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, 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 xx No ______
--
As of November 8, 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 XX
--
FC BANC CORP.
BUCYRUS, OHIO
FORM 10-QSB
INDEX
Page Number
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheet 3
September 30, 2002 and December 31, 2001
Consolidated Statement of Income 4
Three and nine months ended September 30,2002 and 2001
Consolidated Statement of Comprehensive Income 5
Three and nine months ended September 30, 2002 and 2001
Consolidated Statement of Changes in
Shareholders' Equity - Nine months ended September 30, 2002 6
and year ended December 31, 2001
Consolidated Statement of Cash Flows 7
Nine months ended September 30, 2002 and 2001
Notes to Unaudited Consolidated Financial Statement 8
Item 2. Management's Discussion and Analysis of Financial 12
Condition and Results of Operations
Item 3 Disclosure Control and Procedures 19
PART II OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
2
FC BANC CORP, INC.
BUCYRUS, OHIO
CONSOLIDATED BALANCE SHEET (Unaudited)
(Dollars in thousands)
At September 30, At December 31,
---------------- ---------------
2002 2001
---- ----
ASSETS
Cash and cash equivalents:
Cash and amounts due from banks $ 3,579 $ 3,659
Federal funds sold - 3,000
---------- --------
Total cash and cash equivalents 3,579 6,659
Investment securities, available-for-sale 46,811 33,989
Loans 68,497 61,038
Allowance for loan losses (1,224) (1,499)
---------- --------
Net Loans 67,273 59,539
---------- --------
Premises and equipment 6,819 4,575
Accrued interest and other assets 4,830 4,799
---------- --------
TOTAL ASSETS $ 129,312 $109,561
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing $ 11,935 $ 12,718
Interest-bearing 79,981 73,035
---------- --------
Total deposits 91,916 85,753
Short-term borrowings 6,582 4,085
Other borrowings 15,896 6,009
Accrued interest and other liabilities 1,913 1,535
---------- --------
TOTAL LIABILITIES 116,307 97,382
---------- --------
SHAREHOLDERS' EQUITY
Preferred stock of $25 par value; 750 shares authorized, no shares -
issued and outstanding -
Common stock, no par value; 4,000,000 shares
authorized; 665,632 shares issued 832 832
Additional paid-in capital 1,366 1,366
Retained earnings 12,304 11,793
Treasury stock, at cost; 85,770 and 75,478 (2,137) (1,921)
Accumulated other comprehensive income 640 109
---------- --------
TOTAL SHAREHOLDERS' EQUITY 13,005 12,179
---------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 129,312 $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
Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
INTEREST INCOME
Interest and fees on loans $ 1,104 $ 1,369 $ 3,600 $ 4,091
Interest and dividends on investment securities 531 346 1,401 1,098
Interest on federal funds sold 2 78 19 186
------- ------- ------- -------
TOTAL INTEREST INCOME 1,637 1,793 5,020 5,375
------- ------- ------- -------
INTEREST EXPENSE
Interest on deposits 570 624 1,350 2,017
Interest on borrowed funds 187 100 411 250
------- ------- ------- -------
TOTAL INTEREST EXPENSE 757 724 1,761 2,267
------- ------- ------- -------
NET INTEREST INCOME 880 1,069 3,259 3,108
Provision for loan losses - - (275) -
------- ------- ------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSS 880 1,069 3,534 3,108
OTHER INCOME
Service charges and other income 372 155 678 463
Bank owned life insurance earnings 32 32 96 96
Investment securities gains,net 4 40 18 40
------- ------- ------- -------
TOTAL OTHER INCOME 408 227 792 599
------- ------- ------- -------
OTHER EXPENSES
Salaries and benefits 557 503 1,901 1,380
Net occupancy and equipment expenses 179 162 465 502
Legal and professional 37 39 134 147
State taxes 40 36 115 111
Other expenses 136 263 719 769
-------- ------- ------- -------
TOTAL NON-INTEREST EXPENSE 949 1,003 3,334 2,909
------- ------- ------- -------
INCOME BEFORE FEDERAL INCOME TAX 339 293 992 798
Federal income tax expense 61 64 203 181
------- ------- ------- -------
NET INCOME $ 278 $ 229 $ 789 $ 617
======= ======= ======= =======
DIVIDENDS PER SHARE $ 0.16 $ 0.16 $ 0.48 $ 0.48
EARNINGS PER SHARE:
Earnings per common share - basic $ 0.48 $ 0.39 $ 1.36 $ 1.03
Earnings per common share - diluted $ 0.48 $ 0.39 $ 1.36 $ 1.02
See accompanying notes to unaudited consolidated financial statements
4
FC BANC CORP, INC.
