<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For fiscal year ended December 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For transition period from ______________to______________
Commission File Number 0-13655
-------
SECURITY BANC CORPORATION
State of Incorporation: Ohio
I.R.S. Employer Identification Number: 31-1133284
40 South Limestone Street
Springfield, Ohio 45502 (513) 324-6800
Securities register pursuant to Section 12 (g) of the Act:
Common Stock, $1.5625 Par Value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K.
Yes X No
--- ---
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was $323,054,788.00 as of January 10, 2000.
The number of shares outstanding of the Registrant's common stock, $1.5625 par
value per share as of January 21, 2000 was 12,058,250 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Shareholder's Report for the year ended December 31, 1999
are incorporated by reference into Parts I and II.
Portions of the Proxy Statement for the Annual Shareholder's Meeting to be held
April 18, 2000 are incorporated by reference into Part III.
<PAGE> 2
<TABLE>
SECURITY BANC CORPORATION AND SUBSIDIARIES
INDEX
<CAPTION>
Page No.
--------
<S> <C>
PART I
Item 1. Business ................................................................ 3 thru 17
Item 2. Properties .............................................................. 18
Item 3. Legal Proceedings ....................................................... 19
Item 4. Submission of Matters to a Vote of Security Holders...................... 19
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder
Matters ................................................................. 19
Item 6. Selected Financial Data ................................................. 19
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................................... 19
Item 8. Financial Statements and Supplementary Data ............................. 19
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure ................................................ 19
PART III
Item 10. Directors and Executive Officers of The Registrant ...................... 20
Item 11. Executive Compensation .................................................. 20
Item 12. Security Ownership of Certain Beneficial Owners and Management .......... 21
Item 13. Certain Relationships and Related Transactions .......................... 21
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ......... 21 thru 22
SIGNATURES ................................................................................ 23
</TABLE>
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<PAGE> 3
PART I
ITEM 1. DESCRIPTION OF BUSINESS AND SUPPLEMENTAL DATA
FORWARD LOOKING STATEMENTS
Certain matters disclosed herein may be deemed to be forward-looking statements
that involve risks and uncertainties, including regulatory policy changes,
interest rate fluctuations, loan demand, loan delinquencies and losses, and
other risks. Actual strategies and results in future time periods may differ
materially from those currently expected. Such forward-looking statements
represent management's judgement as of the current date. Security Banc
Corporation disclaims, however, any intent or obligation to update such
forward-looking statements.
PENDING LEGISLATION
The Gramm-Leach-Bliley Act known commonly as the "Financial Services
Modernization Act" was signed into law on November 12, 1999 and is effective
March 11, 2000. This new act among other changes, effectively allows the
creation of a new financial services holding company that can offer a full range
of financial products and engage in expanded approved activities such as
insurance and securities services. The Board of Governors of the Federal Reserve
System is currently implementing provisions to enable bank holding companies
that meet applicable statutory requirements to become financial holding
companies and, thereby, engage in a broader range of financial and other
activities than are currently permissible for bank holding companies.
DESCRIPTION OF SECURITY BANC CORPORATION BUSINESS
GENERAL DESCRIPTION
- -------------------
Security Banc Corporation is a $976 million locally owned three-bank holding
company headquartered in Springfield, Ohio. Security Banc Corporation was
organized in 1985 under the laws of the State of Ohio. It is a Banc Holding
Company as defined in the Bank Holding Company Act of 1956. The subsidiaries of
Security Banc Corporation are Security National Bank and Trust Company, Citizens
National Bank, and Third Saving and Loan Company. Security National Bank and
Trust Company is a national banking association organized under the statutes of
The United States as the result of an agreement to merge The Guardian Bank of
Springfield, Ohio, with and into The New Carlisle National Bank under the title
of The Security National Bank. The agreement to merge was finalized and given
approval by the Office of The Comptroller of the Currency on October 1, 1969.
The Bank was granted the authority to act as fiduciary as of May 30, 1978,
thereby, changing the name of the Association to "The Security National Bank and
Trust Co". The Bank is operating under a 1903 Charter. On September 30, 1996,
the Corporation merged with CitNat Bancorp, Inc., a $140 million one bank
holding company headquartered in Urbana, Ohio, in a transaction accounted for a
pooling of interest. Citizens National Bank of Urbana is a national banking
association chartered in 1865. On October 21, 1996, the Corporation acquired all
of the outstanding shares of Third Financial Corporation, a $156 million one
bank holding company headquartered in Piqua, Ohio. The acquisition was accounted
for using the purchase method of accounting. Third Savings and Loan Company was
chartered in 1884. All of the Corporation's banking centers are located in
Champaign, Clark, Fayette, Greene, Madison, and Miami Counties in the state of
Ohio.
The Corporation's subsidiaries provide full service banking to individuals as
well as to industry and governmental subdivisions through each of its
twenty-four banking centers. The Corporation's subsidiaries have made a strong
impact on all the counties it serves through a great variety of services,
including personal checking accounts and savings programs, certificates of
deposit, Money Market accounts, C/D's, and Individual Retirement Accounts.
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<PAGE> 4
BUSINESS (CONTINUED)
A broad range of credit programs for all retail customers includes mortgage
loans, credit card banking under the VISA designation, installment loans, and
secured and unsecured personal loans. The banking services provided to
commercial customers and government include maintenance of demand and time
deposit accounts. Available are all types of commercial loans, including loans
under lines of credit and revolving credit, term loans, real estate mortgage
loans and other specialized loans. The Subsidiaries further serve the
requirements of large and small industrial and commercial enterprises in the
Springfield and Dayton metropolitan area and elsewhere by providing financial
counseling, cash management, and other automated services. The subsidiaries'
Commercial Banking Division is organized to serve the needs of the corporate
customers by handling business and commercial mortgages, corporate deposits and
other corporate financial services. The Consumer Banking Divisions, which
encompasses the Credit Card, and Installment Loan Departments, serves individual
as well as corporate customers. The Residential Mortgage Loan Departments
provides conventional as well as adjustable rate mortgage loans to individuals.
Each Subsidiary manages the investment of funds for their institution using U.
S. Government and agency securities, municipal (tax exempt) securities, as well
as Federal Funds, and certificates of deposit of U. S. banks and savings and
loans. Each Subsidiary, in consultation with others, sets the rates on their
liability products. Complete fiduciary services are available to individuals,
charitable institutions, commercial customers, and government agencies through
Security's Trust Division. The Personal Trust Department serves as investment
agent and custodian for securities portfolios of individuals, as trustees for
living and testamentary trusts and as executor and administrator of probate
estates. The Corporate Trust Department serves as Trustee for corporate and
municipal bond issues, and as registrar for securities. The Institutional
Services Department provides employee benefit plan fund management for qualified
retirement plans and investment management and securities custody services for
not-for-profit institutions.
