1
EXHIBIT 13 - SECURITY ANNUAL REPORT AND FORM 10Q FOR MARCH 31, 1996
S E C U R I T Y B A N C C O R P O R A T I O N
1 9 9 5
A N N U A L R E P O R T
2
The Annual Shareholders' Meeting of Security Banc Corporation will be held
April 16, 1996, at 2:00 p.m. on the third floor of the Security National Bank
and Trust Co., 40 South Limestone Street, Springfield, Ohio.
A copy of Security Banc Corporation's Annual Report Form 10-K for the period
ending December 31, 1995, may be obtained without charge upon written
request to Shareholder Relations, Security Banc Corporation, 40 South Limestone
Street, Springfield, Ohio 45502.
Cash Dividends Per Share
1995 1994 1993 1992 1991
$0.73 $0.66 $0.60 $0.54 $0.49
Earnings Per Share
1995 1994 1993 1992 1991
$2.17 $2.03 $1.89 $1.78 $1.62
Stock Performance Per Share
1995 1994 1993 1992 1991
Market Value $28.50 $24.00 $22.00 $19.75 $16.25
Year End Book Value $14.25 $12.59 $11.43 $10.16 $ 8.92
3
STABILITY AND PERFORMANCE
RESULT FROM TAPPING THE
KNOWLEDGE AND
EXPERIENCE OF MANY TO
CREATE A DYNAMIC AND
DIVERSE LEADERSHIP
Fiscal Highlights Compared
1995 1994 1993
Net Income $ 11,082,000 $ 10,304,000 $ 9,565,000
Return on Average Assets 2.13% 2.02% 1.94%
Return on Average Equity 16.13% 16.72% 17.54%
Per Share
Net Income $ 2.17 $ 2.03 $ 1.89
Cash Dividends $ 0.73 $ 0.66 $ 0.60
Book Value $ 14.25 $ 12.59 $ 11.43
Market Last Sale $ 28.50 $ 24.00 $ 22.00
Assets $ 535,975,000 $ 520,981,000 $ 502,424,000
Deposits $ 436,256,000 $ 426,767,000 $ 419,682,000
Loans (Net) $ 310,834,000 $ 310,505,000 $ 276,404,000
Securities $ 150,013,000 $ 162,289,000 $ 173,821,000
Capital Funds $ 72,786,000 $ 64,196,000 $ 57,925,000
Total Capital to
Total Risk Based Assets 21.99% 20.77% 21.23%
Shares of Common
Stock Outstanding 5,106,634 5,101,284 5,068,220
Cash Dividends $ 3,727,000 $ 3,359,000 $ 3,037,000
Shareholders 1,205 1,115 1,063
Bank Offices 14 14 14
Staff Full-Time Equivalent 233 227 233
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Letter to the Shareholders
[Photo]
Once again, we are pleased to present an annual report to shareholders
which reflects the continuing growth, strength and stability of Security Banc
Corporation. The following pages of facts and figures for 1995 represent
another prosperous year and reflect the economic makeup of our communties. This
year's annual report is dedicated to our Board of Directors. Our goal is for
the composition of our Board of Directors to mirror the diverse interest and
opinions of our shareholders. By achieving this, we live up to our hometown
philosophy. A philosophy which provides our shareholders and our customers with
the advantages and responsiveness of local ownership and local leadership. It
is this mind set which creates a neighborhood atmosphere in every one of our
markets. As we continue on our path of growth--from steps such as opening a new
service or office, to entering new opportunities--we will remain committed to
local community leadership.
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As partners, presidents or owners of local business ventures, our Board
of Directors bring with them a diversity of information and experience as well
as knowledge of the commitment to the communities and people we serve. This
combined pool of wisdom benefits the Corporation by expanding the base of
information considered during the decision making process. Board members,
active in the business community, are able to create policies which respond to
community needs and benefit shareholders. By establishing effective corporate
policies, the Board empowers the senior management staff of Security Banc
Corporation to function to their highest potential. It is this type of
leadership which creates a thriving work environment and a thriving
institution.
Security Banc Corporation's net income for the year 1995 was $11,082,000,
an increase of 8% over the $10,304,000 for the previous year. This year's
earnings per share increased 7%, from $2.03 to $2.17. Shareholders' equity is
well in excess of regulatory requirements. The national average return on
assets and equity for banks under one billion in assets is 1.26% and 13.64%,
respectively. Security Banc continues to exceed these with a return on assets
of 2.13% and a return on equity of 16.13%.
The cash dividends of $0.73 per share is an increase of 11% over 1994.
Total assets extended to $535,975,000 at December 31, 1995. Deposits increased
$9,489,000 to $436,256,000, while total loans increased $524,000 to
$314,575,000. The stock market value is $28.50, adjusted to reflect the 2 for 1
stock split during the second quarter. Our financial stability continues to
reflect a history of high quality assets and net loan losses of 0.19% of
average loans.
The high performance of Security Banc Corporation continues to receive
industry recognition from Bauer Financial Reports, Inc., Sheshunoff and
VERIBANC, Inc. These recognitions are based on key indicators including market
share, profitability and return to shareholders. This excellent ranking among
our peers points to the leadership provided by our Board of Directors and
management ability of our staff.
In an era of bank mergers and multi-state financial institutions,
Security Banc Corporation continues to shine as a hometown institution. Our
local ownership and emphasis on personal service, positions us ahead of the
competition when it comes to neighbor-to-neighbor service. We created the
"hometown touch," and we continue to provide the real thing.
Last year we reported to you that we had initiated a strategic planning
process in 1994, a process which we said would be ongoing. During 1995 we
reaped many benefits from these efforts. We held our first Annual Employee
Meeting and drafted a new Vision Statement which will keep us focused on
sustained growth, both financially and as an institution which fosters employee
development. We are committed to having an organizational structure which
encourages a free flow of ideas from all levels of staff and management. Just
as we realize the benefits of diversity on our Board, we acknowledge the
benefits of diverse thought among our staff. Security staff will be trained and
empowered to make decisions which will provide the highest quality of customer
service, and the bank's products and delivery system will be continually
evaluated for suitability, location and profitability. We will use
state-of-the-art management information systems to analyze and prioritize our
product and service needs. A major step toward this goal was accomplished this
past year by installing a new data processing system. As we continue to
integrate our strategic plan, we will incorporate our Core Values of integrity,
fairness, social responsibility and fun.
A new director, Larry E. Kaffenbarger, was appointed to the Board last
year. His contributions have added a new dimension to our Board. We are
confident that with the support of our shareholders, the leadership of our
Board and the dedication of our management staff and employees, we will
continue to assess and adjust our operations to meet the needs of our community
and our customers.
We thank our directors and our employees for their contribution in 1995
and look forward to 1996 with the knowledge that your hometown bank, led by
hometown people, will continue to provide returns on shareholder investments
and maintain our legacy of personal service to customers.
/s/ Harry Egger
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Management's Discussion and Analysis
of Financial Condition and Results of Operations
In the following pages, the analysis of the financial condition and
results of operations in 1995 compared to prior years is discussed by
Management. The data presented in this discussion should be read in conjunction
with the 1995 audited financial statements of the report.
RESULTS OF OPERATIONS SUMMARY
Net income advanced in 1995 to an all time high of $11,082,000. Net income
has steadily increased in each of the previous five (5) years. Net income in
1995 was $11,082,000 compared to net income in 1994 of $10,304,000 and in 1993
of $9,565,000. Net income for 1995 increased $778,000 or eight percent (8%)
over 1994. Income per share was $2.17 in 1995, $2.03 in 1994, and $1.89 in
1993.
Total assets grew three percent (3%) in 1995 to $535,975,000. Security Banc
Corporation continued its record of excellent performance with a 1995 return on
average assets of two point one three percent (2.13%) and a return on average
shareholder equity of sixteen point one three percent (16.13%). The Corporation
has continued to increase cash dividends paid to our shareholders. Cash
dividends paid in 1995 were $.73 per share, compared to $.66 per share in 1994.
Market price per share at December 31, 1995 was $28.50 compared to $24.00 at
December 31, 1994. Financial summary (Table I) recaps these measures.
Table I: Financial Summary
Five Years Ended December 31
(000's, except per share and ratio data) 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------
Interest and Fee Income............................... $ 39,745 $ 35,419 $ 34,536 $ 34,673 $ 36,516
Interest Expense...................................... 14,194 11,537 12,431 14,068 19,622
------ ------ ------ ------ ------
Net Interest Income................................... 25,551 23,882 22,105 20,605 16,894
Provision for Loan Losses............................. 800 800 900 1,100 700
Other Operating Income
Investment Securities Gains........................... 10 316 714 554 1,552
All Other............................................. 4,328 4,161 3,588 3,283 3,297
Operating Expense..................................... 13,488 13,234 12,848 11,715 11,056
------ ------ ------ ------ ------
Income Before Income Taxes............................ 15,601 14,325 12,659 11,627 9,987
Provision for Income Tax.............................. 4,519 4,021 3,094 2,707 1,889
------ ------ ------ ------ ------
Net Income............................................ $ 11,082 $ 10,304 $ 9,565 $ 8,920 $ 8,098
Per Share
Net Income............................................ $ 2.17 $ 2.03 $ 1.89 $ 1.78 $ 1.62
Cash Dividends Declared and Paid...................... $ 0.73 $ 0.66 $ 0.60 $ 0.54 $ 0.49
Year-End Book Value................................... $ 14.25 $ 12.59 $ 11.43 $ 10.16 $ 8.92
Year-End Market Price................................. $ 28.50 $ 24.00 $ 22.00 $ 19.75 $ 16.25
Selected Year-Ended Information
Total Assets.......................................... $535,975 $520,981 $502,424 $465,191 $447,330
Investment Securities..................................... 150,013 162,289 173,821 144,890 160,577
Loans-Net................................................. 310,834 310,505 276,404 259,333 237,963
Deposits.............................................. 436,256 426,767 419,682 389,671 369,879
Noninterest-Bearing Demand Deposits................... 86,682 79,532 70,639 67,004 56,910
Interest-Bearing Demand Deposits...................... 73,140 79,751 88,989 87,811 86,594
Time Deposits......................................... 174,693 154,788 129,495 116,895 139,281
Savings............................................... 101,741 112,696 130,559 117,961 87,094
Shareholders' Equity.................................. 72,786 64,196 57,925 51,077 44,678
Cash Dividends Paid................................... 3,727 3,359 3,037 2,706 2,442
Net Income............................................ $ 11,082 $ 10,304 $ 9,565 $ 8,920 $ 8,098
Weighted Average Common Shares Outstanding............ 5,105 5,089 5,056 5,010 2,504
Ratios
Return on Average Assets.............................. 2.13% 2.02% 1.94% 1.98% 1.89%
Return on Average Equity.............................. 16.13% 16.72% 17.54% 18.62% 19.41%
Total Capital to Total Risk Based Assets.................. 21.99% 20.77% 21.23% 19.70% 18.08%
Net Interest Margin (Tax Equivalent Basis)................ 5.52% 5.31% 5.17% 5.35% 4.74%
Dwight Hollenbeck, Credit Life
"Every decision made by the Board must
consider the safety of the shareholders' [Photo]
investment. The reward for conservative
management has always been steady growth."