BUCYRUS, OHIO
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended Sept 30 Nine Months Ended Sept 30
2002 2001 2002 2001
-------------------- --------------------
(dollars in thousands) (dollars in thousands)
Net Income $ 278 $ 229 $ 789 $ 617
Other comprehensive income:
Unrealized gains on available for sale securities 542 219 822 566
Less: Reclassification adjustment for gain included in net income (4) (40) (18) (40)
------- ------- ------- ------
Other comprehensive income before tax 538 179 804 526
Income tax expense related to other comprehensive income 183 61 273 179
------- ------- ------- ------
Other comprehensive income, net of tax 355 118 531 347
------- ------- ------- ------
Comprehensive income $ 633 $ 347 $ 1,320 964
======= ======= ======= ======
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 789 789
Other comprehensive income:
Unrealized gain on available for sale
Securities, net of reclassification
Adjustment, net of taxes of $273 531 531
Comprehensive Income
Cash Dividends ($.48 per share) 278) (278)
Purchase of treasury stock (216) (216)
----------------------------------------------------------------------------------
Balances at Sept 30, 2002 $832 $1,366 $12,304 $640 $(2,137) $ 13,005
====== ======== ========= ====== ========= ==========
See accompanying notes to unaudited consolidated financial statements
6
FC BANC CORP, INC.
BUCYRUS, OHIO
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(Dollars in thousands)
Nine Months Nine Months
Ended Ended
Sept 30 Sept 30
------- -------
2002 2001
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 789 $ 617
Adjustments to reconcile net income to net cash
Provided by operating activities:
Investments Gain, net (18) (40)
Provision for loan losses (275) 0
Income accrued on life insurance contracts (96) (96)
Depreciation 200 225
Deferred income taxes (445) (124)
Investment securities amortization (accretion), net 159 90
Net change in:
Accrued interest receivable (22) (121)
Accrued interest payable (9) (57)
Other assets 164 (94)
Other liabilities 387 269
-------- ---------
Net cash provided by operating activities 834 669
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities available-for-sale (32,099) (12,521)
Proceeds from Sales of Securities 9,676 130
Proceeds from maturities of securities available-for-sale 10,634 8,498
Net increase in loans (7,734) (686)
Purchase of premises and equipment (2,444) (1,423)
-------- ---------
Net cash used in investing activities (21,967) (6,002)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in:
Noninterest-bearing, interest bearing, demand, and savings deposits (783) (620)
Certificates of deposit 6,946 (616)
Net increase in short-term borrowed funds 2,487 5,597
Proceeds from long-term FHLB advances 10,000 4,000
Payments on long-term debts (103) (22)
Purchase of treasury stock (216) (361)
Cash dividends paid (278) (192)
-------- ---------
Net cash provided by financing activities 18,053 7,786
-------- ---------
NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS (3,080) 2,453
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,659 4,885
-------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 3,579 7,338
======== =========
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for interest 1,770 2,324
Cash paid during the period for income taxes 284 100
See accompanying notes to unaudited consolidated financial statements
7
FC BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except per share amounts)
September 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 financial position as of September 30, 2002, and December 31, 2001, and
the results of operations for the three and nine months ended September 30, 2002
and 2001, and the cash flows for the nine months ended September 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 nine months
ended September 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 Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
---------------------- -------------------
Weighted-average common
shares outstanding used to
calculate basic earnings per share 579,862 594,221 580,963 598,255
Additional common stock
equivalents(stock options) used
to calculate diluted earnings
per share. 2,148 1,131 69 5,451
------- ------- ------- -------
Weighted-average common shares
and common stock equivalents
used to calculate diluted earnings
per share 582,010 595,352 581,032 603,706
======= ======= ======= =======
Options to purchase 14,500 and 16,500 shares of common stock outstanding as of
the three- and nine-months ended September 30, 2002, respectively and 14,500 and
16,500 shares of common stock outstanding as of the three- and nine-months ended
September 30, 2001, respectively at prices from $22.00 to $28.50 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 August 2001, the FASB issued FAS No. 143, Accounting for Asset Retirement
Obligations, which requires that the fair value of a liability be recognized
when incurred for the retirement of a long-lived asset and the value of the
asset be increased by that amount. The statement also requires that the
liability be maintained at its present value in subsequent periods and outlines
certain disclosures for such obligations. The new statement takes effect for
fiscal years beginning after June 15, 2002. The adoption of this statement,
which is effective January 1, 2003, is not expected to have a material effect on
the Company `s financial statements.
