U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
TO
COMMISSION FILE NUMBER - 33-53596
FC BANC CORP
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
OHIO 34-1718070
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
Farmers Citizens Bank Building,
105 Washington Square
Box 567, Bucyrus, Ohio 44820-0567
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(419) 562-7040
(ISSUER'S TELEPHONE NUMBER)
N/A
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No . . .
As of September 30, 2001, 590,154 common shares of stock of the Registrant were
outstanding. There were no preferred shares outstanding.
FC BANC CORP
BUCYRUS, OHIO
FORM 10-QSB
INDEX
Page Number
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets - 3
September 30, 2001 and December 31, 2000
Consolidated statements of income - 4
Three and nine months ended September 30, 2001 and 2000
Consolidated statements of comprehensive income- 5
Three and nine months ended September 30, 2001 and 2000
Consolidated statements of changes in
Shareholders' equity - Nine months ended September 30, 2001 6
And year ended December 31, 2000
Consolidated statement of cash flows - 7
Nine months ended September 30, 2001 and 2000
Notes to consolidated financial statements 8
September 30, 2001 and December 31, 2000
Item 2. Management's Discussion and Analysis of Financial 13
Condition and Results of Operations
PART II OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
2
FC BANC CORP.
BUCYRUS, OHIO
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
Sept. 30, Dec.31,
2001 2000
---- ----
ASSETS
Cash and cash equivalents
Cash and amounts due from banks $ 2,998 $ 3,675
Federal Funds Sold 4,300 1,200
Interest-bearing demand deposits in other banks 40 10
--------- ---------
Total cash and cash equivalents 7,338 4,885
Investment securities, available-for-sale 32,340 27,977
Loans 63,368 62,679
Allowance for loan losses (1,499) (1,496)
--------- ---------
Net loans 61,869 61,183
Premises and equipment, net 3,239 2,041
Accrued interest receivable 871 750
Cash surrender value of life insurance 2,577 2,489
Deferred income taxes 254 391
Other assets 509 415
--------- ---------
TOTAL ASSETS $ 108,997 $ 100,131
========= =========
LIABILITIES
Deposits
Noninterest-bearing $ 12,025 $ 11,636
Interest-bearing 71,666 73,291
--------- ---------
Total deposits 83,691 84,927
Borrowed Funds 11,833 2,258
Accrued interest payable 171 228
Other liabilities 1,211 942
--------- ---------
TOTAL LIABILITIES 96,906 88,355
--------- ---------
SHAREHOLDERS' EQUITY
Common stock of no par value;
4,000,000 shares authorized, 665,632 shares issued 2,198 2,198
Retained earnings 11,541 11,212
Treasury stock, at cost; 75,478 and 60,777 shares (1,921) (1,560)
Accumulated other comprehensive income (loss) 273 (74)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 12,091 11,776
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 108,997 $ 100,131
========= =========
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
3
FC BANC CORP.
