U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED June 30, 2000.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
__________ TO __________
Commission file number - 33-53596
--------
FC BANC CORP
------------
(Exact name of small business issuer as specified in its charter)
OHIO 34-1718070
---- ----------
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
Farmers Citizens Bank Building
105 Washington Square
Box 567, Bucyrus, Ohio 44820-0567
- --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(419) 562-7040
--------------
(Issuer's telephone number)
N/A
---
(Former name, former address and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No . . .
-----
As of August 4, 2000, 615,765 shares of Common Stock of the Registrant were
outstanding. There were no preferred shares outstanding.
FC BANC CORP.
BUCYRUS, OHIO
FORM 10-QSB
INDEX
============================================================================
Page Number
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets - 3
June 30, 2000 and December 31, 1999
Consolidated statements of income - 4
Three and six months ended June 30, 2000 and 1999
Consolidated statements of changes in
Shareholders' equity - Six months ended June 30, 2000 5
And year ended December 31, 1999
Consolidated statement of cash flows - 6
Six months ended June 30, 2000 and 1999
Notes to consolidated financial statements 7
June 30, 2000 and December 31, 1999
Item 2. Management's Discussion and Analysis of Financial 10
Condition and Results of Operations
PART II OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
FC BANC CORP.
Bucyrus, Ohio
CONSOLIDATED BALANCE SHEETS
=============================================================================
(Dollars in thousands)
(Unaudited)
June 30, December 31,
2000 1999
----- ----
ASSETS
Cash and cash equivalents
Cash and amounts due from banks $ 3,581 $ 4,311
Interest-bearing demand deposits in other banks 0 10
-------- --------
Total cash and cash equivalents 3,581 4,321
Investment securities, available-for-sale 31,600 34,795
Loans 59,729 55,975
Allowance for loan losses (1,647) (1,732)
-------- --------
Net loans 58,082 54,243
Premises and equipment, net 2,232 2,108
Accrued interest receivable 746 683
Cash surrender value of life insurance 2,431 2,373
Deferred income taxes 647 537
Other assets 325 127
-------- --------
TOTAL ASSETS $ 99,644 $ 99,187
======== ========
LIABILITIES
Deposits
Noninterest-bearing $ 10,567 $ 11,426
Interest-bearing 75,236 75,533
-------- --------
Total deposits 85,803 86,959
Federal Funds Purchased 1,400 0
Note payable 26 29
Accrued interest payable 189 184
Other liabilities 815 662
------- --------
TOTAL LIABILITIES 88,233 87,834
------- --------
SHAREHOLDERS' EQUITY
Preferred stock of $25 par value; 750 shares
authorized, no shares issued and outstanding 0 0
Common stock of no par value;
4,000,000 shares authorized, 665,632 shares issued 832 832
Additional paid-in capital 1,366 1,371
Retained earnings 11,025 10,720
Treasury stock, at cost; 49,387 and 43,441 shares (1,230) (1,047)
Accumulated other comprehensive income (582) (523)
------- -------
TOTAL SHAREHOLDERS' EQUITY 11,411 11,353
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $99,644 $99,187
======= =======
- ---------------------------------------------
See Notes to Consolidated Financial Statements.
FC BANC CORP.