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
9
or results of operations.
On October 1, 2002, the FASB issued FAS No. 147, Acquisitions of Certain
Financial Institutions, effective for all business combinations initiated after
October 1, 2002. This Statement addresses the financial accounting and reporting
for the acquisition of all or part of a financial institution, except for a
transaction between two or more mutual enterprises. This Statement removes
acquisitions of financial institutions, other than transactions between two or
more mutual enterprises, from the scope of FAS No. 72, Accounting for Certain
Acquisitions of Banking or Thrift Institutions, and FASB Interpretation No. 9,
Applying APB Opinions No. 16 and 17 When a Savings and Loan Association or a
Similar Institution Is Acquired in a Business Combination Accounted for by the
Purchase Method. The acquisition of all or part of a financial institution that
meets the definition of a business combination shall be accounted for by the
purchase method in accordance with FAS No. 141, Business Combinations, and FAS
No. 142, Goodwill and Other Intangible Assets. This Statement also provides
guidance on the accounting for the impairment or disposal of acquired long-term
customer-relationship intangible assets (such as depositor- and
borrower-relationship intangible assets and credit cardholder intangible
assets), including those acquired in transactions between two or more mutual
enterprises. Adoption of this statement is not expected to have a material
effect on the Company's financial statements.
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except per share amounts)
September 30, 2002 and December 31, 2001
(Unaudited)
NOTE 4. REGULATORY CAPITAL
The following table illustrates the compliance by the Bank with currently
applicable regulatory capital requirements at September 30, 2002.
(Dollars in thousands)
Categorized as Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------ ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
$ 13,250 16.11% $6,580 8.00% $8,225 10.00%
Total Risk-Based Capital
(To Risk-Weighted Assets)
12,220 14.85% 3,291 4.00% 4,937 6.00%
Tier I Capital
(To Risk-Weighted Assets)
12,220 9.76% 5,008 4.00% 6,260 5.00%
Tier I Capital
(To Total Assets)
12,220 9.76% 5,008 4.00% N/A N/A
Tangible Capital
(To Total Assets)
11
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.
General
FC Banc Corp was established on February 1, 1994 as a bank holding
company whose activities are primarily limited to holding the stock of The
Farmers Citizens Bank, Bucyrus, Ohio ("Bank"). Farmers Citizens Bank was
chartered on October 1, 1907, and officially opened for business on January 6,
1908. Farmers Citizens Bank has provided continuous customer service to Crawford
County for more than 90 years. 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 principal types of lending are in
commercial real estate, residential real estate, and consumer. In both the
commercial and residential real estate the bank has minimal risk. The banks
lending policies specify loan to value ratios low enough to minimize the risk.
Another factor that minimizes the risk is our knowledge of the market area.
Farmers Citizens Bank is a community bank and this helps us in knowing our
customers and market area. Also, the bank is continuously reviewing its
underwriting procedures and policies. In the consumer loan area, the bank
specializes in home equity loans and loans for late model cars. Usually, the
collateral held is sufficient to minimize risk. 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 nine-month periods ended
September 30, 2002 and 2001.
12
FC BANC CORP.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(numbers in thousands except per share amounts)
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.
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. The Banks main office
is about 60 miles north of the state capital, Columbus, Ohio. Our Bank has
various competition in all of the markets we serve. In Bucyrus there are five
other commercial banks. In both Cardington and Fredericktown there are one. All
of our markets are within a short distance to other markets that present another
dozen or so competitors. In addition, there are no less than ten mortgages
companies in each and every market we serve. In our direct markets, the Bank has
a 21.49% market share of deposits. The economy of our markets is driven by
several major components: Manufacturing, retail trade, governmental service,
general service, and agricultural. Census date indicates a positive trend in our
Morrow and Knox counties areas and a steady trend in Crawford County. The
general economic conditions of all three of our markets is reflective of the
State of Ohio and to a certain extent our national economy. Overall, the general
outlook for the economy is cautiously optimistic. Moderate growth to stable
conditions is seen, but in general the economy has not shown positive signs of a
robust economy.
