U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED September 30, 1999.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
__________ TO __________
Commission file number - 33-53596
FC BANC CORP.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
OHIO 34-1718070
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Farmers Citizens Bank Building,
105 Washington Square
Box 567, Bucyrus, Ohio 44820-0567
- --------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
(419) 562-7040
--------------------------
(Issuer's telephone number)
N/A
---
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No . . .
--------
As of November 5, 1999, 628,091 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, 1999 and December 31, 1998
Condensed consolidated statements of income -- 4
Three and nine months ended September 30, 1999 and 1998
Condensed consolidated statements of changes in
shareholders' equity -- Nine months ended September
30, 1995 and year ended December 31, 1998 5
Condensed consolidated statement of cash flows-- 6
Nine months ended September 30, 1999 and 1998
Notes to condensed consolidated financial statements -- 7
September 30, 1999 and December 31, 1998
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 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
FC BANC CORP.
Bucyrus, Ohio
CONSOLIDATED BALANCE SHEETS
=============================================================================
(Dollars in thousands)
(Unaudited)
September 30, December 31,
1999 1998
---- ----
ASSETS
Cash and cash equivalents
Cash and amounts due from depository institutions $ 3,721 $ 3,964
Interest-bearing demand deposits in banks 9 5
Federal funds sold 2,100 3,500
------ ------
Total cash and cash equivalents 5,830 7,469
Investment securities, available-for-sale 35,732 37,319
Loans 52,183 45,649
Allowance for loan losses (1,644) (1,725)
------ ------
Net loans 50,539 43,924
Premises and equipment, net 2,036 1,489
Accrued income receivable 929 711
Cash surrender value of life insurance 2,290 2,385
Deferred income taxes 429 316
Other assets 98 72
------ ------
TOTAL ASSETS $97,883 $93,685
======= =======
LIABILITIES
Deposits
Non-interest-bearing $ 9,900 $10,517
Interest-bearing 75,627 70,794
------- -------
Total deposits 85,527 81,311
Borrowed funds 31 0
Accrued interest payable 158 188
Accrued federal income taxes 27 173
Other liabilities 507 466
------ ------
TOTAL LIABILITIES 86,250 82,138
SHAREHOLDERS' EQUITY
Preferred shares ( $25.00 par value) 750 shares
authorized, -0- shares issued 0 0
Common stock (no par value) 4,000,000 shares
authorized, 665,632 shares issued 832 832
Additional paid-in capital 1,370 1,370
Retained earnings 10,572 10,079
Treasury stock, at cost: 37,541 and 30,703 shares held (856) (685)
Accumulated other comprehensive income (285) (49)
------ ------
TOTAL SHAREHOLDERS' EQUITY 11,633 11,547
------ ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $97,883 $93,685
======= =======
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
FC BANC CORP.
Bucyrus, Ohio
CONSOLIDATED INCOME STATEMENTS
===============================================================================
(Unaudited)
(Dollars in thousands)
3 Months 9 Months
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
INTEREST INCOME
Interest and fees on loans $1,149 $1,103 $3,297 $3,095
Interest and dividends on investments 512 515 1,520 1,563
Interest on federal funds sold 24 18 81 55
Interest on due from banks 4 0 4 0
------ ------ ------ ------
TOTAL INTEREST INCOME 1,689 1,636 4,902 4,713
INTEREST EXPENSE
Interest on deposits 656 645 1,917 1,895
Interest on borrowed funds 0 1 1 6
------ ------ ------ ------
TOTAL INTEREST EXPENSE 656 646 1,918 1,901
------ ------ ------ ------
NET INTEREST INCOME 1,033 990 2,984 2,812
Provision for loan losses (50) (25) (100) (50)
------- ------ ------ -------
NET INTEREST INCOME AFTER
FOR LOAN LOSSES 1,083 1,015 3,084 2,862
NON-INTEREST INCOME
Service charges on deposits 109 111 312 311
Life insurance 28 23 101 57
Investment security gains (losses) 0 2 (3) 10
Sale of fixed assets gains (losses) 1 0 1 0
Other income 21 (10) 54 47
----- ----- ------ ------
TOTAL NON-INTEREST INCOME 159 126 465 425
NON-INTEREST EXPENSE
Salaries and employee benefits 436 412 1,204 1,096
Occupancy and equipment, net 181 154 511 451
Bank and ATM charges 23 21 68 60
Credit cards 5 14 14 34
Data processing 28 0 31 2
Directors' fees 19 12 58 48
Examination and accounting fees 12 32 35 53
State and other taxes 21 45 100 124
Postage and courier 17 16 53 47
Supplies and printing 10 16 41 65
Other expenses 126 108 381 355
----- ----- ----- -----
TOTAL NON-INTEREST EXPENSE 878 830 2,496 2,335
INCOME BEFORE FEDERAL INCOME
TAX EXPENSE 364 311 1,053 952
Federal income tax expense 99 74 276 231
------ ----- ------ ------
NET INCOME $ 265 $ 237 $ 777 $ 721
======= ===== ====== ======
EARNINGS PER SHARE:
Basic $0.42 $0.37 $1.23 $1.12
Diluted $0.42 $0.37 $1.21 $1.12
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
F C BANCORP
BUCYRUS, OHIO
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Nine Months Ended September 30, 1999 and Year Ended December 31, 1998
- -----------------------------------------------------------------------------
Number of shares Amounts
--------------- -------
(Dollars in thousands)
Accumu-
lated
other
Additional compre- Compre-
Common Treasury Common paid-in Retained Treasury hensive hensive
stock stock stock surplus earnings stock income income
----- ----- ----- ------- -------- ----- ------ ------
December 31, 1997 665,632 23,256 $ 832 $1,370 $9,461 ($484) $16
Net income 1,001 $1,001
Other comprehensive income
Change in unrealized gain (loss)
on securities available-for-sale,
net oftax $31 (65) (65)
-----
Comprehensive income $ 936
=====
Cash dividend declared
($0.60 per share) (383)
Purchase of treasury stock 7,447 (201)
------- ------ ----- ------ ------ ----- -----
December 31, 1998 665,632 30,703 832 $1,370 10,079 (685) (49)
Net income 777 $777
Other comprehensive income
Change in unrealized gain (loss)
on securities available-for-sale,
net of tax of $80 (236) (236)
----
Comprehensive income $541
=====
Cash dividend declared ($0.45 per share) (284)
Sale of treasury stock (900) 20
Purchase of treasury stock 7,738 (191)
------- ------ ---- ------ ------- ------ -----
September 30, 1999 665,632 37,541 $832 $1,370 $10,572 $(856) $(285)
======= ====== ==== ====== ======= ====== ======
FC BANC CORP.
Bucyrus, Ohio
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------------------------
(Dollars in thousands)
(Unaudited)
9 Months Ended
September 30,
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 777 $ 721
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses (100) (50)
(Gain) Loss on sale of investment securities 3 (10)
Gain on disposal of fixed assets (1) 0
Depreciation 308 259
Deferred income taxes 7 0
Amortization (accretion) 158 66
Income accrued on life insurance contracts (95) (57)
Changes in operating assets and liabilities:
Accrued interest receivable (218) (68)
Accrued interest payable (30) (14)
Taxes payable (146) 194
Other assets (26) (151)
Other liabilities 41 (87)
------ ------
Net cash provided by operating activities 678 803
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities (7,213) (15,504)
Proceeds from maturities of
available-for-sale securities 7,575 6,602
Proceeds from sales of available-for-sale securities 713 6,565
Purchases of life insurance contracts (505) 0
Proceeds from sales of life insurance contracts 694 0
Net increase in loans (6,518) (5,552)
Purchases of premises and equipment (856) (348)
Proceeds from sales of premises and equipment 1 0
------ ------
Net cash used by financing activities (6,109) (8,237)
------ -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in:
Noninterest-bearing, interest-bearing demand,
and savings deposits (459) 6,682
Certificates of deposit 4,676 3,444
Net increase (decrease) in short-term borrowings 0 (600)
Proceeds from long-term borrowings 35 0
Payments on long term borrowings (4) 0
Sale of treasury stock 20 0
Purchase of treasury stock (192) (163)
Dividends paid (284) (193)
------ ------
Net cash provided by financing activities 3,792 9,170
------ ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,639) 1,736
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 7,469 3,567
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $5,830 $5,303
====== ======
SUPPLEMENTAL DISCLOSURES
Cash paid during the nine-month period for interest $1,947 $1,915
Cash paid during the nine-month period for income taxes 416 37
- -----------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
FC BANC CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999, and December 31,1998
(Unaudited)
=============================================================================
NOTE 1. BASIS OF PRESENTATION
In the opinion of Management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary for a fair presentation
of FC Banc Corp.'s ("Company" or "Bancorp") financial position as of September
30, 1999, and December 31, 1998, and the results of operations for the nine
months ended September 30, 1999 and 1998, and the cash flows for the nine
months ended September 30, 1999 and 1998. 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
nine months ended September 30, 1999, 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,
1999 1998
---- ----
Balance, beginning of period $1,725 $1,480
Provision for loan losses (100) (75)
Recoveries 62 379
Charge-offs (43) (59)
------ ------
Balance, end of period $1,644 $1,725
====== ======
NOTE 3. REGULATORY CAPITAL
The following table illustrates the compliance by the Bank with currently
applicable regulatory capital requirements at September 30, 1999.
