U.S. SECURITIES AND EXCHANGE COMMISION
Washington, D.C. 20549
Form 10QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED September 30, 1998.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
__________ TO __________
Commission file number - 33-53596
FC BANC CORP.
(Exact name of small business issuer as specified in its charter)
OHIO 34-1718070
------------------------------ --------------------------------
(State or other jurisdiction of (I.R.S. EmployerIdentification No.)
incorporation or organization)
Farmers Citizens Bank Building,
105 Washington Square
Box 567, Bucyrus, Ohio 44820-0567
------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(419) 562-7040
--------------
(Issuer's telephone number)
N/A
(Former name, former address and former fiscal year, if
changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No . .
---
As of October 30, 1998, 636,300 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)
Condensed consolidated balance sheets -- 3
September 30, 1998 and December 31, 1997
Condensed consolidated statements of income and 4
comprehensive income -- Three and nine months ended
September 30, 1998 and 1997
Condensed consolidated statement of cash flows-- 5
Nine months ended September 30, 1998 and 1997
Notes to condensed consolidated financial 6
statements -- September 30, 1998, 1997 and December 31, 1997
Item 2. Management's Discussion and Analysis of Financial 12
Condition and Results of Operations
PART II OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
FC BANC CORP.
Bucyrus, Ohio
CONSOLIDATED BALANCE SHEETS
=============================================================================
(Dollars in thousands)
(Unaudited)
September 30, December 31,
1998 1997
---- ----
ASSETS
Cash and cash equivalents
Cash and due from banks $3,102 $3,566
Interest-bearing demand deposits 1 1
Federal funds sold 2,200 0
------ ------
Total cash and cash equivalents 5,303 3,567
Investment securities, available-for-sale 34,907 32,460
Loans (net of unearned interest) 45,716 40,029
Less: allowance for loan losses (1,568) (1,480)
------ ------
Net loans 44,148 38,549
Premises and equipment 1,506 1,416
Accrued income receivable 801 733
Cash surrender value of life insurance 1,526 1,470
Deferred income taxes 231 285
Other assets 279 148
------ ------
TOTAL ASSETS $88,701 $78,628
======= =======
LIABILITIES
Deposits
Demand deposits $9,247 $9,708
Now accounts 13,517 9,509
Savings accounts 22,717 19,583
Time deposits of $100,000 or more 7,675 5,297
Other time deposits 23,062 21,995
------ ------
Total deposits 76,218 66,092
Federal funds purchased and securities sold
under agreement to repurchase 0 600
Other borrowed funds 0 41
Accrued interest payable 168 181
Accrued federal income taxes 233 59
Other liabilities 414 460
------ ------
TOTAL LIABILITIES 77,033 67,433
------ ------
SHAREHOLDERS' EQUITY
Preferred stock ( $25.00 par value) 750 shares authorized,
no shares issued 0 0
Common stock (no par value) 1,000,000 shares authorized; 832 832
665,632 shares issued
Additional paid-in capital 1,370 1,377
Retained earnings 9,990 9,461
Treasury stock, at cost: 29,332 and 23,256 shares (648) (491)
Accumulated other comprehensive income 124 16
------ ------
TOTAL SHAREHOLDERS' EQUITY 11,668 11,195
------ ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $88,701 $78,628
====== ======
- -----------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
FC BANC CORP.