Changes in Financial Condition
At September 30, 2002, the consolidated assets of the Company totaled
$129.3 million, an increase of $19.7 million, or 17.97%, from $109.6 million at
December 31, 2001. The increase in total assets resulted primarily from net loan
growth of $7.8 million, net investment growth of $12.8 million, and premises and
equipment growth of $2.2 million. Total assets have grown $20.3 million or
18.62% from September 30, 2001. In the last twelve months, investments have
grown by $14.5 million and net loans have grown $5.3 million.
Net loans receivable increased by $7.8 million, or 13.10%, to $67.3
million at September 30, 2002, compared to $59.5 million at December 31, 2001.
Commercial loans, loans secured by real estate, and consumer loans have
increased by $3.4 million, $2.4 million and $1.7 million, respectively. Net
loans as of September 30, 2001 were $61.9 million.
13
FC BANC CORP.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(numbers in thousands except per share amounts)
The allowance for loan losses has decreased by $0.3 million due to the
negative provision discussed below. Loan growth continued strong as evidenced by
net growth of $2.9 million in the third quarter. This followed the outstanding
growth in the second quarter of $4.6 million. This growth has occurred because
of the development of our newer market areas, competitive pricing, and lower
rates. In order to enhance the loan growth, the bank has hired two new mortgage
originators. The quality of our loan portfolio continues to be strong.
Delinquency continues to be well below peer group. Due to the current interest
rate environment, we expect loan growth to continue in the fourth quarter.
Growth will not be as strong as the previous two quarters due to normal seasonal
factors.
Investment securities increased by $12.8 million, or 37.64% to $46.8
million at September 30, 2002, compared to $34.0 million at December 31, 2001.
As of September 30, 2001, investment securities were $32.3 million or $14.5
million less than September 30, 2002. The investment portfolio has grown due to
an investment strategy to leverage the bank through the use of Federal Home Loan
Bank Advances. In using this strategy, the bank borrows from the Federal Home
Loan Bank and invests that money in mortgage backed securities with a similar
average life. When entering into these transactions the bank earns an initial
spread of at least 125 basis points. Cash and cash equivalents declined by $3.1
million to $3.6 million at September 30, 2002, compared to $6.7 million at
December 31, 2001. The decline was mostly due to overnight Federal Funds Sold
being invested. As of September 30, 2001 cash and cash equivalents were $7.3
million.
Deposit liabilities increased by $6.2 million, or 7.22%, to $92.0
million at September 30, 2002, from $85.8 million at December 31, 2001. Savings
accounts and certificates of deposits increased by $0.1 million and $8.8
million, respectively. Money Market Accounts, NOW accounts and demand deposits
declined by $0.6 million, $1.3 million, and $0.8 million, respectively.
Certificate of Deposits have increased due to the growth of the 36 month Step-Up
CD. Money Market Accounts, NOW accounts, and demand deposits have decreased due
to unfavorable market conditions. Deposit liabilities have increased by $8.3
million or 9.92% from September 30, 2001.
Total shareholders' equity was $13.0 million at September 30, 2002 as
compared to $12.2 million on December 31, 2001. During the first nine months of
2002 shareholders equity increased due to net income of $0.8 million and
comprehensive income of $0.5 million. Decreased were due to purchase of treasury
shares of $0.2 million, and shareholder dividends of $0.3 million. As of
September 30, 2001, total shareholders' equity was $12.1 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 of (i) the need for funds, (ii) expected deposit flows,
(iii) the yields available on short-term liquid
14
FC BANC CORP.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(numbers in thousands except per share amounts)
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
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 September 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 since the most recent notification that management believes have changed
the Bank's prompt corrective action category.
As of September 30, 2002, FC Banc Corp. had no commitments for capital
expenditures.
15
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 September 30, 2002 and 2001
General. Net income increased by $49 during the third quarter of 2002
as compared to the same three-month period ended September 30, 2001. An increase
in non-interest income and decreases in non-interest expenses and federal income
tax expense were partially offset by a decrease in non-interest income.
Net Interest Income. Net interest income decreased by $189 for the
three months ended September 30, 2002 as compared to September 30, 2001.