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NET INTEREST INCOME
A major share of the Corporation's income results from the spread between
income on interest earning assets, such as loans and securities, and the
interest expense on liabilities used to fund those assets. The difference
between interest earned and interest expensed is referred to as net interest
income in the Consolidated Statement of Income. Net interest income is affected
by changes in both interest rates and the amount of interest earning assets and
interest bearing liabilities outstanding. Net interest margin on interest
earning assets is the amount earned on assets, on a taxable equivalent basis,
divided by the average earning assets outstanding.
Table II, entitled Average Balance Sheets and Analysis of Net Interest
Income, compares the changes in revenue and interest earning assets
outstanding, and interest cost and liabilities outstanding for the years ended
December 31, 1995, 1994, and 1993.
The Corporation's net interest income on a taxable equivalent basis was
$26,930,000, $25,536,000 and $24,017,000 in 1995, 1994 and 1993, respectively.
Total average earning assets increased to $488,128,000 in 1995, compared to
$480,505,000 in 1994 and $464,153,000 in 1993. Earning assets are total loans,
total securities, interest bearing deposits with other banks and federal funds
sold. Average total loans increased $14,979,000 to $314,497,000. Average
securities, interest bearing deposits with other banks, and federal funds sold
decreased a combined total of $7,356,000.
Total average interest bearing liabilities increased $83,000 to
$372,088,000 in 1995. Average time deposits attributed to the increase
representing $26,783,000. Average purchased funds increased $1,811,000. Average
NOW, Money Fund and savings decreased $5,762,000, $4,859,000 and $17,890,000,
respectively.
Average earning assets of $488,128,000 in 1995 contributed a tax equivalent
interest income of $41,124,000 with a yield of eight point forty-two percent
(8.42%).
Average interest bearing liabilities of $372,088,000 in 1995 contributed
interest expense of $14,194,000.
Table III, entitled Analysis of Net Interest Income Changes, translates the
dollar changes in taxable equivalent net interest margin into (1) changes due
to volume or (2) changes due to average yields on interest earning assets and
average rates for sources of funds on which interest expense is incurred.
OTHER OPERATING INCOME
Other operating income is comprised of trust income, service charges on
deposit accounts, security gains, and other items of income not directly
resulting from interest earning assets. These items comprise safe deposit box
fees, exchange and collection fees, investor service fees, gain (loss) on the
sale of loans and miscellaneous other income.
Net Income (Thousands)
1995 1994 1993 1992 1991
$11,082 $10,304 $9,565 $8,920 $8,098
Return on Average Assets
1995 1994 1993 1992 1991
2.13% 2.02% 1.94% 1.98% $1.89%
[PHOTO W. DEAN SWEET]
W. Dean Sweet, Sweet Manufacturing
"The right tools are vital to any job. Not only must Security Banc Corporation
remain up-to-date with technological advances, we must also invest in our
people. Training and education for employees are crucial components to overall
success."
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MANAGEMENT'S DISCUSSION AND ANALYSIS STATISTICAL INFORMATION
Table II: Average Balance Sheets and Analysis of Net Interest Income for the Years Ended December 31.
(Tax equivalent basis)
1995 1994 1993
------------------------ --------------------------- -----------------------------
(000's) Balance Interest Yield Balance Interest Yield Balance Interest Yield
====================================================================================================================================
ASSETS
Earning Assets
Loans 1)
Commercial 2)............. $147,647 $13,614 9.22% $141,794 $ 11,608 8.19% $128,389 $9,959 7.76%
Real estate 3)............ 83,820 7,053 8.41% 83,886 6,927 8.26% 82,097 7,222 8.80%
Consumer 3)............... 83,030 8,495 10.23% 73,838 6,889 9.33% 58,790 6,327 10.76%
------ ----- ------ ------ ----- ----- ------ ----- -----
Total loans.............. 314,497 29,162 9.27% 299,518 25,424 8.49% 269,276 23,508 8.73%
Investment securities
Taxable................... 122,161 7,033 5.76% 132,007 6,629 5.02% 122,696 6,767 5.52%
Tax-exempt 2)............. 28,635 3,597 12.56% 36,987 4,528 12.24% 41,733 5,224 12.52%
------ ----- ------ ------ ----- ---- ------ ----- ------
Total securities......... 150,796 10,630 7.05% 168,994 11,157 6.60% 164,429 11,991 7.29%
Interest-bearing deposits
with other banks.......... 107 5 4.67% 3,028 120 3.96% 2,684 108 4.02%
Federal funds sold and securities
purchased under agreements
to resell................. 22,728 1,327 5.84% 8,965 372 4.15% 27,764 841 3.03%
------ ----- ------ ------ ----- ---- ------ ----- ------
Total earning assets.......... 488,128 41,124 8.42% 480,505 37,073 7.72% 464,153 36,448 7.85%
Nonearning assets
Allowance for loan losses. (3,786) (3,415) (3,274)
Cash and due from banks... 19,381 19,664 19,367
Premises, equipment and
other assets.............. 16,928 12,537 11,696
------ ------ ------
Total assets....................... $520,651 $509,291 $491,942
======= ======= =======
LIABILITIES
Interest-bearing liabilities
Deposits
Now....................... $ 51,531 $ 891 1.73% $ 57,293 $1,034 1.80% $ 59,022 $1,568 2.66%
Money Fund................ 22,144 544 2.46% 27,003 611 2.26% 31,028 837 2.70%
Savings................... 106,301 2,576 2.42% 124,191 3,057 2.46% 126,423 3,987 3.15%
Time deposits
CD's > 100,000............ 19,576 1,066 5.45% 14,351 595 4.15% 12,345 475 3.85%
CD's < 100,000............ 146,205 7,839 5.36% 124,647 5,427 4.35% 117,001 5,100 4.36%
------- ----- ----- ------- ----- ----- ------- ----- -----
Total interest-bearing deposits 345,757 12,916 3.74% 347,485 10,724 3.09% 345,819 11,967 3.46%
Purchased funds
Federal funds purchased and
securities sold under agreements
to repurchase............. 26,331 1,278 4.85% 24,520 813 3.32% 22,441 464 2.07%
------- ----- ----- ------- ----- ----- ------- ----- -----
Total interest-bearing liabilities 372,088 14,194 3.81% 372,005 11,537 3.10% 368,260 12,431 3.38%
Noninterest-bearing demand deposits 77,301 73,671 66,983
Other liabilities............. 2,554 1,981 2,172
Shareholders' equity.......... 68,708 61,634 54,527
------- ------- -------
Total liabilities and shareholders' equity $520,651 $509,291 $491,942
======= ======= =======
Net Interest income and....... 26,930 25,536 24,017
Interest rate spread.......... 4.61% 4.62% 4.47%
Net interest margin
(tax equivalent basis).... 5.52% 5.31% 5.17%
<FN>
Footnote:
1) Nonaccrual loans are included in average loan balances and loan fees are included in interest income.
2) Interest income on tax-exempt investments and on certain tax-exempt commercial loans has been adjusted to a taxable
equivalent basis using a marginal federal income tax rate of thirty-five percent (35%) in 1995 and 1994 and thirty-four
percent (34%) for 1993.
3) For Management Discussion and Analysis, home equity loan averages are included in the consumer loan portfolio as opposed
to the real estate loan portfolio.
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MANAGEMENT'S DISCUSSION AND ANALYSIS STATISTICAL INFORMATION
Table III: Analysis of Net Interest Income Changes
(Tax equivalent basis)
1995 Compared to 1994 1994 Compared to 1993
------------------------------------- ----------------------------------------
Yield/ Yield/
(000's) Volume Rate Mix Total Volume Rate Mix Total
====================================================================================================================================
Increase (Decrease) in Interest Income
Loans
Commercial....................... $ 479 $1,466 $ 61 $2,006 $1,040 $ 552 $ 58 $ 1,650
Real estate...................... (5) 132 0 127 157 (443) (10) (296)
Consumer......................... 858 666 83 1,607 1,620 (842) (216) 562
--- --- -- ----- ----- ---- ---- ----
Total loans........................ 1,332 2,264 144 3,740 2,817 (733) (168) 1,916
Investment Securities
Taxable...................... (494) 971 (72) 405 514 (606) (46) (138)
Tax-exempt................... (1,022) 118 (27) (931) (594) (115) 13 (696)
------ --- -- ----- ----- ---- ---- ----
Total securities................... (1,516) 1,089 (99) (526) (80) (721) (33) (834)
Interest-bearing deposits
with other banks............... (116) 21 (21) (116) 14 (2) (0) 12
Federal Funds sold and securities
purchased under agreements to resell 571 151 232 954 (569) 311 (211) (469)
--- --- --- --- ---- --- ---- ----
Total Interest Income Change............ 271 3,525 256 4,052 2,182 (1,145) (412) 625
Increase (Decrease) in Interest Expense
Interest-bearing liabilities
Now.............................. (104) (43) 4 (143) (46) (503) 15 (534)
Money Fund....................... (110) 52 (9) (67) (109) (135) 18 (226)
Savings.......................... (441) (47) 7 (481) (70) (875) 15 (930)
Time Deposit
CD's > 100,000............... 217 186 68 471 77 37 6 120
CD's < 100,000............... 939 1,256 217 2,412 333 (6) (0) 327
--- ----- --- ----- ---- --- ---- ----
Total Interest-bearing deposits......... 501 1,404 287 2,192 185 (1,482) 54 (1,243)
Federal Funds purchased and
securities sold under agreements
to repurchase.................... 60 377 28 465 43 280 26 349
--- --- --- --- ---- --- ---- ----
Total Interest Expense Change........... 561 1,781 315 2,657 228 (1,202) 80 (894)
Increase (Decrease) in Net Interest
Income on a Taxable Equivalent Basis $ (290) $1,744 $ (59) $1,395 $1,954 $ 57 $ (492) $1,519
Decrease in Taxable Equivalent Basis.... 274 258
--- ---
Net Interest Income Change.............. $1,669 $1,777
OPERATING EXPENSE
Total operating expense increased $254,000 in 1995 to $13,488,000 compared
to $13,234,000 for 1994. Salaries and employee benefits were $6,773,000 in
1995, compared to $6,275,000 in 1994. Equipment and occupancy expenses were
$1,439,000, up $112,000 from the previous year. Amortization of intangibles
decreased to $71,000 as compared to $234,000 for the previous year. Other
operating expense decreased three point six percent (3.6%) to $5,205,000.