Bucyrus, Ohio
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
============================================================================
(Dollars in thousands, except per share)
(Unaudited) (Unaudited)
3 Months Ended 9 Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
INTEREST INCOME
Interest and fees on loans $1,103 $965 $3,095 $2,770
Interest on investment securities:
Taxable 413 339 1,287 1,078
Exempt from federal income tax 96 72 266 220
Dividends 6 2 10 2
Interest on federal funds sold 18 21 55 38
----- --- ----- -----
TOTAL INTEREST INCOME 1,636 1,399 4,713 4,108
INTEREST EXPENSE
Interest on interest-bearing demand accounts 76 68 217 210
Interest on savings accounts 160 139 470 408
Interest on certificates of deposit 409 332 1,208 968
Interest on federal funds purchased and securities
sold under agreement to repurchase 1 0 6 6
---- ---- ----- ---
TOTAL INTEREST EXPENSE 646 539 1,901 1,592
NET INTEREST INCOME 990 860 2,812 2,516
Provision for loan losses (25) 0 (50) 27
---- --- ------ -----
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSS 1,015 860 2,862 2,489
NON-INTEREST INCOME
Service charges on deposit accounts 111 102 311 262
Other service charges 9 8 33 12
Life insurance 23 17 57 51
Safe/night deposit 5 5 14 14
Loss on sale of other real estate 0 (25) 0 (25)
Investment security gains 2 2 10 2
Other income 9 17 46 61
--- --- --- ---
TOTAL NON-INTEREST INCOME 159 126 471 377
NON-INTEREST EXPENSE
Salaries and benefits 435 312 1,142 892
Net occupancy and equipment expense 157 85 459 366
FDIC deposit insurance expense 2 2 6 16
State and other taxes 45 (3) 124 79
Other expense 224 273 650 675
--- --- --- -----
TOTAL NON-INTEREST EXPENSE 863 669 2,381 2,028
--- --- ----- -----
NET INCOME BEFORE FEDERAL INCOME
TAX EXPENSE 311 317 952 838
Federal income tax expense 74 82 231 204
--- --- --- ---
NET INCOME 237 235 721 634
Other comprehensive income 173 45 108 105
--- --- --- ---
TOTAL COMPREHENSIVE INCOME $410 $280 $829 $739
==== ==== ==== ====
PER SHARE DATA:
Basic net income $0.37 $0.36 $1.12 $0.98
Diluted net income 0.37 0.36 1.12 0.98
- -----------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
FC BANC CORP.
Bucyrus, Ohio
CONSOLIDATED STATEMENTS OF CASH FLOWS
==============================================================================
(Dollars in thousands)
(Unaudited) (Unaudited)
9 Months Ended 9 Months Ended
September 30, September 30,
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $721 $634
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 259 201
Provision for loan losses (50) 27
Gain on other real estate 0 24
Loss on sale of investments (10) (2)
Income accrued on life insurance contracts (57) (51)
Amortization/Accretion - net 66 38
Changes in operating assets and liabilities:
Increase in other assets (151) (138)
Increase in taxes payable 194 195
(Increase) decrease in accrued income receivable (68) 79
Decrease in accrued interest payable (14) (31)
Increase (decrease) in other liabilities (87) 112
---- ----
Total adjustments 82 454
---- ----
Net cash provided by operating activities 803 1,088
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of available-for-sale securities 6,602 4,949
Proceeds from sale of available-for-sale securities 6,565 2,223
Purchase of available-for-sale securities (15,504) (2,307)
Net change in loans (5,552) 1,239
Purchase of premises and equipment (348) (48)
Proceeds from sale of other real estate 0 254
------ ------
Net cash used in investing activities (8,237) 6,310
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand and savings deposits 6,682 (6,201)
Net increase in certificates of deposit 3,444 (110)
Net decrease in short-term borrowings (600) 0
Purchase of treasury stock (164) (169)
Dividends paid (192) 0
----- -----
Net cash provided by financing activities 9,170 (6,480)
----- -------
Net increase(decrease) in cash and cash equivalents 1,736 918
Cash and cash equivalents at beginning of period 3,567 5,057
----- -----
Cash and cash equivalents at end of period $5,303 $5,975
====== ======
SUPPLEMENTAL INFORMATION:
Cash paid for:
Interest $1,915 $1,623
Net income taxes 37 61
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
FC BANC CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998, 1997 and December 31,1997
(Unaudited)
==============================================================================
NOTE 1. BASIS OF PRESENTATION
In the opinion of Management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary for a fair
presentation of FC Banc Corp.'s ("Company" or "Bancorp") financial condition
as of September 30, 1998, and December 31, 1997, and the results of
operations for the three and nine months ended September 30, 1998 and 1997,
and the cash flows for the nine months ended September 30, 1998 and 1997.
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 consolidated
financial statements be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-KSB. The results of operations for the three and nine months ended
September 30, 1998, are not necessarily indicative of the results which may
be expected for the entire fiscal year.