There are over a half dozen commercial banks in Springfield, Clark County and
adjoining counties, furnishing general banking services and thus providing
strong competition to the Corporation. The Corporation competes for deposits not
only with commercial banks in its area, but also with building and loan
associations and other non-bank competitors, such as brokerage houses. In
addition to the competition described above, the Corporation competes in various
areas of service offered to individuals, industry and government with Banks in
Southwestern Ohio, many of which possess greater financial resources than the
Corporation.
The earnings of the Corporation are affected by general economic conditions as
well as, by the monetary policies of the Federal Reserve Board. Such policies,
which have the effect of regulating the national supply of Bank reserves and
Bank credit, can have a major affect upon the source and cost of loanable and
investable funds and the rates of return earned on loans and investments. Among
the means available to the monetary authorities to influence the size and
distribution of Bank reserves are open market operations by the Board of
Governors of the Federal Reserve System, changes in cash reserve requirements
against member bank deposits.
MATERIAL CHANGES AND DEVELOPMENTS
- ---------------------------------
There were no material changes or developments during 1999 in the business done
by the Corporation.
REGULATION AND SUPERVISION
- --------------------------
Security and Citizens, as national banks, are subject to regulation by the
Comptroller of the Currency, The Board of Governors of the Federal Reserve
System and The Federal Deposit Insurance Corporation. Third, as a savings and
loan, is subject to regulation by the Office of Thrift Supervision and The
Savings Association Insurance Fund.
The Corporation, as a Bank Holding Company, is subject to the restrictions of
the Bank Holding Company Act of 1956 as amended. This Act first provides that
the acquisition of control of a bank is subject to the prior
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<PAGE> 5
BUSINESS (CONTINUED)
approval of the Board of Governors of the Federal Reserve System. In the future,
the Corporation will be required to obtain the prior approval of the Federal
Reserve Board before it may acquire, for its individual account all, or
substantially all, of the assets of any bank, or acquire ownership or control of
any voting securities of any Bank, if after giving effect to such acquisition,
the Corporation would own or control more than 5% of the voting shares of such
bank. On September 29, 1994, the Act was amended by the Interstate Banking and
Branch Efficiency Act of 1994 which authorized interstate bank acquisitions
anywhere in the country, effective one year after the date of enactment and
interstate branching by acquisition and consolidation, effective June 1, 1997,
in those states that have not opted out by that date. Security Banc Corporation
and subsidiaries are also subject to the state banking laws of Ohio. Ohio
adopted nationwide reciprocal interstate banking effective October, 1988.
However, banking laws of other states may restrict branching of banks to other
counties within the state and acquisitions or mergers involving banks and bank
holding companies located in other states. The Act limits the business of bank
holding companies to banking, managing or controlling banks, performing certain
servicing activities for subsidiaries and engaging in such other activities as
the Federal Reserve Board may determine to be closely related to banking and a
proper incident thereto. The Act does not place territorial restrictions on the
banking subsidiaries of bank holding companies. Security Banc Corporation and
subsidiaries are subject to an extensive array of banking laws and regulations
that are intended primarily for the protection of the customers and depositors
of the Corporation's subsidiaries.
Security Banc Corporation and subsidiaries are subject to the provisions of the
National Bank Act. Security Banc Corporation and subsidiaries are subject to
primary supervision, regulation and examination by the Office of the Comptroller
of the Currency (OCC) and the Office of Thrift Supervision (OTS). Security Banc
Corporation and subsidiaries are also subject to the rules and regulations of
the Board of Governors of the Federal Reserve System and the Federal Deposit
Insurance Corporation (FDIC) and The Savings Association Insurance Fund. Under
the Bank Holding Company Act of 1996, as amended, and under Regulations of the
Federal Reserve Board pursuant thereto, a bank holding company and its
subsidiaries are prohibited from engaging in certain tie-in arrangements in
connection with the extension of credit.
Federal regulators adopted risk-based capital guidelines and leverage standards
for banks and bank holding companies.
The Financial Reform, Recovery and Enforcement Act of 1989 (FIRREA) provides
that a holding company and its controlled insured depository institutions are
liable for any loss incurred by the Federal Deposit Insurance Corporation in
connection with the default of any FDIC assisted transaction involving an
affiliated insured bank or savings association.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
covers an expanse of banking regulatory issues. FDICIA deals with the
recapitalization of the Bank Insurance Fund, with deposit insurance reform
including requiring the FDIC to establish a risk-based premium assessment system
with a number of other regulatory and supervisory matters. Noncompliance to laws
and regulations by bank holding companies and banks can lead to monetary
penalties and/or an increased level of supervision or a combination of these two
items. Management is not aware of any current instances of noncompliance to laws
and regulations and does not anticipate any problems maintaining compliance on a
prospective basis. Recent regulatory inspections and examinations of the
Security Banc Corporation and subsidiaries have not disclosed any significant
instances of noncompliance.
As Of December 31, 1999, the Corporation's consolidated total assets were
$976,411,000 including total loans of $653,025,000. On that date, total deposits
were $696,546,000 and capital accounts totaled $119,122,000.
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<PAGE> 6
A substantial portion of Security Banc Corporation's cash revenues is derived
from dividends paid by the subsidiaries. These dividends are subject to various
legal and regulatory restrictions.
EMPLOYEES
- ---------
As of December 31, 1999, there were no full time employees of the Registrant.
Affiliates of the Registrant had full time equivalent employees of 323 of whom
59 were officers.
STATISTICAL INFORMATION
- -----------------------
Pages 7 through 17 contain statistical information on the Corporation and its
subsidiaries.