Footnote thirteen (13) provides data on the significant changes in the
individual items making up this category.
LOANS
Total average commercial loans increased four point one percent (4.1%) to
$147,647,000 in 1995 yielding an average rate of nine point twenty-two percent
(9.22%). Average real estate loans decreased point one percent (0.1%) to
$83,820,000, yielding an average rate of eight point forty-one percent (8.41%).
Average consumer loans, which include home equity loans, increased twelve point
forty-five percent (12.45%) to $83,030,000, yielding an average rate of ten
point twenty-three percent (10.23%).
Under-performing assets consist of (1) non-accrual loans on which the
ultimate collectibility of the full amount of interest is uncertain but the
principal is currently considered fully collectible, (2) loans past due
[photo] Harry O. Egger
"Board members invest time, energy, experience
and knowledge in our Corporation. It is my
challenge to make sure we make the most of their
investment."
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ninety (90) days or more as to principal or interest and (3) other real estate
owned. Under-performing assets as of December 31, 1995 were $4,150,000.
The Corporation provides, as expense, an amount which reflects expected
loan losses. This provision is based on the growth of the loan portfolio, local
economic conditions, and on recent loan loss experience and is called the
provision for loan losses in the Consolidated Statement of Income. Actual
losses on loans are charged against the reserve built up on the Consolidated
Statement of Condition through the allowance for loan losses. The amount of
loans actually removed as assets from the Consolidated Statement of Condition
is referred to as charge-offs. Netting out recoveries on previously charged-off
assets with current year charge-offs provides net charge-offs.
Net charge-offs in 1995 increased to $605,000 from $416,000 in 1994. The
provision for loan losses was $800,000 in 1995 and 1994. The allowance for
loan losses at December 31, 1995 was equivalent to one point nineteen percent
(1.19%) of loans outstanding.
The following table presents loan loss data for the most recent five (5)
year period.
(000's) 1995 1994 1993 1992 1991
==========================================================================================
Balance at Jan. 1 $ 3,546 $ 3,162 $ 3,010 $ 2,779 $ 2,591
Provision for loan
losses 800 800 900 1,100 (700)
Loans charged off (868) (608) (1,049) (1,071) (714)
Recoveries of loans
previously
charged off 263 192 301 202 202
--- --- --- --- ---
Balance at Dec. 31 $ 3,741 $ 3,546 $ 3,162 $ 3,010 $ 2,779
Loans outstanding
at Dec. 31 $ 314,575 $ 314,051 $ 279,566 $ 262,343 $ 240,742
Reserve as a
percent of loans 1.19% 1.13% 1.13% 1.15% 1.15%
Net loan losses to
average loans 0.19% 0.14% 0.28% 0.34% 0.23%
LIQUIDITY AND INTEREST RATE SENSITIVITY
The Corporation's Asset/Liability Management Committee is charged with the
responsibility of maintaining an adequate level of liquidity and of managing
the risks associated with interest rate changes while sustaining a stable
growth in net interest income. The maintenance of an adequate level of
liquidity is necessary to ensure that sufficient funds are available to meet
customer loan demand and deposit withdrawals. The asset liquidity sources
consist of short term marketable securities, federal funds sold, maturing loans
and certificates of deposit. Interest rate management seeks to maintain a
balance between steady net interest growth and the risks associated with
interest rate fluctuations.The strategy is to minimize interest rate risk
through the matching of the repricing period of interest earning assets and
interest bearing liabilities.
The Corporation has a net asset position of $77,122,000 at the one (1) year
interval or a sensitivity ratio of one point forty-two (1.42). This ratio
indicates that, in a declining interest rate environment, those assets that are
due to reprice would be replaced at a decreased interest yield at a faster pace
than maturing liabilities, having a negative impact on the net interest margin.
In an increasing rate environment, those assets that are due to reprice would
be replaced at a higher interest yield, improving the net interest margin.
CAPITAL RESOURCES
Federal Reserve Board standards require banks and bank holding companies to
maintain capital based on "risk-adjusted" assets so that categories of assets
with potentially higher credit risk will require more capital backing than
assets with lower risk. In addition, banks and bank holding companies are
required to maintain capital to support on a risk-adjusted basis, certain
off-balance-sheet activities such as loan commitments.
The Federal Reserve Board standards classify capital into tiers. All banks
are required to meet a minimum ratio of eight point zero percent (8.0%) of
qualifying total capital to risk-adjusted total assets.
Security Banc Corporation maintains a high level of capital as a margin of
safety for its stockholders and depositors. Applying the new risk-based capital
guidelines; total capital to total risk-weighted assets was twenty-one point
ninty-nine percent (21.99%) in 1995 and twenty point seventy-seven percent
(20.77%) in 1994, well above the minimum established guidelines.
MARKET INFORMATION
Security Banc Corporation stock is traded in the over-the-counter market.
The following table sets forth the sales prices for the common stock during the
periods indicated.
1995 1994
===================================================================
Quarter Ended High Bid Low Bid High Bid Low Bid
March 31 $25.38 $24.00 $22.00 $22.00
June 30 $26.25 $25.38 $22.88 $22.00
September 30 $27.25 $26.25 $23.00 $22.88
December 31 $28.50 $27.25 $24.00 $23.00
As of December 31, 1995, the Corporation had 1,205 shareholders of record.
Cash dividends paid per share were $.73.
Thomas Veskauf, Gorman, Veskauf, Henson &
Winberg Attorneys
"It is the responsibility of the Board of Directors to [photo]
act on behalf of the shareholders. We are their
representatives and we must consider their
interests."
11
QUARTERLY INFORMATION
First Second Third Fourth
(000's except per share data) Quarter Quarter Quarter Quarter
=======================================================================================
1995
Interest & Fee Income............. $ 9,386 $ 10,036 $ 10,110 $ 10,213
Interest Expense.................. 3,289 3,555 3,640 3,710
----- ----- ----- -----
Net Interest Income ................ 6,097 6,481 6,470 6,503
Provision for Loan Losses 200 200 200 200
Other Operating Income
Investment
securities gains............... 0 (96) 106 0
All Other ....................... 1,008 980 1,082 1,258
Operating Expense ................ 3,337 3,483 3,137 3,351
----- ----- ----- -----
Income before Income Taxes 3,568 3,682 4,321 4,030
Provision for Income Tax 996 1,057 1,255 1,211
--- ----- ----- -----
Net Income ......................... 2,572 2,625 3,066 2,819
Per Share
Net Income ......................... 0.51 0.51 0.60 0.55
Cash Dividends Paid ................ 0.17 0.17 0.17 0.22
Market Price ....................... 25.38 26.25 27.25 28.50
1994
Interest & Fee Income............. $ 8,468 $ 8,590 $ 9,011 $ 9,350
Interest Expense ................. 2,686 2,699 2,925 3,227
----- ----- ----- -----
Net Interest Income ................ 5,782 5,891 6,086 6,123
Provision for Loan Losses 200 200 200 200
Other Operating Income
Investment
securities gains............... 316 0 0 0
All Other........................ 1,066 938 1,042 1,115
Operating Expense ................ 3,493 3,365 3,188 3,188
----- ----- ----- -----
Income before Income Taxes 3,471 3,264 3,740 3,850
Provision for Income Tax 964 919 1,044 1,094
--- --- ----- -----
Net Income ......................... 2,507 2,345 2,696 2,756
Per Share
Net Income ......................... 0.50 0.46 0.53 0.54
Cash Dividends Paid ................ 0.15 0.15 0.15 0.21
Market Price ....................... $ 22.00 $ 22.88 $ 23.00 $ 24.00
Total Capital (Thousands)
1995 1994 1993 1992 1991
$72,786 $64,196 $57,925 $51,077 $44,678
[photo] Larry Ewald, Process Equipment
"Our purpose as a Board is to be aware of
trends in banking and the needs of our
customers. We must respond with state-of-the-art
financial products that provide comprehensive
services while maintaining profitability for
the Corporation."
12
Report of Independent Auditors
Board of Directors
Security Banc Corporation
We have audited the accompanying consolidated statement of condition of
Security Banc Corporation and subsidiaries as of December 31, 1995 and 1994,
and the related consolidated statements of income, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Security Banc
Corporation and subsidiaries at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Columbus, Ohio
January 11, 1996
[PHOTO] Richard Kramer, Fulmer Supermarkets, Inc.
"A keen awareness of the constant changes in supply and demand is
absolutely necessary to maintain a competitive edge in customer
service and corporate profitability."