NOTE 2. ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as follows:
(Dollars in thousands)
Nine months ended Year ended
September 30, December 31,
1998 1997
---- ----
Balance, beginning of period $1,480 $1,263
Provision for loan losses (50) 27
Charge-offs (52) (418)
Recoveries 190 608
------ ------
Balance, end of period $1,568 $1,480
====== ======
NOTE 3. REGULATORY CAPITAL
The following table illustrates the compliance by the Bank with currently
applicable regulatory capital requirements at September 30, 1998.
(Dollars in thousands)
Categorized as "Well
Capitalized" Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------ ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
Total Risk-Based Capital
(To Risk-Weighted Assets) $12,142 24.35% $3,989 8.00% $4,987 10.00%
Tier I Capital
(To Risk-Weighted Assets) 11,507 23.08% 1,995 4.00% 2,992 6.00%
Tier I Capital
(To Total Assets) 11,507 12.96% 3,548 4.00% 4,435 5.00%
Tangible Capital
(To Total Assets) 11,507 12.96% 3,548 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 September 30, 1998
---------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic EPS
Income available to
common shareholders $238,973 641,629 $0.37
Effect of dilutive securities:
None 3,893
------ -----
Diluted EPS Income available to
common shareholders +
assumed conversions $238,973 645,522 $0.37
======== ======= =====
For the Three Months Ended September 30, 1997
----------------------------------------------
Income Shares Per Share
------- ------- ---------
Basic EPS
Income available to
common shareholders $235,255 646,748 $0.36
Effect of dilutive securities:
None 0
-------- -----
Diluted EPS Income available to
common shareholders +
assumed conversions $235,255 646,748 $0.36
======== ======= =====
For the Nine Months Ended September 30, 1998
--------------------------------------------
Income Shares Per Share
------- ------ ---------
Basic EPS
Income available to
common shareholders $720,898 641,629 $1.12
Effect of dilutive securities: None 7,065
------- ------
Diluted EPS Income available to
common shareholders +
assumed conversions $720,898 648,694 $1.12
======= ======= =====
For the Nine Months Ended September 30, 1997
--------------------------------------------
Income Shares Per Share
------ ------ ---------
Basic EPS
Income available to
common shareholders $633,629 646,748 $0.98
Effect of dilutive securities: None 0
-------- -------- -----
Diluted EPS Income available to
common shareholders +
assumed conversions $633,629 646,748 $0.98
======== ======= =====
NOTE 5.COMPREHENSIVE INCOME
The Company adopted SFAS No. 130, "Reporting Comprehensive Income", effective
January 1, 1998, which establishes standards for reporting comprehensive
income and its components (revenues, expenses, gains and losses). Components
of comprehensive income are net income and all other non-owner changes in
equity. SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position. Reclassification of financial statements
for earlier periods provided for comparative purposes is required.
The Company has chosen to disclose comprehensive income. Components of
comprehensive income are displayed net of income taxes. The following table
sets forth the related tax effects allocated to each element of comprehensive
income for the three and nine months ended September 30, 1998 and 1997:
(Dollars in thousands)
Three months ended September 30, 1998
-------------------------------------
Tax
Before-tax (Expense) or Net-of-tax
Amount Benefit Amount
------ ------- ------
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during period $230 ($59) $171
Less: reclassification adjustment
for (gains) losses realized in
net income 2 0 2
--- --- ---
Net unrealized gains (losses) 232 (59) 173
--- ---- ---
Other comprehensive income $232 ($59) $173
==== ===== ===
(Dollars in thousands)
Three months ended September 30, 1997
-------------------------------------
Tax
Before-Tax (Expense) or Net-of-Tax
Amount Benefit Amount
------ ------- ------
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during period $65 ($22) $43
Less: reclassification adjustment
for (gains) losses realized in
net income 2 0 2
-- -- --
Net unrealized gains (losses) 67 (22) 45
--- ----- ---
Other comprehensive income $62 ($22) $45
=== ===== ===
(Dollars in thousands)
Nine months ended September 30, 1998
---------------------------------
Tax
Before-Tax (Expense) or Net-of-Tax
Amount Benefit Amount
------ ------- ------
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during period $153 ($52) $101
Less: reclassification adjustment
for (gains) losses realized in
net income 10 (3) 7
---- ---- ----
Net unrealized gains (losses) 163 (55) 108
---- ---- ----
Other comprehensive income $163 ($55) $108
==== ===== ====
(Dollars in thousands)
Nine months ended September 30, 1997
------------------------------------
Tax
Before-Tax (Expense) or Net-of-Tax
Amount or Benefit Amount
------ ---------- ------
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during period $157 ($54) $103
Less: reclassification adjustment
for (gains) losses realized in
net income 2 0 2
--- --- ---
Net unrealized gains (losses) 159 (54) 105
--- ---- ---
Other comprehensive income $159 ($54) $105
==== ==== ====
NOTE 6.RECLASSIFICATIONS
Certain amounts in the prior period's financial statements have been
reclassified to be consistent with the current period's presentation. The
reclassifications have no effect on net income.