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<PAGE> 7
BUSINESS--CONTINUED
Investment Portfolio
- --------------------
The following table sets forth the carrying amount of investment securities at
the dates indicated. (000s)
<TABLE>
<CAPTION>
December 31
-----------
Available for Sale Investments: 1999 1998 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
U. S. Treasury $ 1,991 $ 7,506 $116,011 $136,020
U. S. Government Agencies and Corporations 53,834 59,650 12,887 15,419
Corporate Bonds 0 0 250 1,464
Mortgage Backed Securities 122,474 67,425 135 2,387
Equity Securities 315 229 356 485
-------- -------- -------- --------
Total Available for Sale Investments $178,614 $134,810 $129,639 $155,775
Held to Maturity Investments:
State and Political Subdivisions 25,930 26,859 13,262 28,530
Mortgage Backed Securities 1,840 2,332 3,484 4,010
Federal Reserve Stock and Other 7,919 3,323 2,794 2,668
-------- -------- -------- --------
Total Held to Maturity Investments $ 35,689 $ 32,514 $ 19,540 $ 35,208
-------- -------- -------- --------
Total Carrying Value of Investments $214,303 $167,324 $149,179 $190,983
======== ======== ======== ========
</TABLE>
The following table sets forth the redemption/ maturities of debt securities at
December 31, 1999 and the weighted average yields of such securities (calculated
on the basis of the cost and effective yields weighted for the scheduled
redemption/maturity of each security). Callable securities are shown at their
earliest call date. Tax-equivalent adjustments (using a 35% rate) have been made
in calculating yields on obligations of state and political subdivisions. (000)s
<TABLE>
<CAPTION>
Maturing
---------------------------------------------------------------------------------
After One After Five
Within Within But Within After
One Year Five Years Ten Years Ten Years
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available for Sale Investments:
U. S. Treasury $1,000 5.37% $ 991 5.25% $ 0 0% $ 0 0%
U. S. Govt. Agencies and Corp. 0 0% 53,834 5.87% 0 0% 0 0%
Mortgage Backed Securities 0 0% 0 0% 3,999 5.73% 118,475 6.41%
Held to Maturity Investments:
States and Political Subdivisions 250 6.49% 3,015 8.97% 3,211 6.66% 19,461 6.73%
Mortgage-backed Securities 300 6.26% 1 7.00% 5 11.00% 1,527 6.02%
====== ==== ======= ==== ====== ===== ======== ====
$1,550 5.72% $57,841 6.02% $7,215 6.15% $139,463 6.45%
</TABLE>
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<PAGE> 8
BUSINESS--CONTINUED
Types of Loans
- --------------
The following table summarizes consolidated loans by major category for the five
years ending December 31. (000s)
<TABLE>
<CAPTION>
December 31
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial and Agriculture $321,782 $285,958 $252,053 $212,046 $170,905
Real Estate 254,854 252,609 225,791 234,935 132,402
Consumer 76,389 78,375 84,161 93,787 93,263
-------- -------- -------- -------- --------
TOTAL LOANS $653,025 $616,942 $562,005 $540,768 $396,570
======== ======== ======== ======== ========
</TABLE>
Non-accrual loans totaled $2,162,000 and $2,154,000 as of December 31, 1999 and
1998 respectively.
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<PAGE> 9
BUSINESS--CONTINUED
The following table shows the maturity of loans (excluding those in non accrual
status) outstanding as of December 31, 1999. Also provided are the amounts due
after one year classified according to the sensitivity to changes in interest
rates. (000s)
<TABLE>
<CAPTION>
Maturing
---------------------------------------------------
Within After One But After
One Year Within Five Years Five Years Total
-------- ----------------- ---------- -----
<S> <C> <C> <C> <C>
Commercial, Ag $ 81,981 $ 58,589 $129,554 $270,124
Real Estate-Construction 8,792 3,406 6,506 18,704
All Other Loans 19,389 86,478 256,168 362,035
======== ======== ======== =======
Total Loans $110,162 $148,473 $392,228 $650,863
======== ======== ======== ========
Loans maturing after one year with:
Fixed Interest rate $109,673 $234,289
Variable Interest 38,800 157,939
======== ========
$148,473 $392,228
======== ========
</TABLE>
Risk Elements
- -------------
Interest on loans is normally accrued at the rate agreed upon at the time each
loan was negotiated. It is the Bank's policy to discontinue accrual of interest
on commercial and mortgage loans when there is a clear indication that the
borrower's cash flow may not be sufficient to meet payments as they become due.
When a consumer loan is uncollectable, the loan is charged off. If there is
collateral, it is secured and disposed of. In regards to paragraph 6i of SFAS
118, the amounts are immaterial and, therefore, not disclosed. The following
table presents data concerning loans at risk at the end of each period. (000s).
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Non-accrual loans $2,162 $2,154 $3,417 $4,123 $2,772
Accruing loans past
due 90 days or more $2,554 $1,357 $1,537 $1,709 $1,543
Restructured loans $ 311 $ 322 $ 333 $ 0 $ 0
Other Real Estate owned $1,928 $1,531 $ 258 $ 256 $ 0
</TABLE>
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<PAGE> 10
BUSINESS--CONTINUED
Summary of Loan Loss Experience
- -------------------------------
This table summarized the Company's loan loss experience for each of the five
years ended December 31. (000s)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance at Jan. 1: $ 6,883 $6,254 $ 6,827 $ 5,336 $5,101
Acquired Allowance and 36 0 0 1,285 0
adjustments
Charge-offs
Commercial 547 705 1,000 1,091 248
Real Estate 25 284 6 4 0
Consumer 935 1,117 1,182 868 829
------- ------ ------- ------- ------
1,507 2,106 2,188 1,963 1,077
Recoveries
Commercial 34 834 64 55 97
Real Estate 7 66 19 0 0
Consumer 311 295 232 239 265
------- ------ ------- ------- ------
352 1,195 315 294 362
------- ------ ------- ------- ------
Net Charge-offs (1,155) (911) (1,873) (1,669) (715)
- ---------------
Provision for loan losses 1,200 1,540 1,300 1,875 950
------- ------ ------- ------- ------
Balance at Dec. 31: 6,964 6,883 $ 6,254 $ 6,827 $5,336
======= ====== ======= ======= ======
Net Charge offs
===============
to average loans 0.18% 0.16% 0.34% 0.39% 0.18%
</TABLE>
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<PAGE> 11
BUSINESS--Continued
Allowance for Loan Losses
- -------------------------
The allowance for loan losses is established through charges to operations by a
provision for loan losses. Loans which are determined to be uncollectible are
charged against the allowance and subsequent recoveries, if any, are credited to
the allowance. The amount charged to operations is based on several factors.
These include the following:
1. Analytical reviews of the loan loss experience in relationship to
outstanding loans to determine an adequate allowance for loan losses
required for loans at risk.
2. A continuing review of problem or at risk loans and the overall
portfolio quality.
3. Regular examinations and appraisals of the loan portfolio conducted by
the Bank's examination staff and the banking supervisory authorities.
4. Management's judgement with respect to the current and expected
economic conditions and their impact on the existing loan portfolio.
The amount provided for loan losses exceeded actual net charge-offs by $45,000
in 1999 and $629,000 in 1998. Net charge-offs exceeded the amount provided for
loan losses by $573,000 in 1997.
It is management's practice to review the allowance on a quarterly basis to
determine whether additional provisions should be made after considering the
factors noted above. Based on these procedures, management is of the opinion
that the allowance at December 31, 1999 of $6,964,000 is adequate.