13
Consolidated Statement of Condition
AS OF DECEMBER 31, 1995 AND 1994 (000's)
1995 1994
---- ----
ASSETS
Cash and due from banks............................................................ $ 21,658 $ 24,839
Federal funds sold................................................................. 34,800 4,250
---------- ----------
Total Cash and Cash Equivalents................................................ 56,458 29,089
Interest bearing deposits with other banks......................................... 0 686
Investments (Market value $151,784 in 1995)........................................ 150,013 162,289
(Market value $164,318 in 1994)
LOANS:
Commercial and agricultural.................................................... 148,957 145,942
Real estate.................................................................... 88,198 89,091
Consumer....................................................................... 77,420 79,018
---------- ----------
Total Loans............................................................. 314,575 314,051
Less allowance for loan losses................................................. 3,741 3,546
---------- ----------
Net Loans................................................................ 310,834 310,505
Premises and equipment............................................................. 5,182 5,136
Other assets....................................................................... 13,488 13,276
---------- ----------
TOTAL ASSETS....................................................................... $ 535,975 $ 520,981
========== ==========
LIABILITIES
Non-interest bearing deposits...................................................... $ 86,682 $ 79,532
Interest bearing demand deposits................................................... 73,140 79,751
Savings deposits................................................................... 101,741 112,696
Time deposits, $100,000 and over................................................... 24,874 16,567
Other time deposits................................................................ 149,819 138,221
---------- ----------
Total Deposits................................................................. 436,256 426,767
Federal funds purchased and securities
sold under agreement to repurchase............................................... 24,293 27,284
Other liabilities.................................................................. 2,640 2,734
---------- ----------
TOTAL LIABILITIES.................................................................. 463,189 456,785
SHAREHOLDERS' EQUITY
Common Stock ($3.125 Par Value, 1995;.............................................. 16,710 16,693
$6.25 Par Value, 1994)
authorized 11,000,000 shares
issued 5,347,234 shares, 1995
issued 2,670,942 shares, 1994
Surplus............................................................................ 17,883 17,842
Retained Earnings.................................................................. 41,178 33,823
Unrealized gains and (losses)...................................................... 208 (969)
Less: Treasury Stock............................................................... 3,193 3,193
---------- ----------
240,600 shares in 1995 and 120,300 in 1994
TOTAL SHAREHOLDERS' EQUITY.............................................................. 72,786 64,196
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............................................. $ 535,975 $ 520,981
========== ==========
See Notes to Consolidated Financial Statements.
14
Consolidated Statement of Income
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (000's)
1995 1994 1993
--------- --------- ---------
INTEREST AND FEE INCOME
Loans................................................................. $ 29,042 $ 25,309 $ 23,372
Interest bearing deposits with other banks............................ 5 120 108
Federal funds sold.................................................... 1,327 372 841
Investments-taxable................................................... 7,033 6,629 6,767
Investments-tax exempt................................................ 2,338 2,989 3,448
--------- --------- ---------
Total Interest and Fee Income.................................... 39,745 35,419 34,536
INTEREST EXPENSE
Deposits of $100,000 and over......................................... 1,066 595 475
Other deposits........................................................ 11,850 10,129 11,492
Federal funds purchased and securities
sold under agreement to repurchase.................................. 1,238 787 445
Demand notes to U.S. Treasury......................................... 40 26 19
--------- --------- ---------
Total Interest Expense........................................... 14,194 11,537 12,431
--------- --------- ---------
NET INTEREST INCOME ....................................................... 25,551 23,882 22,105
Provision for loan losses............................................. 800 800 900
--------- --------- ---------
Net interest income after provision for loan losses................... 24,751 23,082 21,205
OTHER OPERATING INCOME
Trust income.......................................................... 1,464 1,208 1,115
Service charges on deposit accounts................................... 2,126 2,230 2,012
Securities gains...................................................... 10 316 714
Other income.......................................................... 738 723 461
--------- --------- ---------
Total Other Operating Income..................................... 4,338 4,477 4,302
OPERATING EXPENSE
Salaries and employee benefits........................................ 6,773 6,275 5,965
Equipment and occupancy, net.......................................... 1,439 1,327 1,335
Amortization of intangibles........................................... 71 234 532
Other operating expense............................................... 5,205 5,398 5,016
--------- --------- ---------
Total Operating Expenses......................................... 13,488 13,234 12,848
--------- --------- ---------
INCOME BEFORE INCOME TAXES ................................................ 15,601 14,325 12,659
Provision for income tax.............................................. 4,519 4,021 3,094
--------- --------- ---------
NET INCOME....................................................... $ 11,082 $ 10,304 $ 9,565
========= ========= =========
PER SHARE DATA (WHOLE DOLLARS)
Net income............................................................ $ 2.17 $ 2.03 $ 1.89
Cash dividends........................................................ $ 0.73 $ 0.66 $ 0.60
Weighted average share outstanding......................................... 5,104,943 5,089,496 5,056,012
See Notes to Consolidated Financial Statements.
15
Consolidated Statement of Shareholders' Equity
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 and 1993 (000's)
Unrealized
Common Retained gains and Treasury
Stock Surplus Earnings (losses) Stock Total
------ ------- -------- --------- -------- -----
Balance at January 1, 1993................ $ 16,469 $ 17,438 $ 20,350 0 ($ 3,180) $ 51,077
Net income........................... 0 0 9,565 0 0 9,565
Cash dividends....................... 0 0 (3,037) 0 0 (3,037)
Exercise of stock options............ 119 201 0 0 0 320
--------- -------- ---------- ----- -------- ---------
Balance at December 31, 1993.............. $ 16,588 $ 17,639 $ 26,878 0 ($ 3,180) $ 57,925
Adjustment to beginning balance
for change in accounting method,
net of income taxes of $767........ 0 0 0 1,490 0 1,490
Net income........................... 0 0 10,304 0 0 10,304
Cash dividends....................... 0 0 (3,359) 0 0 (3,359)
Exercise of stock options............ 105 203 0 0 0 308
Purchase of treasury stock........... 0 0 0 0 (13) (13)
Change in unrealized gains and (losses)
net of income taxes of $1,267...... 0 0 0 (2,459) 0 (2,459)
--------- -------- ---------- ----- -------- ---------
Balance at December 31, 1994.............. $ 16,693 $ 17,842 $ 33,823 ($ 969) ($ 3,193) $ 64,196
Net income........................... 0 0 11,082 0 0 11,082
Cash dividends....................... 0 0 (3,727) 0 0 (3,727)
Exercise of stock options............ 17 41 0 0 0 58
Purchase of treasury stock........... 0 0 0 0 0 0
Change in unrealized gains and (losses)
net of income taxes of $634........ 0 0 0 1,177 0 1,177
--------- -------- ---------- ----- -------- ---------
Balance at December 31, 1995.............. $ 16,710 $ 17,883 $ 41,178 $ 208 ($ 3,193) $ 72,786
========= ======== ========== ===== ======== =========
See Notes to Consolidated Financial Statements.
[PHOTO JANE SCARFF]
Jane Scarff, Scarff's Nursery, Inc.
"Our opportunities for growth abound. However, we must make sure that every
opportunity is matched with the proper conditions to nurture stability."
16
Consolidated Statement of Cash Flows
For the Years Ended December 31, 1995, 1994, and 1993 (000's)
1995 1994 1993
------- ------- -------
Cash Flows From Operating Activities:
Net income............................................................ $ 11,082 $ 10,304 $ 9,565
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation...................................................... 540 475 420
(Gain)/Loss on sale of the following:
Investment Securities available for sale...................... (10) (316) 0
Investment Securities held to maturity........................ 0 0 (714)
Other Assets.................................................. 8 (11) (6)
Provision for loan losses......................................... 800 800 900
Amortization and accretion, net................................... (1,291) 1,540 1,663
Amortization of core deposit intangible........................... 71 234 532
Change in other operating assets and liabilities, net............. (989) (4,399) 310
Total Adjustments......................................... (871) (1,677) 3,105
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES ....................... 10,211 8,627 12,670
Cash Flows From Investing Activities:
Net decrease (increase) in interest bearing deposits with other banks. 686 3,028 (1,657)
Proceeds from maturities and sales of:
Investment securities available for sale.......................... 225,658 31,402 0
Investment securities held to maturity............................ 9,120 9,099 34,289
Purchase of:
Investment securities available for sale.......................... (219,412) (759) 0
Investment securities held to maturity............................ 0 (30,902) (47,874)
Net increase in loans................................................. (1,494) (36,785) (13,735)
Proceeds from sale of other assets.................................... 381 1,906 619
Capital expenditures.................................................. (610) (499) (354)
Net cash used in branch acquisition................................... 0 0 (2,476)
------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES ............................ 14,329 (23,510) (31,188)
Cash Flows from Financing Activities:
Net (decrease) increase in demand deposits, NOW accounts and
savings accounts.................................................. (10,416) (18,208) 4,501
Net increase in certificates of deposit............................... 19,905 25,293 6,401
Net (decrease) increase in short-term borrowed funds.................. (2,991) 4,323 (316)
Purchase of treasury stock............................................ 0 (13) 0
Dividends paid........................................................ (3,727) (3,359) (3,037)
Proceeds from exercise of stock options............................... 58 308 320
------- ------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES ......................... 2,829 8,344 7,869
------- ------- -------
Net increase (decrease) in cash and cash equivalents....................... 27,369 (6,539) (10,649)
Cash and cash equivalents at beginning of year............................. 29,089 35,628 46,277
------- ------- -------
Cash and Cash Equivalents at End of Year................................... $56,458 $29,089 $35,628
======= ======= =======
See Notes to Consolidated Financial Statments.
17
Notes to Consolidated Financial Statements
December 31, 1995
1. ORGANIZATION
The Corporation is a bank holding company headquartered in Springfield,
Ohio. The bank, Security National Bank is engaged in the general commercial
banking and trust business, primarily in Central Ohio.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Security Banc Corporation are
based on generally accepted accounting principles and conform to general
practices within the banking industry. The following is a description of the
significant accounting policies followed by Security Banc Corporation.
CONSOLIDATION
The consolidated financial statements include the accounts of Security Banc
Corporation and its wholly owned subsidiaries, Security National Bank and Trust
Co., and Security Community Urban Redevelopment Corporation. All significant
intercompany accounts and transactions have been eliminated in consolidation.
CORE DEPOSIT INTANGIBLE ASSET
The acquired core deposit intangible asset is amortized on an accelerated
basis over ten (10) years.
INVESTMENT SECURITIES
Securities held-to-maturity and available-for-sale: Management determines
the appropriate classification of debt securities at the time of purchase and
reevaluates such designation as of each balance sheet date. Debt securities are
classified as held-to-maturity when Security Banc Corporation has the positive
intent and ability to hold the securities to maturity. Held-to-maturity
securities are stated at amortized cost.
Debt securities not classified as held-to-maturity or trading and
marketable equity securities not classified as trading are classified as
available-for-sale. Available-for-sale securities are stated at fair value,
with the unrealized gains and losses, net of tax, reported in a separate
component of shareholders' equity.
The amortized cost of debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity, or in the case of mortgage-backed securities, over the
estimated life of the security. Such amortization is included in interest
income from investments. Interest and dividends are included in interest income
from investments. Realized gains and losses, and declines in value judged to be
other-than-temporary are included in net securities gains (losses). The cost of
securities sold is based on the specific identification method.