BUCYRUS, OHIO
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share)
(unaudited)
3 Months Ended 9 Months Ended
Sept 30, Sept 30,
2001 2000 2001 2000
---- ---- ---- ----
INTEREST INCOME
Interest and fees on loans $1,369 $ 1,337 $4,091 $ 3,809
Interest and dividends on investment securities 346 475 1,098 1,461
Interest on federal funds sold 78 2 186 7
------ ------- ------ -------
TOTAL INTEREST INCOME 1,793 1,814 5,375 5,277
------ ------- ------ -------
INTEREST EXPENSE
Interest on deposits 624 753 2,017 2,103
Interest on borrowed funds 100 12 250 32
------ ------- ------ -------
TOTAL INTEREST EXPENSE 724 765 2,267 2,135
------ ------- ------ -------
NET INTEREST INCOME 1,069 1,049 3,108 3,142
Provision for loan losses 0 (50) 0 (134)
------ ------- ------ -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSS 1,069 1,099 3,108 3,276
OTHER INCOME
Service charges 144 135 423 391
Life insurance buildup 32 32 96 95
Gain on sale of investments 40 0 40 0
Other income 11 1 40 3
------ ------- ------ -------
TOTAL OTHER INCOME 227 168 599 489
------ ------- ------ -------
OTHER EXPENSES
Salaries and benefits 503 442 1,380 1,324
Net occupancy and equipment expenses 162 197 502 516
Supplies 19 27 62 76
Advertising and public relations 32 30 77 64
Directors' fees 22 21 67 63
Legal and professional 39 33 147 91
State taxes 36 35 111 106
Other expenses 190 153 563 512
------ ------- ------ -------
TOTAL NON-INTEREST EXPENSE 1,003 938 2,909 2,752
------ ------- ------ -------
NET INCOME BEFORE FEDERAL INCOME
TAX EXPENSE 293 329 798 1,013
Federal income tax expense 64 87 181 268
------ ------- ------ -------
NET INCOME $ 229 $ 242 $ 617 $ 745
====== ======= ====== =======
EARNINGS PER SHARE:
Earnings per common share - basic $ 0.39 $ 0.40 $ 1.03 $ 1.20
Earnings per common share - diluted $ 0.39 $ 0.39 $ 1.02 $ 1.19
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4
FC Banc Corp
Consolidated Statement of Comprehensive Income
(Unaudited) Three months Nine months
ended September 30, ended September 30,
(In thousands) 2001 2000 2001 2000
- -----------------------------------------------------------------------------------------------------------------------
Net income 229 242 617 745
Other comprehensive income:
Unrealized gains on available for sale securities 233 363 567 245
Less: Reclassification adjustment for (gains) losses
included in net income (40) -- (40) --
--- --- --- ---
Other comprehensive income before tax 193 363 527 245
Income tax expense related to other comprehensive income 66 123 180 83
Other comprehensive income, net of tax 127 240 347 162
--- --- --- ---
---
Comprehensive income 356 482 964 907
=== === === ===
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
5
FC BANC CORP
BUCYRUS, OHIO
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited) (Dollars in thousands)
-----------
Number of Shares Amount
---------------- ------
Accumulated
Other
Additional Comprehen- Comprehen-
Common Treasury Common paid-in Retained Treasury sive sive
Stock Stock stock capital earnings Stock Income Income
----- ----- ----- ------- -------- ----- ------ ------
Balances at December 31, 1999 665,632 43,441 $832 $1,371 $10,720 $(1,047) $(523)
Comprehensive Income:
Net Income 886 $886
Other comprehensive income, net of tax:
Change in unrealized
Gain (loss) on securities
Available-for-sale, net of
Taxes 449 449
-------
Total Comprehensive income $ 1,335
=======
Dividends declared-common ($0.64) per (394)
share
Sale of treasury stock (2,360) (5) 57
Purchase of 19,696 common shares 19,696 (570)
------- ------ --- ----- ------ ------ ---
Balances at December 31, 2000 665,632 60,777 832 1,366 11,212 (1,560) (74)
Comprehensive Income:
Net Income 617 $ 617
Other comprehensive income,
net of tax:
Change in unrealized
Gain (loss) on securities
Available-for-sale, net of
Taxes 347 347
-------
TOTAL COMPREHENSIVE INCOME $ 964
=======
Dividends declared - common ($0.48) per
share (288)
Purchase of 14,701 common shares 14,701 (361)
------- ------ --- ----- ------ ------ ---
Balances at September 30, 2001 665,632 75,478 $832 $1,366 $11,541 $(1,921) $273
======= ====== ==== ====== ======= ======= ====
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
6
FC BANC CORP
BUCYRUS, OHIO
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
9 Months Ended 9 Months Ended
September 30 September 30
------------ ------------
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 617 $ 745
Adjustments to reconcile net income to net cash
Provided by operating activities:
Provision for loan losses 0 (134)
Gain on sale of investment securities, net (40) 0
Income accrued on life insurance contracts (96) (87)
Depreciation 225 282
Loss on sale of Premises and equipment 0 (3)
Deferred income taxes (124) 200
Investment securities amortization (accretion), net 90 (271)