FC BANC CORP.
MANAGEMENT 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 northwest Ohio
which 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 which is the difference between interest
income generated from interest-earning assets (i.e., loans and investments) and
the interest expense paid on interest-bearing liabilities (i.e., customer
deposits and borrowed funds). Net interest income is affected by the relative
amount of interest-earning assets and interest-bearing liabilities and interest
received or paid on these balances. The level of interest rates paid or
received by the Bank can be significantly influenced by a number of
environmental factors, such as governmental monetary policy, that are outside
of management control.
Earnings per common share were computed by dividing net income by the
weighted-average number of shares outstanding for the three- and nine-month
periods ended September 30, 1998. Prior period earnings per share
calculations were restated to reflect the one-for-one stock split which was
effective August 14, 1998.
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 area of the Bank is Crawford and Morrow and
contiguous counties in northwest central Ohio.
Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") also
issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 131 redefines how operating segments are determined
and requires disclosure of certain financial and descriptive information
about the Company's operating segments. This statement supercedes SFAS No. 14,
"Financial Reporting for Segments of Business Enterprises." The new standard
becomes effective for years beginning after December 15, 1997, and requires
that comparative information from earlier periods be restated to conform to
the requirements of this standard. The adoption of this statement is not
material to the Company.
Year 2000 Readiness
The Year 2000 problem was created by computer programmers in the 1950's.
In order to save money and storage space, they used two digit date fields to
represent Year information. They anticipated that systems would be oblsolete
by the Year 2000. Instead of writing new programs and fixing the problem, the
old programs were modified. Thus, some truncated fields may not work with
dates beyond 1999. Correct processing of date oriented information is
critical to the operation of all financial institutions. Failure of these
processes could severely hinder the ability to continue operations and
provide customer service. Because of the critical nature of the issue, the
Company established a committee in the third quarter of 1997 to address "Year
2000" issues. The core data processing software used by the Company and Bank
was purchased from a nationally known software vendor. They are completely aware
of the potential problems, and have made it a part of their maintenance
cycle to handle the Year 2000. Their software was designed to process calendar
year calculations using all four date digits. For display or report purposes,
two digit dates are sometimes displayed or represented. No calculations are
performed using two digit date codes.
The federal regulatory agencies that regulate the Company and Bank have
instituted mandatory interagency guidelines establishing Year 2000 standards
for safety and soundness in order to ensure Year 2000 compliance by financial
institutions. The federal banking regulatory agencies are overseeing this
effort and are examining financial institutions periodically to track their
Year 2000 compliance progress. The Company and Bank are working to satisfy
the regulatory guidelines but there can be no assurance that all interim
milestones will be met. However, management believes that the Company and
Bank will be substantially compliant with Year 2000 guidelines. Our Company
is fully committed to addressing the Year 2000 problem. Our goal is to ensure
that our systems will handle the new century date change smoothly so that our
customers will not be inconvenienced.
We are identifying relative systems; repairing, or upgrading systems to
resolve potential problems; and testing systems for Year 2000 compatibility.
We are also working closely with our third-party service providers to monitor
their readiness for Year 2000. Management has been assured by their software
vendors that any program changes necessary to ensure Year 2000 compliance will
be completed in adequate time to prevent any foreseeable processing problems.