LOANS
Loans are stated at the principal amount outstanding, net of unearned
income. Interest income on other loans is primarily accrued using the simple
interest method based on the principal amounts outstanding. Loan fees received
in excess of direct costs involved in origination of a loan are amortized over
the estimated loan term. Accrual of interest is discontinued when circumstances
indicate that collection of loan principal is questionable.
The company has adopted Financial Accounting Standards Board Statement No.
114, "Accounting by Creditors for Impairment of a Loan," effective January 1,
1995. As a result of applying the new rules, certain impaired loans are
reported at the present value of expected future cash flows using the loan's
effective interest rate, or as a practical expedient, at the loan's observable
market price or the fair value of the collateral if the loan is collateral
dependent. The adoption of this statement did not have a material impact on
Security Banc Corporation's financial statements.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is available for loan charge-offs.
The adequacy of the allowance is based on Management's continuous evaluation of
key factors in the loan portfolio with consideration given to current economic
conditions and past charge-off experience.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation of premises and equipment is determined using the
straight-line method over the estimated lives of the respective assets.
Maintenance and repairs are charged to expense as incurred, while renewals and
betterments are capitalized.
INCOME TAXES
Certain income and expense items are accounted for in different time
periods for financial reporting purposes than for income tax purposes.
Appropriate provisions are made in the financial statements for deferred taxes
in recognition of these temporary differences.
NET INCOME PER SHARE
Income per share is computed on the basis of weighted average shares
outstanding.
CASH FLOWS
For purposes of reporting cash flows, cash and cash requirements include
cash on hand, amounts due from banks and federal funds sold. Federal funds are
purchased for one-day periods.
Interest paid by Security Banc Corporation in 1995, 1994 and 1993 was
$14,867,000, $10,468,000, and $12,161,000, respectively.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the bank in estimating
its fair value disclosures for financial instruments.
Cash and cash equivalent and interest-bearing deposits with other banks:
The carrying amounts reported in the balance sheet for cash and short-term
instruments approximate those assets' fair values.
Investment Securities: Fair values for investment securities are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
Loans receivable: For variable-rate loans that reprice frequently and with
no significant change in credit risk, fair values are based on carrying values.
The fair values for mortgage loans are based on quoted market prices of similar
loans sold in conjunction with securitization transactions, adjusted for
differences in loan characteristics. The fair values for other loans (i.e.,
commercial, agricultural and consumer) are estimated using
[PHOTO] Chester Walthall, Heat-Treating
"The true strength of success is the ability to withstand
extremes. Security Banc Corporation has remained stable and
experienced continued growth through all economic conditions."
18
discounted cash flow analyses, using interest rates currently being offered for
loans with similar terms to borrowers of similar credit quality. The carrying
amount of accrued interest approximates its fair value.
Off-balance-sheet instruments: The carrying amounts reported for Security
Banc Corporation's off-balance-sheet instruments (letters of credit and lending
commitments) approximate those assets' fair value.
Deposit liabilities: The fair values disclosed for demand deposits (i.e.,
interest and non-interest checking, passbook savings, and certain types of
money market accounts) are, by definition, equal to the amount payable on
demand at the reporting date (i.e., their carrying amounts). The carrying
amounts for variable-rate, fixed-term money market accounts approximate their
fair values at the reporting date. Fair values for fixed-rate certificates of
deposit are estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates to a schedule of
aggregated expected monthly maturities on time deposits.
Short-term borrowings: The carrying amounts of federal funds purchased and
securities sold under agreement to repurchase approximate their fair values.
RECLASSIFICATIONS
Certain 1994 amounts have been reclassified to conform with the current
year presentation.
2. ACCOUNTING CHANGES
The Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived
Assets and For Long-Lived Assets to be Disposed Of" requires that long-lived
assets and certain identifiable intangibles be reviewed for impairments. The
Statement prescribes when assets should be reviewed, how to determine
impairment , and what financial disclosures are necessary.
Additionally, Statement of Financial Accounting Standards No. 122
"Accounting for Mortgage Servicing Rights" requires the recognition of rights
to service loans for others as separate assets, however those servicing rights
are acquired.
Both of the Statements are effective for 1996. The Corporation does not
expect the adoption of either of these pronouncements to have a material impact
on the financial statements.
3. RESERVE BALANCE REQUIREMENTS
The Security Banc Corporation's banking subsidiary is required to maintain
certain daily cash and due from banks reserve balances in accordance with
regulatory requirements. The balances maintained under such requirements were
$8,909,000 at December 31, 1995 and $8,241,000 at December 31, 1994.
4. INVESTMENT SECURITIES
The following table lists the book value and market value of debt
securitites and other investments as of December 31.
(000)s 1995
-----------------------------------------
Gross Gross
Unrealized Unrealized Market
Cost Gains Losses Value
---- ---------- --------- ------
Available for Sale Investments
U. S. Treasury .................... $119,390 $ 320 $ 0 $119,710
Held to Maturity Investments
Debt Securities
U. S. Treasury .................. 605 5 (4) 606
State and Political Subdivisions 27,192 1,754 (16) 28,930
Mortgage Back Securities ........ 1,468 36 (4) 1,500
-------- -------- ----- --------
Total Debt Securities ............... 29,265 1,795 (24) 31,036
Federal Reserve Stock and Other ... 1,038 0 0 1,038
-------- --------
Total Held to Maturity Investments... $ 30,303 $ 1,795 ($24) $ 32,074
======== ======== ===== ========
The market value of the available for sale investments ($119,710,000) plus
the cost of the held to maturity investments ($30,303,000) is the total
investments carrying value of $150,013,000.
(000)s 1994
---------------------------------------
Gross Gross
Unrealized Unrealized Market
Cost Gains Losses Value
---- ---------- ---------- ------
Available for Sale Investments
U. S. Treasury ...................... $123,559 $ 0 ($ 1,469) $122,090
Held to Maturity Investments ..........
Debt Securities
U. S. Treasury ................. 1,918 1 (25) 1,894
State and Political Subdivisions 35,317 2,086 (77) 37,326
Mortgage Back Securities ....... 1,923 44 0 1,967
-------- --------- ------- --------
Total Debt Securities ................. 39,158 2,131 (102) 41,187
Federal Reserve Stock and Other ..... 1,041 0 0 1,041
-------- --------- ------- --------
Total Held to Maturity Investments .... $ 40,199 $ 2,131 ($ 102) $ 42,228
======== ======== ======= ========
The market value of the available for sale investments ($122,090,000) plus
the cost of the held to maturity investments ($40,199,000) is the total
investments carrying value of $162,289,000.
The following tables summarizes the cost and market value of debt
securities at December 31, 1995 and 1994 by contractual maturity. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations.
(000's) 1995 1994
---------------- ---------------
Market Market
Cost Value Cost Value
---- ----- ---- ------
Available for Sale Investments
Due in one year or less........ $ 58,813 $ 58,876 $ 89,312 $ 88,506
Due after one year and
through five years .......... 60,577 60,834 34,247 33,584
-------- -------- -------- --------
$119,390 $ 119,710 $123,559 $122,090
======== ======== ======== ========
Held to Maturity Investments
Due in one year or less....... $ 5,449 $ 5,546 $ 8,704 $ 8,713
Due after one year and
through five years.......... 20,853 22,291 27,031 28,927
Due after five years and .....
through ten years.......... 1,495 1,699 1,500 1,580
Due after ten years .......... 0 0 0 0
$ 27,797 $ 29,536 $ 37,235 $ 39,220
Mortgage backed securities ..... 1,468 1,500 1,923 1,967
-------- -------- -------- --------
Total .......................... $ 29,265 $ 31,036 $ 39,158 $ 41,187
======== ======== ======== ========
Proceeds from sales of investments available for sale in 1995 were
$190,648,000. Proceeds from sales of investments held to maturity in 1995 were
$0. Gross gains on investments available for sale in 1995 were $254,000. Gross
losses recognized on investments available for sale in 1995 were $244,000.
Proceeds from sales of investments available for sale in 1994 were $31,402,000.
Proceeds from sales of investments held to maturity in 1994 were 0. Gross gains
on investments available for sale in 1994 were $326,000. Gross losses
recognized on investments available for sale in 1994 were $10,000. Proceeds
from sales of investments in debt securities were $23,713,000 in 1993. Gross
gains of $714,000 were recognized in 1993. Gross losses recognized were $0 in
1993.
19
The following table summarizes investment income for the years ended
December 31.
(000's) 1995 1994 1993
---- ---- ----
U. S. Treasury Available for Sale......... $6,794 $6,236 $ 0
U. S. Treasury Held to Maturity........... 49 180 6,121
U. S. Government Agencies and Corporations 128 151 585
States and Political Subdivisions......... 2,338 2,989 3,448
Federal Reserve stock and other........... 62 62 61
------ ------ -------
Total................................ $9,371 $9,618 $10,215
====== ====== =======
Securities with a carrying value of $75,082,000 at December 31, 1995, and
$69,630,000 at December 31, 1994, were pledged to secure deposits and
repurchase agreements.
5. LOANS
Loans as of December 31, by various categories, are as follows:
(000's) 1995 1994
---- ----
Loans secured by real estate:
Construction and land development.... $ 6,566 $ 3,216
Secured by farmland.................. 2,580 895
Secured by residential properties.... 113,805 79,540
Secured by nonfarm nonresidential properties 29,783 5,440
Loans to finance agricultural production 6,267 8,097
Commercial and industrial loans......... 68,452 133,537
Loans to individuals for household, family and other 84,843 79,018
Tax exempt obligations 2,279 4,308
------- -------
TOTAL LOANS........................ $314,575 $314,051
======= =======
Nonperforming loans totaled $4,150,000 and $3,153,000 at December 31, 1995
and 1994, respectively. Nonaccrual loans included in these amounts totaled
$2,516,000 and $2,592,000 at December 31, 1995 and 1994, respectively. Interest
income not recorded on these loans was $243,000 in 1995, and $188,000 in 1994.
The following table presents the aggregate amount of loans outstanding to
directors and executive officers (including their related interests) as of
December 31, 1995 and December 31, 1994, and an analysis of activity in such
loans during 1995. All such loans were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the same time
for comparable transactions with other persons. These loans do not involve more
than normal risk of collectibility or any other unfavorable features.
(000's)
Balance, December 31, 1994......................................... $8,961
New Loans........................................................ 8,418
Repayments....................................................... 12,974
Net Increase due to Change in Executive Officer/Director Status.. 151
------
Balance, December 31, 1995......................................... $4,556
======
6. ALLOWANCE FOR LOAN LOSSES
A summary of the activity in the allowance for loan losses is shown in the
following table.