Net change in:
Accrued interest receivable (121) (245)
Accrued interest payable (57) 17
Other assets (94) (286)
Other liabilities 269 289
-------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 669 507
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of available-for-sale securities 130 0
Purchases of securities available-for-sale (12,521) (104)
Proceeds from maturities of securities available-for-sale 8,498 4,171
Net increase in loans (686) (5,668)
Proceeds from sale of premises and equipment 0 8
Purchase of premises and equipment (1,423) (306)
-------- -------
NET CASH USED IN INVESTING ACTIVITIES (6,002) (1,899)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in:
Noninterest-bearing, interest-bearing, demand, and savings deposits (620) (4,708)
Certificates of deposit (616) 4,341
Net increase in short-term borrowed funds 5,597 1,700
Proceeds from long-term borrowed funds 4,000 0
Payment on long-term borrowed funds (22) (5)
Proceeds from Stock Option exercises 0 52
Purchase of treasury stock (361) (511)
Cash dividends paid (192) (297)
-------- -------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 7,786 (572)
-------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,453 (820)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,885 4,321
-------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,338 $ 3,501
======== =======
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for interest $ 2,324 $ 2,118
Cash paid during the year for income taxes 100 235
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
7
FC BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 2001 and December 31, 2000
NOTE 1. BASIS OF PRESENTATION
In the opinion of Management, the accompanying unaudited interim consolidated
financial statements contain all adjustments necessary for a fair presentation
of FC Banc Corp's ("Company" or "Bancorp") financial position as of September
30, 2001, and December 31, 2000, and the results of operations for the three-
and nine-months ended September 30, 2001 and 2000, and the cash flows for the
nine months ended September 30, 2001 and 2000. Certain information and note
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. It is suggested
that these interim consolidated financial statements be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-KSB. The results of operations for the three-
and nine- months ended September 30, 2001 are not necessarily indicative of the
results, which may be expected for the entire fiscal year.
NOTE 2. ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as follows:
(Dollars in thousands)
Nine months ended Year ended
September 30, December 31,
2001 2000
---- ----
Balance, beginning of period $ 1,496 $ 1,732
Provision for loan losses 0 (134)
Recoveries 91 81
Charge-offs (88) (183)
------- -------
Balance, end of period $ 1,499 $ 1,496
======= =======
8
NOTE 3. BORROWED FUNDS
Borrowed Funds are comprised of the following at:
(Dollars in thousands)
Current
Interest Balance
Rate September 30, December 31, 2000
---- -------------- -----------------
2001
----
REPURCHASE AGREEMENTS 2.90% $7,832 $2,235
FEDERAL HOME LOAN ADVANCES
Fixed Rate Advances with Monthly Interest
Advance due February 22, 2004 5.47% $1,000 $ 0
Advance due March 21, 2006 5.35% 1,000 0
------- ------
Total Federal Home Bank Advances $2,000 $ 0
LONG-TERM DEBT
Note payable to correspondent bank, due 6.00% $1,983 $ 0
May 18, 2011 with monthly principal
and interest payments at 1% below
prime to reprice after five years.
Note payable, due January 15, 2004, with
monthly principal and interest payments 6.00% $ 18 $ 23
------- ------
TOTAL BORROWED FUNDS $11,833 $2,258
======= ======
Securities (with a carrying value of $8,715,227) sold under agreement to
repurchase generally mature within one to four days from the transaction date.
The securities underlying the agreements were maintained under the Bank's
control. The following applied during the periods in 2001 and 2000.
(Dollars in thousands)
2001 2000
---- ----
Interest Rate at Period End 2.90% 6.35%
Highest Month End Amount Outstanding During the Period $ 7,832 $2,258
Average Amount Outstanding During the Period 5,356 396
Average Rate of Interest for the Period
4.11% 6.51%
9
The aggregate minimum future annual principal payments on FHLB advances are as
follows:
(Dollars in thousands)
2001 $ 0
2002 0
2003 0
2004 $1,000
2005 0
After 2005 1,000
------
$2,000
======
The aggregate minimum future annual principal payments on Notes Payable are as
follows:
(Dollars in thousands)
2001 $ 16
2002 62
2003 67
2004 63
2005 66
After 2005 1,727
------
$2,001
======
NOTE 4. REGULATORY CAPITAL
The following table illustrates the compliance by the Bank with currently
applicable regulatory capital requirements at September 30, 2001.