Interest income decreased by $156, and interest expense increased by $33. The
bank's interest income has decreased mostly due to the current rate environment.
The decrease in interest income due to lower rates has been partially offset by
our growth. The bank's interest expense has increased due to growth of
certificate of deposits.
Interest Income. The decrease in the average rate earned on earning
assets was the primary contributing factor to the decrease in interest income of
$156 or 8.70%, for the three months ended September 30, 2002 compared to the
same time period in 2001. Loan interest and fee income decreased by $265
resulting primarily from a decrease in interest rates. The average rate earned
on loans was 7.40% in the third quarter of 2002 compared to 8.19% during the
same period in 2001. Interest and dividends on investment securities increased
by $185 due to the growth of the investment portfolio. The average balance of
the investment portfolio was $42.8 million in the third quarter of 2002 compared
to $28.2 million for the same period in 2001. Also, income from federal funds
sold decreased by $76 due to a decrease in average balance. The average balance
for federal funds sold in the third quarter of 2002 was $0.5 million compared to
$6.5 million for the same period in 2001.
Interest Expense. Interest expense increased by $33, or 4.56% for the
three months ended September 30, 2002, as compared to the same period in 2001.
Interest paid on deposits decreased by $54. This was mostly because the average
cost of funds for the three months ended September 30, 2002 was 2.03% compared
to 2.95% for the three months ended September 30, 2001. This was partially
offset by the increase in average deposits , which were $90.7 million in the
third quarter of 2002 compared to $83.7 million for the same period in 2001.
Interest expense on borrowed funds increased by $87, or 87.0% due to higher
total borrowings. The average balance for the third quarter of 2002 was $14.5
million compared to $2.0 million for the same period in 2001.
16
FC BANC CORP.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(numbers in thousands except per share amounts)
Provision for Loan Losses. Based upon continued strong credit quality
the Bank did not expense any provision for loan losses during the third quarter
of 2002. We also recorded no provision for loan losses in the third quarter of
2001. Our Reserve for Loan Loss as of September 30, 2002 stood at $1.2 million
or 1.79% of gross loans. This reserve, 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 $181, or 79.74%,
to $408 for the three months ended September 30, 2002 from $227 for the three
months ended September 30, 2001. This increase was due to implementation of the
Overdraft Honor Program in July of 2002. The Bank had a net gain on sales of
securities of $4 during the third quarter ending September 30, 2002, compared to
a net gain of $40 in the third quarter of 2001.
Non-Interest Expense. Non-interest expense decreased by $54, or 5.38%,
to $949 for the three months ended September 30, 2002, from $1,003 in the
comparable period in 2001. Salaries and Benefits increased by $54 mostly due to
increases in group health insurance expense. Net occupancy and equipment expense
increased $17 due to an increase in depreciation expense. Other expenses
decreased by $127 mostly due to implementation of FASB 91. FASB 91 is an
accounting pronouncement whereas both fee income earned on loans and expenses
incurred to make those loans are amortized over the life of the loan.
Income Taxes. The provision for income taxes increased by $3 for the
three months ended September 30, 2002 compared to the same period in 2001.
Comparison of Nine Months Ended September 30, 2002 and 2001
General. Net income increased by $172 during the nine months ended
September 30, 2002 as compared to the same six-month period ended September 30,
2001. This was due to increases in non-interest income and 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.
Net Interest Income. Net interest income increased by $151 for the nine
months ended September 30, 2002 as compared to September 30, 2001. A decrease of
$ 355 in interest income was offset by a decrease of $506 in interest expense.
One key factor contributing to this increase was the growth of the bank's
earning assets from $96.1 million in 2001 to $104.1 million in 2002. In
addition, the net interest margin for the nine months ended September 30, 2002
was 4.64% compared to 4.49% in the first nine months of 2001. Net interest
margin is computed by dividing the net interest income by the average earning
assets. This is then adjusted to a federal tax equivalent basis.
17
FC BANC CORP.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(numbers in thousands except per share amounts)
Interest Income. A decrease of 88 basis points in the average rate
earned on earning assets was the primary contributing factor to the decrease in
interest income of $355, or 6.60%, for the nine months ended September 30, 2002
compared to September 30, 2001. Loan interest and fee income decreased by $491
due to a 70 basis point decrease in the interest rate earned on the portfolio.