(000's) 1995 1994 1993
---- ---- ----
Balance - beginning of year......... $3,546 $3,162 $3,010
Charge-offs....................... (868) (608) (1,049)
Recoveries........................ 263 192 301
Net charge-offs................... (605) (416) (748)
Provision for loan losses......... 800 800 900
------ ------ ------
Balance - end of year............... $3,741 $3,546 $3,162
====== ====== ======
7. PREMISES AND EQUIPMENT
Premises and Equipment as of December 31, are summarized in the following
table.
(000's) 1995 1994
---- ----
Land ....................................... $1,131 $1,131
Buildings................................... 4,677 4,665
Equipment................................... 4,304 4,030
Construction in process..................... 0 4
Total premises and equipment............. 10,112 9,830
Less: Accumulated depreciation
and amortization......................... 4,930 4,694
------ ------
Net premises and equipment.................. $5,182 $5,136
====== ======
8. FEDERAL FUNDS PURCHASED AND SECURITIES
SOLD UNDER AGREEMENT TO REPURCHASE
The following table is a summary of short-term borrowings at December 31.
(000's) 1995 1994
---- -----
Federal funds purchased........................ $ 75 $ 425
Securities sold under agreement to repurchase.. 23,477 26,100
Demand note due U. S. Treasury................. 741 759
------- -------
Total....................................... $24,293 $27,284
======= =======
Securities sold under repurchase agreements represent borrowings with
overnight maturities and U. S. Government Securities. The following table is a
summary of securities pledged against the securities sold under agreement to
repurchase contracts as of December 31:
(000's) 1995 1994
--------------- ----------------
Book Market Book Market
U. S. Government Securities...... $45,617 $45,774 $35,360 $35,065
9. CAPITAL STOCK
On May 29, 1995, a two for one stock dividend was recorded, payable June 9,
1995. All per share data prior to May 29, 1995 has been restated to reflect the
effect of this stock dividend.
10. INCOME TAX
The components of income tax expense are:
(000's) 1995 1994 1993
---- ---- ----
Federal income taxes currently payable. $4,616 $ 3,972 $ 3,111
Deferred tax provision............... (97) 49 (17)
------ ------- --------
Total income tax expense............... $4,519 $ 4,021 $ 3,094
====== ======= ========
A reconciliation of income tax expense at the statutory rate to income tax
expense at the company's effective rate is as follows:
(000's) 1995 1994 1993
---- ---- ----
Computed tax at the statutory rate.... $5,460 $ 4,871 $4,304
Tax effect of tax free income and
non-deductible interest expense.... (900) (1,036) (1,195)
Adjustment to provision............... (41) 115 (63)
Other................................. 0 71 48
------ ------- ------
Income Tax Expense................. $4,519 $ 4,021 $3,094
====== ======= ======
20
Income taxes paid were $4,750,000, $4,106,000 and $3,101,000 in 1995,
1994, and 1993, respectively. Income tax expense associated with security gains
were $3,500 in 1995, $107,000 in 1994, and $243,000 in 1993.
Significant components of the Corporation's deferred tax assets and
liabilities at December 1995 and 1994 are as follows:
Deferred Assets 1995 1994
Allowance for loan losses............. $1,056,590 $ 916,385
Mark-to-market adjustment............. (112,057) 513,910
Other................................. 230,419 217,493
---------- ----------
Total deferred assets................. 1,174,952 1,647,788
Deferred Liabilities
Employee benefits..................... 119,897 101,525
Depreciation.......................... 153,555 153,555
Other................................. 179,505 141,200
---------- ----------
Total deferred liabilities............ 452,957 396,280
---------- ----------
Net deferred assets..................... $ 721,995 $1,251,508
========== ==========
11. STOCK OPTIONS
Shareholders of Security Banc Corporation approved adoption of the Security
Banc Corporation 1987 and 1995 Stock Option Plans. The plans provide for the
grant to certain key managerial personnel options to purchase shares of common
stock at the stock's fair value at the date of grant. The aggregate number of
common shares of the Corporation which may be issued under the plans are two
hundred forty thousand (240,000) shares.
As of December 31, 1995 and 1994, there were 176,480 incentive stock
options granted with weighted average per share exercise price of $10.06. As of
December 31, 1995 and 1994 there were 74,446 and 79,796 incentive stock options
outstanding. Per the plan agreement, stock options available to be exercised as
of December 31, 1995 are 69,846 shares (72,756 shares at December 31, 1994).
During 1995, 5,350 incentive options were exercised at $58,000. When options
are exercised, the excess of the options prices over par value is credited to
surplus. During 1994, 33,664 incentive options were exercised at $308,000.
12. DIVIDEND RESTRICTION
The payment of dividends is subject to various regulatory restrictions. As
of December 31, 1995, approximately $22,440,000 of retained earnings was
available for the payment of dividends.
13. RETIREMENT PLANS
Security Banc Corporation has a non-contributory defined benefit pension
plan that covers all employees who have reached the age of twenty-one (21) and
have one thousand (1,000) hours of service during their anniversary year. The
amount of the benefit is determined pursuant to a formula contained in the
retirement plan which, among other things, takes into account the employee's
average earnings in the highest sixty (60) consecutive calendar months. Accrued
benefits are fully vested after five (5) years of service. Security Banc
Corporation's funding policy is to make annual contributions to the plan which
at least equals the minimum required contributions.
Disclosure of net periodic Pension cost for 1995, 1994, and 1993 is as
follows:
(000's) 1995 1994 1993
---- ---- ----
Service cost - benefit earned during the period... $ 275 $ 263 $271
Interest cost on projected benefit obligation..... 467 463 439
Actual (return) on plan assets.................... (1,263) 187 (359)
Net amortization and deferral..................... 795 (746) (146)
------ ----- ----
Net pension expense............................ $ 275 $ 167 $205
====== ===== ====
The following table sets forth the plan's funded status and amount
recognized in Security Banc Corporation's consolidated statement of condition
as of December 31, 1995 and 1994.
(000's) 1995 1994
----- -----
Reconciliation of funded status:
Projected benefit obligation............................ ($6,497) ($6,179)
Plan assets at fair value............................... 6,761 5,709
------ ------
Plan assets in excess (deficient) of projected
benefit obligation................................... 264 (470)
Unrecognized prior service cost......................... (18) (19)
Unrecognized net (gain) loss due
to experience different from assumptions made......... 354 1,079
Initial transition asset being recognized over 15 years. (257) (300)
------ ------
Prepaid pension cost included in other assets........... $ 343 $ 290
====== ======
(The Accumulated Benefit Obligation including the vested benefit obligation is
$4,704,516.) Assumptions used in accounting for the Plan were:
(000's) 1995 1994 1993
---- ---- ----
Settlement rate.......................... 7.5% 7.5% 7.5%
Return on assets......................... 8.0% 8.0% 8.0%
Salary growth............................ 4.5% 4.5% 4.5%
Plan assets consist of U.S. Treasury notes and bonds and common stock
equities.
14. COMMITMENTS AND CONTINGENT LIABILITIES
Security Banc Corporation has various commitments and contingent
liabilities outstanding, such as letters of credit and loan commitments, that
are not reflected in the consolidated financial statements. Letters of credit
commit the Corporation to make payments on behalf of customers when certain
specified future events occur. Loan commitments are made to accommodate the
financial needs of Security Banc Corporation's customers. These arrangements
have credit risk essentially the same as that involved in extending loans to
customers and are subject to Security Banc Corporation's normal credit
policies. Collateral is obtained based on Management's credit assessment of the
customer.
Unfunded loan commitments and unused lines of credit as of December 31,
1995 were $82,339,000. The aggregate amount of outstanding letters of credit
was $2,562,000 at December 31, 1995. No significant losses are anticipated as a
result of these commitments.
15. OTHER EXPENSE
The following table is a summary of categories deemed significant in
relationship to Other Expense as of December 31:
(000's) 1995 1994 1993
---- ---- ----
FDIC assessment...................... $ 487 $ 925 $ 885
Franchise tax........................ 963 871 791
Computer service..................... 881 844 867
Stationery and supplies.............. 559 410 381
Other items.......................... 2,315 2,348 2,092
------ ------ ------
Total................................ $5,205 $5,398 $5,016
====== ====== ======
16. LOAN FEES AND RELATED COSTS
Loan origination and commitment fees received in excess of direct costs
related to the origination of a loan are amortized to income over the term of
the loan. As of December 31, 1995, and 1994, Security Banc Corporation had
unamortized loan fees of $392,000 and $476,000, respectively.
21
17. 401(K) PROFIT SHARING SAVINGS PLAN
All employees of Security National Bank become eligible participants in the
plan when they have completed one (1) year of eligibility service; have worked
at least five hundred (500) hours and are at least age twenty-one (21).
Eligible participants may make contributions to the plan by deferring up to
fifteen percent (15%) of their annual earnings.
The Board of Directors of Security National Bank annually determine the
bank's matching contribution to the plan. For the plan year ended December
31,1995 and December 31, 1994, the matching contribution was fifty percent
(50%) of the employee's contribution up to the first six percent (6%) of annual
earnings contributed by the participant. The contribution by the bank for
1995,1994, and 1993 was $110,000, $105,000, and $101,000, respectively.
Employee contributions are one hundred percent (100%) vested immediately.
The bank's matching contributions are vested at twenty percent (20%) for each
year of eligibility service, based on five (5) year vesting schedule.
18. FAIR VALUES OF FINANCIAL INSTRUMENTS
FASB Statement No. 107, "Disclosures about Fair Value of Financial
Instruments," requires disclosure of fair value information about financial
instruments, whether or not recognized in the statement of condition, for which
it is practicable to estimate that value. In cases where quoted market prices
are not available, fair values are based on estimates using present value or
other valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. Statement 107 excludes certain
financial instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the bank.
The estimated fair values of the bank's financial instruments not disclosed
elsewhere are as follows:
(000's) 1995 1994
-------------- -----------------
Carrying Fair Carrying Fair
Value Value Value Value
LOANS
Commercial and Agriculture......$150,927 $149,866 $145,942 $143,810
Real Estate..................... 89,127 89,976 89,091 84,350
Consumer........................ 77,825 77,758 79,018 75,517
DEPOSITS
Non Interest-Bearing Deposits...$ 86,682 $ 86,682 $ 79,532 $ 79,532
Interest-Bearing Demand Deposits 73,183 73,183 79,751 79,751
Savings Deposits................ 101,741 101,741 112,696 112,696
Time Deposits................... 175,944 177,078 154,788 154,493
[PHOTO] Larry Kaffenbarger, Kaffenbarger
Truck Equipment Co.