Bucyrus, Ohio
CONSOLIDATED STATEMENTS OF INCOME
===========================================================================
(Dollars in thousands, except per share)
3 Months Ended 6 Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
INTEREST INCOME
Interest and fees on loans $ 1,275 $ 1,096 $ 2,470 $ 2,148
Interest and dividends on investment securities 485 500 988 1,008
Interest on federal funds sold 3 37 5 58
------- ------- ------- -------
TOTAL INTEREST INCOME 1,763 1,633 3,463 3,214
------- ------- ------- -------
INTEREST EXPENSE
Interest on deposits 698 645 1,350 1,261
Interest on borrowed funds 13 0 20 0
------- ------- ------- -------
TOTAL INTEREST EXPENSE 711 645 1,370 1,261
------- ------- ------- -------
NET INTEREST INCOME 1,052 988 2,093 1,953
Provision for loan losses (50) (25) (84) (50)
------- ------- ------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSS 1,102 1,013 2,177 2,003
OTHER INCOME
Service charges 130 115 246 220
Life insurance buildup 33 36 63 72
Other income 5 (3) 12 14
------- ------ ------- -------
TOTAL OTHER INCOME 168 148 321 306
------- ------ ------- -------
OTHER EXPENSES
Salaries and benefits 440 387 882 774
Net occupancy and equipment expenses 165 175 319 340
Supplies 21 21 49 46
Advertising and public relations 20 20 34 55
Directors' fees 19 16 41 35
Legal and professional 23 20 58 57
State taxes 35 39 71 79
Other expenses 210 114 360 239
------- ------ ------- -------
TOTAL NON-INTEREST EXPENSE 933 792 1,814 1,625
------- ------ ------- -------
NET INCOME BEFORE FEDERAL INCOME
TAX EXPENSE 337 369 684 684
Federal income tax expense 88 98 181 176
------- ------ ------- -------
NET INCOME $ 249 $ 271 $ 503 $ 512
====== ====== ======= =======
EARNINGS PER SHARE:
Earnings per common share - basic $0.40 $0.43 $0.81 $0.80
Earnings per common share - diluted $0.40 $0.42 $0.80 $0.79
- ----------------------------------------------
See Notes to Consolidated Financial Statements.
FC BANC CORP, INC.
BUCYRUS, OHIO
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------
(Dollars in thousands)
Number of Shares Amount
------------------------------ -----------------------------------------------------------
Accumulated
other
Additional comprehen- Comprehen-
Common Treasury Common paid-in Retained Treasury sive sive
stock stock stock capital earnings stock income income
----- ----- ----- ------- -------- ----- ------- -------
Balances at December 31, 1998
As previously stated 665,632 30,703 $832 $1,370 $10,079 $ (685) $ (49)
Under accrual of employee benefit
Expense (45)
-------- ------- ---- ------ ------- -------- -------
Balances at December 31, 1998
As restated 665,632 30,703 832 1,370 10,034 (685) (49)
Comprehensive Income
Net Income 1,071 $1,071
Other comprehensive income, net of tax:
Change in unrealized
Gain (loss) on securities
Available-for-sale, net of
Deferred income tax of $237 (474) (474)
-----
Total Comprehensive income $ 597
=====
Dividends declared-common ($0.61)
per share (385)
Sale of treasury stock (1,000) 1 23
Purchase of 13,738 common shares 13,738 (385)
-------- ------ ---- ------ ------- ------- -------
Balances at December 31, 1999 665,632 43,441 832 1,371 10,720 (1,047) (523)
Comprehensive Income
Net Income 503 $ 503
Other comprehensive income
Change in unrealized
Gain (loss) on securities
Available-for-sale, net of
Deferred income tax of $30 (59) (59)
-----
Total Comprehensive income $ 444
=====
Dividends declared -common ($0.32)
per share (198)
Sale of treasury stock (2,360) (5) 57
Purchase of 8,306 common shares 8,306 (240)
------- ------ ---- ------- ------- -------- -----
Balances at June 30, 2000 665,632 43,022 $832 $1,366 $11,025 $(1,230) $(582)
======= ====== ==== ====== ======= ======== ======
- ----------------------------------------------
See Notes to Consolidated Financial Statements.
FC BANC CORP, INC.