We plan to complete testing and have all system changes implemented by June
30, 1999, as required by federal bank regulators. We will have alternative
methods of doing business as a contingency should problems occur. The
contingency plans address actions to be taken to continue operations in the
event of system failure due to areas that cannot be tested in advance, such as
power and telephone service, which are vital to business continuation.
All personal computers ("PCs") and related software throughout the
Company have been inventoried and tested for Year 2000 capabilities. The
Company is using two testing methods for PC certification of Year 2000
compatibility. PCs must pass both tests to be considered ready for Year
2000. Those PCs identified as non-Year 2000 compatible will be modified or
replaced. The company believes that the Year 2000 issue will not pose
significant operational problems and is not anticipated to be material to its
financial position or results of operation in any given year. As of September
30, 1998, the Company estimates that total Year 2000 implementation costs will
not exceed $177,000 and are expected to be expensed over the next 15 months,
impacting fiscal years ending December 31, 1998 and 1999. This estimate is
based on information available at September 30, 1998, and may be revised as
additional information and actual costs become available.
Changes in Financial Condition
At September 30, 1998, the consolidated assets of the Company totaled
$88.7 million, an increase of $10.1 million, or 12.81%, from $78.6 million at
December 31, 1997. The increase in total assets was primarily the result of
an $10.1 million increase in deposits which were utilized to fund a net
increase of $2.4 million in investments and $5.6 million in loan growth. The
remainder of the funds were invested in federal funds sold and other
short-term interest-bearing deposits.
Net loans receivable increased by $5.6 million, or 14.52%, to $44.1
million at September 30, 1998, compared to $38.5 million at December 31,
1997. The increase was primarily in the real estate related loan portfolio
where the new loan demand continued to exceed loan repayments.
Investment securities increased $2.4 million, or 7.54%, from $32.5
million at December 31, 1997, to $34.9 million at September 30, 1998. The
increase was primarily the result of rapid deposit growth realized from the
opening of the Cardington, Ohio branch office which is a part of the
Company's strategy to expand their market presence and customer base.
A portion of the funds received from the deposit increases were
temporally invested in federal funds until such time as they could be
invested in higher yielding loans or investment securities.
Deposit liabilities increased $10.1 million, or 15.32%, from $66.1
million at December 31, 1997, to $76.2 million at September 30, 1998.
Management attributes the majority of the increase to the expansion of the
banking operation while maintaining a competitive rate structure in the
market area. Interest credited on accounts also contributed to the increase.
Total shareholders' equity increased $473,000, or 4.23%, from $11.2
million at December 31, 1997, to $11.7 million at September 30, 1998. This
increase was primarily the result of $721,000 in earnings for the first three
quarters being supplemented by an increase in other comprehensive income
(unrealized gains on securities available-for-sale) of $108,000 during the
nine months ended September 30, 1998 which was offset by the payment of a
cash dividend to shareholders of $193,000.
The Bank's liquidity, primarily represented by cash and cash
equivalents, is a result of its operating, investing and financing activities.
Principal sources of funds are deposits, loan and mortgage-backed security
repayments, maturities of securities and other funds provided by operations.
The Bank also has the ability to borrow from the Federal Home Bank of
Cincinnati ("FHLB") as well as the Federal Reserve Bank of Cleveland
("FRB"or "Fed"). While scheduled loan repayments and maturing investments are
relatively predictable, deposit flows and early loan and mortgage-backed
security prepayments are more influenced by interest rates, general economic
conditions and competition. The Bank maintains investments in liquid assets
based upon management's assessment of (i) the need for funds, (ii) expected
deposit flows, (iii) the yields available on short-term liquid assets and (iv)
the objectives of the asset/liability management program. In the ordinary
course of business, part of such liquid investments portfolio 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 an Asset/Liability Policy that covers all assets and liabilities,
as well as off-balance sheet items that are potential sources and uses of
liquidity. The Bank's liquidity management objective is to maintain the ability
to meet commitments to fund loans and to purchase securities, as well as to
repay deposits and other liabilities in accordance with their terms. The
Bank's overall approach to liquidity management is to ensure that sources of
liquidity are sufficient in amounts and diversity to accommodate changes in
loan demand and deposit fluctuations without a material adverse impact on net
income. The Committee monitors the Bank's liquidity needs on an ongoing
basis. Currently the Bank has several sources available for both short- and
long-term liquidity needs. These include, but are not restricted to advances
from the FHLB, Federal Funds and borrowings from the Fed and other
correspondent banking arrangements.