(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) $12,480 21.92% $4,555 8.00% $5,694 10.00%
Tier I Capital
(To Risk-Weighted Assets) 11,757 20.65% N/A N/A 3,416 6.00%
Tier I Capital
(To Average Assets) 11,757 12.06% 3,910 4.00% 4,887 5.00%
Tangible Capital
(To Average Assets) 11,757 11.77% 2,932 3.00% N/A N/A
NOTE 4. EARNINGS PER SHARE
Earnings per share ("EPS""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, 1999
---------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
--------- ----------- ------
Basic EPS
Income available to
common shareholders $264,930 625,286 $0.42
Effect of dilutive securities: None 10,318
-------
Diluted EPS Income available to
common shareholders +
assumed conversions $264,930 635,604 $0.42
======== ======= =====
For the Three months Ended September 30, 1998
---------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
--------- ----------- ------
Basic EPS
Income available to
common shareholders $236,973 641,629 $0.37
Effect of dilutive securities: None 3,893
-------
Diluted EPS Income available to
common shareholders +
assumed conversions $236,973 645,522 $0.37
======== ======= =====
For the Nine months Ended September 30, 1999
Income Shares Per Share
(Numerator) (Denominator) Amount
--------- ----------- -----
Basic EPS
Income available to
common shareholders $777,374 631,757 $1.23
Effect of dilutive securities: None 9,731
-------
Diluted EPS Income available to
common shareholders +
assumed conversions $777,374 641,488 $1.21
======== ======= =====
For the Nine months Ended September 30, 1998
Income Shares Per Share
(Numerator) (Denominator) Amount
-------- ----------- ------
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
======== ======= =====
NOTE 5. 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 environmenta
l 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, 1999 and 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 its affairs.
The Bank conducts its business through its four offices located in
Crawford and Morrow Counties, Ohio. The primary market area of the Bank is
Crawford and Morrow and contiguous counties in northwest central Ohio.
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 obsolete
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 relevant systems; repairing, replacing, 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 have completed the testing and had all
system changes implemented by September 30, 1999, as required by federal bank
regulators. We will have alternative methods of doing business as a
contingency should problems occur.
The Company's Business Resumption Contingency Planning Policy was
completed prior to September 30, 1999. The policy identifies key milestones
and includes information collection tools, establishes a reporting system and
details work plans which are essential to the drafting of the appropriate
contingency plans. 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, 1999, the Company had budgeted $202,000 for estimated Year 2000
implementation costs. Thus far, the Company has incurred approximately
$84,000 of related Y2K expenses and management anticipates that total costs
will not exceed the budgeted amount. The remaining costs are expected to be
expensed over the next 6 to 9 months, impacting fiscal years ending December
31, 1999 and 2000. This estimate is based on information available at
September 30, 1999, and may be revised as additional information and actual
costs become available.
Currently, customer awareness and contingency planning are the most
critical areas of the Y2K Project. Management has been providing ongoing
training to our staff in am effort to prepare them to answer customer
questions and concerns relative to Y2K and its effect on them and their
businesses. All employees have been provided with various literature and
other information to inform and educate our customers. A committee has been
formed comprised of representatives from each of the local financial
institutions in order to assume the community that we are united in dealing
with Y2K issues and concerns.
