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 JUNE 30, 2002.
[ ] 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 identification no.)
Incorporation or organization)
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 August 9, 2002, 579,862 shares of Common Stock of the Registrant were
outstanding. There were no preferred shares outstanding.
Transitional Small Business Disclosure Format (Check One)
Yes _____ No X
FC BANC CORP.
BUCYRUS, OHIO
FORM 10-QSB
INDEX
================================================================================
Page Number
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheet 3
June 30, 2002 and December 31, 2001
Consolidated Statement of Income 4
Three and six months ended June 30,2002 and 2001
Consolidated Statement of Comprehensive Income 5
Three and six months ended June 30, 2002 and 2001
Consolidated Statement of Changes in
Shareholders' Equity - Six months ended June 30, 2002 6
and year ended December 31, 2001
Consolidated Statement of Cash Flows 7
Six months ended June 30, 2002 and 2001
Notes to Unaudited Consolidated Financial Statement 8
June 30, 2002 and December 31, 2001
Item 2. Management's Discussion and Analysis of Financial 11
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 21
2
FC BANC CORP, INC.
BUCYRUS, OHIO
CONSOLIDATED BALANCE SHEET (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------
(Dollars in thousands)
At June 30, At December 31,
------------ ---------------
2002 2001
--------- ---------
ASSETS
Cash and cash equivalents:
Cash and amounts due from banks $ 3,002 $ 3,659
Federal funds sold -- 3,000
--------- ---------
Total cash and cash equivalents 3,002 6,659
Investment securities, available-for-sale 39,862 33,989
Loans 65,635 61,038
Allowance for loan losses (1,221) (1,499)
--------- ---------
Net Loans 64,414 59,539
--------- ---------
Premises and equipment 6,785 4,575
Accrued interest and other assets 4,830 4,799
--------- ---------
TOTAL ASSETS $ 118,893 $ 109,561
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing $ 11,662 $ 12,718
Interest-bearing 75,454 73,035
--------- ---------
Total deposits 87,116 85,753
Short-term borrowings 6,658 4,085
Other borrowings 10,954 6,009
Accrued interest and other liabilities 1,700 1,535
--------- ---------
TOTAL LIABILITIES 106,428 97,382
--------- ---------
SHAREHOLDERS' EQUITY
Preferred stock of $25 par value; 750 shares authorized, no shares -- --
issued and outstanding
Common shares, no par value; 4,000,000 shares
authorized; 665,632 shares issued 832 832
Additional paid-in capital 1,366 1,366
Retained earnings 12,119 11,793
Treasury shares, at cost; 85,770 and 75,478 (2,137) (1,921)
Accumulated other comprehensive income 285 109
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 12,465 12,179
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 118,893 $ 109,561
========= =========
- --------------------------------------------------------------------------------
See accompanying notes to unaudited consolidated financial statements
3
FC BANC CORP.
Bucyrus, Ohio
CONSOLIDATED STATEMENT OF INCOME (unaudited)
(Dollars in thousands, except per share)
Three Months Six Months
Ended Ended
June 30, June 30,
2002 2001 2002 2001
------- ------- ------- -------
INTEREST INCOME
Interest and fees on loans $ 1,263 $ 1,374 $ 2,496 $ 2,722
Interest and dividends on investment securities 471 373 870 752
Interest on federal funds sold 2 56 17 108
------- ------- ------- -------
TOTAL INTEREST INCOME 1,736 1,803 3,383 3,582
------- ------- ------- -------
INTEREST EXPENSE
Interest on deposits 330 662 780 1,393
Interest on borrowed funds 136 99 224 150
------- ------- ------- -------
TOTAL INTEREST EXPENSE 466 761 1,004 1,543
------- ------- ------- -------
NET INTEREST INCOME 1,270 1,042 2,379 2,039
Provision for loan losses (275) -- (275) --
------- ------- ------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSS 1,545 1,042 2,654 2,039
OTHER INCOME
Service charges and other income 152 156 291 308
Bank owned life insurance earnings 32 32 64 64
Investment securities gains, net 14 -- 16 --
------- ------- ------- -------
TOTAL OTHER INCOME 198 188 371 372
------- ------- ------- -------
OTHER EXPENSES
Salaries and benefits 542 450 1,344 877
Net occupancy and equipment expenses 148 163 286 340
Legal and professional 49 68 97 108
State taxes 37 37 75 75
Other expenses 358 195 570 506
------- ------- ------- -------
TOTAL NON-INTEREST EXPENSE 1,134 980 2,372 1,906
------- ------- ------- -------
INCOME BEFORE FEDERAL INCOME TAX 609 250 653 505
Federal income tax expense 163 57 142 117
------- ------- ------- -------
NET INCOME $ 446 $ 193 $ 511 $ 388
======= ======= ======= =======
DIVIDENDS PER SHARE $ 0.16 $ 0.16 $ 0.32 $ 0.32
EARNINGS PER SHARE:
Earnings per common share - basic $ 0.77 $ 0.32 $ 0.88 $ 0.64
Earnings per common share - diluted $ 0.77 $ 0.32 $ 0.88 $ 0.64
- --------------------------------------------------------------------------------
See accompanying notes to unaudited consolidated financial statements
4
FC BANC CORP, INC.