The Bank is subject to various regulatory capital requirements
administered by its primary federal regulator, the FRB. Failure to meet
minimum capital requirements can initiate certain mandatory, and possible
additional discretionary actions by regulators that, if undertaken, could
have a material affect on the Company and the consolidated financial
statements. Under the regulatory capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification under the
prompt corrective action guidelines are also subject to qualitative judgements
by the regulators about components, risk weighing, and other factors.
Qualitative measures established by the regulation to ensure capital
adequacy requires the Bank to maintain minimum amounts and ratios of: total
risk-based capital and Tier I capital to risk-weighted assets (as defined by
the regulations), and Tier I capital to average assets (as defined).
Management believes, as of September 30, 1998, that the Bank meets all of the
capital adequacy requirements to which it is subject.
As of December 31, 1997, 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 September 30, 1998, FC Banc Corp. had approximately $530,000 in
commitments for capital expenditures.
Results of Operations
Comparison of Three Months Ended September 30, 1998 and 1997
General. Net income is continuing to increase at a steady pace during
the third quarter of fiscal 1998, $237,000, as compared to the same three
month period ended September 30, 1997, $235,000, an increase of $2,000. This
increase was primarily attributed to an increase in net interest income, the
negative provision for loan losses coupled with increases in other
non-interest income. A significant portion of the increase was off-set by an
increase in non-interest expense.
Interest Income. The rapid increase in average earning assets
contributed to an increase in interest income of $237,000, or 16.94%, for the
three months ended September 30, 1998 compared to 1997. The increase was
attributed to the additional loan interest and fee income of $138,000
resulting primarily from an increase in loans receivable and a $102,000
increase in investment income which was partially off-set by a $3,000
decrease in income from federal funds sold. These increases were off-set by
the $107,000 increase in interest expense.
Interest Expense. Interest expense on deposit liabilities increased
$106,000 for the three months ended September 30, 1998, as compared to the
same period in 1997. Total deposits increased by $10.1 million comparing
September 30, 1998, to 1997, the average cost of funds over the past twelve
months was 3.35% which was relatively stable with a gradual rise and
subsequent decline being noted during the first four months of 1998.
Provision for Loan Losses. There were net recoveries of $32,000 during
the three months ended September 30, 1998, compared to net charge offs of
$207,000 during the same period in 1997. There was a negative provision for
loan losses during the third quarter in 1998 compared to no provision during
the same period ending September 30, 1997. 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 $33,000, or 26.16%,
to $159,000 for the three months ended September 30, 1998, from $126,000 for
the three months ended September 30, 1997. The increase was primarily
attributable to a $9,000 increase in service charges on deposit accounts and
$1,000 increase in other service charges. There were no security gains or
losses recognized during the three month period ended September 30, 1998, as
compared to $25,000 in losses recognized on the sale of several
available-for-sale investment securities during the period ended September
30, 1997.
Non-Interest Expense. Non-interest expense increased $194,000, or
29.00%, to $863,000 for the three months ended September 30, 1998, from
$669,000 in the comparable period in 1997. Of this increase, $123,000 was
attributable to an increase in compensation and benefit expense in 1998,
reflecting normal salary benefit adjustments. Net occupancy and equipment
expense increased $72,000, or 84.71%, to $157,000 for the three months ended
September 30, 1998 as compared to the same period in 1997. The ratio of
non-interest expense to average total assets was 0.97% and 0.88% for the
three months ended September 30, 1998 and 1997, respectively.
Income Taxes. The provision for income taxes decreased $8,000 for the
three months ended September 30, 1998, compared with the prior year,
primarily as a result of lower taxable income for the quarter.