"If you've built a solid framework, you can adapt to changes in
the economy, the community and the consumer market. Security
Banc is solid and by adapting consistently provides
shareholders with a return on their investment."
22
OFFICERS AND MANAGEMENT
of Security National Bank and Trust Co.
Harry O. Egger
Chairman of the Board,
President, and Chief
Executive Officer
LOANS
William C. Fralick
Vice President
COMMERCIAL
Gary L. Linn
Vice President
Norman D. Filburn
Vice President
Jeffrey A. Darding
Vice President
Merrill E. Wells
Vice President
Michael B. Warnecke
Vice President
Thomas A. Goodfellow
Assistant Vice President
Peter W. Foreman
Commercial Banking Officer
REAL ESTATE
Gary J. Seitz
Mortgage Banking Officer
CONSUMER
Steve D. Hopkins, Jr.
Vice President
Ernest R. Picklesimer
Consumer Lender
H. Lewis Eblin
Credit Department Manager
MANAGEMENT SERVICES
Allan W. Macbeth
Vice President
Charles E. Imel
Director of Operations
Stella M. Grasmick
Assistant Vice President
FINANCIAL SERVICES
J. William Stapleton
Vice President
Thomas L. Miller
Controller
Sharon K. Boysel
Accounting Officer
HUMAN RESOURCES
Thomas L. Locke
Director of Human Resources
MARKETING/RETAIL
Glenda S. Greenwood
Director of Marketing
BRANCH ADMINISTRATION
William A. Creed
Vice President
TRUST
Daniel M. O'Keefe
Vice President
Richard O. Matthies
Vice President
James A. Kreckman
Assistant Vice President
Brenda S. Haybarker
Assistant Vice President
Mary L. Goddard
Trust Officer
Margaret E. Thornton
Assistant Trust Officer
AUDIT
Margaret A. Chapman
Auditor
COMPLIANCE
Margaret L. Foley
Compliance Officer
MAIN OFFICE
Janet R. Heck
Operations Supervisor
EAST MAIN OFFICE
Linda R. Swank
Branch Manager
ENON OFFICE
Karen S. Gibson
Assistant Vice President -Manager
MEDWAY OFFICE
John W. Cole
Retail Banking Representative
JAMESTOWN OFFICE
Barbara S. Hennigan
Assistant Vice President -Manager
NEW CARLISLE OFFICE
Donald C. Barnhart
Vice President
C. Alan Bobo
Assistant Vice President -Manager
NORTH LIMESTONE OFFICE
Joyce E. Sheridan
Branch Manager
NORTHRIDGE OFFICE
Judith A. Hopkins
Branch Manager
PARK LAYNE OFFICE
Ruby B. Finch
Branch Manager
SHAWNEE OFFICE
Barbara S. Hennigan
Assistant Vice President -Manager
SOUTH CHARLESTON OFFICE
Larry A. Motter
Branch Manager
WESTERN OFFICE
Martha E. Graham
Branch Manager
XENIA DOWNTOWN OFFICE
Gregg E. Hebrank
Assistant Vice President -Manager
Janet L. Sandifer
Vice President - Commercial Loan Officer
XENIA PLAZA OFFICE
Richard E. Coffelt
Branch Manager
23
DIRECTORS
of Security Banc Corporation and Security National Bank and Trust Co.
Harry O. Egger
Chairman of the Board,
President, and Chief Executive Officer
of the Corporation and
Security National Bank and Trust Co.
Larry D. Ewald
President
Process Equipment Co.
Dwight W. Hollenbeck
Chairman of the Board
The Credit Life Companies, Inc.
Richard E. Kramer
President and Chief
Executive Officer
Fulmer Supermarkets, Inc.
Larry E. Kaffenbarger
President
Kaffenbarger Truck Equipment Co.
Jane N. Scarff
Vice President
Scarff's Nursery, Inc.
W. Dean Sweet
Chairman of the Board,
Chief Executive Officer
Sweet Manufacturing
Company
Thomas J. Veskauf
Partner
Gorman, Veskauf,
Henson & Wineberg
Attorneys
Chester L. Walthall
President
Heat-Treating, Inc.
Directors Emeritus
Robert B. Gordon
Roger W. Kadel
Samuel F. Lamb
Fred R. Leventhal
Paul L. Robe
OFFICERS
of Security Banc Corporation
Harry O. Egger
Chairman of the Board,
President, and Chief
Executive Officer
William C. Fralick
Vice President
Daniel M. O'Keefe
Vice President
J. William Stapleton
Vice President
24
FORM 10-Q -- QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AS LAST AMENDED IN REL. NO. 34-26589, EFF. 4/12/89)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
(MARK ONE)
/X/ Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934.
For the period ended March 31, 1996
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934.
For the transition period from to Commission File
Number: 0-13655
Security Banc Corporation
(Exact name of registrant as specified in its charter)
Ohio 31-1133284
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
40 South Limestone Street, Springfield, OH 45502
(Address of principal executive offices) (Zip Code)
(513) 324-6920
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 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.
X Yes No
--- ---
Indicate the number of shares outstanding of each of the registrant's classes of
common stock.
Class Outstanding at April 16, 1996
- ------------------------------ -----------------------------
Common Stock, $3.125 Par Value 5,107,834
25
SECURITY BANC CORPORATION AND SUBSIDIARIES
INDEX
PAGE NO.
Part I - Financial Information
Item 1 - Financial Statements:
Consolidated Condensed Balance Sheets
March 31, 1996 and December 31, l995 3
Consolidated Condensed Statements of Income
for the three (3) months ended March 31, l996
and March 31, 1995. 4
Consolidated Condensed Statements of Cash
Flows for the three (3) months ended March 31,
1996 and March 31, 1995. 5
Notes to Consolidated Condensed Financial
Statements. 6
Item 2 - Management's Discussion and Analysis of
Condition and Results of Operations 7-8
Part II - Other Information 9-11
Signature 12
-2-
26
PART I ITEM 1 - FINANCIAL STATEMENTS
SECURITY BANC CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
March 31 Dec 31
1996 1995
-------- --------
(in thousands)
ASSETS
Cash and due from banks $ 18,176 $ 21,658
Federal funds sold 27,450 34,800
-------- --------
TOTAL CASH AND CASH EQUIVALENT 45,626 56,458
-------- --------
Investments (Market Value $164,063 @ 3-31-96,
$151,784 @ 12-31-95) 162,556 150,013
Loans: Commercial and agricultural 151,584 148,957
Real estate and mortgage 89,243 88,198
Consumer 77,367 77,420
-------- --------
TOTAL LOANS 318,194 314,575
Less: Allowance for Loan Losses 3,828 3,741
-------- --------
NET LOANS 314,366 310,834
Premises & Equipment 5,075 5,182
Other Assets 14,389 13,488
-------- --------
TOTAL ASSETS $542,012 $535,975
======== ========
LIABILITIES
Non-interest bearing deposits 81,117 86,682
Interest bearing demand deposits 69,855 73,140
Savings deposits 104,770 101,741
Time deposits, $100,000 and over 29,227 24,874
Other time deposits 152,359 149,819
-------- --------
TOTAL DEPOSITS 437,328 436,256
Fed funds purchased and securities sold
under agreement to repurchase 26,587 24,293
Other liabilities 3,950 2,640
-------- --------
TOTAL LIABILITIES $467,865 $463,189
-------- --------
SHAREHOLDERS'S EQUITY
Common Stock (Par Value $3.125) $ 16,714 $ 16,710
Shares authorized 11,000,000
Shares issued 5,348,434 - 1996
5,347,234 - 1995
Surplus 17,894 17,883
Retained earnings 43,052 41,178
Net unrealized (loss)gain on investment securities classified
as available for sale (net of income tax) (320) 208
Less: Treasury Stock, 240,600 shares 3,193 3,193
-------- --------
TOTAL SHAREHOLDERS' EQUITY 74,147 72,786
-------- --------
TOTAL LIABILITIES &
SHAREHOLDER'S EQUITY $542,012 $535,975
======== ========
See notes to Consolidated Condensed Financial Statements
-3-
27
SECURITY BANC CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
Three Months Ended
March 31, March 31,
1996 1995
----- -----
(in thousands except
per share data)
Interest Income $ 9,788 $ 9,386
Interest Expense 3,663 3,289
----- -----
NET INTEREST INCOME 6,125 6,097
Provision for loan losses 200 200
----- -----
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 5,925 5,897
OTHER OPERATING INCOME
Trust Income 330 300
Service charges on deposit accounts 517 531
Securities, Gains (Losses) 358 0
Other charges, rents and fees 233 177
----- -----
TOTAL OTHER OPERATING INCOME 1,438 1,008
OPERATING EXPENSES
Salaries and employee benefits 1,706 1,600
Equipment and occupancy expense 400 335
Other operating expense 1,254 1,402
----- -----
TOTAL OPERATING EXPENSE 3,360 3,337
INCOME BEFORE TAXES 4,003 3,568
Income taxes (See Note 1) 1,157 996
----- -----
NET INCOME $ 2,846 $ 2,572
===== =====
Per share* $ .56 $ .51
Cash dividends
per share $ .19 $ .17
*Earnings per common share is calculated using weighted average shares
outstanding of 5,107,370 for 1996 and 5,102,071 for 1995.
See notes to Consolidated Condensed Financial Statements.