BUCYRUS, OHIO
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
2002 2001 2002 2001
-------------------------- ------------------------------
Net Income $ 446 $ 193 $ 511 $ 388
Other comprehensive income:
Unrealized gains(losses) on available for sale securities 424 318 282 347
Less: Reclassification adjustment for gain included in net income (14) - (16) -
---- ----- ----- -----
Other comprehensive income before tax 410 318 266 347
Income tax expense related to other comprehensive income 139 108 90 118
----- ----- ----- -----
Other comprehensive income, net of tax 271 210 176 229
----- ----- ----- -----
Comprehensive income $ 717 $ 403 $ 687 $ 617
===== ===== ===== =====
See accompanying notes to the unaudited consolidated financial statements
5
FC BANC CORP, INC.
BUCYRUS, OHIO
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
Accumulated
Additional Other Total
Common paid-in Retained Comprehensive Treausry Stockholders
Stock capital Earnings Income(loss) Stock Equity
--------------------------------------------------------------------------
(Dollars in thousands)
Balances at December 31, 2000 $ 832 $ 1,366 $ 11,212 $ (74) $ (1,560) $ 11,776
Net Income 963 963
Other comprehensive income:
Unrealized gain on available for sale
Securities, net of reclassification
Adjustment, net of taxes of $95 183 183
Comprehensive Income
Cash Dividends ($.64 per share) (382) (382)
Purchase of treasury stock (361) (361)
--------------------------------------------------------------------------
Balances at December 31, 2001 832 1,366 11,793 109 (1,921) 12,179
Net Income 511 511
Other comprehensive income:
Unrealized gain on available for sale
Securities, net of reclassification
Adjustment, net of taxes of $49 176 176
Comprehensive Income
Cash Dividends ($.16 per share) (185) (185)
Purchase of treasury stock (216) (216)
--------------------------------------------------------------------------
Balances at June 30, 2002 $ 832 $ 1,366 $ 12,119 $ 285 $ (2,137) $ 12,465
======== ======== ======== ========= ======== ========
See accompanying notes to unaudited consolidated financial statements
6
FC BANC CORP, INC.