(Dollars in thousands)
Categorized as "Well
Capitalized" Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
Total Risk-Based Capital $12,536 18.18% $5,515 8.00% $6,894 10.00%
(To Risk-Weighted Assets)
Tier I Capital 11,667 16.92% 2,758 4.00% 4,136 6.00%
(To Risk-Weighted Assets)
Tier I Capital 11,667 10.85% 4,360 4.00% 5,450 5.00%
(To Total Assets)
Tangible Capital 11,667 10.85% 4,360 4.00% N/A N/A
(To Total Assets)
10
NOTE 5. EARNINGS PER SHARE
Earnings per share ("EPS") is computed in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share," which was adopted
by the Company as of December 31, 1997. Common stock equivalents include shares
granted under the Stock Option Plan ("SOP"). Following is a reconciliation of
the numerators and denominators of the basic and diluted EPS calculations.
For the Three Months Ended September 30, 2001
Per
Income Shares Share
Numerator (Denominator) Amount
--------- ------------- ------
Basic EPS $229,247 594,221 $0.39
Income available to
common shareholders
Effect of dilutive securities: None 1,131 0.00
-------- ------- -----
Diluted EPS Income available to $229,247 595,352 $0.39
Common shareholders + ======== ======= =====
Assumed conversions
For the Three Months Ended September 30, 2000
Per
Income Shares Share
Numerator (Denominator) Amount
--------- ------------- ------
Basic EPS $242,196 612,703 $0.40
Income available to
Common shareholders
Effect of dilutive securities: None 5,319 (.01)
-------- ------- -----
Diluted EPS Income available to $242,196 618,022 $0.39
common shareholders + ======== ======= =====
assumed conversions
11
For the Nine Months Ended September 30, 2001
Per
Income Shares Share
Numerator (Denominator) Amount
--------- ------------- ------
Basic EPS $617,316 598,255 $1.03
Income available to
Common shareholders
Effect of dilutive securities: None 5,451 (0.01)
-------- ------- -----
Diluted EPS Income available to $617,316 603,706 $1.02
Common shareholders + ======== ======= =====
Assumed conversions
For the Nine Months Ended September 30, 2000
Per
Income Shares Share
Numerator (Denominator) Amount
--------- ------------- ------
Basic EPS $744,985 618,662 $ 1.20
Income available to
common shareholders
Effect of dilutive securities: None 5,071 (0.01)
-------- ------- -----
Diluted EPS Income available to $744,985 623,733 $ 1.19
Common shareholders + ======== ======= ======
assumed conversions
NOTE 6. RECLASSIFICATIONS
Certain amounts in the consolidated financial statements for 2000 have been
reclassified to conform to the 2001 presentation. Such reclassifications did not
effect net income or shareholders equity.
12
FC BANC CORP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SAFE HARBOR CLAUSE
This report contains certain "forward-looking statements." The Company
desires to take advantage of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995 and is including this statement for the
express purpose of availing itself of the protection of such safe harbor with
respect to all such forward-looking statements. These forward-looking
statements, which are included in Management's Discussion and Analysis, describe
future plans or strategies and include the Company's expectations of future
financial results. The words "believe," "expect," "anticipate," "estimate,"
"project," and similar expressions identify forward-looking statements. The
Company's ability to predict results or the effect of future plans or strategies
is inherently uncertain. Factors which could affect actual results include
interest rate trends, the general economic climate in the Company's market area
and the country as a whole, loan delinquency rates, and changes in federal and
state regulations. These factors should be considered in evaluating the
forward-looking statements, and undue reliance should not be placed on such
statements.