BUCYRUS, OHIO
CONSOLIDATED STATEMENTS OF CASH FLOWS
=============================================================================
(Dollars in thousands)
(Unaudited) (Unaudited)
6 Months Ended 6 Months Ended
June 30, June 30,
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 503 $ 512
Adjustments to reconcile net income to net cash
Provided by operating activities:
Provision for loan losses (84) (50)
Income accrued on life insurance contracts (67) (117)
Depreciation 184 195
Loss on sale of Premises and equipment (2) 0
Deferred income taxes (90) 6
Investment securities amortization (accretion), net 275 108
Net change in:
Accrued interest receivable (63) (46)
Accrued interest payable 5 (10)
Other assets (200) 84
Other liabilities 85 (57)
------ ------
Net cash provided by operating activities 546 116
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities available-for-sale (304) (7,208)
Proceeds from sale of available-for-sale securities 0 714
------ ------
Proceeds from maturities of securities available-for-sale 3,224 5,971
Net increase in loans (3,755) (5,207)
Proceeds from sale of premises and equipment 8 0
Purchase of premises and equipment (314) (603)
------ ------
Net cash used in investing activities (1,141) (6,333)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in:
Noninterest-bearing, interest-bearing, demand, and savings
deposits (4,106) (25)
Certificates of deposit 2,950 2,007
Net increase in short-term borrowed funds 1,400 0
Exercise of stock options 52 18
Proceeds from long-term debt (3) 32
Purchase of treasury stock (240) (338)
Cash dividends paid (198) 0
------ ------
Net cash provided by (used in) financing activities (145) 1,694
------ ------
NET DECREASE IN CASH AND CASH EQUIVALENTS (740) (4,009)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,321 7,469
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $3,581 $3,460
====== ======
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for interest $1,365 $1,271
Cash paid during the period for income taxes 156 335
- ----------------------------------------------
See Notes to Consolidated Financial Statements.
FC BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2000 and December 31,1999
NOTE 1. BASIS OF PRESENTATION
In the opinion of Management, the accompanying unaudited interim consolidated
financial statements contain all adjustments necessary for a fair presentation
of FC Banc Corp.'s ("Company" or "Bancorp") financial position as of June 30,
2000, and December 31, 1999, and the results of operations for the three and
six-months ended June 30, 2000 and 1999, and the cash flows for the six months
ended June 30, 1999 and 2000. Certain information and note disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. It is
suggested that these interim consolidated financial statements be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-KSB. The results of
operations for the three and six months ended June 30, 2000, are not
necessarily indicative of the results which may be expected for the entire
fiscal year.
NOTE 2. ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as follows:
(Dollars in thousands)
Six months ended Year ended
June 30, December 31,
2000 1999
---- ----
Balance, beginning of period $1,732 $1,725
Provision for loan losses (84) (130)
Recoveries 71 205
Charge-offs (72) (68)
------ ------
Balance, end of period $1,647 $1,732
====== ======
NOTE 3. REGULATORY CAPITAL
The following table illustrates the compliance by the Bank with currently
applicable regulatory capital requirements at June 30, 2000.
(Dollars in thousands)
Categorized as
"Well
Capitalized"
Under Prompt
For Capital Corrective
Adequacy Action
Actual Purposes Provisions
------ -------- ----------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
Total Risk-Based Capital
(To Risk-Weighted Assets) $11,940 19.12% $4,996 8.00% $6,246 10.00%
Tier I Capital
(To Risk-Weighted Assets) 11,149 19.83% 2,498 4.00% 3,747 6.00%
Tier I Capital
(To Total Assets) 11,149 11.22% 3,974 4.00% 4,967 5.00%
Tangible Capital
(To Total Assets) 11,149 11.22% 3,974 4.00% N/A N/A
NOTE 4. EARNINGS PER SHARE
Earnings per share ("EPS") is computed in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," which
was adopted by the Company as of December 31, 1997. Common stock equivalents
include shares granted under the Stock Option Plan ("SOP"). Following is a
reconciliation of the numerators and denominators of the basic and diluted EPS
calculations.
For the Three Months Ended June 30, 2000
----------------------------------------
Per
Income Shares Share
Numerator (Denominator) Amount
--------- ------------- ------
Basic EPS $249,075 617,595 $0.40
Income available to
common shareholders
Effective of dilutive securities: None 10,413 0.00
------- -----
Diluted EPS Income available to $249,075 628,008 $0.40
======== ======= =====
common shareholders +
assumed conversions
For the Three Months Ended June 30, 1999
----------------------------------------
Per
Income Shares Share
Numerator (Denominator) Amount
--------- ------------- ------
Basic EPS $270,989 632,447 $ 0.43
Income available to
common shareholders
Effective of dilutive securities: None 10,339 (0.01)
------- --------
Diluted EPS Income available to $270,989 642,786 $ 0.42
common shareholders + ======= =======
assumed conversions
For the Six Months Ended June 30, 2000
--------------------------------------
Per
Income Shares Share
Numerator (Denominator) Amount
--------- ----------- ------
Basic EPS $502,790 620,337 $ 0.81
Income available to
common shareholders
Effective of dilutive securities: None 10,058 (0.01)
------- -------
Diluted EPS Income available to $502,790 630,395 $ 0.80
common shareholders + ======== ======= =======
assumed conversions
For the Six Months Ended June 30, 1999
Per
Income Shares Share
Numerator (Denominator) Amount
--------- ----------- ------
Basic EPS $508,693 633,391 $ 0.80
Income available to
common shareholders
Effective of dilutive securities: None 9,495 (0.01)
------- ------
Diluted EPS Income available to $508,693 642,886 $ 0.79
common shareholders + ======== ======= ======
assumed conversions
NOTE 5. RECLASSIFICATIONS
Certain amounts in the consolidated financial statements for 1999 have been
reclassified to conform to the 2000 presentation.