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<PAGE> 12
BUSINESS --CONTINUED
This table shows allocation of the allowance for loan losses as of the end of
the last five years. (000s)
<TABLE>
<CAPTION>
12-31-99 12-31-98 12-31-97 12-31-96 12-31-95
------------------- ------------------- ------------------- ------------------- -------------------
Percent of Percent of Percent of Percent of Percent of
Loans to Loans to Loans to Loans to Loans to
Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------ ----------- ------ ----------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and Agriculture $1,997 49% $1,941 46% $1,757 45% $1,730 39% $1,075 43%
Real Estate 1,278 39% 1,233 41% 331 40% 24 44% 52 33%
Consumer 426 12% 778 13% 816 15% 826 17% 771 24%
Additional Reserve
Allocated for
current loans 939 835 757 2,057 1,178
Unallocated 2,324 2,096 2,593 2,190 2,260
------ ------ ------ ------ ------
$6,964 100% $6,883 100% $6,254 100% $6,827 100% $5,336 100%
====== === ====== === ====== === ====== === ====== ===
</TABLE>
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<PAGE> 13
BUSINESS--CONTINUED
Deposits
- --------
Maturities of time certificates of deposits and other time deposits of $100,000
or more, outstanding at December 31, are summarized as follows: (000s)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Three months or less $18,339 $11,370
Over three months through twelve months 24,108 25,855
Over one year thru five years 14,362 7,569
------- -------
$56,809 $44,794
======= =======
</TABLE>
Return on Equity and Assets
- ---------------------------
The following table shows consolidated operating and capital ratios of the
company for each of the last three years:
<TABLE>
<CAPTION>
Year Ended December 31
For the Years 1999 1998 1997
- ------------- ---- ---- ----
<S> <C> <C> <C>
Return on Assets (A) 1.78% 1.85% 1.75%
Return on Equity (B) 14.18% 13.69% 13.92%
Dividend Payout Ratio (C) 39.57% 38.67% 37.24%
Equity to Assets Ratio (D) 12.57% 13.48% 12.55%
</TABLE>
- ----------
(A) net income divided by average total assets
(B) net income divided by average equity
(C) dividends declared per share divided by net income per share
(D) average equity divided by average total assets
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<PAGE> 14
BUSINESS--CONTINUED
Loan Commitments and Standby Letters of Credit
- ----------------------------------------------
Loan commitments are made to accommodate the financial needs of our customers.
Letters of credit commit the Company to make payments on behalf of customers
when specific future events occur.
Both arrangements have credit risk essentially the same as that involved in
extending loans to customers and are subject to the Company's normal credit
policies. Collateral (e.g., securities, receivables, inventory, equipment) is
obtained based on Management's credit assessment of the customer.
<TABLE>
Off-balance sheet items at December 31 (000s)
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Unused Commitments
Open end consumer lines $47,011 $47,958
Other unused commitments 96,052 94,035
Letters of Credit $ 2,225 $ 2,602
</TABLE>
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<PAGE> 15
BUSINESS--CONTINUED
<TABLE>
SECURITY NATIONAL "NEXT FOUR QUARTERS"
ASSET/LIABILITY MANAGEMENT
STATIC GAP ANALYSIS (000S)
<CAPTION>
IMMEDIATELY ADJUSTABLE END OF 3/00 END OF 6/00 END OF 9/00 END OF 12/00
RUNOFFS RATE RUNOFFS RATE RUNOFFS RATE RUNOFFS RATE RUNOFFS RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Investment Securities 38 5.76% 1,500 6.44% 1,500 6.44% 1,500 6.44% 1,575 6.32%
Total Short Term Investment 9,200 5.40% 0 0.00% 0 0.00% 0 0.00% 0 0.00%
Net Loans 70,015 8.97% 31,538 9.02% 22,153 8.54% 18,393 8.74% 17,236 8.95%
Total Earning Assets 79,253 8.55% 33,038 8.90% 23,653 8.41% 19,893 8.57% 18,811 8.73%
Total Non-Earning Assets 610 9.27% 0 0.00% 0 0.00% 0 0.00% 0 0.00%
Total Assets 79,863 8.56% 33,038 8.90% 23,653 8.41% 19,893 8.57% 18,811 8.73%
Total Noninterest Bearing Deposits 0 0.00% 0 0.00% 0 0.00% 0 0.00% 9,300 0.00%
Total Interest Bearing Deposits 4,180 4.21% 79,314 3.16% 49,631 4.22% 15,357 4.87% 12,838 5.08%
Total Deposits 4,180 4.21% 79,314 3.16% 49,631 4.22% 15,357 4.87% 22,138 2.95%
Total Other Interest Bearing Liabilities 22,841 4.04% 15,000 5.54% 0 0.00% 0 0.00% 1,000 6.00%
Total Other Liabilities 0 0.00% 0 0.00% 0 0.00% 0 0.00% 0 0.00%
Total Liabilities 27,021 4.07% 94,314 3.54% 49,631 4.22% 15,357 4.87% 23,138 3.08%
Total Equity Capital 0 0.00% 0 0.00% 0 0.00% 0 0.00% 0 0.00%
Total Liabilities and Capital 27,021 4.07% 94,314 3.54% 49,631 4.22% 15,357 4.87% 23,138 3.08%
Interval GAP 52,842 (61,277) (25,978) 4,536 (4,327)
Cumulative GAP 52,842 (8,434) (34,412) (29,876) (34,203)
Interval GAP/Total Assets 8.47% (9.82%) (4.16%) 0.73% (0.69%)
Cumulative GAP/Total Assets 8.47% (1.35%) (5.51%) (4.79%) (5.48%)
Interval GAP: Earning Assets 9.14% (10.86%) (4.61%) 0.80% 0.88%
Cumulative GAP/Earning Assets 9.14% (1.72%) (6.33%) (5.52%) (4.64%)
Interval Spread: Earning Assets 4.55% 5.36% 4.19% 3.70% 3.58%
Interval Spread: Total Assets 4.49% 5.36% 4.19% 3.70% 5.65%
</TABLE>
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<PAGE> 16
BUSINESS--CONTINUED
<TABLE>
CITIZENS NATIONAL "NEXT FOUR QUARTERS"
ASSET/LIABILITY MANAGEMENT
STATIC GAP ANALYSIS (000S)
<CAPTION>
IMMEDIATELY ADJUSTABLE END OF 3/00 END OF 6/00 END OF 9/00 END OF 12/00
RUNOFFS RATE RUNOFFS RATE RUNOFFS RATE RUNOFFS RATE RUNOFFS RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Investment Securities 7,250 5.71% 3,500 5.31% 25 7.13% 10 7.10% 340 5.99%
Total Short Term Investment 3,310 5.25% 1,060 5.50% 0 0.00% 0 0.00% 500 6.00%
Net Loans 22,741 8.98% 3,720 8.04% 2,778 8.45% 6,236 7.89% 2,213 8.76%
Total Earning Assets 33,301 7.90% 8,280 6.77% 2,803 8.44% 6,246 7.89% 3,053 8.00%
Total Non-Earning Assets 1,014 9.22% 0 0.00% 0 0.00% 0 0.00% 0 0.00%
Total Assets 34,315 7.94% 8,280 6.77% 2,803 8.44% 6,246 7.89% 3,053 8.00%