GENERAL
The Company is a bank holding company whose activities are primarily
limited to holding the stock of The Farmers Citizens Bank, Bucyrus, Ohio,
("Bank"). The Bank conducts a general banking business in North Central Ohio
that consists of attracting deposits from the general public and applying those
funds to the origination of loans for residential, consumer and non-residential
purposes. The Bank's profitability is significantly dependent on net interest
income that is the difference between interest income generated from
interest-earning assets (i.e., loans and investments) and the interest expense
paid on interest-bearing liabilities (i.e., customer deposits and borrowed
funds). Net interest income is affected by the relative amount of
interest-earning assets and interest-bearing liabilities and interest received
or paid on these balances. The level of interest rates paid or received by the
Bank can be significantly influenced by a number of environmental factors, such
as governmental monetary policy, that are outside of management control.
Earnings per common share were computed by dividing net income by the
weighted-average number of shares outstanding for the three- and nine month
periods ended September 30, 2001 and 2000.
The consolidated financial information presented herein has been
prepared in accordance with generally accepted accounting principles ("GAAP")
and general accounting practices within the financial services industry. In
preparing consolidated financial statements in accordance with GAAP, management
is required to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and revenues and expenses
during the reporting period. Actual results could differ from such estimates.
The Company is subject to regulation by the Board of Governors of the
Federal Reserve System, which limits the activities in which the Company and the
Bank may engage. The Bank is supervised by the State of Ohio, Division of
Financial Institutions and its deposits are insured up to applicable limits
under the Bank Insurance Fund ("BIF") of the Federal Deposit Insurance
Corporation ("FDIC"). The Bank is a
13
member of the Federal Reserve System and is subject to its supervision. The
Company and the Bank must file with the U.S. Securities and Exchange Commission,
the Federal Reserve Board and Ohio Division of Financial Institutions the
prescribed periodic reports containing full and accurate statements of its
affairs.
The Bank operates five banking offices located in Crawford, Morrow and Knox
Counties, Ohio. The primary market area of the Bank is North Central Ohio that
includes Crawford, Morrow, Knox and contiguous counties.
The Bank continues to focus on providing FirstoClass Banking(TM) to its
customers. The Bank continues to offer PhoneoAccess Banking(TM) (1-877-562-4FCB)
that allows customers to access their bank account information 24 hours a day.
Also, the Bank offers full internet banking services, including bill pay, at
www.farmerscitizensbank.com.
Construction on the Bank's new Main Office at 105 Washington Square,
Bucyrus, Ohio began in the second quarter of 2001 and continues with completion
expected in May 2002. This project will modernize its primary banking facilities
and increase the efficiency of its operations. The total projected costs of the
new project is $3.6 million of which $1.1 million has been expended thus far.
CHANGES IN FINANCIAL CONDITION
At September 30, 2001, the consolidated assets of the Company totaled
$109.0 million, an increase of $8.9 million, or 8.89%, from $100.1 million at
December 31, 2000. The increase in total assets resulted primarily from an
increase in borrowed funds, which funded increases in overnight federal funds
sold, investments, and loans.
Investment securities available-for-sale increased by $4.3 million, or
15.35% to $32.3 million at September 30, 2001, compared to $28.0 million at
December 31, 2000. The increase was the result of successful marketing of a
sweep repurchase agreement product, of which some was invested into securities.
Cash and cash equivalents increased by $2.4 million to $7.3 million at
September 30, 2001 compared to $4.9 million at December 31, 2000, funded by an
increase in borrowed funds. Due to the current rate environment, management has
temporarily invested these funds in overnight federal funds sold as opposed to
locking into longer term investments with low yields.
Deposit liabilities decreased by $1.2 million, or 1.41%, to $83.7
million at September 30, 2001, from $84.9 million at December 31, 2000. The
decline was attributable to the loss of public funds, which were transferred to
repurchase agreements. Certificate of deposits, interest-bearing demand, and
savings balances declined by $0.6 million, $0.4 million, and $0.7 million,
respectively. Demand deposits increased by $0.4 million.
The Bank's liquidity, primarily represented by cash and cash
equivalents, is a result of its operating, investing and financing activities.