FC BANC CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Safe Harbor Clause
This report contains certain "forward-looking statements." The Company
desires to take advantage of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995 and is including this statement for
the express purpose of availing itself of the protection of such safe harbor
with respect to all such forward-looking statements. These forward-looking
statements, which are included in Management's Discussion and Analysis,
describe future plans or strategies and include the Company's expectations of
future financial results. The words "believe," "expect," "anticipate,"
"estimate," "project," and similar expressions identify forward-looking
statements. The Company's ability to predict results or the effect of future
plans or strategies is inherently uncertain. Factors which could affect
actual results include interest rate trends, the general economic climate in
the Company's market area and the country as a whole, loan delinquency rates,
and changes in federal and state regulations. These factors should be
considered in evaluating the forward-looking statements, and undue reliance
should not be placed on such statements.
General
The Company is a bank holding company whose activities are primarily
limited to holding the stock of The Farmers Citizens Bank, Bucyrus, Ohio,
("Bank"). The Bank conducts a general banking business in North Central Ohio
that consists of attracting deposits from the general public and applying
those funds to the origination of loans for residential, consumer and
non-residential purposes. The Bank's profitability is significantly dependent
on net interest income that is the difference between interest income
generated from interest-earning assets (i.e., loans and investments) and the
interest expense paid on interest-bearing liabilities (i.e., customer deposits
and borrowed funds). Net interest income is affected by the relative amount
of interest-earning assets and interest-bearing liabilities and interest
received or paid on these balances. The level of interest rates paid or
received by the Bank can be significantly influenced by a number of
environmental factors, such as governmental monetary policy, that are outside
of management control.
Earnings per common share were computed by dividing net income by the
weighted-average number of shares outstanding for the three and six-month
periods ended June 30, 2000 and 1999.
The consolidated financial information presented herein has been prepared
in accordance with generally accepted accounting principles ("GAAP") and
general accounting practices within the financial services industry. In
preparing consolidated financial statements in accordance with GAAP, management
is required to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and revenues and expenses
during the reporting period. Actual results could differ from such estimates.
The Company is subject to regulation by the Board of Governors of the
Federal Reserve System which limits the activities in which the Company and
the Bank may engage. The Bank is supervised by the State of Ohio, Division of
Financial Institutions and its deposits are insured up to applicable limits
under the Bank Insurance Fund ("BIF") of the Federal Deposit Insurance
Corporation ("FDIC"). The Bank is a member of the Federal Reserve System and
is subject to its supervision. The Company and the Bank must file with the
U.S. Securities and Exchange Commission, the Federal Reserve Board and Ohio
Division of Financial Institutions the prescribed periodic reports containing
full and accurate statements of its affairs.
In June 2000 the Bank opened its newest banking center in Fredericktown,
Ohio. The Bank now operates five banking offices located in Crawford, Morrow
and Knox Counties, Ohio. The primary market area of the Bank is North Central
Ohio that includes Crawford, Morrow, Knox and contiguous counties.
The Bank continues to focus on providing First'Class Banking
(trademark) to its customers. In April, 2000 the Bank introduced
Phone'Access Banking (trademark) (1-877-562-4FCB) that allows customers
to access their bank account information 24 hours a day. Also, the Bank has
engaged FundsExpress to assist in the development of internet banking products
that will offer new and existing customers a hometown banking experience while
utilizing the latest in banking technology. By December 2000 our current and
prospective customers may access our website at www.farmerscitizensbank.com.
