after the merger with FNB, First Citizens’ adequacy calculation showed that no additional provision was needed in the last quarter of 2004. A net increase in net charge-offs of $192 was experienced from 2003 to 2004 due to loans charge-off as a result of the merger. This increase in net charge-offs is expected to continue in the first quarter of 2005. As of December 31, 2004, impaired loans have increased $8,168 from December 31, 2003. This increase was primarily due to loans that were acquired from FNB with the 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.

Noninterest Income

Noninterest income totaled $6,201 in 2004 compared to $7,724 in 2003, a decrease of 19.7%. The significant items contributing to this change are as follows.

During 2004, the Corporation recognized gains from calls and sales of securities of $107 compared to $301 in 2003. Sales of securities were utilized to assist in the funding of loans although the overall sales activity as a percentage of the securities portfolio was not significant.

As loan rates began to rise in 2004, the customer demand for loan refinancing dramatically declined. In 2004, the Corporation sold less than 25 percent of the volume of loans sold in 2003 in the secondary market. Because of this dramatic reduction in the volume of loans sold, net gains on the loans sold declined $480 from 2003 to 2004. Management anticipates rates to continue to increase in 2005, continuing the decline in the volume of loans sold. Additionally, Mr. Money reclassified loans from its portfolio to the held for sale portfolio in December 2004. When adjusting these loans at the lower of cost or market value, a pretax loss of $1,029 was recognized on the portfolio. These loans are scheduled to be sold in the first quarter of 2005.

Service charges by Citizens and First Citizens increased $299 from 2003 to 2004. This was primarily due to the Corporation’s Check Protect program. Check Protect, which is the Corporation’s courtesy pay program, generated $228 in additional service charge income in 2004 as a result of increased usage of the program by clients. ATM fees increased $48 from 2003 to 2004. The Corporation continues to increase the number of ATM machines within its market area, including opening new ATM’s on Put-in-Bay,

which has added additional fee income. Additionally, the fees generated by the Trust Department continue to grow due to the continued increase in assets under Trust control. In 2004, the fees generated totaled $839, compared to $418 in 2003 as the department has continued to develop in its role of being the cornerstone of wealth management services provided by the Corporation. Finally, other fees decreased $581 from 2003 to 2004. Two areas were the cause for the decline in other fees. Commission from the origination of wholesale mortgages decreased $293 compared to 2003. As with the traditional secondary market, the amount of loans sold in 2004 declined dramatically compared to 2003. Secondly, Citizens revenue earned through its credit card portfolio decreased $285 compared to 2003 due to the sale of its credit card portfolio in November 2003.

Noninterest Expense

Noninterest expense totaled $23,332 in 2004, an increase of $407, or 1.8% over 2003. The following discussion highlights the significant items that resulted in increases or decreases in the components of noninterest expense.

Salaries and wages totaled $9,556 in 2004 compared to $9,609 in 2003 for a decrease of $53. This decrease can be attributed to the reduction in staff the Corporation had before the merger, which included severance payments to employees in 2003. Benefits increased $742, to total $2,705 in 2004 compared to $1,963 in 2003. Two areas were the primary cause for this increase. First, pension expense increased $236 in 2004 compared to 2003. The discount rate used in the actuarial computation of pension expense declined thirty-nine basis points in 2004 compared to 2003. This decline increased the amount of service cost as well as reduced the amount of expected return on assets which are used in the pension expense computation. The details of these items are further disclosed in Note 15. Secondly, health insurance payments increased $449 from 2003 to 2004 as a result of several large claims paid during 2004 at several of the affiliate companies.

Net occupancy expense increased $138 from $1,236 in 2003 to $1,374 in 2004. The primary cause of the increase was the expansion of the Corporation. The new operation center built in November 2003 was in full service for the entire year of 2004, while only in service for two months in 2003. Also, the FNB merger added branches and with the remodeling of First Citizens main office, the amount of repair and maintenance increased. Equipment expense decreased $173 from 2003 to 2004. During 2004, the Corporation began to scale back the amount of equipment purchased throughout the year. With this reduction of new equipment and a reduction of maintenance expense, the Corporation was able to reduce its costs.

State of Ohio franchise taxes were $788 in 2004 compared to $761 in 2003. The franchise taxes are based on the capital positions of the subsidiaries at the previous year-end, which were higher in 2003 than 2002.

Professional fees represent legal, audit and outside consulting fees paid by the Corporation. Professional fees totaled $940 in 2004 compared to $817 in 2003. During 2004, FCBC incurred increases in its legal and audit fees of $101. This increase was due to the legal aspects of the merger with FNB and fees paid for Sarbanes-Oxley 404 issues. An outside consultant was hired to assist the Corporation trying to meet the requirements of section 404. With the new requirements, our external auditors also have to do additional testing of controls, which increased the fees paid as well.

Advertising expense decreased from $466 in 2003 to $391 in 2004. Entering into new markets with the new branches created in 2003 increased advertising spending in 2003. In 2004, the Corporation did not incur these expenses of entering into new areas. The Corporation will continue our marketing and advertising efforts to increase our customer base in current markets and the new markets created with the FNB merger.

Contracted data processing decreased from $989 in 2003 to $959 in 2004. In 2004, Mr. Money switched processing companies, which saved approximately $53. With the merger and the additional customer base created through the merger, processing fees in the fourth quarter were higher than the previous three quarters and are expected to be higher in 2005 than 2004.

ATM expense and stationery and supplies increased slightly from in 2004. With the increase in the number of ATMs, the expense to run the machines also increased. Stationery and supplies increased $12 primarily due to the merger. With a new name, items such as letterhead and envelopes, as well as any other item with the old name had to be replaced with the new name of the bank. Other operating expenses totaled $4,048 in 2004, compared to $4,387 in 2003. In 2003, with the expansion into new markets, the Corporation launched a loan fee promotion in which the Corporation paid for loan fees associated with new loans in an attempt to gain loan volume. In 2004, with being securely positioned in the new markets, these fees were no longer waived, which reduced expense by $53 compared to 2003. Also, with the sale of its credit card portfolio, Citizens saw a reduction of credit card expense of $119 in 2004. Finally, in marking its mortgage servicing rights to the lower of cost or fair market value, Citizens had a $55 benefit during this valuation compared to 2003. Refer to Note 6 for further detail on this item.

Income Tax Expense

Income before federal income taxes amounted to $6,737 in 2004 and $7,705 in 2003. The Corporation’s effective income tax rate was 28.6% in 2004 compared to 27.7% in 2003. The increase in the effective tax rate resulted from the decline in the total of interest income on tax exempt securities compared to the decline in income before taxes.

Comparison of Results of Operations for the Year Ended December 31, 2003 and December 31, 2002Net Income

The Corporation’s net income for the year ended December 31, 2003 was $5,567, compared to $7,127 for the year ended December 31, 2002, a decrease of $1,560 or 21.9%. The decrease in net income was the result of the items discussed in the following sections.

Net Interest Income

Net interest income for 2003 was $24,850, an increase of $567, or 2.3% from 2002. The change in net interest income for 2003 was the result of a larger decrease in interest expense compared to the decrease in interest income. The decline in the yield on interest-earning assets and interest-bearing liabilities is the result of continued repricing of assets and liabilities in the low interest rate environment that existed throughout 2003. The Corporation continues to examine its rate structure to ensure that its interest rates are competitive and reflective of the current rate environment in which it competes.

Total interest income decreased $2,740, or 7.6% for 2003. The decline resulted from average interest-earning assets decreasing from $596,228 in 2002 to $592,863 in 2003 combined with a decline in yield earned on average earning assets. Average loans increased $13,962 from 2002 to 2003. Income earned on the loan portfolio decreased $1,557 from 2002 to 2003 due to the decline in yield more than offsetting the impact of the higher average balance of loans. Although the securities portfolio declined significantly from December 31, 2002 to December 31, 2003, the average balance of the securities portfolio for 2002 and 2003 was similar. The decrease in interest income on securities was primarily due to the decline in yields. Average balances of Federal Funds sold and interest-bearing deposits in other banks declined which was the primary reason for the interest earned on these assets declining $400. Funds that were sold in the fed funds market in 2002 were used to help fund the increase the Corporation had in its loan portfolio in 2003.

Total interest expense decreased $3,307, or 28.2% for 2003 compared to 2002. The decrease in interest expense can be attributed to a decrease in the rate on interest-bearing liabilities from 2.33% in 2002 to 1.70% in 2003, as well as a decline in average balance of $6,375. Average interest-bearing deposits declined $12,158 from 2002 to 2003. This decline combined with a 67 basis point drop in the cost of deposits caused interest expense on deposits to decrease $3,320. Interest expense on the various borrowings remained relatively unchanged as the increase in average balance from 2002 to 2003 more than offset the decrease in cost by a slight margin.

Provision and Allowance for Loan Losses

The provision for loan losses increased by $766 in 2003 from $1,178 in 2002 to $1,944 in 2003. The increase in the provision was a result of a net increase in net charge-offs of $817 from 2002 to 2003. As of December 31, 2003, impaired loans have decreased $564 from December 31, 2002. Efforts are continually made to examine both the level and mix of the reserve by loan type as well as the overall level of the reserve. 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.

Noninterest Income

Noninterest income totaled $7,724 in 2003 compared to $6,831 in 2002, an increase of 13.1%. The more significant items contributing to this change are as follows.

During 2003, the Corporation recognized gains from calls and sales of securities of $301. In 2002, the Corporation recognized gains from calls of securities of $8. Sales of securities were utilized to assist in the funding of loans although the overall sales activity as a percentage of the securities portfolio was not significant.

Due to the continued low interest rates, customers continued to refinance their loans to lower fixed-rate loans. Rather than add these lower fixed-rate loans to the Corporation’s loan portfolio, the loans were sold in the secondary loan market. Net gains on the loans sold totaled $631 in 2003 compared to a net gain of $333 in 2002. The additional gain is due to the increase in volume of loans sold in 2003 compared to the volume sold in 2002. The volume of loans sold in 2003 approximately doubled the volume sold in 2002.

Service charges by the Banks increased $225 from 2002 to 2003. The full year in 2003 of the additional customer base created as a result of this merger with ICBC in April 2002 was the primary cause of this increase. Check Protect, which is the Corporation’s courtesy pay program, generated an additional $228 in additional service charge income in 2003. ATM fees increased $50 from 2002 to 2003. With the addition of the customer base acquired through the entering new markets, additional fees were gained. Other noninterest income totaled $2,030 in 2003, compared to $1,976 in 2002. In November, Citizens sold its credit card portfolio for a net gain of $152. Additionally, increases in other noninterest income are a result of additional products and services introduced to generate noninterest income. These products include brokerage and insurance commissions, the sale of wholesale mortgages, and income from the Trust Department. The Trust Department has developed into the cornerstone of wealth management services provided by the Corporation.