Principal sources of funds are deposits, loan and mortgage-backed security
repayments, maturities of securities and other funds provided by operations. The
Bank also has the ability to borrow from the Federal Home Bank of Cincinnati
("FHLB"), certain correspondent banks, as well as the Federal Reserve Bank of
Cleveland ("FRB" or "FED"). While scheduled loan repayments and maturing
investments are relatively predictable, deposit flows and early loan and
mortgage-backed security prepayments are more influenced by interest rates,
general economic conditions and competition. The Bank
14
maintains investments in liquid assets based upon management's assessment of (i)
the need for funds, (ii) expected deposit flows, (iii) the yields available on
short-term liquid assets and (iv) the objectives of the asset/liability
management program. In the ordinary course of business, part of such liquid
investments is composed of deposits at correspondent banks. Although the amount
on deposit at such banks often exceeds the $100,000 limit covered by FDIC
insurance, the Bank monitors the capital of such institutions to ensure that
such deposits do not expose the Bank to undue risk of loss.
The Asset/Liability Management Committee of the Bank is responsible for
liquidity management. This committee, which is comprised of various managers,
has a Funds Management Policy that covers all assets and liabilities, as well as
off-balance sheet items that are potential sources and uses of liquidity. The
Bank's liquidity management objective is to maintain the ability to meet
commitments to fund loans and to purchase securities, as well as to repay
deposits and other liabilities in accordance with their terms. The Bank's
overall approach to liquidity management is to ensure that sources of liquidity
are sufficient in amounts and diversity to accommodate changes in loan demand
and deposit fluctuations without a material adverse impact on net income. The
Committee monitors the Bank's liquidity needs on an ongoing basis. Currently the
Bank has several sources available for both short- and long-term liquidity
needs. These include, but are not restricted to advances from the FHLB, Federal
Funds and borrowings from the FED and other correspondent banks.
The Bank is subject to various regulatory capital requirements
administered by its primary federal regulator, the FRB. Failure to meet minimum
capital requirements can initiate certain mandatory, and possible additional
discretionary actions by regulators that, if undertaken, could have a material
affect on the Company and the consolidated financial statements. Under the
regulatory capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that involve
quantitative measures of the Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Bank's capital amounts and classification under the prompt corrective action
guidelines are also subject to qualitative judgements by the regulators about
components, risk weighing, and other factors.
Qualitative measures established by the regulation to ensure capital
adequacy requires the Bank to maintain minimum amounts and ratios of: total
risk-based capital and Tier I capital to risk-weighted assets (as defined by the
regulations), and Tier I capital to average assets (as defined). Management
believes, as of September 30, 2001, that the Bank meets all of the capital
adequacy requirements to which it is subject.
As of September 30, 2001, the most recent notification from the FDIC,
the Bank was categorized as well capitalized under the regulatory framework for
prompt corrective action. To remain categorized as well capitalized, the Bank
will have to maintain minimum total risk-based, Tier I risk-based, and Tier I
leverage ratios as disclosed in Note 4 - Regulatory Capital. There are no
conditions or events since the most recent notification that management believes
have changed the Bank's prompt corrective action category.
15
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
GENERAL. Net income decreased from $242 thousand in the third quarter
of 2000 to $229 thousand in the third quarter of 2001. The decrease was
primarily attributable to changes in the provision for loan losses, and an
increase in operating expenses that were partially offset by an increase in
non-interest income and net interest income.
INTEREST INCOME. Interest income decreased $21 thousand, or 1.15%, for
the three months ended September 30, 2001 compared to 2000. The decrease was
primarily attributable to a decrease of $129 thousand on interest and dividends
on investment securities. The decrease in interest income from investments
resulted primarily from a reduction in average rates earned. The year to date
average rate earned was 5.46% in 2001 compared to 5.93% in 2000. The decrease
was partially offset by an increase in interest on federal funds sold of $76
thousand, and interest and fees on loans increased $32 thousand. These increases
were due to increases in average balances between 2000 and 2001.
INTEREST EXPENSE. Interest expense on deposit liabilities decreased by
$41 thousand, or 5.35% for the three months ended September 30, 2001, as
compared to the same period in 2000. This was mostly because total deposits
decreased by $2.9 million from September 30, 2000, to September 30, 2001.