BUCYRUS, OHIO
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
Six Months Six Months
Ended Ended
June 30 June 30
---------- ----------
2002 2001
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 511 $ 388
Adjustments to reconcile net income to net cash
Provided by operating activities:
Investments Gain, net 16 0
Provision for loan losses (275) 0
Income accrued on life insurance contracts (64) (64)
Depreciation 107 155
Deferred income taxes (60) (54)
Investment securities amortization (accretion), net 102 61
Net change in:
Accrued interest receivable 3 (63)
Accrued interest payable (3) 5
Other assets (104) (200)
Other liabilities 171 85
---------- ----------
Net cash provided by operating activities 404 546
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities available-for-sale (18,016) (304)
Proceeds from Sales of Securities 6,794 0
Proceeds from sale of premises and equipment -- 8
Proceeds from maturities of securities available-for-sale 5,870 3,224
Net increase in loans (4,875) (3,755)
Purchase of premises and equipment (2,317) (314)
---------- ----------
Net cash used in investing activities (12,544) (1,141)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in:
Noninterest-bearing, interest bearing, demand, and savings deposits (1,053) (4,106)
Certificates of deposit 2,419 2,950
Net increase in short-term borrowed funds 2,561 1,400
Proceeds from long-term FHLB advances 5,000 0
Payments on long-term debts (43) (3)
Exercise of stock options 0 52
Purchase of treasury stock (216) (240)
Cash dividends paid (185) (198)
---------- ----------
Net cash provided by (used in) financing activities 8,483 (145)
---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,657) (740)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,659 4,321
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 3,002 3,581
========== ==========
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for interest 1,111 1,365
Cash paid during the period for income taxes 174 156
See accompanying notes to unaudited consolidated financial statements
7
FC BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except per share amounts)
June 30, 2002 and December 31, 2001
(Unaudited)
================================================================================
NOTE 1. BASIS OF PRESENTATION
In the opinion of Management, the accompanying unaudited consolidated financial
statements contain all adjustments necessary for a fair presentation of FC Banc
Corp.'s ("Company" or "Bancorp") financial position as of June 30, 2002, and
December 31, 2001, and the results of operations for the three and six months
ended June 30, 2002 and 2001, and the cash flows for the six months ended
June 30, 2002 and 2001. Certain information and note disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been omitted
pursuant to the rules and regulations of the Securities and Exchange Commission.
It is suggested that these 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 six months ended June 30, 2002, are not necessarily
indicative of the results which may be expected for the entire fiscal year.
NOTE 2 EARNINGS PER SHARE
There are no convertible securities which would affect the numerator in
calculating basic and diluted earnings per share; therefore, net income as
presented on the Consolidated Statement of Income will be used as the numerator.
The following table sets forth the composition of the weighted-average common
shares (denominator) used in the basic and diluted earnings per share
computation.
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
---------------------- -------------------
Weighted-average common
shares outstanding used to
calculate basic earnings per share 579,862 600,007 581,523 600,305
Additional common stock
equivalents(stock options) used
to calculate diluted earnings
per share -- 5,599 -- 7,176
------- ------- ------- -------
Weighted-average common shares
and common stock equivalents
used to calculate diluted earnings
per share 579,862 605,606 581,523 607,481
======= ======= ======= =======
Options to purchase 38,300 shares of common stock at prices from $22.00 to
$28.50 were outstanding as of June 30, 2002, but were not included in the
computation of diluted EPS because to do so would have been anti-dilutive.
Options to purchase 58,710 shares of common stock at prices from $22.00 to
$28.50 were outstanding as of June 30, 2001. Of these shares, 16,400 shares were
not included in the computation of diluted EPS because to do so would have been
anti-dilutive.
8
NOTE 3 RECENT ACCOUNTING PRONOUNCEMENTS
In July, 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (FAS) No. 141, Business
Combinations, effective for all business combinations initiated after
June 30, 2001, as well as all business combinations accounted for by the
purchase method that are completed after June 30, 2001. The new statement
requires that the purchase method of accounting be used for all business
combinations and prohibits the use of the pooling-of-interests method. FAS
No. 141 also specifies criteria which must be met for intangible assets
acquired in a purchase method business combination to be recognized and
reported apart from goodwill. The adoption of Statement No. 141 did not
have a material effect on the Company's financial position or results of
operations.
On January 1, 2002, the Company adopted FAS No. 142, Goodwill and Other
Intangible Assets, effective for fiscal years beginning after
December 15, 2001. This statement changes the accounting for goodwill from
an amortization method to an impairment-only approach. Thus, amortization
of goodwill, including goodwill recorded in past business combinations, was
discontinued. However, this new statement did not amend FAS No. 72,
Accounting for Certain Acquisitions of Banking or Thrift Institutions,
which requires recognition and amortization of unidentified intangible
assets relating to the acquisition of financial institutions or branches
thereof. The FASB has undertaken a limited scope project to reconsider the
provisions of FAS No. 72 in 2002 and has issued an exposure draft of a
proposed statement, Acquisitions of Certain Financial Statements, that
would remove acquisitions of financial institutions from the scope of FAS
No. 72. The exposure draft states that unless a branch acquisition meets
the definition of a business combination, it is an acquisition of net
assets and would not result in the recognition of goodwill. Thereby any
unidentifiable intangible asset would continue to be amortized. The
adoption of FAS No. 142 did not have a material effect on the Company's
financial position or results of operations.