----------------------------
In addition, the Bank's board of directors approved the demolition and
reconstruction of our Main Office located at 105 Washington Square, Bucyrus,
Ohio. Management expects to begin this project during the fourth quarter of
2000 and anticipates it to be completed in mid to late 2001. The main purpose
of this project is to modernize its primary banking facilities and to increase
the efficiency of its operations.
Changes in Financial Condition
At June 30, 2000, the consolidated assets of the Company totaled $99.6
million, an increase of $0.4 million, or .40%, from $99.2 million at December
31, 1999. The increase in total assets resulted primarily from loan growth of
$3.7 million that was funded by a $3.2 million reduction in investment
securities available-for-sale.
Loans secured by real estate and consumer loans increased $2.7 million
and $1.4 million, respectively. Somewhat offsetting these increases was a
decline in Commercial and Industrial loans of $0.4 million.
Investment securities available-for-sale declined by $3.2 million, or
8.94% to $31.6 million at June 30, 2000, compared to $34.8 million at December
31, 1999. The decline was used to fund loan growth and other operations of the
Bank.
Cash and cash equivalents declined by $.7 million to $3.6 million at June
30, 2000, compared to $4.3 million at December 31, 1999. The decline was
attributable to the reduction of cash reserves that were set aside for
potential problems related to the Year 2000 ("Y2K"). The Bank did not
experience any losses related to Y2K, therefore $1.0 million was reinvested
into earning assets in January 2000.
Deposit liabilities decreased by $1.2 million, or 1.38%, to $85.8 million
at June 30, 2000, from $87.0 million at December 31, 1999. The decline was
attributable to the loss of public funds and disbursement of funds from the
settlement of a significant estate. Demand, interest-bearing demand, money
market and savings balances declined by $0.8 million, $0.1 million, $1.8
million and $1.4 million, respectively. While certificates of deposit
increased by $3.0 million.
Total shareholders' equity increased by $0.1 million to $11.5 million at
June 30, 2000 as compared to December 31, 1999. During the first six months
of 2000 the Bank earned net income of $0.5 million that was partially offset
by the payment of dividends of $0.2 million and the purchase of treasury
stock of $0.2 million.
The Bank's liquidity, primarily represented by cash and cash equivalents,
is a result of its operating, investing and financing activities. Principal
sources of funds are deposits, loan and mortgage-backed security repayments,
maturities of securities and other funds provided by operations. The Bank
also has the ability to borrow from the Federal Home Bank of Cincinnati
("FHLB"), certain correspondent banks, as well as the Federal Reserve Bank of
Cleveland ("FRB" or "FED"). While scheduled loan repayments and maturing
investments are relatively predictable, deposit flows and early loan and
mortgage-backed security prepayments are more influenced by interest rates,
general economic conditions and competition. The Bank maintains investments
in liquid assets based upon management's assessment of (i) the need for funds,
(ii) expected deposit flows, (iii) the yields available on short-term liquid
assets and (iv) the objectives of the asset/liability management program. In
the ordinary course of business, part of such liquid investments is composed
of deposits at correspondent banks. Although the amount on deposit at such
banks often exceeds the $100,000 limit covered by FDIC insurance, the Bank
monitors the capital of such institutions to ensure that such deposits do not
expose the Bank to undue risk of loss.
The Asset/Liability Management Committee of the Bank is responsible for
liquidity management. This committee, which is comprised of various managers,
has a Funds Management Policy that covers all assets and liabilities, as well
as off-balance sheet items that are potential sources and uses of liquidity.
The Bank's liquidity management objective is to maintain the ability to meet
commitments to fund loans and to purchase securities, as well as to repay
deposits and other liabilities in accordance with their terms. The Bank's
overall approach to liquidity management is to ensure that sources of
liquidity are sufficient in amounts and diversity to accommodate changes in
loan demand and deposit fluctuations without a material adverse impact on net
income. The Committee monitors the Bank's liquidity needs on an ongoing
basis. Currently the Bank has several sources available for both short- and
long-term liquidity needs. These include, but are not restricted to advances
from the FHLB, Federal Funds and borrowings from the Fed and other
correspondent banks.