Interest on borrowed funds increased by $88 thousand for the three months ended
September 30, 2001 as compared to the same period in 2000. This was due to
borrowings increasing by $10.1 million at September 30, 2001 as compared to
September 30, 2000.
PROVISION FOR LOAN LOSSES. Due to continued strong loan quality, the
bank did not record a provision for loan loss expense in the third quarter of
2001. In the third quarter of 2000, based upon continued strong credit quality,
the Bank recorded a negative provision for loan losses of $50 thousand. The
negative provision was based upon the results of the ongoing loan reviews and
composition of the loan portfolio, primarily loans secured by one- to
four-family residential properties and other forms of collateral, which are
considered to have less risk.
NON-INTEREST INCOME. Non-interest income increased by $59 thousand, or
35.11%, to $227 thousand for the three months ended September 30, 2001, from
$168 thousand for the three months ended September 30, 2000.
NON-INTEREST EXPENSE. Non-interest expense increased by $65 thousand,
or 6.92%, to $1,003 thousand for the three months ended September 30, 2001, from
$938 thousand in the comparable period in 2000. Of this, $61 thousand was
attributable to an increase in salaries and benefits expensed in the third
quarter of 2001 as compared to the third quarter of 2000. This is a result of
increases in incentive wages and health insurance.
INCOME TAXES. The provision for income taxes declined by $23 thousand
for the three months ended September 30, 2001, compared with the prior year,
primarily because of lower taxable income for the quarter.
16
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
GENERAL. Net income for the first nine months of 2001 totaled $617
thousand, which was $128 thousand less than the same period in 2000. The decline
was primarily attributable to changes in the provision for loan losses, a
decrease in net interest income, and increases in other expenses. These were
partially offset by an increase in non-interest income and a decrease in federal
income tax expense.
INTEREST INCOME. The increase in average earning assets was the primary
contributing factor to the increase in interest income of $98 thousand, or 1.85%
for the nine months ended September 30, 2001 compared to 2000. Year to date
average earning assets totaled $94.6 million in 2001 as compared to $89.8
million in 2000. For the first nine months of 2001, interest and fees on loans
totaled $4.1 million, an increase of $0.3 million, as compared to 2000. Interest
on federal funds sold increased by $0.2 million in 2001 due to an increase in
volume. The year to date average for federal funds sold in 2001 has been $5.3
million compared to $0.2 million in 2000.
INTEREST EXPENSE. Interest expense increased by $132 thousand for the
nine months ended September 30, 2001 as compared to 2000. This was mostly due to
an increase in interest expense on borrowed funds of $218 thousand for the nine
months ended September 30, 2001 as compared to 2000. This increase was due to
the growth of borrowed funds. As of September 30, 2001 borrowed funds were $11.8
million compared to $1.7 million on September 30, 2000.
NET INTEREST INCOME. Net Interest income for the first nine months
ended September 30, 2001 totaled $3.1 million, down $34 thousand for the same
period in 2000. This was mostly due to the decrease in the net interest margin.
This was mainly due to the decrease in investment income, and the increase in
interest expense on borrowings.
PROVISION FOR LOAN LOSSES. For the first nine months of 2001, the Bank
recorded net recoveries of $3 thousand as compared to net chargeoffs of $102
thousand in 2000. In the first nine months of 2000, the Bank recorded negative
provisions for loan losses of $134 thousand. The negative provisions were based
upon the results of independent loan reviews and the composition of the loan
portfolio. The bank has not recorded any loan loss provision for 2001. As of
September 30, 2001, the Bank reported zero non-performing loans and one loan of
$2 thousand past due 30 days or more.
NON-INTEREST INCOME. Non-interest income increased by $110 thousand, or
22.49%, to $599 thousand for the nine months ended September 30, 2001, from $489
thousand for the nine months ended September 30, 2000. The increase was
primarily attributable to increased service charge income and a gain on the sale
of investments of $40 thousand.