Interest and dividends on investment securities increased by $303 due to growth
of $11.3 million in the investment portfolio. In addition, income from federal
funds sold decreased by $167 due to less volume of $3.7 million, and a 206 basis
point decrease in the rate earned.
Interest Expense. Interest expense on deposit liabilities decreased by
$506, or 22.32% for the nine months ended September 30, 2002, as compared to the
same period in 2001. This was mostly due to average cost of funds for the nine
months ended September 30, 2002 of about 2.24% compared to 3.27% for the nine
months ended September 30, 2001. Interest expense on borrowed funds increased by
$161, or 64.4% due to an increase of $7.4 million in total borrowings.
Provision for Loan Losses. Based upon continued strong credit quality
the Bank recorded a negative provision for loan losses of $275 during the nine
months of 2002. We recorded no provision in the first nine months of 2001. The
reasons for the negative provision are discussed above in the Comparison of
Three Months Ended September 30, 2002 and 2001.
Non-Interest Income. Non-interest income for the nine months ended
September 30, 2002 was $792 compared to $599 for the nine months ended September
30, 2001. Service charges and other income was $215 higher than prior year to
date due to implementation of the Overdraft Honor Program. The Bank had a net
gain on sales of securities of $18 during the nine months ending September 30,
2002, compared to gains of $40 for the same period in 2001.
Non-Interest Expense. Non-interest expense increased by $425, or
14.61%, to $3,334 for the nine months ended September 30, 2002, from $2,909 in
the comparable period in 2001. Salaries and Benefits increased by $521 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 $37 due to less depreciation and equipment leasing expense. Other
expenses decreased by $64. This decreased because of the implementation of FASB
106. The most significant increases were in printing and supplies($26),
advertising/public relations($23), internet banking expense($15), and computer
expense($17).
Income Taxes. The provision for income taxes increased by $22 for the
nine months ended September 30, 2002, compared with the prior year, primarily
because of higher taxable income for the quarter. This was offset by increased
purchases of tax free municipal bonds.
18
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).
Sept 30, December 31,
2002 2001
- --------------------------------------------------------------------------------
Non-accruing loans $ 48 $ 0
Impaired loans 0 0
Accrual loans - 90 days or
more past due 0 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 0.34% 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.
Item 3
Disclosure Control and Procedures
The Company's Principal Executive and Financial Officers have evaluated the
Company's disclosure controls and procedures within 90 days of the filing of
this report. That evaluation concluded that the disclosure controls and
procedures are effective as of the filing of this Quarterly Report on Form
10-QSB for the quarter ended September 30, 2002.
There were no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation, including any significant deficiencies or material
weaknesses of internal controls that would require corrective action.
19
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
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
20
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 third quarter ended
September 30, 2002.
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 November 14, 2002 /s/ Coleman Clougherty
--------------------------- ----------------------------
Coleman Clougherty
Chief Executive Officer
Date November 14, 2002 /s/ Jeffrey Wise
--------------------------- ----------------------------
Jeffrey Wise
Chief Financial Officer
21
SECTION 302 CERTIFICATION
I, Coleman J. Clougherty , President of FC Banc Corp (the "Company"), certify
that:
1. I have reviewed this quarterly report on Form 10-Q of FC Banc Corp;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Company and have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to the Company, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period
in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(C) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The Company's other certifying officer and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the audit committee of
Company's board of directors:
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record, process,
summarize and report financial data and have identified for the Company's
auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal controls; and
6. The Company's other certifying officer and I have indicated in this annual
report whether there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 13, 2002 /s/Coleman J Clougherty
-----------------------
Coleman J. Clougherty
President
22
SECTION 302 CERTIFICATION
I, Jeffrey A. Wise, Chief Financial Officer of FC Banc Corp, certify that:
1. I have reviewed this quarterly report on Form 10-Q of FC Banc Corp;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and
have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the Company, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in
which this quarterly report is being prepared;
(b) evaluated the effectiveness of the Company's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The Company's other certifying officer and I have disclosed, based on
our most recent evaluation, to the Company's auditors and the audit
committee of Company's board of directors:
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Company's
ability to record, process, summarize and report financial
data and have identified for the Company's auditors any
material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Company's internal controls; and
23
6. The Company's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 13, 2002 /s/ Jeffrey A. Wise
---------------------
Jeffrey A. Wise
Chief Financial Officer
24