Noninterest Expense

Noninterest expense totaled $22,925 in 2003, an increase of $3,032, or 15.2% over 2002. The following discussion highlights the significant items that resulted in increases or decreases in the components of noninterest expense.

Salaries, wages and benefits totaled $11,572 in 2003 compared to $9,460 in 2002 for an increase of $2,112. This increase can be attributed to several factors. First, salaries for 2002 are reflective of nine months salary and benefits of the Independent Community Banc Corp. acquisition compared to twelve months in 2003. Second, Mr. Money and Farmers opened offices in Marion, Ohio and Mansfield, Ohio in 2003. Third, in 2003, the formation of First Citizens Advisors as a department of Citizens, which serves the customer’s trust and investment needs, required the addition of staff. Fourth, pension expense increased $483 from 2002 to 2003 which is further disclosed in Note 15. Finally, 2003 salaries, wages, and benefits includes $160 of severance payments to employees as part of the Corporation’s reassessment of staffing needs.

Net occupancy expense increased $163 from $1,073 in 2002 to $1,236 in 2003. Equipment expense increased $131 from 2002 to 2003. The primary cause of these increases was the expansion of the Corporation. With the addition of new branches, costs paid for real estate taxes, rent expense, and repair and maintenance costs, along with several smaller items, increased.

State of Ohio franchise taxes were $761 in 2003 compared to $642 in 2002. The franchise taxes are based on the capital positions of the subsidiaries. The addition of the Insurance Agency and Title Agency, along with two refunds received in 2002 by FCBC, lead to the increase in franchise tax in 2003.

Professional fees represent legal, audit and outside consulting fees paid by the Corporation. Professional fees totaled $817 in 2003 compared to $920 in 2002. In 2003, FCBC hired an in-house attorney to deal with legal matters that were outsourced in the past. This helped reduce the fees paid to legal counsel, but also contributed to the increase in salaries, wages and benefits.

Advertising expense increased from $410 in 2002 to $466 in 2003. Entering into new markets with the merger as well as creating new branches is the primary reason for the increase in advertising. The Corporation will continue our marketing and advertising efforts to increase our customer base.

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

The following table sets forth, for the years ended December 31, 2004, 2003 and 2002, the distribution of assets, including interest amounts and average rates of major categories of interest-earning assets and interest-bearing liabilities (Dollars in thousands) :


	2004								2003								2002
	Average					Yield/			Average					Yield/			Average					Yield/
Assets	balance			Interest		rate			balance			Interest		rate			balance			Interest		rate
Interest-earning assets:
Loans (1)(2)(3)	$	507,164		$	29,629		5.84	%	$	445,205		$	28,045		6.30	%	$	431,243		$	29,602		6.86	%
Taxable securities (4)		92,806			2,999		3.24	%		104,364			3,634		3.52	%		100,819			4,318		4.33	%
Non-taxable securities (4)(5)		27,282			1,132		4.25	%		36,054			1,502		4.28	%		37,243			1,601		4.38	%
Federal funds sold		4,295			70		1.63	%		6,485			82		1.26	%		26,699			476		1.78	%
Interest-bearing deposits in other banks		473			6		1.27	%		755			4		0.53	%		224			10		4.46	%

Total interest-earning assets		632,020			33,836		5.37	%		592,863			33,267		5.63	%		596,228			36,007		6.06	%
Noninterest-earning assets:
Cash and due from financial institutions		21,402								19,966								17,711
Premises and equipment, net		10,639								9,038								8,377
Accrued interest receivable		3,712								4,144								4,285
Intangible assets		19,831								17,831								11,795
Other assets		1,920								4,402								6,564
Less allowance for loan losses		(7,880	)							(5,944	)							(6,296	)

Total	$	681,644							$	642,300							$	638,664

(1)		For purposes of these computations, the daily average loan amounts outstanding are net of unearned income and include loans held for sale.

(2)		Included in loan interest income are loan fees of $988 in 2004, $1,162 in 2003 and $988 in 2002.

(3)		Non-accrual loans are included in loan totals and do not have a material impact on the analysis presented.

(4)		Average balance is computed using the carrying value of securities. The average yield has been computed using the historical amortized cost average balance for available-for-sale securities.

(5)		Interest income is reported on a historical basis without tax-equivalent adjustment.

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

The following table sets forth, for the years ended December 31, 2004, 2003 and 2002, the distribution of liabilities and shareholders’ equity, including interest amounts and average rates of major categories of interest-earning assets and interest-bearing liabilities (Dollars in thousands) :


	2004							2003							2002
Liabilities and	Average				Yield/			Average				Yield/			Average				Yield/
Shareholders’ Equity	balance		Interest		rate			balance		Interest		rate			balance		Interest		rate
Interest-bearing liabilities:
Savings and interest-bearing demand accounts	$	252,566	$	1,462		0.58	%	$	244,778	$	1,629		0.66	%	$	238,066	$	3,340		1.40	%
Certificates of deposit		204,209		4,805		2.35	%		214,226		5,827		2.72	%		233,096		7,436		3.19	%
Federal Home Loan Bank advances		26,891		669		2.49	%		1,809		23		1.27	%		519		27		5.20	%
Securities sold under repurchase agreements		12,004		128		1.07	%		12,277		103		0.84	%		11,491		158		1.37	%
Federal funds purchased		2,699		10		0.37	%		—		—		—			—		—		—
Notes payable		9,166		279		3.04	%		10,564		329		3.11	%		13,838		534		3.86	%
Subordinated debentures		16,514		799		4.84	%		11,108		498		4.48	%		3,866		212		5.48	%
U.S. Treasury demand notes payable		836		11		1.32	%		1,008		8		0.79	%		1,269		17		1.34	%

Total interest-bearing liabilities		524,885		8,163		1.56	%		495,770		8,417		1.70	%		502,145		11,724		2.33	%

Noninterest-bearing liabilities:
Demand deposits		82,860							71,797							62,707
Other liabilities		2,477							3,541							4,045

		85,337							75,338							66,752
Shareholders’ equity		71,422							71,192							69,767

Total	$	681,644						$	642,300						$	638,664

Net interest income and interest rate spread			$	25,673		3.81	%			$	24,850		3.93	%			$	24,283		3.73	%

Net yield on interest- earning assets						4.07	%						4.21	%						4.09	%

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

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


	2004 compared to 2003									2003 compared to 2002
	Increase (decrease)									Increase (decrease)
	due to:									due to:
	Volume⁽¹⁾			Rate⁽¹⁾			Net			Volume⁽¹⁾			Rate⁽¹⁾			Net
	(Dollars in thousands)
Interest income:
Loans	$	3,717		$	(2,133	)	$	1,584		$	936		$	(2,493	)	$	(1,557	)
Taxable securities		(361	)		(274	)		(635	)		157			(841	)		(684	)
Nontaxable securities		(360	)		(10	)		(370	)		(63	)		(36	)		(99	)
Federal funds sold		(32	)		20			(12	)		(285			(109	)		(394	)
Interest-bearing deposits in other banks		(2	)		4			2			8			(14	)		(6	)

Total interest- earning assets	$	2,962		$	(2,393	)	$	569		$	753		$	(3,493	)	$	(2,740	)


Interest expense:
Savings and interest-bearing demand accounts	$	51		$	(218	)	$	(167	)	$	92		$	(1,803	)	$	(1,711	)
Certificates of deposit		(263	)		(758	)		(1,021	)		(571	)		(1,038	)		(1,609	)
Federal Home Loan Bank advances		604			42			646			28			(32	)		(4	)
Securities sold under repurchase agreements		(2	)		27			25			10			(65	)		(55	)
Federal funds purchased		10			—			10			—			—			—
Note payable		(43	)		(7	)		(50	)		(113	)		(92	)		(205	)
Subordinated debentures		259			42			301			331			(45	)		286
U.S. Treasury demand notes payable		(2	)		4			2			(3	)		(6	)		(9	)

Total interest-bearing liabilities	$	614		$	(868	)	$	(254	)	$	(226	)	$	(3,081	)	$	(3,307	)

Net interest income	$	2,348		$	(1,525	)	$	823		$	979		$	(412	)	$	567

(1)

The change in interest income and interest expense due to changes in both volume and rate, which cannot be segregated, has been allocated proportionately to the change due to volume and the change due to rate.

Liquidity and Capital Resources

Citizens and First Citizens both maintain a conservative liquidity position. Within the security portfolio, all but $11 of securities are classified as available for sale. At December 31, 2004, securities with maturities of one year or less totaled $51,643. The available for sale portfolio helps to provide the Corporation with the ability to meet its funding needs. The Consolidated Statements of Cash Flows contained in the consolidated financial statements detail the Corporation’s cash flows from operating activities resulting from net earnings.

Cash from operations for 2004 was $6,427. This includes net income of $4,813 plus net adjustments of cash from operating activities of $1,614 to reconcile net earnings to net cash provided by operations. The primary use of cash in operations is the originating of loans for sale. The primary addition to cash from operating activities is the sale of the loans sold. Cash from investing activities was $21,782 in 2004. resulting from security purchases and increases in loans which was more than offset by maturities, prepayments and sales of securities, cash received in the bank acquisition and an increase in fed funds sold. Cash used by financing activities in 2004 totaled $24,531. The primary uses of cash in financing activities include the run-off of deposits, the payment of dividends, and the payment of short-term FHLB advances. The cash from financing activities included the FHLB long-term borrowings and the proceeds from the issuance of subordinated debentures. Cash from operating and investing activities was more than cash used by financing activities by $3,678, which resulted in an increase in cash and cash equivalents to $25,661.

Future loan demand of Citizens and First Citizens can be funded by increases in deposit accounts, proceeds from payments on existing loans, the maturity of securities, the issuances of trust preferred obligations, and the sale of securities classified as available for sale. Additional sources of funds may also come from borrowing in the Federal Funds market and/or borrowing from the Federal Home Loan Bank (FHLB). As of December 31, 2004, the Banks had total credit availability with the FHLB of $99,909 of which $30,855 was outstanding.