In April 2002, the FASB issued FAS No. 145, "Recission of FASB Statement
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections". FAS No. 145 rescinds FAS No. 4, which required all gains and
losses from extinguishment of debt to be aggregated and, if material,
classified as an extraordinary item, net of related income tax effect. As a
result, the criteria in Opinion 30 will now be used to classify those gains
and losses. This statement also amends FAS No. 13 to require that certain
lease modifications that have economic effects similar to sale-leaseback
transactions be accounted for in the same manner as sale-leaseback
transactions. This statement also makes technical corrections to existing
pronouncements, which are not substantive but in some cases may change
accounting practice. FAS No. 145 is effective for transactions occurring
after May 15, 2002. The adoption of FAS No. 145 did not have a material
effect on the Company's financial position or results of operations.
9
FC BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except per share amounts)
June 30, 2002 and December 31, 2001
(Unaudited)
================================================================================
In October 2001, the FASB issued FAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. FAS 144 supercedes FAS 121 and applies to all
long-lived assets (including discontinued operations) and consequently amends
APB Opinion No. 30, Reporting Results of Operations-Reporting the Effects of
Disposal of a Segment of a Business. FAS 144 requires that long-lived assets
that are to be disposed of by sale be measured at the lower of book value or
fair value less costs to sell. FAS 144 is effective for financial statements
issued for fiscal years beginning after December 15, 2001 and, generally, its
provisions are to be applied prospectively. The adoption of this statement did
not have a material effect on the Company's financial statements.
In July 2002, the FASB issued FAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities, which requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather than
at the date of a commitment to an exit or disposal plan. This statement replaces
EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred
in a Restructuring). The new statement will be effective for exit or disposal
activities initiated after December 31, 2002, the adoption of which is not
expected to have a material effect on the Company's financial statements.
10
FC BANC CORP.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(numbers in thousands except per share amounts)
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.
SARBANES-OXLEY ACT OF 2002
On July 30, 2002 the President signed into law the Sarbanes-Oxley Act of 2002
(the Act), following an investigative order proposed by the SEC on chief
financial officers and chief executive officers of 947 large public companies on
June 27, 2002. Additional regulations are expected to be promulgated by the SEC.
As a result of the accounting restatements by large public companies, the
passage of the Act and regulations expected to be implemented by the SEC,
publicly-registered companies, such as the Company, will be subject to
additional reporting regulations and disclosure. These new regulations, which
are intended to curtail corporate fraud, will require certain officers to
personally certify certain SEC filings and financial statements and may require
additional measures to be taken by our outside auditors, officers and directors.
The loss of investor confidence in the stock market and the new laws and
regulations will increase non-interest expenses of the Company and could
adversely affect the prices of publicly-traded stocks, such as the Company.
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
11
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 six-month periods ended
June 30, 2002 and 2001.
The consolidated financial information presented herein has been prepared
in conformity with accounting principles generally accepted in the United States
of America. 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.
FC BANC CORP.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(numbers in thousands except per share amounts)
================================================================================
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 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 has four banking offices located in Crawford, Morrow and Knox
Counties, Ohio. The primary market area of the Bank is North Central Ohio, which
includes Crawford, Morrow, Knox and contiguous counties. Throughout last year
and the beginning of this year the bank has worked on two exhilarating
construction projects. Construction is now complete on our new main office in
Bucyrus. Banking services were made available in this facility on May 15, 2002.
Grand opening festivities were held during the week of May 20-25, 2002. We
believe that this building will allow us to better serve our customers, create a
positive work environment for our employees, and demonstrates our true
commitment to future growth and development in Bucyrus.