The Bank is subject to various regulatory capital requirements
administered by its primary federal regulator, the FRB. Failure to meet
minimum capital requirements can initiate certain mandatory, and possible
additional discretionary actions by regulators that, if undertaken, could have
a material affect on the Company and the consolidated financial statements.
Under the regulatory capital adequacy guidelines and the regulatory framework
for prompt corrective action, the Bank must meet specific capital guidelines
that involve quantitative measures of the Bank's assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices.
The Bank's capital amounts and classification under the prompt corrective
action guidelines are also subject to qualitative judgements by the regulators
about components, risk weighing, and other factors.
Qualitative measures established by the regulation to ensure capital
adequacy requires the Bank to maintain minimum amounts and ratios of: total
risk-based capital and Tier I capital to risk-weighted assets (as defined by
the regulations), and Tier I capital to average assets (as defined).
Management believes, as of June 30, 2000, that the Bank meets all of the
capital adequacy requirements to which it is subject.
As of December 31, 1999, the most recent notification from the FDIC, the
Bank was categorized as well capitalized under the regulatory framework for
prompt corrective action. To remain categorized as well capitalized, the Bank
will have to maintain minimum total risk-based, Tier I risk-based, and Tier I
leverage ratios as disclosed in Note 3 - Regulatory Capital. There are no
conditions or events since the most recent notification that management
believes have changed the Bank's prompt corrective action category.
At June 30, 2000, FC Banc Corp. had approximately $0.1 million in
commitments for capital expenditures.
Results of Operations
Comparison of Three Months Ended June 30, 2000 and 1999
General. Net income decreased during the second quarter of 2000 as
compared to the same three-month period ended June 30, 1999. Net income
amounted to $249 thousand as compared to $271 thousand, a decrease of $22
thousand, or 8.12%. The decrease was primarily attributable to an increase in
operating expenses that were partially offset by increases in net interest
income and income on service charges and a reduction in the provision for loan
losses.
Interest Income. The increase and mix of earning assets was the primary
contributing factor to the increase in net interest income of $64 thousand, or
6.48%, for the three months ended June 30, 2000 compared to 1999. Loan
interest and fee income increased by $179 thousand resulting primarily from an
increase in loans receivable. Loans receivable as of June 30, 2000 were $59.7
million up $8.8 million as compared to June 30, 1999. The Bank increased its
loan to deposit ratio from 61.05% at June 30, 1999 to 69.61% at June 30,
2000.
The increase in loan interest and fee income was partially off-set by a
$15 thousand and $34 thousand decrease in income from interest and dividends
on investment securities and interest earned on federal funds sold,
respectively. The decrease in interest income from investments and federal
funds sold resulted primarily from a reduction in outstanding balances of
$6.0 million from June 30, 1999 to June 30, 2000. As of June 30, 2000 loans
receivable represented 65.40% of earning assets, up from 57.51% as of June 30,
1999.
Interest Expense. Interest expense on deposit liabilities increased by
$53 thousand, or 8.22% for the three months ended June 30, 2000, as compared
to the same period in 1999. Total deposits increased by $2.5 million from
June 30, 1999, to June 30, 2000. In addition, short-term borrowings increased
by $1.4 million at June 30, 2000 as compared to June 30, 1999. From June 1999
to June 2000 the Federal Reserve Open Market Committee increased short-term
rates on federal funds by 175 basis points. The interest rate on federal funds
increased from 4.75% to 6.50%. Due to competition and rising interest rates the
Bank's source of funding shifted from low cost money market and savings
accounts to higher cost certificates of deposits. From June 30, 1999 to June
30, 2000 money market and savings deposits declined by $3.5 million and $2.1
million, respectively. While certificates of deposits increased by $5.5
million over the same period.
Provision for Loan Losses. The Bank recorded net recoveries of $32
thousand during the three months ended June 30, 2000, compared to net recoveries
of $3 thousand during the same period in 1999. Based upon continued strong
credit quality the Bank recorded a negative provision for loan losses during
the second quarter in 2000 of $50 thousand as compared to a negative
provision of $25 thousand for the second quarter of 1999. The negative
provision was based upon the results of the ongoing loan reviews and
composition of the loan portfolio, primarily loans secured by one- to
four-family residential properties and other forms of collateral, which are
considered to have less risk.