Future loan demand of Mr. Money can be funded by proceeds from payments on existing loans, sales of existing loans on the secondary market as well as borrowings from affiliates or other institutions. On a separate entity basis, the Corporation’s primary source of funds is dividends paid primarily by the subsidiary Banks. The ability of the Banks to pay dividends is subject to limitations under various laws and regulations, and to prudent and sound banking principles. Generally, subject to applicable minimum capital requirements, the Banks may declare a dividend without the approval of the State of Ohio Department of Commerce, Division of Financial Institutions, provided the total dividends in a calendar year do not exceed the total of its profits for that year combined with its retained profits for the two preceding years. In 2004, Citizens paid $6,450 and First Citizens paid $2,377 in dividends to the Corporation. The purpose of these dividends was to accumulate cash at the Corporation to be used for general corporate purposes including the possible repurchase of its common shares. Dividends from the affiliates can also be used to fund the payment on the line of credit at LaSalle Bank, NA. The amount of unrestricted dividends available to be paid by the Banks to the Corporation was approximately $2,505 at December 31, 2004. Management believes the future earnings of the Banks will be sufficient to support anticipated asset growth at the Banks and provide funds to the Corporation to continue paying dividends at their current level.

The Corporation manages its liquidity and capital through quarterly Asset/Liability Committee (ALCO) meetings. The committee discusses issues like those in the above paragraphs as well as others that will affect future liquidity and capital position of the Corporation. The committee also examines interest rate risk and the effect that changes in rates will have on the Corporation. For more information about interest rate risk, please refer to the “Quantitative and Qualitative Disclosures About Market Risk” section.

Capital Adequacy

The Corporation’s policy is, and always has been, to maintain its capital levels above the well capitalized regulatory standards. Under the regulatory capital standards, total capital has been defined as Tier I (core) capital and Tier II (supplementary) capital. The Corporation’s Tier I capital includes shareholders’ equity (net of unrealized security gains and losses) and subordinated debentures (subject to certain limits) while Tier II capital also includes the allowance for loan losses. The definition of risk-adjusted assets has also been modified to include items both on and off the balance sheet. Each item is then assigned a risk weight or risk adjustment factor to determine ratios of capital to risk adjusted assets. The standards require that total capital (Tier I plus Tier II) be a minimum of 8.0% of risk-adjusted assets, with at least 4.0% being in Tier I capital. To be well capitalized, a company must have a minimum of 10.0% of risk adjusted assets, with at least 6.0% being Tier I capital. The Corporation’s ratios as of December 31, 2004 and 2003 were 15.5% and 14.8% respectively for total risk-based capital, and 13.7% and 10.9% respectively for Tier I risk-based capital.

Additionally, the Federal Reserve Board has adopted minimum leverage-capital ratios. These standards were established to supplement the previously issued risk based capital standards. The leverage ratio standards use the existing Tier I capital definition, but the ratio is applied to average total assets instead of risk-adjusted assets. The standards require that Tier I capital be a minimum of 4.0% of total average assets for high rated entities such as the Corporation and a minimum of 5.0% of total average assets to be well capitalized. The Corporation’s leverage ratio was 10.0% and 8.1% at December 31, 2004 and 2003.

Effects of Inflation

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

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

Fair Value of Financial Instruments

The Corporation has disclosed the estimated fair value of its financial instruments at December 31, 2004 and 2003 in Note 20 to the consolidated financial statements. The fair value of the Corporation’s financial instruments generally decreased relative to their carrying values in 2003 as a result of an increase in the general level of longer-term interest rates. The fair value of loans at December 31, 2004 was 101.2% of the carrying value compared to 104.5% at December 31, 2003. The fair value of deposits at December 31, 2004 was 99.8% of the carrying value compared to 100.4% at December 31, 2003.

Contractual Obligations and Off-Balance Sheet Arrangements

The following table represents significant fixed and determinable contractual obligations of the Corporation as of December 31, 2004.


	One year		One to		Three to		Over five
Contractual Obligations	or less		three years		five years		years		Total
Deposits without a stated maturity	$	397,929	$	—	$	—	$	—	$	397,929
Certificates of deposit		134,093		73,259		2,598		3,188		213,138
FHLB advances, securities sold under agreements to repurchase and U.S. Treasuryinterest- bearing demand note		14,632		30,011		614		65		45,322
Subordinated debentures ⁽¹⁾		—		—		—		25,000		25,000
Long-term debt		1,000		1,000		6,000		—		8,000
Operating leases		226		320		42		—		588

(1)

The subordinated debentures consist of $5,000, $7,500, and $12,500 debentures. See Note 13 for additional information.

The Corporation has retail repurchase agreements with clients within its local market areas. These borrowings are collateralized with securities owned by the Corporation. See Note 11 for further detail. The Corporation also has a cash management advance line of credit and outstanding letters of credit with the FHLB. For further discussion, refer to Note 10. The long-term debt consists of borrowing from a secured borrowing agreement with LaSalle Bank, NA. See Note 12 for the terms of this borrowing.

Quantitative and Qualitative Disclosures About Market Risk

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

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

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

The Federal Reserve Board, together with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, adopted a Joint Agency Policy Statement on interest-rate risk, effective June 26, 1996. The policy statement provides guidance to examiners and bankers on sound practices for managing interest-rate risk, which will form the basis for ongoing evaluation of the adequacy of interest-rate risk management at supervised institutions. The policy statement also outlines fundamental

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

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 and does not intend to purchase such instruments in the near future. Prepayments of assets carrying higher rates reduce the Corporation’s interest income and overall asset yields. A large portion of an institution’s liabilities may be short term or due on demand, while most of its assets may be invested in long term loans or securities. Accordingly, the Corporation seeks to have in place sources of cash to meet short-term demands. These funds can be obtained by increasing deposits, borrowing, or selling assets. Also, FHLB advances and wholesale borrowings may also be used as important sources of liquidity for the Corporation.

The following table provides information about the Corporation’s financial instruments that are sensitive to changes in interest rates as of December 31, 2004 and 2003, 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 2003. 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 - December 31, 2004
Change in Rates	$Amount		$Change			% Change
+200 bp	$	81,162	$	(5,026	)		(6	)%
+100 bp		83,604		(2,584	)		(3	)%
Base		86,188		—			—
-100 bp		87,158		970			1	%
-200 bp		87,417		1,229			1	%


Net Portfolio Value - December 31, 2003
Change in Rates	$Amount		$Change			% Change
+200 bp	$	60,788	$	(7,659	)		(11	)%
+100 bp		64,511		(3,936	)		(6	)%
Base		68,447		—			—
-100 bp		71,409		2,962			4	%
-200 bp		74,350		5,903			9	%

The change in net portfolio value from December 31, 2003 to December 31, 2004, is primarily a result of the following factors. First, the merger with FNB in 2004 has caused the base level to increase. At the same time, the yield curve has flattened, with short-term interest rates increasing, while long-term rates have decreased. As a result, the Corporation has seen a decrease 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, partially offset by a decrease in the fair value of deposits. The net of these factors was an increase in the base value.

Critical Accounting Policies

Allowance for Loan Losses

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

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

Report of Independent Registered Public Accounting Firm on Financial Statements

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

We have audited the accompanying consolidated balance sheets of First Citizens Banc Corp. as of December 31, 2004 and 2003, and the related statements of income, stockholders’ equity and cash flows for the three years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of First Citizens Banc Corp. as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the three years then ended, in conformity with U.S. generally accepted accounting principles.

Crowe Chizek and Company LLC

Cleveland, Ohio
March 4, 2005

FIRST CITIZENS BANC CORP
CONSOLIDATED BALANCE SHEETS
December 31, 2004 and 2003
(In thousands, except share data)


	2004			2003
ASSETS
Cash and due from financial institutions	$	25,661		$	21,983
Federal funds sold		9,947			—
Securities available for sale		154,468			109,508
Securities held to maturity (Fair value of $11 in 2004 and $15 in 2003)		11			14
Loans held for sale		8,886			159
Loans, net of allowance of $11,706 and $6,308		556,188			462,878
FHLB, FRB, GLBB, FMS and NCDC stock		8,972			7,211
Premises and equipment, net		11,824			10,481
Premises and equipment, held for sale, net		179			—
Accrued interest receivable		4,828			4,143
Goodwill		26,093			15,052
Customer relationship and other intangibles		4,698			2,506
Other assets		5,755			2,488


Total assets	$	817,510		$	636,423


LIABILITIES
Deposits
Noninterest-bearing	$	104,873		$	73,391
Interest-bearing		542,172			436,781

Total deposits		647,045			510,172
Federal Home Loan Bank advances		30,855			18,975
Securities sold under agreements to repurchase		12,712			12,115
U. S. Treasury interest-bearing demand note payable		1,755			939
Notes payable		8,000			9,000
Subordinated debentures		25,000			12,500
Accrued expenses and other liabilities		3,930			3,597

Total liabilities		729,297			567,298

SHAREHOLDERS’ EQUITY
Common stock, no par value, 10,000,000 shares authorized, 6,112,264 and 5,326,441 shares issued		68,430			47,370
Retained earnings		27,781			28,612
Treasury stock, 304,862 and 293,238 shares at cost		(7,494	)		(7,241	)
Accumulated other comprehensive income (loss)		(504	)		384

Total shareholders’ equity		88,213			69,125


Total liabilities and shareholders’ equity	$	817,510		$	636,423

See accompanying notes to consolidated financial statements.

FIRST CITIZENS BANC CORP
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2004, 2003 and 2002
(In thousands, except per share data)


	2004			2003		2002
Interest and dividend income
Loans, including fees	$	29,629		$	28,045	$	29,602
Taxable securities		3,000			3,634		4,318
Tax-exempt securities		1,132			1,502		1,601
Federal funds sold		67			82		476
Other		8			4		10

Total interest income		33,836			33,267		36,007

Interest expense
Deposits		6,267			7,456		10,776
Federal Home Loan Bank advances		669			23		27
Subordinated debentures		799			498		212
Other		428			440		709

Total interest expense		8,163			8,417		11,724

Net interest income		25,673			24,850		24,283

Provision for loan losses		1,805			1,944		1,178


Net interest income after provision for loan losses		23,868			22,906		23,105

Noninterest income
Computer center item processing fees		1,150			1,157		1,184
Service charges		3,386			3,087		2,862
Net gains on sale of securities		107			301		8
Net gain (loss) on sale of loans		151			631		333
Net loss on loans moved to AFS		(1,029	)		—		—
ATM fees		566			518		468
Trust fees		839			418		192
Other		1,031			1,612		1,784

Total noninterest income		6,201			7,724		6,831

Noninterest expense
Salaries and wages		9,556			9,609		7,749
Benefits		2,705			1,963		1,711
Net occupancy expense		1,374			1,236		1,073
Equipment expense		1,177			1,350		1,219
Contracted data processing		959			989		899
State franchise tax		788			761		642
Professional services		940			817		920
Amortization of intangible assets		498			494		326
Advertising expense		391			466		410
ATM expense		442			411		330
Stationery & supplies		454			442		423
Other operating expenses		4,048			4,387		4,191

Total noninterest expense		23,332			22,925		19,893

Income before income taxes		6,737			7,705		10,043
Income tax expense		1,924			2,138		2,916

Net income	$	4,813		$	5,567	$	7,127

Earnings per common share, basic	$	0.92		$	1.11	$	1.48

Earnings per common share, diluted	$	0.92		$	1.10	$	1.48

Weighted average basic common shares		5,211,904			5,033,203		4,811,591

Weighted average diluted common shares		5,216,557			5,041,877		4,812,664

See accompanying notes to consolidated financial statements.