Comparison of Nine Months Ended September 30, 1998 and 1997
General. Net income is continuing to increase at a steady pace during
the first nine months of 1998, $721,000, as compared to the same nine month
period ended September 30, 1997, $634,000, an increase of $87,000. This
increase was primarily attributed to an increase in net interest income, a
decrease in the provision for loan losses and an increase in non-interest
income. A portion of the increase was off-set by an increase in non-interest
expense.
Interest Income. The increases in average earning assets contributed to
the increase in interest income of $605,000, or 14.73%, for the nine months
ended September 30, 1998 compared to 1997. The increase was attributed to
the additional loan interest and fee income of $325,000 resulting primarily
from an increase in loans receivable and a $263,000 increase in investment
income as well as the $17,000 increase in income from federal funds sold.
These increases were off-set by the $329,000 increase in interest expense.
Interest Expense. Interest expense on deposit liabilities increased
$329,000 for the nine months ended September 30, 1998, as compared to the
same period in 1997. Total deposits increased by $9.6 million comparing
September 30, 1998 to 1997, the average cost of funds over the past twelve
months was 3.35% with a gradual increase being noted during the first four
months to 3.43% and then dropping back to 3.35%. The Federal Funds purchased
and securities sold under agreement to repurchase were utilized by management
asa funding source in accordance with the asset/liability management program.
Provision for Loan Losses. There was a $50,000 negative provision for
loan losses during the first nine months of 1998 as compared to a $27,000
provision during the same period in 1997. There were net recoveries of
$138,000 during the nine months ended September 30, 1998, compared to net
charge offs of $214,000, during the same period ending September 30, 1997.
The absence of a 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 $94,000, or 24.93%,
to $471,000 for the nine months ended September 30, 1998, from $377,000 for
the nine months ended September 30, 1997. The increase was primarily
attributable to a $49,000 increase in service charges on deposit accounts and
$21,000 increase in other service charges. There were $25,000 in losses
recognized on the other real estate during the period ended September 30,
1997, compared to no gains or losses recognized in the same period ending
September 30, 1998.
Non-Interest Expense. Non-interest expense increased $353,000, or
17.41%, to $2.4 million for the nine months ended September 30, 1998, from
$2.0 million in the comparable period in 1997. Of this increase, $250,000
was attributable to an increase in compensation and benefit expense in 1998,
reflecting normal salary benefit adjustments and additions to staff as a
result of the branch market expansion . Net occupancy and equipment expense
increased $93,000, or 25.41%, to $459,000 for the first nine months ended
September 30, 1998 as compared to the same period in 1997. The ratio of
non-interest expense to average total assets was 2.75% for the nine month
periods ended September 30, 1998 compared to 2.64% for the same nine month
period in 1997.
Income Taxes. The provision for income taxes increased $3,000 for the
nine months ended September 30, 1998, compared with the prior year, primarily
as a result of higher taxable income for the quarter.
FC BANC CORP.
PART II - OTHER INFORMATION
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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
The Securities and Exchange Commission has recently amended
Rule 14a-4 to provide that with respect to a shareholder proposal
to be presented at an annual shareholders' meeting other than
pursuant to Rule 14a-8 (i.e., which is not to be included in the
registrant's proxy statement), the registrant's management may
exercise discretionary voting authority under proxies solicited
by it for the meeting, without mention of the proposal in the
proxy material, if it receives notice of the proposed non-Rule
14a-8 shareholder action less than 45 days prior to the calendar
date its proxy materials were mailed for the prior year's annual
meeting.
As this new provision applies to the Company, in the event
notice of a non-Rule 14a-8 shareholder proposal to be presented
at the Company's 1999 Annual Meeting of Shareholders is received
by the Company after January 13, 1999, the Company will be
permitted to exercise discretionary voting authority under
proxies solicited by it with respect to the 1999 Annual Meeting.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibit 27: Financial Data Schedule
b. A report on Form 8-K was filed on July 31, 1998 announcing a
2-for-1 stock split in the form of a 100% stock dividend.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, hereunto duly authorized.
FC BANC CORP.
Date November 12, 1998 /s/ G.W. Holden
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G. W. Holden
President and Chief Executive Officer
Date November 12, 1998 /s/ Jeffrey Wise
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Jeffrey Wise
Principal Financial Officer