Non-Interest Income. Non-interest income increased by $20 thousand, or
13.51%, to $168 thousand for the three months ended June 30, 2000, from $148
thousand for the three months ended June 30, 1999. The increase was primarily
attributable to service charges on deposit accounts. No security gains or
losses were recognized for the three months ended June 30, 2000 and a loss of
$3 thousand was recognized for the three months ended June 30, 1999.
Non-Interest Expense. Non-interest expense increased by $141 thousand,
or 17.80%, to $933 thousand for the three months ended June 30, 2000, from
$792 thousand in the comparable period in 1999. Of this $53 thousand was
attributable to an increase in compensation and benefit expense in 2000,
reflecting increased personnel costs for staffing the Bank's new Fredericktown
office that opened in May 2000, hiring of a Vice President, and nominal
salary and benefit adjustments. Also, during the end of the second quarter of
1999 the Bank outsourced its data processing function to a third party
processor. During the second quarter 2000 the costs associated with computer
services were $66 thousand more than the second quarter 1999. The Bank's
non-interest expense to revenue ("NIE/Revenue") measured 73.46% and 68.22% for
the three months ended June 30, 2000 and 1999, respectively. The NIE/Revenue
ratio reflects the investment costs associated with product development,
upgrading the Bank's infrastructure and costs associated with expanding into
new markets.
Income Taxes. The provision for income taxes declined by $10 thousand
for the three months ended June 30, 2000, compared with the prior year,
primarily as a result of lower taxable income for the quarter.
Comparison of Six months Ended June 30, 2000 and 1999
General. Net income for the first six months of 2000 totaled $503
thousand that was $9 thousand less than the same period in 1999. The decline
was primarily attributable to increased operating expenses for salaries and
benefits, and computer services.
Interest Income. The increase in average earning assets was the primary
contributing factor to the increase in net interest income of $140 thousand,
or 7.17% for the six months ended June 30, 2000 compared to 1999. Year to date
average earning assets totaled $89.8 million in 2000 as compared to $86.9
million in 1999. In addition the taxable equivalent net interest margin,
including loan fees, measured 4.89% in 2000 as compared to 4.75% in 1999.
For the first six months of 2000 interest and fees on loans totaled $2.5
million, an increase of $322 thousand, as compared to 1999. The positive
increase was somewhat offset by a reduction of interest income from dividends
and investment securities of $73 thousand in 2000 as compared to 1999.
Interest Expense. Interest expense on deposit liabilities increased by
$89 thousand for the six months ended June 30, 2000 as compared to 1999.
Additional interest expense was recognized on borrowed funds that amounted to
$20 thousand in 2000 as compared to zero in 1999. From time to time the Bank
has used short-term borrowings from its correspondent banks to fund loan
growth. The year to date average outstanding balance on these borrowings was
$609 thousand at an average rate of 6.27%. The Bank's overall cost of funds,
excluding short-term borrowings, measured 3.21% as compared to 3.12% in 1999.
Net Interest Income. Net Interest income for the first six months ended
June 30, 2000 totaled $2.1 million, up $140 thousand for the same period in
1999. The increase was attributable to both an increases in average earning
assets and the Bank's net interest margin. Total average earning assets
consist of Federal Funds Sold, Interest Bearing Demand Deposits in Other
Banks, Investment Securities and Loans. As of June 30, 2000 average earnings
assets increased by $2.9 million and contributed approximately $65 thousand to
the increase in net interest income. The net interest margin, including loan
fees, increased by 15 basis points to 4.68% as of June 30, 2000 as compared to
June 30, 1999. The improved net interest margin contributed approximately $65
thousand to the increase in net interest income. In addition, the net interest
income increased by approximately $10 thousand due to February 2000 having an
extra day for leap year.
Provision for Loan Losses. For the first six months of 2000 the Bank
recorded net chargeoffs of $1 thousand as compared to net recoveries of $137
thousand in 1999. The Bank also recorded negative provisions for loan losses
of $84 thousand and $50 thousand during the six-month periods ending June 30,
2000 and 1999, respectively. The negative provisions were based upon the
results of independent loan reviews and the composition of the loan portfolio.