FIRST CITIZENS BANC CORP
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Years ended December 31, 2004, 2003 and 2002
(In thousands, except per share data)


												Accumulated
												Other			Total
	Common Stock					Retained			Treasury			Comprehensive			Shareholders'
	Shares			Amount		Earnings			Stock			Income (Loss)			Equity
Balance, January 1, 2002		4,082,619		$	23,258	$	28,844		$	(4,919	)	$	1,544		$	48,727
Comprehensive Income:
Net Income							7,127									7,127
Change in minimum additional pension liability, net of tax													(513	)		(513	)
Change in unrealized gain/(loss) on securities available for sale, net of reclassification and tax effects													941			941

Total comprehensive income																7,555
Cash dividends ($1.30 per share)							(6,383	)								(6,383	)
Issuance of common stock for merger, net of issuance costs		1,063,040			24,112											24,112
Purchase of treasury stock, at cost		(112,456	)							(2,322	)					(2,322	)

Balance, December 31, 2002		5,033,203			47,370		29,588			(7,241	)		1,972			71,689
Comprehensive Income:
Net Income							5,567									5,567
Change in minimum additional pension liability, net of tax													(525	)		(525	)
Change in unrealized gain/(loss) on securities available for sale, net of reclassification and tax effects													(1,063	)		(1,063	)

Total comprehensive income																3,979
Cash dividends ($1.30 per share)							(6,543	)								(6,543	)

Balance, December 31, 2003		5,033,203			47,370		28,612			(7,241	)		384			69,125
Comprehensive Income:
Net Income							4,813									4,813
Change in minimum additional pension liability, net of tax													393			393
Change in unrealized gain/(loss) on securities available for sale, net of reclassification and tax effects													(1,281	)		(1,281	)

Total comprehensive income																3,925
Cash dividends ($1.08 per share)							(5,644	)								(5,644	)
Issuance of common stock for merger, net of issuance costs		785,823			21,060											21,060
Purchase of treasury stock, at cost		(11,624	)							(253	)					(253	)

Balance, December 31, 2004		5,807,402		$	68,430	$	27,781		$	(7,494	)	$	(504	)	$	88,213

(Continued)

FIRST CITIZENS BANC CORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2004, 2003 and 2002
(In thousands, except per share data)


	2004			2003			2002
Cash flows from operating activities
Net income	$	4,813		$	5,567		$	7,127
Adjustments to reconcile net income to net cash from operating activities
Security amortization, net of accretion		(742	)		317			1,303
Depreciation		987			997			1,033
Amortization of intangible assets		498			494			326
Amortization of and valuation allowance on servicing rights		38			307			121
Net realized gain on sale of securities		(107	)		(301	)		(8	)
FHLB stock dividends		(232	)		(229	)		(247	)
Provision for loan losses		1,805			1,944			1,178
Loans originated for sale		(4,100	)		(20,543	)		(8,285	)
Proceeds from sale of loans		3,381			18,020			9,405
Gain on sale of loans		(151	)		(631	)		(333	)
Loss on loans transferred to AFS		1,029			—			—
(Gain) loss on sale of OREO properties		31			47			(19	)
Deferred income taxes		110			66			95
Change in
Net deferred loan fees		207			(86	)		(302	)
Accrued interest receivable		968			652			(912	)
Other assets		(2,885	)		2,926			(1,665	)
Accrued interest, taxes and other expenses		386			(436	)		(1,982	)

Net cash from operating activities		6,036			9,111			6,835

Cash flows from investing activities
Cash and cash equivalents received in bank acquisition, net of cash paid		(7,585	)		—			3,079
Securities available for sale
Maturities, prepayments and calls		75,438			73,601			58,382
Purchases		(42,201	)		(36,690	)		(89,835	)
Sales		243			7,124			4
Securities held for maturity
Maturities, prepayments and calls		3			28			97
Purchases of FRB stock		—			(230	)		(406	)
Loan originations, net of loan payments		(16,624	)		(45,006	)		12,773
Proceeds from sale of OREO properties		422			240			140
Property and equipment expenditures		(632	)		(3,259	)		(740	)
Change in federal funds sold		4,860			12,700			(2,175	)

Net cash from investing activities		13,924			8,508			(18,681	)

(Continued)

FIRST CITIZENS BANC CORP
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years ended December 31, 2004, 2003 and 2002
(In thousands, except per share data)


	2004			2003			2002
Cash flows from financing activities
Change in deposits		(28,690	)		(29,727	)		16,771
Repayment of Federal Home Loan Bank advances		(54	)		(183	)		(628	)
Net change in short-term FHLB advances		(18,975	)		18,975			—
Net change in long-term FHLB advances		30,000			—			—
Change in securities sold under repurchase agreements		(4,982	)		(1,394	)		3,198
Change in U.S. Treasury interest-bearing notes payable		816			(4,061	)		4,280
Change in short-term note payable		(1,000	)		(3,000	)		(13,500	)
Proceeds from long-term note payable		—			—			10,000
Repayment of long-term note payable		—			(1,000	)		—
Cash dividends paid		(5,644	)		(6,543	)		(6,383	)
Net proceeds from issuance of subordinated debentures		12,500			7,500			5,000
Purchase of treasury stock		(253	)		—			(2,322	)

Net cash from financing activities		(16,282	)		(19,433	)		16,416


Net change in cash and cash equivalents		3,678			(1,814	)		4,570
Cash and cash equivalents at beginning of year		21,983			23,797			19,227


Cash and cash equivalents at end of year	$	25,661		$	21,983		$	23,797


Supplemental cash flow information:
Interest paid		8,263			8,729			11,722
Income taxes paid		2,374			2,385			3,027

Supplemental non-cash disclosures:
Transfer of loans from portfolio to held for sale	$	8,886		$	4,167		$	—
Transfer of loans from portfolio to other real estate owned		1,130			119			341
Change in minimum additional pension liability, net of intangible for prior service cost		(602	)		791			809
Fixed assets transferred to held for sale		179			—			—
Acquisition of ICBC through issuance of common stock		—			—			24,405

Fair value of assets acquired in FNB acquisition	$	193,861
Common stock issued for acquisition		(21,060	)

Total liabilities assumed		172,801

See accompanying notes to consolidated financial statements.

FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
(Amounts in thousands, except share data)

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of the accounting policies adopted by First Citizens Banc Corp, which have a significant effect on the financial statements.

Consolidation Policy: The consolidated financial statements include the accounts of First Citizens Banc Corp (FCBC) and its wholly-owned subsidiaries, The Citizens Banking Company (Citizens), First Citizens 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.

Nature of Operations: 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 2004, SCC provided item processing for nine financial institutions in addition to the two subsidiary banks. SCC accounted for 2.9% of the Corporation’s total revenues. Reynolds provides real estate appraisal services for lending purposes to the subsidiary banks and other financial institutions. Reynolds accounts for less than 1.0% of total Corporation revenues. Mr. Money provides consumer finance loans and real estate loans that the Banks would not normally provide to B and C credits at a rate commensurate with the risk and accounted for approximately 1.3% 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 year ended December 31, 2004. Water Street Properties, Inc. was formed to hold repossessed assets of FCBC’s subsidiaries. Water St. revenue was less than 1% of total revenue for the year ended December 31, 2004.

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

Cash Flows: Cash and cash equivalents include cash on hand and demand deposits with financial institutions. Net cash flows are reported for federal funds purchased or sold, customer loan transactions, deposit transactions, securities sold under agreements to repurchase and other short-term borrowings.

(Continued)

FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
(Amounts in thousands, except share data)

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Securities: Debt securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Debt securities are classified as available for sale when they might be sold before maturity. Equity securities with readily determinable fair values are classified as available for sale. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income. Other securities such as Federal Home Loan Bank (FHLB) stock, Federal Reserve Bank (FRB) stock, Farmer Mac stock (FMS), Great Lake Bankers’ Bank (GLBB) stock, and Norwalk Community Development Corp (NCDC) stock are carried at cost.

Interest income includes amortization of purchase premium or discount. Gains and losses on sales are based on the amortized cost of the security sold using the specific identification method. Securities are written down to fair value when a decline in fair value is not temporary.

Declines in the fair value of securities below their cost that are other than temporary are reflected as realized losses. In estimating other-than-temporary losses, management considers: (1) the length of time and extent that fair value has been les than cost, (2) the financial condition and near term prospects of the issuer, and (3) the Corporation’s ability and intent to hold the security for a period sufficient to allow for any anticipated recovery in fair value.

Loans Held for Sale: Loans originated and intended for sale in the secondary market and loans that management no longer intends to hold for the foreseeable future, are carried at the lower of cost or market in the aggregate. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings.

Loans: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs, and an allowance for loan losses.

Interest income is reported on the interest method and includes amortization of net deferred loan fees over the loan term. Interest income on real estate loans is discontinued at the time the loan is 90 days delinquent. Interest income on commercial loans is also discontinued at the time the loan is 90 days delinquent unless the credit is well-secured and in process of collection. Interest income on consumer loans is discontinued when management determines future collection is unlikely. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.

Interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for probable incurred credit losses, increased by the provision for loan losses and decreased by charge-offs less recoveries. Management estimates the allowance balance required using past loan loss experience, risks in the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be

(Continued)

FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
(Amounts in thousands, except share data)

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

charged-off. Loan losses are charged against the allowance when management believes the loan balance is uncollectible.

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired or loans otherwise classified as substandard or doubtful. The general component covers non-classified loans and is based on historical loss experience adjusted for current factors.

A loan is impaired when full payment under the loan terms is not expected. Smaller-balance loans of similar nature such as residential mortgage, consumer, and credit card loans are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures. Commercial and commercial real estate loans are individually evaluated for impairment. If a loan is impaired, a portion of the allowance is allocated so the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. If the collateral is greater than the outstanding balance of the loan, no specific allowance is allocated for the loan.

Premises and Equipment: Land is carried at cost. Buildings and improvements and furniture and equipment are stated at cost less accumulated depreciation. Depreciation is computed using both accelerated and straight-line methods over the estimated useful life of the asset, ranging from three to seven years for furniture and equipment, five to thirty-nine years for leasehold improvements, and seven to fifty years for buildings and improvements.