Our second construction project began in November 2001 when we broke ground
for our new Fredericktown office. Banking services were made available in this
new facility on May 13,2002. Grand Opening festivities for this office were held
during the week of May 20-25, 2002. Our First Class presence in Fredericktown
continues to grow along with that community. We look forward to sharing the
numerous amenities of both buildings with our shareholders, customers, and
communities.
12
CHANGES IN FINANCIAL CONDITION
At June 30, 2002, the consolidated assets of the Company totaled $118.9
million, an increase of $9.3 million, or 8.49%, from $109.6 million at
December 31, 2001. The increase in total assets resulted primarily from net loan
growth of $4.9 million, net investment growth of $2.9 million, and premises and
equipment growth of $2.2 million.
Net loans receivable increased by $4.9 million, or 8.24%, to $64.4 million
at June 30, 2002, compared to $59.5 million at December 31, 2001. Commercial
loans, consumer loans, and loans secured by real estate have increased by $1.8
million, $1.6 million and $1.2 million, respectively. Loan growth in the second
quarter was $4.6 million. This growth occurred because management has been more
aggressive in pricing of loans. Even though management has adopted a more
aggressive approach, the quality of our loan portfolio has not changed. We
expect our loan growth to continue in the third quarter.
Investment securities increased by $5.9 million, or 17.35% to $39.9 million
at June 30, 2002, compared to $34.0 million at December 31, 2001. The investment
portfolio has grown due to an investment strategy to leverage the bank through
the use of Federal Home Bank Advances.
FC BANC CORP.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(numbers in thousands except per share amounts)
Total cash and cash equivalents declined by $3.7 million to $3.0 million at
June 30, 2002, compared to $6.7 million at December 31, 2001. The decline was
mostly due to overnight Federal Funds Sold being invested.
Deposit liabilities increased by $1.3 million, or 1.51%, to $87.1 million
at June 30, 2002, from $85.8 million at December 31, 2001. Savings accounts and
certificates of deposits increased by $0.1 million and $4.9 million,
respectively. Money Market Accounts, NOW accounts and demand deposits declined
by $0.9 million, $1.7 million, and $1.1 million, respectively. Certificate of
Deposits have grown due to increases in the Excel-A-Rate CD. Money Market
Accounts, NOW accounts, and demand deposits have decreased due to unfavorable
market conditions.
Total shareholders' equity was $12.5 million at June 30, 2002 as compared
to $12.2 million on December 31, 2001. During the first six months of 2002
shareholders equity increased due to net income of $0.5 million and
comprehensive income of $0.2 million. Decreased were due to purchase of treasury
shares of $0.2 million, and shareholder dividends of $0.2 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") 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 maintains investments in liquid assets based upon management's assessment
13
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 and financial condition
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 an Asset/Liability 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
FC BANC CORP.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(numbers in thousands except per share amounts)
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
capital amounts of the Bank 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 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 June 30, 2002, that the Bank meets all of the capital adequacy
requirements to which it is subject.
As of December 31, 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 specified by the regulators. There are no conditions or
events
14
since the most recent notification that management believes have changed the
Bank's prompt corrective action category.
As of June 30, 2002, FC Banc Corp. had no commitments for capital
expenditures.
FC BANC CORP.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(numbers in thousands except per share amounts)
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED JUNE 30, 2002 AND 2001
GENERAL. Net income increased by $253 during the second quarter of 2002
as compared to the same three-month period ended June 30, 2001. This was due to
increases in net interest income and non interest income, and a decrease in
provision for loan losses, which were offset by increases in non interest
expenses and federal income tax expense.
NET INTEREST INCOME. Net interest income increased by $228 for the
three months ended June 30, 2002 as compared to June 30, 2001. A decrease of $
67 in interest income was offset by a decrease of $295 in interest expense. The
bank's average earning assets increased by over five million dollars in the
second quarter of 2002. The average monthly base net interest margin in the
second quarter of 2002 was 4.28% compared to 4.07% in the second quarter of
2001.
