[FC BANC CORP. LETTERHEAD]
January 13, 2006
VIA EDGAR
Mr. Paul Cline
Senior Accountant
Division of Corporation Finance
United States Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
RE: FC BANC CORP.
FORM 10-KSB FOR FISCAL YEAR ENDED DECEMBER 31, 2004
FILED MARCH 30, 2005
FILE NUMBER 0-25616
Dear Mr. Cline:
This letter is to address the comments set forth in your November 23,
2005 letter. We have set forth below our responses to each of your comments,
matching our responses to the item number of the particular comment in your
letter.
FORM 10-KSB
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, PAGE 16
1. FC Banc Corp. will revise Management's Discussion and Analysis
of Financial Condition and Results of Operations to disclose
the details related to the $316,000 charge-off of commercial
and agricultural loans and whether the cause of the charge-off
is expected to impact future operating results. FC Banc Corp.
will add the following discussion after the disclosure of the
Guide 3 information on the Analysis and Allocation of the
Allowance for Loan Losses, and the disclosure of credit
quality ratios on page 16:
There was a significant increase in charge-offs of
commercial and agricultural loans from $46,000 in
2003 to $316,000 in 2004. The commercial and
agricultural loans charged off in 2004 had previously
been identified by management and the potential loss
on these problem loans had been provided for in the
allowance for loan losses in prior years. Of the
$316,000 in commercial and agricultural loans charged
off during
Mr. Paul Cline
United States Securities and Exchange Commission
January 13, 2006
Page 2
2004, $276,000 of the total consisted of two
commercial loans. We do not anticipate that the need
to charge off these loans in 2004, which led to the
substantial increase in charge-offs in 2004, will
impact our future operating results.
PROVISION FOR LOAN LOSSES, PAGE 25
2. We will revise the discussion of the provision for loan losses
at page 25 to provide more detail and other analysis
supporting our provision for loan loss. The first sentence at
the top of page 26 will be revised to state as follows:
Management provided an additional $90,000 to the
reserve for loan losses in 2004 to reflect the
additional credit risk associated with management's
anticipation of growth of the Bank's loan portfolio
and the overall credit quality of the portfolio.
Following the first paragraph on page 26, the following
discussion will be added:
As a result of loans sold in 2004, our loan portfolio
decreased. We had projected future loan growth that
would have more than offset the amount of loans sold.
The amounts provided to the reserve for loan losses
in 2004 were a result of our normal monthly process
to establish the allocation to the reserve for loan
losses. The procedures for assessing the adequacy of
the allowance for loan losses reflect our evaluation
of credit risk after careful consideration of all
information available to us. In developing this
assessment, we must rely on estimates and exercise
judgment regarding matters where the ultimate outcome
is unknown, such as economic factors, developments
affecting companies in specific industries and issues
with respect to single borrowers. Depending on
changes in circumstances, future assessments of
credit risk may yield different results, which may
require an increase or a decrease in the allowance
for loan losses.
The allowance is regularly reviewed by management to
determine whether the amount is considered adequate
to absorb probable losses. This evaluation includes:
(1) specific loss estimates on certain individually
reviewed loans; (2) statistical loss estimates for
loan pools that are based on historical loss
experience; (3) general loss estimates that are based
upon the size, quality, and concentration
characteristics of the various loan portfolios; (4)
adverse situations that may affect a borrower's
ability to repay; and (5) current economic and
industry conditions. Also considered as part of that
judgment is a review of the Bank's trends in
delinquencies and loan losses, as well as trends in
delinquencies and losses for the region
Mr. Paul Cline
United States Securities and Exchange Commission
January 13, 2006
Page 3
and nationally, and economic factors. The allowance
for loan losses is maintained at a level believed
adequate by management to absorb probable losses
inherent in the loan portfolio. Management's
evaluation of the adequacy of the allowance is an
estimate based on management's current judgment about
the credit quality of the loan portfolio. While we
strive to reflect all known risk factors in its
evaluations, judgment errors may occur. After these
procedures were carried out, management's decision
was to add the $90,000 to the reserve in 2004.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, PAGE 28
3. We will include the signed audit report in the amendment to
the 10-KSB.
NOTE 9. INCOME TAXES, PAGE 44
4. Note 9 regarding income taxes will be revised in the amendment
to our 10-KSB to include the following statement:
In evaluating the deferred tax position at December
31, 2004, it was determined that future taxable
income could be expected to be sufficient to utilize
both the net operating loss (NOL) expected for 2004
($129,000) and the alternative minimum tax (AMT)
credit carryforward ($186,000), prior to these
carryforwards expiring under Internal Revenue Service
regulations. However, there were two factors
considered when making this determination:
1. The NOL carryforward period is twenty years
and the AMT credit can be carried forward
indefinitely.
2. The recent taxable position of FC Banc Corp
during the last three years has resulted in
either an AMT tax position or a net
operating loss position.
Based on these two factors, it was determined that
any income statement benefit for 2004 resulting from
these deferred tax assets would not be appropriate,
since the recent past indicates that it may be
several years before the benefits would be utilized.
Therefore, a valuation allowance of $57,000 was
recorded in 2004 to offset any current year income
statement benefit that would have resulted from
recording the deferred tax assets.
Mr. Paul Cline
United States Securities and Exchange Commission
January 13, 2006
Page 4
FORM 10-QSB FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005
5. After considerable evaluation of the loan portfolio and its
future performance, taking into consideration the interest
rate volatility of the components of the mortgage loan
portfolio, it was decided in February 2004 that the Company
would sell a group of existing loans. As a result of the
evaluations, management identified and isolated the sector of
the mortgage loan portfolio creating the greatest interest
rate risk. The loans that were sold may have been originated
anytime over the past five to ten years. Thus, there is no
disclosure required in the cash flow statement for these
originations. The sale of the loans is included in investing
activities and net against the let loan origination activity
for the year. Upon further review we realize that the loan
sale portion should be separately disclosed as an investing
activity, however we do not believe this creates a material
deficiency. Further we do not believe there is a need to amend
the Form 10-K based on the immaterial nature, there is no
subtotal or total on the cash flow statement that would change
by the correction of this deficiency.
There were no other loans held with the intent to sell in
2005, 2004, or 2003, nor were there any other loans sold
during 2005, 2004, or 2003. When the decision was made to sell
certain loans, the fair value of the loans exceeded the net
carrying value; therefore there was no need to provide a
valuation allowance. Generally, it is our intent to portfolio
all loans originated.
We look forward to hearing from you regarding our responses to your
comments. FC Banc Corp. acknowledges that:
o it is responsible for the adequacy and accuracy of the
disclosure in the filing;
o SEC staff comments or changes to disclosure in response to
staff comments do not foreclose the Commission from taking any
action with respect to the filing; and
o FC Banc Corp. may not assert staff comments as a defense in
any proceeding initiated by the Commission or any person under
the Federal Securities Laws of the United States.
Sincerely,
/s/ Jeffrey A. Wise
Jeffrey A. Wise
Treasurer and Chief Financial Officer