Other Real Estate: Other real estate acquired through or instead of loan foreclosure is initially recorded at fair value when acquired, establishing a new cost basis. Any reduction from carrying value of the related loan to fair value at the time of acquisition is accounted for as a loan loss. Any subsequent reduction in fair value is recognized in a valuation allowance by a charge to income. Other real estate owned included in other assets totaled approximately $1,577 at December 31, 2004 and $725 at December 31, 2003.

Servicing Rights: Servicing rights are recognized as assets for the allocated value of retained servicing rights on loans sold. Servicing rights are expensed in proportion to, and over the period of, estimated net servicing revenues. Impairment is evaluated based on the fair value of the rights, using groupings of the underlying loans as to interest rates and then, secondarily, as to geographic and prepayment characteristics. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. Any impairment of a grouping is reported as a valuation allowance to the extent that fair value is less than the capitalized asset for the grouping.

Goodwill and Other Intangible Assets: Goodwill results from prior business acquisitions and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets. Upon adopting new accounting guidance on January 1, 2002, the Corporation ceased amortizing goodwill. Goodwill is assessed at least annually for impairment and any such impairment will be recognized in the period identified.

Other intangible assets consist of core deposit intangible assets and a non-compete agreement arising from whole bank and branch acquisitions. The core deposit intangible assets are measured at fair value

(Continued)

FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
(Amounts in thousands, except share data)

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

and then amortized on an accelerated method over their estimated useful lives, which range from ten to twelve years. The non-compete agreement is amortized on a straight-line basis over its term of two years. The customer relationship intangible assets are assessed at least annually for impairment and any such impairment will be recognized in the period identified.

Long-term Assets: Premises and equipment, core deposit intangible asset, non-compete agreement, and other long-term assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.

Repurchase Agreements: Substantially all repurchase agreement liabilities represent amounts advanced by various customers. Securities are pledged to cover these liabilities, which are not covered by federal deposit insurance.

Income Taxes: 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.

Retirement Plans: The Corporation sponsors a noncontributory defined benefit retirement plan for all full-time employees who have attained the age of 20¹/2 and have a minimum of six months of service. Pension expense is the net of service and interest cost, return on plan assets and amortization of gains and losses not immediately recognized. Accrued pension costs are funded to the extent deductible for federal income tax purposes.

The Corporation also provides a savings and retirement 401(k) plan for all eligible employees who elect to participate. The decision to make contributions to the plan, which represents a match of a portion of the salary deferred by participants, is made annually by the Board of Directors. Such contributions are funded as they are accrued.

Stock Compensation: 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 Financial Accounting Standards Board (FASB) Statement No. 123, Accounting for Stock-Based Compensation. No stock options were granted prior to 2002.

(Continued)

FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
(Amounts in thousands, except share data)

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)


	2004		2003		2002
Net income as reported	$	4,813	$	5,567	$	7,127
Deduct: Stock-based compensation expense determined under fair value based method		79		64		17


Pro forma net income	$	4,734	$	5,503	$	7,110


Basic earnings per share as reported	$	0.92	$	1.11	$	1.48
Pro forma basic earnings per share		0.92		1.09		1.48

Diluted earnings per share as reported	$	0.91	$	1.10	$	1.48
Pro forma diluted earnings per share		0.91		1.09		1.48

The pro forma effects are computed using option pricing models, utilizing the following weighted-average assumptions as of grant date. No options were granted during 2004.


	2003			2002
Risk-free interest rate		3.98	%		4.77	%
Expected option life	10 years			10 years
Expected stock price volatility		22.62	%		19.37	%
Dividend yield		2.97	%		4.44	%
Calculated fair value	$	8.23		$	3.33

Off-Balance-Sheet Financial Instruments: Financial instruments include off-balance-sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

Comprehensive Income: Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on securities available for sale and changes in minimum pension liability, which are also recognized as separate components of shareholders’ equity.

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 exchange for the award. The provisions of SFAS No. 123 (revised 2004) will be effective for the Corporation’s financial statements issued for periods beginning after June 15, 2005. The methodology and impact of adoption has not yet been determined.

(Continued)

FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
(Amounts in thousands, except share data)

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements.

Restrictions on Cash: The subsidiary Banks are required to maintain certain daily reserve balances on hand in accordance with Federal Reserve Board requirements. The average reserve balance maintained in accordance with such requirements at December 31, 2004 and 2003 approximated $10,176 and $9,293. These balances do not earn interest.

Dividend Restriction: Banking regulations require maintaining certain capital levels and may limit the dividends paid by the Banks to FCBC or by FCBC to shareholders. These restrictions pose no practical limit on the ability of the Banks or FCBC to pay dividends at historical levels.

Fair Value of Financial Instruments: Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect these estimates.

Earnings per Common Share: Basic earnings per share is net income divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share include the dilutive effect of additional potential common shares issuable under stock options, computed using the treasury stock method.

Operating Segments: While the Corporation’s chief decision makers monitor the revenue streams of the various products and services, the identifiable segments are not material and operations are managed and financial performance is evaluated on a Corporation-wide basis. Accordingly, all of the Corporation’s financial service operations are considered by management to be aggregated in one reportable operating segment.

Financial Statement Presentation: Certain items in the 2002 and 2003 financial statements have been reclassified to conform to the 2004 presentation.

(Continued)

FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
(Amounts in thousands, except share data)

NOTE 2 – MERGER

On October 8, 2004, the Corporation completed the merger of FNB Financial Corp. (“FNB”) which was announced March 4, 2004. Immediately following the merger, FNB’s banking subsidiary, First National Bank of Shelby, was merged into FCBC’s banking affiliate, Farmers State Bank of New Washington. Effective upon the merger, the combined bank changed its name to First Citizens Bank.

The Corporation issued 785,823 shares of common stock valued at approximately $21,060. Total assets of FNB prior to the merger were $196,691, including $93,356 in loans and $165,261 in deposits. The transaction was recorded as a purchase and, accordingly, the operating results of FNB have been included in the Corporation’s consolidated financial statements since the date of the merger. The aggregate of the purchase price over the fair value of the net assets acquired of approximately $11,041 will be evaluated for impairment on an annual basis.

The following summarizes pro forma financial information for the year ended December 31, 2004, 2003, and 2002, assuming the ICBC (2002) and FNB (2004) mergers occurred at the start of 2002 and 2003 respectively.


	2004		2003		2002
Net interest income after provision for loan losses	$	27,827	$	23,836	$	24,395
Net income		3,865		1,626		7,395
Basic and diluted earnings per share		0.74		0.28		1.46

These amounts include FNB’s actual results in 2003 and for the first nine months of 2004 prior to the merger. The 2002 amounts include ICBC’s results for first three months of 2002. The pro forma results do not necessarily represent results which would have occurred if the merger had taken place on the basis assumed above, nor are they indicative of the results of future combined operations.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for both FNB and ICBC.


	FNB		ICBC

Cash and short-term investments	$	6,819	$	7,583
Securities		81,031		16,099
Loans, net		87,588		97,984
Goodwill		11,041		14,380
Customer relationship intangible		2,690		2,455
Other assets		4,692		2,530

Total assets acquired		193,861		141,031

Deposits		165,562		112,950
Other borrowed funds		6,488		2,500
Other liabilities		751		1,131

Total liabiliities assumed		172,801		116,581


Net assets acquired	$	21,060	$	24,450

(Continued)

FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
(Amounts in thousands, except share data)

NOTE 2 – MERGER (Continued)

This acquisition provided the Corporation with a strategic opportunity to expand into North Central Ohio. FNB’s market was contiguous to two of our existing markets, Huron County to the north and Crawford County to the west. The addition complemented the existing market area as well and will enable the Corporation to realize important synergies in the retail, commercial, and fee-based businesses. Finally, the acquisition also created synergies on the operations side of the business, allowing for potential reductions in costs of operations in future years.

NOTE 3 — SECURITIES

The fair value of available for sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows.


			Gross		Gross
	Fair		Unrealized		Unrealized
	Value		Gains		Losses
2004
U.S. Treasury securities and obligations of U.S. government 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	)


			Gross		Gross
	Fair		Unrealized		Unrealized
	Value		Gains		Losses
2003
U.S. Treasury securities and obligations of U.S. government agencies	$	64,333	$	636	$	(2	)
Corporate bonds		1,030		1		(8	)
Obligations of states and political subdivisions		35,036		1,408		(3	)
Mortgage-back securities		8,426		82		(51	)

Total debt securities		108,825		2,127		(64	)
Equity securities		683		93		—


Total	$	109,508	$	2,220	$	(64	)

(Continued)

FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
(Amounts in thousands, except share data)

NOTE 3 – SECURITIES (Continued)

The carrying amount, unrecognized gains and losses, and fair value of securities held to maturity were as follows.


			Gross		Gross
	Carrying		Unrecognized		Unrecognized		Fair
	Amount		Gains		Losses		Value
2004
Mortgage-backed securities	$	11	$	—	$	—	$	11


2003
Mortgage-backed securities	$	14	$	1	$	—	$	15

The fair value of securities and carrying amount, if different, at year end 2004 by contractual maturity were as follows. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.


	Held to maturity				Available for sale
	Amortized Cost		Fair Value		Fair Value
Due in one year or less	$	—	$	—	$	51,643
Due from one to five years		—		—		87,999
Due from five to ten years		—		—		4,122
Due after ten years		—		—		1,812
Mortgage-backed		11		11		8,411
Equity securities		—		—		481


Total	$	11	$	11	$	154,468

Securities with a carrying value of $96,951 and $83,813 were pledged as of December 31, 2004 and 2003, to secure public deposits and other deposits and liabilities as required or permitted by law.

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


	2004		2003		2002
Sale proceeds	$	243	$	7,124	$	4
Gross realized gains		104		292		—
Gross realized losses		—		—		—
Gains from securities called or settled by the issuer		3		9		8

(Continued)

FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
(Amounts in thousands, except share data)

NOTE 3 – SECURITIES (Continued)

Securities with unrealized losses at year end 2004 and 2003 not recognized in income are as follows.


	12 Months or less				More than 12 months				Total
2004	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


	12 Months or less				More than 12 months				Total
2003	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	$	3,002	$	2	$	—	$	—	$	3,002	$	2
Corporate bonds		529		8		—		—		529		8
Obligations of states and political subdivisions		2,194		3		—		—		2,194		3
Mortgage-backed securities		5,517		51		—		—		5,517		51


Total temporarily impaired	$	11,242	$	64	$	—	$	—	$	11,242	$	64

Unrealized losses on corporate bonds, 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.

(Continued)

FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
(Amounts in thousands, except share data)

NOTE 4 – LOANS

Loans at year-end were as follows.