-4-
28
SECURITY BANC CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31 March 31
1996 1995
-------- -------
(in thousands)
Cash Flows From Operating Activities:
Net income $ 2,846 $ 2,572
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 144 122
Gain on sale of Investment Securities AFS (358) 0
Provisions for loan losses 200 200
Amortization and accretion, Net 239 321
Amortization of core deposit intangibles 13 18
Change in other operating assets/liabilities, net 680 119
-------- -------
Total adjustments 918 780
-------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,764 3,352
Cash Flows from Investing Activities:
Net decrease in interest bearing
deposits with other banks 0 686
Proceeds from maturities of invest. securities AFS 0 35,000
Proceeds from maturities of invest. securities HTM 2,809 5,627
Proceeds from sales of investment securities AFS 104,872 0
Purchase of investment securities AFS (120,918) 0
Net increase in loans (4,049) (4,012)
Proceeds from sale of loans 317 47
Capital expenditures (37) (220)
-------- -------
NET CASH USED IN INVESTING ACTIVITIES (17,006) 37,128
Cash Flows from Financing Activities:
Net decrease in demand deposits, NOW
accounts and savings accounts (5,821) (15,691)
Net increase in certificates of deposit 6,893 9,455
Net increase (decrease) in short term
borrowed funds 2,294 (6,692)
Dividends paid (970) (868)
Proceeds from exercise of stock option 14 15
Purchase of Treasury Stock 0 0
-------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,410 (13,781)
-------- -------
Net (decrease)increase in cash and cash equivalents (10,832) 26,699
Cash and cash equivalents at beginning of year 56,458 29,089
-------- -------
Cash and Cash Equivalents at March 31 $45,626 $55,788
======== =======
See Notes to Consolidated Financial Statements.
-5-
29
SECURITY BANC CORPORATION
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - PREPARATION OF FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments consisting of normal re-occurring items necessary to
present fairly the financial condition of the company as of March 31, l996 and
the results of operations and cash flows for the three month periods ended March
31, 1996 and March 31, 1995.
NOTE B - TAXES
The effective tax rate of 29% is considerably lower than the statutory 35%
because of investments made in tax exempt municipal securities. Security
National Bank has approximately $24,300,000.00 invested in tax exempt municipal
securities.
-6-
30
PART 1 ITEM 2
SECURITY BANC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the Registrant's financial condition and results of
operations during the periods included in the consolidated financial statements
enclosed with this filing.
RESULTS OF OPERATIONS
Net income was $2,846,000 for the first three months of 1996, compared to
$2,572,000 for the same period in l995. Earnings per share were $.56 for the
first three months, a 10% increase over last year's $.51.
Total assets were $542,012,000 at March 31, l996 compared to l995's assets of
$510,519,000. For the first three months of l996, return on average equity was
15.41% and return on average assets was 2.13%.
Net interest income on a fully taxable equivalent basis for the first three
months of l996 was $6,436,000 compared to the $6,462,000 realized in the same
period of l995. This decrease resulted from a 5% increase in average earning
assets and a decrease of 29 basis points in the net interest margin.
The allowance for loan losses was $3,828,000 in the first three months of l996
and $3,715,000 in the first three months of l995. The allowance for losses as a
percent of loans and leases outstanding was 1.20% at March 31, l996 and l.17% at
March 31, 1995.
Beginning in 1995, the Company adopted Financial Accounting Standards Board
Statement No. 114, "Accounting by Creditors for Impairment of a Loan". Under the
new standard, the 1995 allowance for credit losses related to loans that are
identified for evaluation in accordance with Statement 114 is based on
discounted cash flows using the loan's initial effective interest rate or the
fair value of the collateral for certain collateral dependent loans. Prior to
1995, the allowance for credit losses related to these loans was based on
undiscounted cash flows or the fair value of the collateral for collateral
dependent loans. The following table presents data concerning loans at risk at
the end of each period.
(000s).
March 31, December 31
-------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Non-accrual loans $4,753 $2,516 $2,592 $2,035 $1,734
Accruing loans past due
90 days or more $1,782 1,445 558 243 280
Restructured loans 0 0 0 0 97
Total other operating income was $1,438,000 and $1,008,000 during the first
three months of 1996 and 1995 respectively. There was a 3% decrease in service
charges on deposits, and a 32% increase in other charges, rents and fees. Total
securities gains for the first three months of 1996 were $358,000 or $232,700
after tax. Total securities gains for the same period of 1995 were zero.
-7-
31
Part 1 ITEM 2 - Page 2
SECURITY BANC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Total operating expenses increased during the first three months, 1% over
the similar period of l995. Salaries, wages and employee benefits increased
7% over 1995. Equipment and net occupancy expenses during the first three
months were $400,000 and $335,000 for 1996 and 1995 respectively, which
reflects a 19% increase. Other operating expenses decreased 11% over 1995.
MATERIAL CHANGES IN FINANCIAL CONDITION
The material changes that have occurred in the Registrant's financial
condition during 1996 are as follows (000s):
March 31 Dec 31
1996 1995 $+/- %+/-
---- ---- ---- ----
Cash and due from banks $ 18,176 $ 21,658 (3,482) (16)
Securities 162,556 150,013 12,543 8
Federal funds sold 27,450 34,800 (7,350) (21)
Loans and leases 318,194 314,575 3,619 1
Funds purchased and repos 26,587 24,293 2,294 9
Demand Deposits
Non interest bearing 81,117 86,682 (5,565) (6)
Interest bearing 69,855 73,140 (3,285) (4)
Savings Deposits 104,770 101,741 3,029 3
Time Deposits 181,586 174,693 6,893 4
LIQUIDITY AND CAPITAL RESOURCES
The maintenance of an adequate level of liquidity is necessary to
ensure that sufficient funds are available to meet customers' loan
demand and deposit withdrawals. The Corporation's liquidity sources
consist of short term marketable securities, maturing loans, and
Federal Funds sold. The Corporation has a net asset position of
$15,804,000 at the one year interval or a sensitivity ratio of 1.08.
CAPITAL RESOURCES
The table below illustrates the Company's regulatory capital ratios at
March 31,1996 under the year end 1992 requirements: (000s)
Tier 1 Capital $ 74,312
Tier 2 Capital 3,828
--------
TOTAL QUALIFYING CAPITAL $ 78,140
--------
Risk Adjusted Total Assets (including off balance exposures) $344,685
========
Tier 1 Risk-Based Capital Ratio 21.56%
Total Risk-Based Capital Ratio 22.67%
Leverage Ratio 13.65%
-8-
32
SECURITY BANC CORPORATION
PART II - OTHER INFORMATION
ITEM 1 Legal Proceedings Inapplicable
ITEM 2 Changes in Securities Inapplicable
ITEM 3 Defaults upon Senior Securities Inapplicable
ITEM 4 Submission of Matters to a Vote Inapplicable
of Security Holders
ITEM 5 Other Information:
On April 22, 1996 Registrant entered into a definitive agreement
to merge with Third Savings and Loan Company, a subsidiary of
Third Financial Corporation, Piqua, Ohio.
ITEM 6 Exhibits and Reports on Form 8-K
(a) Press release-Third Savings and
Loan Company.
(b) Form 8K, Item 2, Acquisition or Disposition of Assets, was
filed March 29, 1996 in regard to merger agreement with
CitNat Bancorp., Inc.,
Urbana, Ohio.
-9-
33
SECURITY NATIONAL BANK
40 South Limestone Street - Springfield, OH 45502
- (513) 324-6800 - Fax: (513) 324-6958
NEWS RELEASE
FOR FURTHER INFORMATION CONTACT:
Glenda S. Greenwood OR Kenneth F. Rupp
Director of Retail Services/Marketing President and CEO
SECURITY NATIONAL BANK Third Financial Corporation
40 S. Limestone Street 212 N. Main Street
Springfield, OH 45502-1200 Piqua, OH 45356-0913
(513) 324-6800/372-9211 (513)773-0752
(513) 324-6861 FAX
(513) 390-3465 Residence
FOR IMMEDIATE RELEASE
Security Banc Corporation, Springfield, Ohio and Third Financial Corp., Piqua,
Ohio, jointly announced today the signing of a definitive agreement in which
Third Financial Corp. will be merged into Security Banc Corporation. Following
the closing of the merger, The Third Savings and Loan Company, a subsidiary of
Third Financial Corporation, will be operated as a separate subsidiary of
Security Banc Corporation.
Under the terms of the agreement, Third Financial Corporation shareholders will
receive $33.23 at closing for each of the 1,135,954 shares outstanding. Holders
of Third's 105,476 options will receive cash equal to the offer price less the
applicable strike price. The aggregate transaction value is approximately $40
million. With this acquisition, Security will expand into Miami County, where
Third has four branches.
Harry O. Egger, President, Chairman and Chief Executive Officer of Security
said, "We are pleased that Third Savings is joining our organization. We are
excited about extending our banking market into Miami County and the
opportunities that exist to grow further Third's market areas. More importantly,
the philosophy of our two community organizations is to provide the best
personalized financial services to all of our communities and customers. The
communities of Piqua, Troy, and Tipp city, which are currently being served by
Third, will continue to play a prominent part in the future of our
organization." These offices will continue to be branches of Third Savings.
Kenneth F. Rupp, President and Chief Executive Officer of Third Financial Corp.
said, "In order to best represent the interests of all of our shareholders, the
many communities as well as the staff, the Directors evaluated our ownership
options. When it became apparent that the advantages of formulating a
transaction with Security Banc Corporation clearly outweighed the long term
prospects of total independence, the Directors agreed that the transaction was
very desirable. Third Savings will operate autonomously as a subsidiary of
Security Banc Corporation."
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NEWS RELEASE (CONT'D)
PAGE 2
Security Banc Corporation's plan is to encourage Third Savings' growth as a
financial institution existing with its present charter. Third Savings will
retain its original charter and original name. The employees will retain their
present positions and the savings and loan will continue to operate under the
direction of its present Board of Directors. The Board of Directors of both
institutions are confident that this affiliation will provide for the
continuation of the successful operation of Third Savings and an improved
customer service capability for its clientele.
As of December 31, 1995, Security had total assets of $536 million and
stockholders equity of $72.8 million. Security's subsidiary, The Security
National Bank and Trust Co. operates 14 banking offices in Clark and Greene
counties.
At December 31, 1995, Third Financial reported total assets of $157 million and
total stockholders equity of $27.8 million. Third Financial Corp. through its
subsidiary, Third Savings, operates four offices in Piqua, Troy, and Tipp City,
Ohio.
This is Security Banc Corporation's second acquisition in the past sixty days.
With the Citizens National Bank, Urbana, Ohio and Third Savings, Piqua, Ohio
mergers, Security Banc Corporation will report total assets of approximately
$830 million. Security Banc Corporation will operate banking offices in Clark,
Greene, Champaign, Madison, and Miami counties.
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SECURITY BANC CORPORATION
SIGNATURE
Pursuant to 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, thereunto duly authorized.
SECURITY BANC CORPORATION
By /s/ Thomas L. Miller
--------------------------
Thomas L. Miller
Controller
By /s/ J. William Stapleton
--------------------------
J. William Stapleton
Vice President/CFO
May 8, 1996
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