INTEREST INCOME. The decrease in the average rate earned on earning assets was
the primary contributing factor to the decrease in interest income of $67, or
3.72%, for the three months ended June 30, 2002 compared to the same time period
in 2001. Loan interest and fee income decreased by $111 resulting primarily from
a decrease in interest rates. The average rate earned on loans fell ten basis
points in the second quarter compared to six basis points in the same period in
2001. Interest and dividends on investment securities increased by $98 due to
the growth of the investment portfolio. The investment portfolio grew by $1.5
million in the second quarter of 2002 compared to $0.5 million for
15
the same period in 2001. Also, income from federal funds sold decreased by $54
due to a decrease in average balance of $1.45 million.
INTEREST EXPENSE. Interest expense on deposit liabilities decreased by
$332, or 50.15% for the three months ended June 30, 2002, as compared to the
same period in 2001. This was mostly due to average cost of funds for the three
months ended June 30, 2002 of about 2.02% compared to 3.24% for the three months
ended June 30, 2001. Interest expense on borrowed funds increased by $37, or
37.37% due to higher total borrowings. The bank took a Federal Home Loan Bank
advance of $ $5.0 million in April of 2002.
PROVISION FOR LOAN LOSSES. The Bank recorded net charge-offs of $4
during the three months ended June 30, 2002, compared to net charge-offs of $0.1
during the same period in 2001. Based upon continued strong credit quality the
Bank recorded a negative provision for loan losses of $275 during the second
quarter in 2002. We recorded no provision in the second quarter of 2001. Our
Reserve for Loan Loss as of June 30, 2002 stood at $1.2 million or 1.86% of
gross loans. This reserve
FC BANC CORP.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(numbers in thousands except per share amounts)
================================================================================
which is significantly higher than peer group was increased in 1994 and 1995
specifically due to loan concerns of the regulators. Current evaluations of our
portfolio by independent sources indicate that the risk no longer exists. The
negative provision was based upon the results of 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. Our review and analysis of the reserve for loan
loss indicates that this ratio is adequate.
NON-INTEREST INCOME. Non-interest income increased by $10, or 5.32%, to
$198 for the three months ended June 30, 2002 from $188 for the three months
ended June 30, 2001. The Bank had a net gain on sales of securities of $14
during the second quarter ending June 30, 2002, but had no gains in second
quarter of 2001.
NON-INTEREST EXPENSE. Non-interest expense increased by $154, or
15.71%, to $1,134 for the three months ended June 30, 2002, from $980 in the
comparable period in 2001. Salaries and Benefits increased by $92 mostly due to
increases in group health insurance expense. Net occupancy and equipment expense
decreased due to decreases in utilities and maintenance expense. Other expenses
increased by $163 due to increases in printing and supplies, postage,
advertising/public relations, and computer expense.
INCOME TAXES. The provision for income taxes increased by $106 for the
three months ended June 30, 2002, compared with the prior year, primarily as a
result of higher taxable income for the quarter.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 2002 AND 2001
16
GENERAL. Net income increased by $123 during the six months ended June 30,
2002 as compared to the same six-month period ended June 30, 2001. This was due
to increases in net interest income and a decrease in provision for loan losses,
which were offset by increases in non interest expenses and federal income tax
expense. Also, non-interest income decreased by $1.
NET INTEREST INCOME. Net interest income increased by $340 for the six
months ended June 30, 2002 as compared to June 30, 2001. A decrease of $ 199 in
interest income was offset by a decrease of $539 in interest expense. This was
due to an increase in the bank's average earning assets of $6.0 million. In
addition, the net interest margin for the six months ended June 30, 2002 was
4.73% compared to 4.58% in the first six months of 2001.
INTEREST INCOME. A decrease of 100 basis points in the average rate earned
on earning assets was the primary contributing factor to the decrease in
interest income of $199, or 5.55%, for the six months ended June 30, 2002
compared to June 30, 2001. Loan interest and fee income decreased by $226 due to
a 66 basis point decrease in the interest rate earned on the portfolio. Interest
and dividends on investment securities increased by $118 due to growth of $9.6
million in the investment portfolio.
FC BANC CORP.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(numbers in thousands except per share amounts)
In addition, income from federal funds sold decreased by $91 due to less volume
of $2.5 million, and a 258 basis point decrease in the rate earned.