	2004			2003
Commercial and agricultural	$	76,469		$	51,146
Commercial real estate		202,616			158,125
Residential real estate		228,467			205,635
Real estate construction		25,315			22,708
Consumer		32,807			24,765
Credit card and other		1,213			4,977
Leases		1,723			2,293

Total Loans		568,610			469,649
Allowance for loan losses		(11,706	)		(6,308	)
Net deferred loan fees		(711	)		(460	)
Unearned interest		(5	)		(3	)


Net loans	$	556,188		$	462,878

The Corporation will be selling two branches of its First Citizens Bank affiliate in January 2005. Upon completion of this sale, the acquiring entity will assume $6,046 in loans originated at the two branches. The loans will be sold at par.

Mr. Money reclassified $3,869 from the real estate fixed loan portfolio to loans held for sale at the end of 2004. The reclassified loans were recorded at the market value of $2,840 and a loss of $1,029 was realized. These loans are expected to be sold in February 2005.

Loans to directors and executive officers, including their immediate families and companies in which they are principal owners during 2004 were as follows.


Balance – January 1, 2004	$	3,560
New loans and advances		1,877
Repayments		(1,627	)
Effect of changes in related parties		305


Balance – December 31, 2004	$	4,115

Deposits from principal officers, directors, and their affiliates at year-end 2004 and 2003 were $8,667 and $5,650.

(Continued)

FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
(Amounts in thousands, except share data)

NOTE 5 – ALLOWANCE FOR LOAN LOSSES

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


	2004			2003			2002
Balance – January 1	$	6,308		$	6,325		$	4,865
Provision for loan losses		1,805			1,944			1,178
Balance from acquisition		5,746			—			1,426
Loans charged-off		(2,888	)		(2,356	)		(1,517	)
Recoveries		735			395			373


Balance – December 31	$	11,706		$	6,308		$	6,325

Impaired loans were as follows.


	2004		2003
Year-end loans with no allocated allowance for loan losses	$	—	$	924
Year-end loans with allocated allowance for loan losses		15,430		5,441
Amount of allowance for loan losses allocated		5,910		1,181


	2004		2003		2002
Average balance of impaired loans during year	$	8,724	$	6,768	$	5,567
Interest income recognized during impairment		471		409		346
Interest income recognized on a cash basis		471		409		346

Nonperforming loans were as follows.


	2004		2003
Loans past due over 90 days still on accrual	$	318	$	3,206
Nonaccrual loans		8,273		3,204

Nonperforming loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individual classified impaired loans.

(Continued)

FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
(Amounts in thousands, except share data)

NOTE 6 – SERVICING RIGHTS

Activity for capitalized mortgage servicing rights and the related valuation allowance follows.


	2004			2003			2002
Servicing rights:
Beginning of year	$	342		$	292		$	283
Additions		36			218			130
Amortized to expense		(93	)		(168	)		(121	)
Direct write-downs		—			—			—


End of year	$	285		$	342		$	292


Valuation allowance:
Beginning of year	$	(139	)	$	—		$	—
Additions expensed		—			(139	)		—
Reductions credited to expense		55			—			—


End of year	$	(84	)	$	(139	)	$	—

NOTE 7 – PREMISES AND EQUIPMENT

Year-end premises and equipment were as follows.


	2004			2003
Land and improvements	$	1,819		$	1,434
Buildings and improvements		13,443			10,938
Furniture and equipment		12,037			8,854

Total		27,299			21,226
Accumulated depreciation		(15,475	)		(10,745	)


Premises and equipment, net	$	11,824		$	10,481

Year-end premises and equipment held for sale were as follows.


	2004
Buildings and improvements	$	291
Furniture and equipment		135

Total		426
Accumulated depreciation		(247	)


Premises and equipment, net	$	179

(Continued)

FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
(Amounts in thousands, except share data)

NOTE 7 – PREMISES AND EQUIPMENT (Continued)

At December 31, 2004, premises and equipment held for sale represented fixed assets First Citizens sold in January 2005 during the sale of two branches. The two branches are located in Richwood and Green Camp, Ohio.

Depreciation expense was $987, $997, and $1,033 for 2004, 2003, and 2002.

Rent expense was $255, $276 and $217 for 2004, 2003, and 2002. Rent commitments under non-cancelable operating leases were as follows, before considering renewal options that generally are present.


2005	$	226
2006		170
2007		150
2008		28
2009		14

Total	$	588

NOTE 8 – GOODWILL AND INTANGIBLE ASSETS

Goodwill increased by $11,041 in 2004 as a result of the acquisition discussed in Note 2. In accordance with applicable accounting guidance, goodwill is no longer amortized starting in 2002.

The change in the carrying amount of goodwill for the year ended December 31, 2004 is as follows.


Balance as of January 1, 2004	$	15,052
Goodwill from acquisition during the period		11,041


Balance as of December 31, 2004	$	26,093

(Continued)

FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
(Amounts in thousands, except share data)

NOTE 8 – GOODWILL AND INTANGIBLE ASSETS (Continued)

Acquired Intangible Assets

Acquired intangible assets were as follows as of year end.


	2004				2003
	Gross				Gross
	Carrying		Accumulated		Carrying		Accumulated
	Amount		Amortization		Amount		Amortization
Customer relationship intangibles	$	6,425	$	1,727	$	3,735	$	1,336
Noncompete agreement		214		214		214		107


	$	6,639	$	1,941	$	3,949	$	1,443

Aggregate amortization expense was $498, $494 and $326 for 2004, 2003, and 2002.

Estimated amortization expense for each of the next five years and thereafter is as follows.


2005	$	733
2006		673
2007		644
2008		622
2009		476
Thereafter		1,550


	$	4,698

NOTE 9 – INTEREST-BEARING DEPOSITS

Interest-bearing deposits as of December 31, 2004 and 2003 were as follows.


	2004		2003
Demand	$	95,133	$	68,903
Statement and passbook savings		197,923		168,835
Certificates of deposit:
In excess of $100,000		49,734		42,002
Other		163,405		130,189
Individual Retirement Accounts		35,977		26,852


Total	$	542,172	$	436,781

(Continued)

FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
(Amounts in thousands, except share data)

NOTE 9 – INTEREST-BEARING DEPOSITS (Continued)

Scheduled maturities of certificates of deposit at December 31, 2004 were as follows.


2005	$	134,093
2006		46,601
2007		26,658
2008		2,269
2009		329
Thereafter		3,189


Total	$	213,139

The Corporation will be selling two branches of its First Citizens Bank affiliate in January 2005. Upon completion of this sale, the acquiring entity will receive $18,851 in deposits originated at the two branches. The deposits will be sold at par.

NOTE 10 – FEDERAL HOME LOAN BANK ADVANCES

The Corporation has a $40 million cash management advance line of credit with the Federal Home Loan Bank. The Corporation had no advances outstanding on this line as of December 31, 2004. The Corporation had $18,975 in advances outstanding on this line as of December 31, 2003 at a rate of 1.11%.

The Corporation has fixed-rate mortgage-matched advances from the Federal Home Loan Bank. Mortgage-matched advances are utilized to fund specific fixed-rate loans with certain prepayment of principal permitted without penalty.

At year-end, advances from the Federal Home Loan Bank were as follows.


	2004
Maturities October 2005 through June 2010, with fixed-rates ranging from 3.03% to 7.9% averaging 5.86%	$	30,855

Scheduled principal reduction of FHLB loans at December 31, 2004 were as follows.


2005	$	303
2006		30,144
2007		149
2008		159
2009		92
Thereafter		8


Total	$	30,855

The two $15,000 notes were drawn to help reduce the amount of Federal Funds purchased by the Corporation. The other notes listed above were loans that FNB had taken out from 1994 to 1996. In addition to the borrowings, the Corporation has outstanding letters of credit with the Federal Home Loan

(Continued)

FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
(Amounts in thousands, except share data)

NOTE 10 – FEDERAL HOME LOAN BANK ADVANCES (Continued)

Bank totaling $11,600 at year-end 2004 and $15,700 at year-end 2003 used for pledging against public funds. Federal Home Loan Bank borrowings and the letters of credit are collateralized by Federal Home Loan Bank stock and by $57,314 and $46,811 of residential mortgage loans under a blanket lien arrangement at year-end 2004 and 2003.

NOTE 11 – OTHER BORROWINGS

Information concerning securities sold under agreements to repurchase and treasury tax and loan deposits was as follows.


	2004			2003
Average balance during the year	$	12,840		$	13,285
Average interest rate during the year		1.07	%		0.89	%
Maximum month-end balance during the year	$	21,270		$	16,119
Weighted average interest rate at year end		1.64	%		0.80	%

Securities underlying repurchase agreements had a fair value of $13,546 at December 31, 2004 and $15,756 at December 31, 2003.

NOTE 12 – NOTE PAYABLE

FCBC has a secured borrowing agreement with LaSalle Bank, NA for up to $13,000. The agreement is split into two pieces; a $5,000 secured revolving line of credit which matures July 27, 2005, and a $10,000 term loan. The term loan matures July 30, 2007 and requires annual principal payments of $1,000 with a $6,000 balloon principal payment at maturity. At December 31, 2004, no amounts were outstanding on the line of credit balance and the term loan had a balance of $8,000. At December 31, 2003, no amounts were outstanding on the line of credit and the term loan was $9,000. The interest rate is three month LIBOR plus 1.75%, or 3.98% at December 31, 2004 and adjusts quarterly. The borrowings are secured by 100% of the common stock of Citizens.

Maturities over the next three years were as follows.


2005	$	1,000
2006		1,000
2007		6,000


Total	$	8,000

NOTE 13 – SUBORDINATED DEBENTURES

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

(Continued)

FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
(Amounts in thousands, except share data)

NOTE 13 – SUBORDINATED DEBENTURES (Continued)

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. 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 trust preferred securities 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.

Prior to December 31, 2003, the trusts issued in 2002 and 2003 were consolidated in the Corporation’s financial statements, with the trust preferred securities issued by the trusts reported in liabilities as “trust preferred securities” and the subordinated debentures eliminated in consolidation. Under new accounting guidance, FASB Interpretation No. 46, as revised in December 2003, the trusts are no longer consolidated with the Corporation as of December 31, 2003. Accordingly, the Corporation does not report the securities issued by the trusts as liabilities, and instead reports as liabilities the subordinated debentures issued by the Corporation and held by the trusts, as these are no longer eliminated in consolidation. Amounts previously reported as “trust preferred securities” in liabilities have been recaptioned “subordinated debentures” and continue to be presented in liabilities on the balance sheet. The effect of no longer consolidating the trusts did not significantly change the amounts reported as the Corporation’s assets, liabilities, equity, or interest expense.