Total Noninterest Bearing Deposits 0 0.00% 0 0.00% 0 0.00% 0 0.00% 0 0.00%
Total Interest Bearing Deposits 71 4.35% 34,566 3.00% 9,659 4.89% 11,886 5.46% 34,142 3.27%
Total Deposits 71 4.35% 34,566 3.00% 9,659 4.89% 11,886 5.46% 34,142 3.27%
Total Other Interest Bearing
Liabilities 622 5.00% 550 4.25% 0 0.00% 0 0.00% 0 0.00%
Total Other Liabilities 0 0.00% 0 0.00% 0 0.00% 0 0.00% 0 0.00%
Total Liabilities 693 4.93% 35,116 3.02% 9,659 4.89% 11,886 5.46% 34,142 3.27%
Total Equity Capital 0 0.00% 0 0.00% 0 0.00% 0 0.00% 0 0.00%
Total Liabilities and Capital 693 4.93% 35,116 3.02% 9,659 4.89% 11,886 5.46% 34,142 3.27%
Interval GAP 33,622 (26,836) (6,856) (5,640) (31,089)
Cumulative GAP 33,622 6,786 (70) (5,710) (36,799)
Interval GAP/Total Assets 20.25% (16.16%) (4.13%) (3.40%) (18.72%)
Cumulative GAP/Total Assets 20.25% 4.09% (0.04%) (3.44%) (22.16%)
Interval GAP/Earning Assets 22.49% (18.59%) (4.75%) (3.91%) (21.53%)
Cumulative GAP/Earning Assets 22.49% 3.90% (0.85%) (4.75%) (26.28%)
Interval Spread: Earning Assets 3.00% 3.76% 3.55% 2.43% 4.73%
Interval Spread: Total Assets 3.01% 3.76% 3.55% 2.43% 4.73%
</TABLE>
-16-
<PAGE> 17
BUSINESS--CONTINUED
<TABLE>
THIRD SAVINGS "NEXT FOUR QUARTERS"
ASSET/LIABILITY MANAGEMENT
STATIC GAP ANALYSIS (000S)
<CAPTION>
IMMEDIATELY ADJUSTABLE END OF 3/00 END OF 6/00 END OF 9/00 END OF 12/00
RUNOFFS RATE RUNOFFS RATE RUNOFFS RATE RUNOFFS RATE RUNOFFS RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Investment Securities 2,360 7.00% 0 0.00% 299 8.75% 0 0.00% 0 0.00%
Total Short Term Investment 0 0.00% 0 0.00% 0 0.00% 0 0.00% 0 0.00%
Net Loans 33,607 9.37% 6,535 8.05% 9,827 8.01% 7,927 8.06% 6,786 8.12%
Total Earning Assets 35,967 9.21% 6,535 8.05% 10,126 8.03% 7,927 8.06% 6,786 8.12%
Total Non-Earning Assets 538 9.91% 0 0.00% 0 0.00% 0 0.00% 0 0.00%
Total Assets 36,505 9.22% 6,535 8.05% 10,126 8.03% 7,927 8.06% 6,786 8.12%
Total Noninterest Bearing Deposits 0 0.00% 2,907 0.00% 0 0.00% 0 0.00% 0 0.00%
Total Interest Bearing Deposits 1,796 5.17% 10,469 4.82% 10,419 4.61% 16,812 5.04% 9,457 5.27%
Total Deposits 1,796 5.17% 13,376 3.77% 10,419 4.61% 16,812 5.04% 9,457 5.27%
Total Other Interest Bearing
Liabilities 2,727 5.03% 24,100 5.58% 325 7.40% 3,000 6.25% 0 0.00%
Total Other Liabilities 0 0.00% 0 0.00% 0 0.00% 0 0.00% 0 0.00%
Total Liabilities 4,523 5.09% 37,476 4.93% 10,744 4.69% 19,812 5.23% 9,457 5.27%
Total Equity Capital 0 0.00% 0 0.00% 0 0.00% 0 0.00% 0 0.00%
Total Liabilities and Capital 4,523 5.09% 37,476 4.93% 10,744 4.69% 19,812 5.23% 9,457 5.27%
Interval GAP 31,982 (30,941) (618) (11,884) (2,671)
Cumulative GAP 31,982 1,041 424 (11,461) (14,132)
Interval GAP/Total Assets 17.03% (16.47%) (0.33%) (6.33%) (1.42%)
Cumulative GAP/Total Assets 17.03% 0.55% 0.23% (6.10%) (7.52%)
Interval GAP/Earning Assets 18.57% (16.55%) (0.36%) (7.02%) (1.58%)
Cumulative GAP/Earning Assets 18.57% 2.01% 1.65% (5.37%) (6.95%)
Interval Spread: Earning Assets 4.13% 2.70% 3.34% 2.83% 2.85%
Interval Spread: Total Assets 4.14% 3.12% 3.34% 2.83% 2.85%
</TABLE>
-17-
<PAGE> 18
ITEM 2. PROPERTIES
The Security Banc Corporation is headquartered in Springfield, Ohio at
40 South Limestone Street. The subsidiaries of the Company have 24
banking offices located in Ohio. The Company owns 22 of the offices and
the other two are leased. Additional information is contained in the
Notes to Consolidated Financial Statements, Part IV, Item 14.
-18-
<PAGE> 19
ITEM 3. LEGAL PROCEEDINGS
Registrant and its subsidiaries are not a party to any material legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
1. To elect four directors of Class III to serve until the Annual
Meeting of Shareholders in 2003 or in the case of each
director until his successor is duly elected and qualified.
2. To transact such other business as may properly come before
the Annual Meeting or any adjournments thereof.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The common stock of the Corporation is traded on the over-the-counter
market. Transfer agent and registrar is The Registrar and Transfer Co.,
10 Commerce Drive, Cranford, NJ 07016. Common stock market prices and
dividends are shown in the annual shareholders' report for the year
ended December 31, 1999 and incorporated herein by reference.
The Security Banc Corporation (STYB) Board of Directors has authorized
the Corporation to acquire up to 100,000 shares of its Common Stock,
representing up to approximately 1% of the total common shares
outstanding.
The shares will be acquired from time to time in open market
transactions, in block purchases or otherwise, and will be available
for general corporate purposes. The timing, volume, and price of
purchases will be at the discretion of management and the Security Banc
Corporation Board, and will also be contingent upon overall financial
and market conditions.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated herein by
reference to the registrant's 1999 Annual Report to Shareholders
attached to this filing as Exhibit "13".
ITEM 7. MANAGEMENT'S DISCUSSION AN ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The information required by this item is incorporated herein by
reference to the registrant's 1999 Annual Report to Shareholders
attached to this filing as Exhibit "13".
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated herein by
reference to the registrant's 1999 Annual Report to Shareholders
attached to this filing as Exhibit "13".
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
-19-
<PAGE> 20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item concerning Directors is
incorporated herein by reference to the registrant's 2000 Proxy
Statement.
Executive Officers
- ------------------
The name, age, and position of the Executive Officers of the Registrant as of
March, 2000 is listed below along with their business experience during the past
five years. Officers are appointed annually by the Board of Directors at the
meeting of Directors immediately following the Annual Meeting of Stockholders.