INTEREST EXPENSE. Interest expense on deposit liabilities decreased by
$539, or 34.93% for the six months ended June 30, 2002, as compared to the same
period in 2001. This was mostly due to average cost of funds for the six months
ended June 30, 2002 of about 2.07% compared to 3.38% for the six months ended
June 30, 2001. Interest expense on borrowed funds increased by $74, or 49.33%
due to an increase of $6.3 million in total borrowings.
PROVISION FOR LOAN LOSSES. The Bank recorded net charge-offs of $3 during
the six months ended June 30, 2002, compared to net charge-offs of $10 during
the same period in 2001. Based upon continued strong credit quality the Bank
recorded a negative provision for loan losses of $275 during the first half of
2002. We recorded no provision in the first half of 2001. The reasons for the
negative provision are discussed above in the Comparison of Three Months Ended
June 30, 2002 and 2001.
NON-INTEREST INCOME. Non-interest income for the six months ended
June 30, 2002 was $371 compared to $372 for the six months ended June 30, 2001.
Service fee income was $17 less than prior year to date. The Bank had a net gain
on sales of securities of $16 during the six months ending June 30, 2002, but
had no gains for the first six months of 2001.
NON-INTEREST EXPENSE. Non-interest expense increased by $466, or 24.44%, to
$2,372 for the six months ended June 30, 2002, from $1,906 in the comparable
period in 2001. Salaries and Benefits increased by $467 due to the expense
associated with the termination of the former President and CEO, and increases
in group health insurance expense. Net occupancy and equipment expense decreased
by $54 due to less depreciation expense. Other expenses increased by $64 with
the most
17
significant increases in printing and supplies($14), advertising/public
relations($23), and computer expense($17).
INCOME TAXES. The provision for income taxes increased by $25 for the six
months ended June 30, 2002, compared with the prior year, primarily because of
higher taxable income for the quarter.
CREDIT QUALITY RISK
The following table identifies amounts of loan losses and non-performing
loans. Past due loans are those that were contractually past due 90 days or more
as to interest or principal payments (dollars in thousands).
JUNE 30, DECEMBER 31,
2002 2001
- --------------------------------------------------------------------------------
Non-accruing loans $ 0 $ 0
Impaired loans 0 0
Accrual loans - 90 days or
more past due 48 0
- --------------------------------------------------------------------------------
Total non-performing loans 48 0
- --------------------------------------------------------------------------------
Foreclosed assets held for sale 185 0
- --------------------------------------------------------------------------------
Total non-performing assets $ 233 $ 0
================================================================================
Non-performing loans as a percent of loans
net of unearned income 0.07% 0.00%
================================================================================
Non-performing assets as a percent of loans
Net of unearned income 0.35% 0.00%
================================================================================
Interest does not accrue on non-accrual loans. Subsequent cash payments
received are applied to the outstanding principal balance or recorded as
interest income, depending upon management's assessment of its ultimate ability
to collect principal and interest.
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
19
Exhibit 3.1 Amended and Restated Articles of Incorporation of FC Banc
Corp., filed as Exhibit 3 to Form 10-KSB for the fiscal year ended
December 31, 2000 and incorporated herein by reference.
Exhibit 3.2 Code of regulations of FC Banc Corp., filed as Exhibit 3
to Form 10-KSB for the fiscal year ended December 31, 2000 and
incorporated herein by reference.
Exhibit 4 For definition of rights of security holders please refer to
Exhibit 3 on Form 10-KSB for the fiscal year ended December 31, 2000
and incorporated herein by reference.
Exhibit 99.1 Independent Accountant's Report
Exhibit 99.2- CEO Certification Pursuant to 18 U.S.C. Section 1350, as
enacted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 99.3- CFO Certification Pursuant to 18 U.S.C. Section 1350, as
enacted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
1. No report on Form 8-K was filed during the second quarter ended
June 30, 2002.
20
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.
Date August 14, 2002
------------------------- /s/ Coleman Clougherty
-----------------------
Coleman Clougherty
Chief Executive Officer
Date August 14, 2002
------------------------- /s/ Jeffrey Wise
-----------------------
Jeffrey Wise
Chief Financial Officer
21