NOTE 14 – INCOME TAXES

Income tax expense was as follows.


	2004		2003		2002
Current	$	1,814	$	2,072	$	2,821
Deferred		110		66		95


Income tax expense	$	1,924	$	2,138	$	2,916

(Continued)

FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
(Amounts in thousands, except share data)

NOTE 14 – INCOME TAXES (Continued)

Effective tax rates differ from the statutory federal income tax rate of 34% due to the following.


	2004			2003			2002
Income taxes computed at the statutory federal tax rate	$	2,291		$	2,620		$	3,415
Add (subtract) tax effect of Nontaxable interest income, net of nondeductible interest expense		(372	)		(481	)		(498	)
Dividends received deduction		(1	)		(1	)		—
Other		6			—			(1	)

Income tax expense	$	1,924		$	2,138		$	2,916

Tax expense attributable to security gains totaled $36, $102 and $3 in 2004, 2003, 2002.

Year-end deferred tax assets and liabilities were due to the following.


	2004			2003
Deferred tax assets
Allowance for loan losses	$	3,405		$	1,884
Deferred compensation		555			509
Intangible assets		1,594			1,022
Deferred loan fees		152			155
Pension costs		215			473
Other		7			8

Deferred tax asset		5,928			4,051


Deferred tax liabilities
Tax depreciation in excess of book depreciation		(836	)		(596	)
Discount accretion on securities		(8	)		(21	)
Purchase accounting adjustments		(1,708	)		(936	)
FHLB stock dividends		(1,236	)		(901	)
Unrealized gain on securities available for sale		(73	)		(733	)
Leases		(61	)		(23	)
Other		(69	)		(106	)

Deferred tax liability		(3,991	)		(3,316	)


Net deferred tax asset	$	1,937		$	735

(Continued)

FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
(Amounts in thousands, except share data)

NOTE 15 – RETIREMENT PLANS

The Corporation sponsors a savings and retirement 401(k) plan, which covers all employees who meet certain eligibility requirements and who choose to participate in the plan. The matching contribution to the 401(k) plan was $101, $95 and $76 in 2004, 2003 and 2002.

The Corporation and its subsidiaries also sponsor a pension plan which is a noncontributory defined benefit retirement plan for all employees who have attained the age of 20 1/2, completed six months of service and work 1,000 or more hours per year. Annual payments, subject to the maximum amount deductible for federal income tax purposes, are made to a pension trust fund.

The Corporation uses a September 30 measurement date for its plan.

Information about the pension plan is as follows.


	2004			2003
Change in benefit obligation:
Beginning benefit obligation	$	8,013		$	6,148
Service cost		633			455
Interest cost		464			423
Actuarial (gain) loss		(159	)		1,284
Benefits paid		(491	)		(297	)

Ending benefit obligation		8,460			8,013

Change in plan assets, at fair value:
Beginning plan assets		4,546			3,879
Actual return		344			534
Employer contribution		1,037			430
Benefits paid		(491	)		(297	)

Ending plan assets		5,436			4,546


Funded status		(3,025	)		(3,467	)
Unrecognized net actuarial loss		3,484			3,854
Unrecognized prior service cost		38			51
Unrecognized net transition asset at January 1, 1989 being recognized over 17 years		(99	)		(179	)
Minimum additional liability adjustment		(1,036	)		(1,651	)

Accrued benefit cost	$	(638	)	$	(1,392	)

(Continued)

FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
(Amounts in thousands, except share data)

NOTE 15 – RETIREMENT PLANS (Continued)

Pension amounts recognized in the consolidated balance sheets were as follows.


	Pension Benefits
	2004			2003
Accrued benefit cost	$	(638	)	$	(1,392	)
Intangible assets		38			51
Accumulated other comprehensive income		(646	)		(1,038	)


Net amount recognized	$	(1,246	)	$	(2,379	)

The accumulated benefit obligation for the defined benefit pension plan was $6,074 in 2004 and $5,938 in 2003.

The components of net periodic pension expense were as follows.


	2004			2003			2002
Service cost	$	633		$	455		$	313
Interest cost		464			423			296
Expected return on plan assets		(344	)		(534	)		173
Net amortization and deferral		145			344			(576	)


Net	$	898		$	688		$	206


Additional information
Increase/ (decrease) in minimum liability Included in other comprehensive income	$	(602	)	$	791		$	809

The weighted average assumptions used to determine benefit obligations at year-end were as follows.


	2004			2003			2002
Discount rate on benefit obligation		5.47	%		5.86	%		7.00	%
Long-term rate of return on plan assets		7.00			7.00			7.00
Rate of compensation increase		3.00			3.00			4.00

The weighted average assumptions used to determine net periodic pension cost were as follows.


	2004			2003			2002
Discount rate on benefit obligation		5.47	%		7.00	%		7.28	%
Long-term rate of return on plan assets		7.00			7.00			9.00
Rate of compensation increase		3.00			4.00			4.00

(Continued)

FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
(Amounts in thousands, except share data)

NOTE 15 – RETIREMENT PLANS (Continued)

The expectation for long-term rate of return on the pension assets and the expected rate of compensation increases are reviewed periodically by management in consultation with outside actuaries and primary investment consultants. Factors considered in setting and adjusting these rates are historic and projected rates of return on the portfolio and historic and estimated rates of increases of compensation.

The Corporation’s pension plan asset allocation at year-end 2004, and 2003, target allocation for 2005, and expected long-term rate of return by asset category are as follows.


				Percentage of Plan						Weighted-
	Target			Assets						Average Expected
	Allocation			at Year-end						Long-Term Rate
Asset Category	2005			2004			2003			of Return - 2004
Equity securities		20-50	%		54.7	%		55.0	%		3.6	%
Debt securities		30-60			15.0			17.4			3.4
Money market funds					0.4			0.7			1.6
Other		20-30			29.9			26.9			9.9


Total					100.0	%		100.0	%		7.0	%

The Corporation developed the pension plan investment policies and strategies for plan assets with its pension management firm. The long-term guidelines from above were created to maximize the return on portfolio assets while reducing the risk of the portfolio. The management firm may allocate assets among the separate accounts with the established long-term guidelines. Transfers among these accounts will be at the management firms discretion based on their investment outlook and the investment strategies that are outlined at periodic meetings with the Corporation.

The Corporation expects to contribute $373 to its pension plan in 2005.

Benefit payments, which reflect expected future service, are as follows.


2005	$	99
2006		104
2007		197
2008		218
2009		328
2010 thru 2014		2,386


Total	$	3,332

(Continued)

FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
(Amounts in thousands, except share data)

NOTE 16 – STOCK OPTIONS

Options to buy stock may be granted to directors, officers and employees under the stock option plan, which provides for issue of up to 225,000 options. Exercise price is the market price at date of grant, so there is no expense recognized in the income statement. The maximum option term is ten years, and options vest after three years.

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


	2004					2003
				Weighted				Weighted
				Average				Average
				Exercise				Exercise
	Shares			Price		Shares		Price
Outstanding at beginning of year		46,700		$	25.47		30,700	$	20.50
Granted		—			—		16,000		35.00
Exercised		—			—		—		—
Forfeited		(5,900	)		25.66		—		—

Outstanding at end of year		40,800		$	29.15		46,700	$	25.47


Options exercisable at year-end		—					—


Weighted average fair value of options granted during year						$	8.23

Options outstanding at year-end 2004 were as follows.

Outstanding

Weighted

Average

Weighted

Remaining

Average

Contractual

Exercise

Exercise price

Number

Life

Price

$20.50

26,900

7 yrs 6 mos.

20.50

$35.00

13,900

8 yrs 3.5 mos.

35.00

Outstanding at year-end

40,800

7 yrs 9 mos.

25.44

(Continued)

FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
(Amounts in thousands, except share data)

NOTE 17 – 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 financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance-sheet risk to 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 the commitment.

The contractual amount of financial instruments with off-balance-sheet risk was as follows at year-end.


	2004				2003
	Fixed		Variable		Fixed		Variable
	Rate		Rate		Rate		Rate
Commitments to extend credit:
Lines of credit and construction loans	$	15,835	$	58,514	$	4,199	$	46,956
Overdraft protection		—		6,559		—		6,658
Letters of credit		207		3,192		70		3,377


	$	16,042	$	68,265	$	4,269	$	56,991

Commitments to make loans are generally made for a period of one year or less. Fixed-rate loan commitments included above had interest rates ranging from 3.50% to 13.00% at December 31, 2004 and 3.25% to 8.00% at December 31, 2003. Maturities extend up to 30 years.

NOTE 18 – CAPITAL REQUIREMENTS AND RESTRICTION ON RETAINED EARNINGS

The Corporation and the subsidiary Banks are subject to regulatory capital requirements administered by the federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classification are also subject to qualitative judgments by the regulators. Failure to meet capital requirements can initiate regulatory action.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required.

The Corporation and the Banks were well capitalized at December 31, 2004 and 2003. No conditions or events have occurred since the last notification from regulators that management believes have changed the Corporation’s or the Banks’ classification.

(Continued)

FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
(Amounts in thousands, except share data)

NOTE 18 – CAPITAL REQUIREMENTS AND RESTRICTION ON RETAINED EARNINGS (Continued)


											To Be Well
											Capitalized Under
						For Capital					Prompt Corrective
	Actual					Adequacy Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
						(Dollars in Millions)
2003
Total capital to risk- weighted assets
Consolidated	$	69.1		14.8	%	$	36.9		8.0	%	$	46.1		10.0	%
Citizens		43.4		13.0			26.7		8.0			33.4		10.0
First Citizens		15.7		15.1			8.3		8.0			10.4		10.0
Tier I (Core) capital to risk- weighted assets
Consolidated		50.1		10.9			18.4		4.0			27.7		6.0
Citizens		39.5		11.8			13.4		4.0			20.0		6.0
First Citizens		14.4		13.9			4.2		4.0			6.2		6.0
Tier I (Core) capital to average assets
Consolidated		50.1		8.1			24.7		4.0			30.9		5.0
Citizens		39.5		8.3			19.1		4.0			23.9		5.0
First Citizens		14.4		10.4			5.5		4.0			6.9		5.0

The Coporation’s primary source of funds for paying dividends to its shareholders and for operating expenses is dividends received from the Banks. Payment of dividends by the Banks to the Corporation is subject to restrictions by the Banks’ regulatory agencies. These restrictions generally limit dividends to the current and prior two years retained earnings as defined by the regulations. In addition, dividends may not reduce capital levels below minimum regulatory requirements. Under the most restrictive of these requirements, the Corporation estimates that retained earnings available for payment of dividends by the Banks to FCBC approximated $2,505 and $1,565 at December 31, 2004 and 2003.