NON-INTEREST EXPENSE. Non-Interest expense increased by $0.16 million,
or 5.70% to $2.91 million for the nine months ended September 30, 2001, from
$2.75 million for the nine months ended September 30, 2000. Of this increase,
$56 thousand was attributable to an increase in legal and professional fees. In
17
addition, occupancy and related expenses increased primarily due to the cost
associated with operating from our temporary facilities during the construction
of the new main office building. Computer service expense has increased by $34
thousand due to development of the internet banking functions.
INCOME TAXES. The provision for income taxes decreased by $87 thousand
for the nine months ended September 30, 2001, compared with the same period in
2000, primarily because of lower taxable income.
FORWARD LOOKING COMMENTARY
Since December 31, 2000 the Federal Open Market Committee ("FOMC")
chaired by Mr. Alan Greenspan has decreased the overnight federal funds target
rate ten times from 6.50% to 2.00%. The FOMC has the responsibility of setting
monetary policy in an effort to achieve one of their primary objectives of
controlling inflation.
A rapid decline in short-term interest rates can have a negative impact
on a financial institution's net interest income as assets reprice faster than
liabilities.
The Bank's Asset Liability Management committee continually reviews its
policies and procedures to protect the bank's earnings from significant
increases or declines as interest rates move either higher or lower over the
next twelve months.
The board of directors and management has made a strong commitment to
provide First-Class Banking(TM) products and services throughout our North
Central Ohio market. The financial services industry has undergone a tremendous
amount of change through various acts of deregulation and technological
innovations. Our challenge is to maintain the high level of service our existing
customers expect and deserve while developing new products and services to meet
the needs of our future customers.
When evaluating our strengths, weaknesses, threats and opportunities we
identified several areas that need improvement. These include the construction
of a new main office building that will build a foundation for growth over the
next 20 years. This significant investment will include technological and
product upgrades that will allow us to better serve our customers and offer our
employees a comfortable and efficient workplace.
We believe our capital investments in Cardington, Fredericktown and
Bucyrus will position the Bank for future growth opportunities. However, in the
short run these capital investments will increase our operating expenses and
reduce our efficiency ratios.
We project our 2001 net income will reflect a small decrease from 2000
primarily because of investments in fixed assets. We anticipate this utilization
of capital will improve our shareholders' return on average equity over time and
our common stock repurchase program will further increase our earnings per
share.
18
FC BANC CORP
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Not Applicable
ITEM 2 - CHANGES IN SECURITIES
Not Applicable
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5 - OTHER INFORMATION
Not Applicable
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.2.1 Amendment of Employment Agreement with G.W. Holden,
President and Chief Executive Officer, dated
July 10, 2001
10.3 Amended and Restated Salary Continuation Agreement with
G.W. Holden, President and Chief Executive Officer,
dated July 10, 2001
10.12 Split Dollar Agreement with G.W. Holden, President and
Chief Executive Officer, dated July 10, 2001
99 Independent Accountant's Report
(b) Reports on Form 10-QSB: A Form 8-K dated July 17, 2001 reporting
Change in Registrant's Certifying Accountant was filed during the
quarter ended September 30, 2001.
19
Item 6. Exhibits and Reports on Form 10-QSB
(a) Exhibits
Exhibit
Number Description
- --------- --------------
10.2.1 Amendment of Employment Agreement with G.W. Holden, President and Chief
Executive Officer, dated July 10, 2001
10.3 Amended and Restated Salary Continuation Agreement with G.W. Holden, President and
Chief Executive Officer, dated July 10, 2001
10.12 Split Dollar Agreement with G.W. Holden, President and Chief Executive Officer, dated
July 10, 2001
(b) Reports on Form 10-QSB: A Form 8-K dated July 17, 2001 reporting Change in
Registrant's Certifying Accountant was filed during the quarter ended September
30, 2001.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, hereunto duly authorized.
FC BANC CORP
/s/ G. W. Holden
------------------------------
Date November 14, 2001 G. W. Holden
President and Chief Executive
Officer
/s/ Jeffrey Wise
------------------------------
Date November 14, 2001 Jeffrey Wise
Principal Financial Officer
20