In October and November the bank will be testing the Y2K contingency
plan. These tests will be conducted by the business line managers and
monitored by the Y2K project coordinator. In the fourth quarter, the bank
will conduct intensive contingency plan training for all employees. All
employees will need to know what to do if we have to operate at minimum
service levels. The bank will continue its customer awareness program,
continue to monitor customer behavior, and continue to monitor liquidity.
Changes in Financial Condition
At September 30, 1999, the consolidated assets of the Company totaled
$97.9 million, an increase of $4.2 million, or 4.48%, from $93.7 million at
December 31, 1998. The increase in total assets was primarily the result of a
$4.2 million increase in deposits which were utilized to satisfy additional
loan demand.
Net loans receivable increased by $6.6 million, or 15.06%, to $50.5
million at September 30, 1999, compared to $43.9 million at December 31,
1998. The increase was primarily in the real estate related loan portfolio
where the new loan demand continued to exceed loan repayments.
Investment securities were relatively stable during the first nine months
of 1999. The decrease of $1.6 million, or 4.25%, from $37.3 million at
December 31, 1998, to $35.7 million at September 30, 1999, was primarily the
result of the reallocation of funds from maturing securities.
Federal funds sold, which decreased $1.4 million during the first nine
months of 1999, were primarily employed to fund the increased demand for
loans.
Deposit liabilities increased $4.2 million, or 5.19%, from $81.3 million
at December 31, 1998, to $85.5 million at September 30, 1999. Management
attributes the majority of the increase to the competitive rate structure in
the market area.
Total shareholders' equity increased $86,000, or 0.74%, from $11.5
million at December 31, 1998, to $11.6 million at September 30, 1999. This
increase was primarily the result of $777,000 in earnings for the first nine
months being offset by the acquisition of 7,738 shares of treasury stock,
$192,000, a decrease in other comprehensive income (unrealized losses on
securities available-for-sale) of $236,000 during the nine months ended
September 30, 1999, and the payment of $284,000 in cash dividends to common
shareholders.
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 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, 1999, that the Bank meets all of the
capital adequacy requirements to which it is subject.
As of December 31, 1998, 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, 1999, FC Banc Corp. had approximately $21,000 in
commitments for capital expenditures.
Results of Operations
Comparison of Three months Ended September 30, 1999 and 1998
General. Net income increased during the third quarter of 1999 as
compared to the same nine month period ended September 30, 1998. Net income
amounted to $265,000 versus $237,000, an increase of $28,000, or 11.81%. This
increase was primarily attributed to an increase in net interest income, a
negative provision for possible loan losses and the other miscellaneous
non-interest income. These increases were offset by increases in salary and
benefit costs, occupancy and equipment expenses and other general operating
expenses.
Interest Income. The continuing growth in average earning assets was the
primary contributing factor to the net increase in interest income of
$53,000, or 3.24%, for the three months ended September 30, 1999 compared to
1998. The increase was attributed to the additional loan interest and fee
income of $46,000 resulting primarily from an increase in loans receivable, a
$6,000 federal funds sold income and $4,000 in income from interest-bearing
deposits with banks which was partially off-set by a $3,000 decrease in income
from investment securities. These increases were off-set by the $10,000
increase in interest expense.
Interest Expense. Interest expense on deposit liabilities increased
$11,000 for the three months ended September 30, 1999, as compared to the same
period in 1998. Total interest-bearing deposits increased by $8.6 million
comparing September 30, 1999, to 1998. The average cost of funds for September
of 1999 was 3.02%, as compared to 3.32% for September of 1998.
Provision for Loan Losses. There were net recoveries of $13,000 during
the three months ended September 30, 1999, compared to net recoveries of
$32,000 during the same period in 1998. There was a negative provision for
loan losses of $50,000 during the third quarter in 1999 compared to a negative
provision of $25,000 during the same period ending September 30, 1998. 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 26.19%,
to $159,000 for the three months ended September 30, 1999, from $126,000 for
the three months ended September 30, 1998. The increase was primarily
attributable to a $31,000 increase in other miscellaneous charges and $5,000
increase in cash surrender values of life insurance contracts. There were no
security gains or losses recognized during the three month period ended
September 30, 1999, as compared to $2,000 in gains recognized on the sale of
investment securities during the period ended September 30, 1998.