As of June 30, 2000 the Bank reported zero non-performing loans and $16
thousand of loans past due 30 days or more.
Non-Interest Income. Non-interest income increased by $15 thousand, or
4.90% to $321 thousand for the six months ended June 30, 2000, from $306
thousand for the six months ended June 30, 1999. The increase was primarily
attributable to increased service charges. No security gains or losses were
recognized for the six months ended June 30, 2000, however, $3 thousand of
security losses were recognized over the same period in 1999.
Non-interest Expense. Non-Interest expense increased by $195 thousand,
or 12.04% to $1.8 million for the six months ended June 30, 2000, from $1.6
million for the six months ended June 30, 1999. Of this increase, $114
thousand was attributable to an increase in salaries and benefits that reflect
increased costs associated with staffing our Fredericktown office, hiring a
Vice President, and nominal merit increases. In addition, computer services
(included in other expenses) increased by $66 thousand, to $69 thousand for
the six months ended June 30, 2000 as compared to $3 thousand for the six
months ended June 30, 1999. The increase was attributable to outsourcing the
Bank's data processing function to a third party servicer. After an extensive
evaluation in mid 1999 management made the strategic decision to outsource its
data processing function rather than hire additional personnel and invest in
data processing hardware and software. Most personnel assigned to the data
processing function were retained and given other functional duties.
Income Taxes. The provision for income taxes increased by $3 thousand
for the six months ended June 30, 2000, compared with the same period in 1999,
primarily as a result of higher taxable income. Interest income on tax-exempt
securities for the six months ended June 30, 2000 measured $189 thousand down
$20 thousand form the same period in 1999.
Forward Looking Commentary
Since June 1999 the Federal Open Market Committee ("FOMC") chaired by Mr.
Alan Greenspan has increased the overnight federal funds lending rate by 175
basis points from 4.75% to 6.50% as of June 30, 2000. The FOMC has the
responsibility of setting monetary policy in an effort to achieve one of their
primary objectives of controlling inflation.
The rise in short-term interest rates can have a negative impact on
financial institutions net interest income. In the 1980's many savings and
loans were caught funding long-term fixed assets with short-term deposits
and suffered from declining earnings as interest expense on deposits
increased at a faster rate than interest income on earning assets.
The Bank's Asset Liability Management committee continually reviews its
policies and procedures to protect the bank's earnings from significant
increases or declines as interest rates move either higher or lower over the
next twelve months.
The board of directors and management has made a strong commitment to
provide First Class Banking products and services throughout our North Central
Ohio market. The financial services industry has undergone a tremendous amount
of change through various acts of deregulation and technological innovations.
Our challenge is to maintain the high level of service our existing customers
expect and deserve while developing new products and services to meet the
needs of our future customers.
When evaluating our strengths, weaknesses, threats and opportunities we
identified several areas that need improvement. These include the demolition
and reconstruction of a main office building that will build a foundation for
growth over the next 20 years. This significant investment will include
technological and product upgrades that will allow us to better serve our
customers and offer our employees a comfortable and efficient workplace.
We believe our capital investments in Cardington, Fredericktown and
Bucyrus will position the Bank for future growth opportunities. However, in
the short run these capital investments will increase our operating expenses
and reduce our efficiency ratios.
We project our 2000 and 2001 net income will reflect flat to small
percentage increases as the Bank leverages its existing capital. We anticipate
the deployment of capital will improve our shareholders' return on average
equity and our common stock repurchase program will increase our earnings per
share.
FC BANC CORP.
PART II - OTHER INFORMATION
==============================================================================
ITEM 1 - LEGAL PROCEEDINGS
Not Applicable
ITEM 2 - CHANGES IN SECURITIES
Not Applicable
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5 - OTHER INFORMATION
Not Applicable
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
1. Exhibit 27: Financial Data Schedule
2. No report on Form 8-K was filed during
the second quarter ended on June 30, 2000.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, hereunto duly authorized.
FC BANC CORP.
August 8, 2000 /s/ G. W. Holden
- -------------------- ----------------------------------------
Date G. W. Holden
President and Chief Executive Officer
August 8, 2000 /s/ Jeffrey Wise
- -------------------- -----------------------------------------
Date Jeffrey Wise
Principal Financial Officer