<TABLE>
<CAPTION>
Name, Age, Position Business Experience During Past Five Years
------------------- ------------------------------------------
Executive Officers
------------------
<S> <C>
Harry O. Egger, 60 Security National Bank and Trust Co.
Chairman, President, CEO President 1981 - 1996
Chairman, CEO since 1-1-97
J. William Stapleton, 47 Security National Bank and Trust Co.
Executive Vice President/CFO Vice President since 9-18-84
Executive Vice President since 1-1-97
William C. Fralick, 45 Security National Bank and Trust Co.
Vice President Vice President since 12-31-84
President since 1-1-97
Glenda S. Greenwood, 44 Security National Bank and Trust Co.
Vice President Director of Marketing since 12-29-80
Vice President since 1-1-97
Daniel M. O'Keefe, 55 Security National Bank and Trust Co.
Vice President Vice President/Trust Officer since 1-80
</TABLE>
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by
reference to the registrant's 2000 Proxy Statement.
-20-
<PAGE> 21
PART III
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by
reference to the Registrant's 2000 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by
reference to the Registrant's 2000 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
a) Document filed as part of the report
1. FINANCIAL STATEMENTS
The following consolidated financial statements and
report of independent auditors of Security Banc
Corporation, included in the 1999 Annual Report to
its shareholders for the year ended December 31, 1999
are incorporated by reference in Item 8.
Report of Independent Auditors
Consolidated Statement of Condition, December 31,
1999 and 1998
Consolidated Statement of Income for the Years Ending
December 31, 1999, 1998, and 1997
Consolidated Statement of Shareholders' Equity for
the Years Ending December 31, 1999, 1998, and 1997
Consolidated Statement of Cash Flows for the Years
Ending December 31, 1999, 1998, and 1997
Notes to Consolidated Financial Statements
-21-
<PAGE> 22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONT'D)
a) Document filed as part of the report
2. Schedules to the consolidated financial statements required
by Article 9 of Regulation S-X are not required under the
related instructions or are inapplicable, and therefore have
been omitted.
(b) Reports on Form 8-K - None
(c) Exhibits
13 - Security Banc Corporation 1999 Annual Report
23 - Consent of Independent Auditors
27 - Financial Data Schedule
(d) Financial Statement Schedules - None
Security Banc Corp. has the following subsidiaries:
1. Security National Bank and Trust Co.
2. Citizens National Bank
3. Third Savings and Loan Company
-22-
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SECURITY BANC CORPORATION
-------------------------
(Registrant)
By /s/ Harry O. Egger
------------------------------------------------
Harry O. Egger, Chairman of the Board and Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ Chet L. Walthall /s/ Robert A. Warren
- ---------------------------------------- ------------------------------------
Director, Chet L. Walthall 3-21-00 Director, Robert A. Warren 3-21-00
/s/ Karen E. Nagle /s/ Thomas J. Veskauf
- ---------------------------------------- ------------------------------------
Director, Karen E. Nagle 3-21-00 Director, Thomas J. Veskauf 3-21-00
/s/ Vincent J. Demana /s/ Larry D. Ewald
- ---------------------------------------- ------------------------------------
Director, Vincent J. Demana 3-21-00 Director, Larry D. Ewald 3-21-00
/s/ Larry E. Kaffenbarger /s/ Richard E. Kramer
- ---------------------------------------- ------------------------------------
Director, Larry E. Kaffenbarger 3-21-00 Director, Richard E. Kramer 3-21-00
/s/ William C. Fralick /s/ James R. Wilson
- ---------------------------------------- ------------------------------------
William C. Fralick 3-21-00 Director, James R. Wilson 3-21-00
Vice President Security Banc Corporation
/s/ Harry O. Egger /s/ Scott A. Gabriel
- ---------------------------------------- ------------------------------------
Harry O. Egger 3-21-00 Director, Scott A. Gabriel 3-21-00
Chairman of the Board, President and CEO
/s/ J. William Stapleton
------------------------------------
J. William Stapleton 3-21-00
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ Thomas L. Miller
- ----------------------------------------
Thomas L. Miller 3-21-00
Vice President/Controller Security
National Bank
-23-
<PAGE> 1
EXHIBIT 13
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
From time to time, the Corporation may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, new banking and financial service products and similar matters. The
Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. In order to comply with the terms of the safe
harbor, Corporation notes that a variety of factors could cause its actual
results and experiences to differ materially from the anticipated results or
other expectations expressed in its forward-looking statements. These risks and
uncertainties include, without limitation, changes in interest rates,
developments in the economies served by the Corporation, changes in anticipated
credit quality trends and changes in accounting, tax or regulatory practices or
requirements.
In the following pages, the analysis of the financial condition and results of
operations in 1999 compared to prior years is discussed by Management. The data
presented in this discussion should be read in conjunction with the 1999 audited
financial statements of the report. Management is committed to the improvement
of return on average assets, return on average equity and the efficiency ratio.
1999 brought about many changes which will allow management to continue to
achieve above average ratios for the industry.
RESULTS OF OPERATIONS SUMMARY
Net income in 1999 was $17,018,000. Net income has steadily increased in each of
the previous five (5) years. Net income in 1999 was $17,018,000 compared to net
income in 1998 of $15,620,000 and in 1997 of $14,488,000. Net income for 1999
increased $1,398,000 or nine percent (9%) over 1998. Basic earnings per share
was $1.40 in 1999, $1.29 in 1998, and $1.20 in 1997, whereas diluted earnings
per share was $1.39, $1.28, and $1.19, respectively.
Total assets grew eleven percent (11%) in 1999 to $976,411,000. Security Banc
Corporation continued its record performance with a 1999 return on average
assets of one point seventy-eight percent (1.78%) and a return on average
shareholder equity of fourteen point eighteen percent (14.18%). The Corporation
has continued to increase cash dividends paid to our shareholders. Cash
dividends paid in 1999 were $.55 per share, compared to $.495 per share in 1998.
Market price per share at December 31, 1999 was $28.50. Financial summary (Table
1) recaps these measures.