(Continued)

FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
(Amounts in thousands, except share data)

NOTE 19 — PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION

Condensed financial information of FCBC follows.


Condensed Balance Sheets	2004			2003
Assets:
Cash	$	2,560		$	3,115
Securities available for sale		481			483
Loans, net of allowance of $229 in 2004 and 2003		663			690
Investment in bank subsidiaries		102,828			72,855
Investment in nonbank subsidiaries		1,795			2,117
Note receivable from nonbank subsidiaries		13,350			12,250
Other assets		676			818


Total assets	$	122,353		$	92,328


Liabilities and Shareholders’ Equity:
Deferred income taxes and other liabilities	$	1,140		$	1,703
Subordinated debentures		25,000			12,500
Note payable		8,000			9,000
Common stock		68,430			47,370
Retained earnings		27,781			28,612
Treasury Stock		(7,494	)		(7,241	)
Accumulated other comprehensive income		(504	)		384


Total liabilities and shareholders’ equity	$	122,353		$	92,328


Condensed Statements of Income	2004			2003			2002
Dividends from bank subsidiaries	$	8,828		$	7,639		$	3,495
Interest income		423			395			514
Other income		124			3			6
Provision for loan losses		—			(229	)		—
Interest expense		(1,079	)		(828	)		(695	)
Other expense, net		(1,610	)		(1,214	)		(771	)


Earnings before equity in undistributed net earnings of subsidiaries		6,686			5,766			2,549
Income tax benefit		728			637			322
(Distributions in excess of earnings of subsidiaries) / equity in undistributed net earnings of subsidiaries		(2,601	)		(836	)		4,256


Net income	$	4,813		$	5,567		$	7,127

(Continued)

FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
(Amounts in thousands, except share data)

NOTE 19 — PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (Continued)


Condensed Statements of Cash Flows	2004			2003			2002
Operating activities:
Net income	$	4,813		$	5,567		$	7,127
Adjustment to reconcile net income to net cash provided by operating activities:
Provision for loan losses		—			229			—
Change in other assets and other liabilities		(3,166	)		(1,905	)		(1,278	)
Distributions in excess of/(equity in undistributed) net earnings of subsidiaries		2,601			836			(4,256	)

Net cash from operating activities		4,248			4,727			1,593

Investing activities:
Loan originations, net of loan payments		27			10			(929	)
Change in loan to nonbank subsidiaries		(1,100	)		600			1,850
Cash paid for acquisition, net of cash received		(10,902	)		—			—

Net cash from investing activities		(11,975	)		610			921

Financing activities:
Net change in short term note payable		(1,000	)		(3,000	)		(11,000	)
Repayment of long-term note payable		—			(1,000	)		—
Proceeds from long-term borrowings		—			—			10,000
Proceeds from subordinated debentures payable to First Citizens Statutory Trust I, II, and III		12,500			7,500			5,000
Cash paid for treasury stock		(253	)		—			(2,322	)
Cash dividends paid		(4,075	)		(6,543	)		(6,383	)

Net cash from financing activities		7,172			(3,043	)		(4,705	)


Net change in cash and cash equivalents		(555	)		2,294			(2,191	)

Cash and cash equivalents at beginning of year		3,115			821			3,012


Cash and cash equivalents at end of year	$	2,560		$	3,115		$	821

(Continued)

FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
(Amounts in thousands, except share data)

NOTE 20 — FAIR VALUES OF FINANCIAL INSTRUMENTS

The carrying amount and estimated fair values of financial instruments were as follows.


	December 31, 2004						December 31, 2003
	Carrying			Estimated			Carrying			Estimated
	Amount			Fair Value			Amount			Fair Value
Financial assets:
Cash and due from financial institutions	$	25,661		$	25,661		$	21,983		$	21,983
Federal funds sold		9,947			9,947			—			—
Securities available for sale		154,468			154,468			109,508			109,508
Securities held to maturity		11			11			14			15
Loans held for sale		8,886			8,886			159			159
Loans, net of allowance for loan losses		556,188			562,747			462,878			483,583
FHLB, FRB, GLBB, FMS and NCDC stock		8,972			8,972			7,211			7,211
Accrued interest receivable		4,828			4,828			4,143			4,143

Financial liabilities:
Deposits		(647,045	)		(645,644	)		(510,172	)		(512,090	)
Federal Home Loan Bank advances		(30,855	)		(30,242	)		(18,975	)		(18,975	)
U.S. Treasury interest-bearing demand note payable		(1,755	)		(1,755	)		(939	)		(939	)
Securities sold under agreements to repurchase		(12,712	)		(12,712	)		(12,115	)		(12,115	)
Notes payable		(8,000	)		(8,000	)		(9,000	)		(9,000	)
Subordinated debentures		(25,000	)		(25,000	)		(12,500	)		(12,500	)
Accrued interest payable		(421	)		(421	)		(521	)		(521	)

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

(Continued)

FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
(Amounts in thousands, except share data)

NOTE 21 – OTHER COMPREHENSIVE INCOME (LOSS)

Other comprehensive income (loss) components and related taxes were as follows.


	2004			2003			2002
Unrealized holding gains (losses) on available for sale securities	$	(1,840	)	$	(1,309	)	$	1,435
Reclassification adjustments for gains later recogninzed in income		(107	)		(301	)		(8	)

Net unrealized gains (losses)		(1,947	)		(1,610	)		1,427
Minimum pension liability adjustment		602			(791	)		(809	)
Tax effect		457			813			(190	)


Other comprehensive income (loss)	$	(888	)	$	(1,588	)	$	428

NOTE 22 – EARNINGS PER SHARE

The factors used in the earnings per share computation follow.


	2004		2003		2002
Basic
Net income	$	4,813	$	5,567	$	7,127

Weighted average common shares outstanding		5,211,904		5,033,203		4,811,591
Less: Average unallocated shares		—		—		—


Average common shares outstanding		5,211,904		5,033,203		4,811,591


Basic earnings per common share	$	.92	$	1.10	$	1.48


Diluted
Net income	$	4,813	$	5,567	$	7,127

Weighted average common shares outstanding for basic earnings per common share		5,211,904		5,033,203		4,811,591
Add: Dilutive effects of assumed exercises of stock options		4,653		8,674		1,073


Average shares and dilutive potential common shares outstanding		5,216,557		5,041,877		4,812,664


Diluted earnings per common share	$	.92	$	1.10	$	1.48

Basic earnings per common share is calculated by dividing net income by the weighted-average number of common shares outstanding for the period.

Diluted earnings per common share takes into consideration the pro forma dilution of unexercised stock option awards, computed using the treasury stock method.

FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
(Amounts in thousands, except share data)

NOTE 23 – QUARTERLY FINANCIAL DATA (UNAUDITED)


							Basic		Diluted
	Interest		Net Interest		Net		Earnings per		Earnings per
	Income		Income		Income		Common Share		Common Share
2004
First quarter	$	7,692	$	5,824	$	1,163	$	0.23	$	0.23
Second quarter		7,910		6,122		1,401		0.28		0.28
Third quarter		8,007		6,056		1,342		0.27		0.27
Fourth quarter *		10,227		7,671		907		0.14		0.14

2003
First quarter	$	8,594	$	6,260	$	1,850	$	0.37	$	0.37
Second quarter		8,490		6,304		1,703		0.34		0.34
Third quarter		8,182		6,180		1,307		0.26		0.26
Fourth quarter **		8,001		6,106		707		0.14		0.13

*		Interest income in the fourth quarter of 2004 increased primarily due to the interest-earning assets acquired through the merger with FNB. Net income in the fourth quarter of 2004 reflects $1,029 in market adjustments on loans moved from the loan portfolio into loans available for sale.

**		Net income in the fourth quarter of 2003 reflects $160 of severance expense for employees terminated as part of a reassessment of staffing needs.

		Also, in the fourth quarter of 2003, an additional provision for loan losses of $420 was expensed. The provision related to management’s analysis of the loss reserve for adequacy and also to the establishment of a reserve at FCBC for a loan participated with First Citizens.


	2004			2003			2002			2001			2000
EARNINGS
Net Income (000)	$	4,813		$	5,567		$	7,127		$	5,293		$	5,692
Per Common Share ⁽¹⁾
Earnings (basic)	$	0.92		$	1.11		$	1.48		$	1.30		$	1.39
Earnings (diluted)	$	0.92		$	1.10		$	1.48		$	1.30		$	1.39
Book Value	$	15.19		$	13.73		$	14.24		$	11.94		$	11.72
Dividends Paid	$	1.08		$	1.30		$	1.30		$	1.24		$	1.24

BALANCES (in millions)
Assets		817.5			636.4			651.6			487.7			489.3
Deposits		647.0			510.2			539.9			410.2			392.0
Net Loans		556.2			462.9			415.7			331.3			342.0
Shareholders’ Equity		88.2			69.1			71.7			48.7			47.9

PERFORMANCE RATIOS
Return on Average Assets		0.71	%		0.87	%		1.12	%		1.06	%		1.19	%
Return on Average Equity		6.74	%		7.82	%		10.22	%		10.65	%		12.09	%
Equity Capital Ratio		10.79	%		10.86	%		11.00	%		9.99	%		9.80	%
Net Loans to Deposit Ratio		85.96	%		90.73	%		76.99	%		80.78	%		87.25	%
Loss Allowance to Total Loans		2.06	%		1.34	%		1.50	%		1.45	%		1.19	%


	Year ended December 31,
(Dollars in thousands, except per share data)	2004			2003			2002			2001			2000
Net yield on average interest-earning assets		4.07	%		4.21	%		4.09	%		4.23	%		4.10	%
Return on average total assets		0.71			0.87			1.12			1.06			1.19
Return on average shareholders’ equity		6.74			7.82			10.22			10.65			12.09
Average shareholders’ equity as a percent of average total assets		10.48			11.08			10.92			9.96			9.87
Net loan charge offs as a percent of average total loans		0.43			0.44			0.27			0.30			0.31
Allowance for loan losses as a percent of loans at year end		2.06			1.34			1.50			1.45			1.19
Shareholders’ equity as a percent of total year end assets		10.79			10.86			11.00			9.99			9.80


Five–Year Selected Consolidated Financial Data			1

Common Stock and Shareholder Matters			3

General Development of Business			3

Management’s Discussion and Analysis of Financial Condition and Results of Operations			5

Quantitive and Qualitative Disclosures About Market Risk			21

Financial Statements
Report of Independent Registered Public Accounting Firm on Financial Statements			25
Consolidated Balance Sheets			27
Consolidated Statements of Income			28
Consolidated Statements of Changes in Shareholders’ Equity			29
Consolidated Statement of Cash Flows			30
Notes to Consolidated Financial Statements			32