Non-Interest Expense. Non-interest expense increased $48,000, or 5.78%,
to $878,000 for the three months ended September 30, 1999, from $830,000 in
the comparable period in 1998. Of this increase, $28,000 was attributable to
data processing costs, $27,000 to an increase in net occupancy and equipment
expense and $24,000 increase in compensation and benefit expense in 1999,
reflecting normal salary benefit adjustments. These increases were partially
offset by decreases in state and other taxes of $24,000, examination and
accounting fees of $20,000, and $9,000 in credit card expenses. The ratio of
non-interest expense to average total assets was 0.90% and 0.93% for the three
months ended September 30, 1999 and 1998, respectively.
Income Taxes. The provision for income taxes increased $25,000 for the
three months ended September 30, 1999, compared with the prior year, primarily
as a result of higher taxable income for the quarter.
Comparison of Nine months Ended September 30, 1999 and 1998
General. Net income increased during the first nine months of 1999 as
compared to the same nine month period ended September 30, 1998. Net income
amounted to $777,000 versus $721,000, an increase of $56,000, or 7.77%. This
increase was primarily attributed to an increase in net interest income, a
negative provision for possible loan losses and the cash surrender values
buildup of life insurance policies. These increases were offset by increases
in salary and benefit costs, occupancy and equipment expenses and other
general operating expenses.
Interest Income. The rapid increase in average earning assets was the
primary contributing factor to the net increase in interest income of
$189,000, or 4.01%, for the nine months ended September 30, 1999 compared to
1998. The increase was attributed to the additional loan interest and fee
income of $202,000 resulting primarily from an increase in loans receivable
and a $26,000 increase in federal funds sold income which was partially
off-set by a $43,000 decrease in income from investment securities. These
increases were off-set by the $17,000 increase in interest expense.
Interest Expense. Interest expense on deposit liabilities increased
$22,000 for the nine months ended September 30, 1999, as compared to the same
period in 1998. Total deposits increased by $4.2 million comparing September
30, 1999, to 1998, the average cost of funds for the first nine months of 1999
was 3.02%, as compared to 3.13% for the same period in 1998.
Provision for Loan Losses. There were net recoveries of $19,000 during
the nine months ended September 30, 1999, compared to net recoveries of $2,000
during the same period in 1998. There were negative provisions for loan
losses of $100,000 and $50,000 during the first three quarters in 1999 and
1998, respectively. The negative provisions were 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 $40,000, or 9.41%, to
$465,000 for the nine month period ended September 30, 1999, from $425,000 for
the same nine month period in 1998. The increase was primarily attributable
to a $44,000 increase in cash surrender values of life insurance contracts and
$7,000 increase in other miscellaneous charges. There were $3,000 in net
security losses recognized during the nine month period ended September 30,
1999, as compared to $10,000 in net security gains recognized on the sale of
other investment securities during the period ended September 30, 1998.
Non-Interest Expense. Non-interest expense increased $161,000, or 6.90%,
to $2.5 million for the nine months ended September 30, 1999, from $2.3
million in the comparable period in 1998. Of this increase, $108,000 was
attributable to an increase in compensation and benefit expense in 1999,
reflecting staff additions and normal salary benefit adjustments. Net
occupancy and equipment expense increased $60,000, or 13.30%, to $511,000
for the nine months ended September 30, 1999, as compared to the same period
in 1998. The ratio of non-interest expense to average total assets was 2.62%
and 2.70% for the nine months ended September 30, 1999 and 1998, respectively.
Income Taxes. The provision for income taxes increased $45,000 for the
nine months ended September 30, 1999, compared with the prior year, primarily
as a result of higher taxable income for the nine month period.
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
a.Exhibit 27: Financial Data Schedule
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, 1999 /s/ G.W. Holden
----------------- ---------------------------------------
G. W. Holden
President and Chief Executive Officer
Date November 12, 1999 /s/ Jeffrey Wise
----------------- ---------------------------------------
Jeffrey Wise
Principal Financial Officer