<PAGE> 2
<TABLE>
Table 1: Financial Summary
Five Years Ended December 31
<CAPTION>
(000's, except per share and ratio data) 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest and Fee Income ..................... $ 68,718 $ 64,034 $ 62,778 $ 51,891 $ 49,706
Interest Expense ............................ 27,684 24,195 24,903 19,311 18,003
-------- -------- -------- -------- --------
Net Interest Income ......................... 41,034 39,839 37,875 32,580 31,703
Provision for Loan Losses ................... 1,200 1,540 1,300 1,875 950
Investment Securities Gains ................. 170 430 217 362 10
All Other Operating Income .................. 8,363 8,059 6,887 5,531 5,200
Operating Expense ........................... 23,548 22,974 22,729 18,021 18,079
-------- -------- -------- -------- --------
Income Before Income Taxes .................. 24,819 23,814 20,950 18,577 17,884
Provision for Income Tax .................... 7,801 8,194 6,462 5,190 5,177
-------- -------- -------- -------- --------
Net Income .................................. $ 17,018 $ 15,620 $ 14,488 $ 13,387 $ 12,707
Per Share
Basic Earnings .............................. $ 1.40 $ 1.29 $ 1.20 $ 1.11 $ 1.06
Diluted Earnings ............................ $ 1.39 $ 1.28 $ 1.19 $ 1.10 $ 1.05
Cash Dividends Declared and Paid ............ $ .55 $ 0.495 $ 0.445 $ 0.405 $ 0.365
Year-end Book Value ......................... $ 9.85 $ 9.71 $ 8.96 $ 8.33 $ 7.50
Year-end Market Price ....................... $ 28.50 $ 46.00 $ 27.25 $ 19.00 $ 14.25
Selected Year-ended Information
Total Assets ................................ $976,411 $883,500 $839,605 $816,334 $676,106
Investment Securities ....................... 214,303 167,324 149,179 190,983 183,861
Loans ....................................... 653,025 616,942 562,005 540,768 396,570
Deposits .................................... 696,546 708,853 677,391 667,035 555,844
Noninterest Bearing Demand Deposits ......... 129,127 131,285 119,373 107,913 112,002
Interest Bearing Demand Deposits ............ 134,864 148,462 129,351 122,996 97,422
Time Deposits ............................... 275,567 274,230 277,548 281,973 219,057
Savings ..................................... 156,988 154,876 151,119 154,153 127,363
Shareholders' Equity ........................ 119,122 118,129 108,736 100,794 90,237
Cash Dividends Paid ......................... 6,690 6,013 5,394 4,545 3,740
Net Income .................................. $ 17,018 $ 15,620 $ 14,488 $ 13,387 $ 12,707
Weighted Average Common Shares
Outstanding ................................. 12,165 12,144 12,118 12,058 12,026
Ratios
Return on Average Assets .................... 1.78% 1.85% 1.75% 1.92% 1.95%
Return on Average Equity .................... 14.18% 13.69% 13.92% 14.18% 14.91%
Efficiency Ratio ............................ 46.32% 46.56% 48.86% 46.70% 44.89%
Total Capital to Total Risk Based Assets .... 18.23% 19.63% 20.04% 19.74% 20.98%
Net Interest Margin (Tax Equivalent Basis) .. 4.79% 5.18% 5.07% 5.21% 5.46%
</TABLE>
<PAGE> 3
NET INTEREST INCOME
A major share of the Corporation's income results from the spread between income
on interest earning assets, such as loans and securities, and the interest
expense on liabilities (deposits) used to fund those assets. The difference
between interest earned and interest expensed is referred to as net interest
income in the Consolidated Statement of Income. Net interest income is affected
by changes in both interest rates and the amount (volume) of interest earning
assets and interest bearing liabilities outstanding. Net interest margin on
interest earning assets is the amount earned on assets, on a taxable equivalent
basis, divided by the average earning assets outstanding.
Table II, entitled Average Balance Sheets and Analysis of Net Interest Income,
compares the changes in revenue and interest earning assets outstanding, and
interest cost and liabilities outstanding for the years ended December 31, 1999,
1998, and 1997.
The Corporation's net interest income on a taxable equivalent basis was
$41,741,000, $40,241,000 and $38,730,000 in 1999, 1998, and 1997 respectively.
Total average earning assets increased to $870,718,000 in 1999, compared to
$777,336,000 in 1998, and $763,438,000 in 1997. Earning assets are total loans,
total securities, interest bearing deposits with other banks and federal funds
sold. Average total loans increased to $634,502,000 while average securities
increased to $215,517,000. Average federal funds sold and interest bearing
deposits with other banks decreased to $20,699,000.
Total average interest bearing liabilities were $700,388,000 in 1999. Average
total interest bearing deposits were $567,936,000 for 1999 compared to
$567,120,000 for 1998. Average CDs >$100,000 for 1999 increased to $45,257,000
from $44,146,000 while CDs <$100,000 for 1999 decreased to $222,122,000 from
$230,815,000. Average NOW, Money Fund, and Savings increased to $84,951,000,
$58,877,000, $156,729,000 respectively Other borrowed money averages for 1999
increased to $132,452,000 from $37,738,000.
Average earning assets of $870,718,000 in 1999 contributed a tax equivalent
interest income of $69,425,000 with a yield of seven point ninty-seven percent
(7.97%). Average earning assets for 1998 contribute a tax equivalent interest
yield of eight point twenty-nine percent (8.29%). Principally the decreased
yield on average earning assets was attributed to decreased rates in the loan
portfolio, as well as decreasing yields in the federal funds sold.
Average interest bearing liabilities of $700,388,000 in 1999 contributed
interest expense of $27,684,000 with an average rate of 3.95% compared to the
prior year of 4.00%. Rates for average total interest bearing deposits continued
to decrease to an average rate of 3.75% compared to 3.96% for the prior year.
Table III, entitled Analysis of Net Interest Income Changes, translates the
dollar changes in taxable equivalent net interest margin into (1) changes due to
volume or (2) changes due to average yields on interest earning assets and
average rates for sources of funds on which interest expense is incurred. Net
interest income increased on a tax equivalent basis from $40,241,000 to
$41,741,000 or an increase of $1,502,000. The majority of this increase was
largely due to an increase in volume when compared to 1998. The increase in
volume of average earning assets from $777,336,000 to $870,718,000 when coupled
with the decrease in general interest rates from 8.29% to 7.97% increased total
interest income to $69,425,000. Additional volume was required with declining
rates to achieve the increase in interest income.
Rates for interest expense decreased from 4.00% to 3.95% and when coupled with
the increased volume of interest bearing liabilities from $604,858,000 to
$700,388,000, this increased total interest expense for the Corporation to
$27,684,000. Comparing current year volumes and rates with previous year volume
and rates, the Corporation experienced an increase in net interest income of
$1,502,000.
<PAGE> 4
OTHER OPERATING INCOME
Other operating income is comprised of trust income, service charges on deposit
accounts, security gains, and other items of income not directly resulting from
interest earning assets. These items comprise safe deposit box fees, exchange
and collection fees, investor service fees, gain (loss) on the sale of loans and
miscellaneous other income. Total other operating income for the Corporation is
$8,533,000 for 1999 compared to $8,489,000 for 1998.
Trust income increased $175,000 to $2,011,000. Service charges on deposit
accounts increased to $3,215,000 from $3,149,000 while other income increased to
$3,137,000 from $3,074,000.
The Corporation realizes the importance of increasing other operating income
which will compliment the improvement of the overall efficiency ratio.
It's important for the Corporation to continue to work on improving its
efficiency ratio which will lead to the improved ratio for return on average
assets and return on average equity.
(Make these bar graphs, see annual report)
Graph -- Net Income
Thousands
1999 1998 1997 1996 1995
$17,018 $15,620 $14,488 $13,387 $12,707
Graph -- Return on Average Assets
1999 1998 1997 1996 1995
1.78% 1.85% 1.75% 1.92% 1.95%
Graph -- Efficiency Ratio
1999 1998 1997 1996 1995
46.32% 46.56% 48.86% 46.70% 44.89%
<PAGE> 5
<TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF STATISTICAL INFORMATION
TABLE II: AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST INCOME FOR THE YEARS
ENDED DECEMBER 31. (TAX EQUIVALENT BASIS)
<CAPTION>
1999 1998 1997
--------------------------- -------------------------- ----------------------------
(000's) Balance Interest Yield Balance Interest Yield Balance Interest Yield
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning Assets
Loans (1)
Commercial 2) ............ $303,639 $26,375 8.69% $268,687 $24,303 9.05% $234,195 $21,422 9.15%
Real Estate 3) ........... 243,541 19,306 7.93% 225,609 19,395 8.60% 214,612 18,329 8.54%
Consumer 3) .............. 87,322 8,750 10.02% 92,228 9,474 10.27% 101,125 10,533 10.42%
-------- ------- ----- -------- ------- ----- -------- ------- -----
Total Loans .............. $634,502 $54,431 8.58% 586,524 53,172 9.07% 549,932 50,284 9.14%
Investment Securities
Taxable .................. 188,891 12,060 6.38% 133,188 7,739 5.81% 160,144 9,350 5.84%
Tax-exempt ............... 26,626 1,858 6.98% 11,313 923 8.16% 19,056 2,109 11.07%
-------- ------- ----- -------- ------- ----- -------- ------- -----
Total securities ......... 215,517 13,918 6.46% 144,501 8,662 5.99% 179,200 11,459 6.39%
Federal funds sold
and interest bearing
deposits with other
banks .................. 20,699 1,076 5.20% 46,311 2,602 5.62% 34,306 1,890 5.51%
-------- ------- ----- -------- ------- ----- -------- ------- -----
Total earning assets ........ 870,718 69,425 7.97% 777,336 64,436 8.29% 763,438 63,633 8.34%
Nonearning assets
Allowance for loan
losses ................. (6,863) (6,887) (6,712)
Cash and due from
banks................... 40,686 30,686 29,297
Premises, equipment
and other assets........ 50,412 45,337 43,282
-------- -------- --------
Total assets................... $954,953 $846,472 $829,305
======== ======== ========
LIABILITIES
Interest bearing
liabilities
Deposits
NOW ...................... $ 84,951 $ 1,505 1.77% $ 81,793 $ 1,479 1.81% $ 76,854 $ 1,425 1.85%
Money Fund................ 58,877 2,301 3.91% 56,825 2,336 4.11% 59,874 2,545 4.25%
Savings................... 156,729 4,070 2.60% 153,541 3,897 2.54% 153,544 3,956 2.58%
Time Deposits
CD's greater than 100,000.. 45,257 2,310 5.10% 44,146 2,362 5.35% 40,772 2,214 5.43%
CD's less than 100,000..... 222,122 11,101 5.00% 230,815 12,394 5.37% 235,298 12,763 5.42%
-------- ------- ----- -------- ------- ----- -------- ------- -----
Total interest
bearing deposits........ 567,936 21,287 3.75% 567,120 22,468 3.96% 566,342 22,903 4.04%
Other Borrowed Money......... 132,452 6,397 4.83% 37,738 1,727 4.58% 40,290 2,000 4.96%
-------- ------- ----- -------- ------- ----- -------- ------- -----
Total interest bearing
liabilities............... 700,388 27,684 3.95% 604,858 24,195 4.00% 606,632 24,903 4.11%
Noninterest bearing
demand deposits........... 128,052 121,441 111,391
Other liabilities.......... 6,522 6,085 7,222
Shareholders' equity....... 119,991 114,088 104,060
-------- -------- --------
Total liabilities and
Shareholders' equity........ $954,953 $846,472 $829,305
======== ======== ========
Net interest income and..... 41,741 40,241 38,730
Interest rate spread...... 4.02% 4.29% 4.23%
----- ----- -----
Net interest margin
(tax equivalent basis).... 4.79% 5.18% 5.07%
----- ----- -----
</TABLE>
Footnote:
1) Nonaccrual loans are included in average loan balances and loan fees are
included in interest income.
2) Interest income on tax-exempt investments and on certain tax-exempt
commercial loans has been adjusted to a taxable equivalent basis using a
marginal federal income tax rate of thirty-five percent (35%).
3) For Management Discussion and Analysis, home equity loan averages are
included in the consumer loan portfolio as opposed to the real estate loan
portfolio.
<PAGE> 6
<TABLE>
TABLE III: ANALYSIS OF NET INTEREST INCOME CHANGES
(TAX EQUIVALENT BASIS)
<CAPTION>
1999 Compared to 1998 1998 Compared to 1997
------------------------------------ ----------------------------------
Yield/ Yield/
(000's) Volume Rate Mix Total Volume Rate Mix Total
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase(Decrease) in Interest Income
Loans
Commercial .......................... $ 3,161 $ (964) $(125) $ 2,072 $ 3,155 $(239) $(35) $ 2,881
Real Estate ......................... 1,542 (1,511) (120) (89) 939 121 6 1,066
Consumer ............................ (504) (232) 12 (724) (927) (145) 13 (1,059)
------- ------- ----- ------- ------- ----- ---- -------
Total loans ........................... 4,199 (2,707) (233) 1,259 3,167 (263) (16) 2,888
Investment Securities
Taxable ............................. 3,237 765 320 4,322 (1,574) (45) 8 (1,611)
Tax-exempt .......................... 1,249 (134) (181) 934 (857) (554) 225 (1,186)
------- ------- ----- ------- ------- ----- ---- -------
Total securities ...................... 4,486 631 139 5,256 (2,431) (599) 233 (2,797)
Federal funds sold and securities
purchased under agreements to
resell .............................. (1,439) (195) 108 (1,526) 661 37 13 711
------- ------- ----- ------- ------- ----- ---- -------
Total interest income change .............. 7,246 (2,271) 14 4,989 1,397 (825) 230 802
Increase (Decrease) In Interest Expense
Interest bearing liabilities
Deposits
NOW ................................. 57 (30) (1) 26 92 (35) (2) 55
Money Fund .......................... 84 (115) (4) (35) (130) (84) 4 (210)
Savings ............................. 81 90 2 173 0 (59) 0 (59)
Time Deposits
CD's greater than 100,000 ......... 59 (109) (3) (53) 183 (33) (3) 147
CD's less than 100,000 ............ (467) (859) 32 (1,294) (243) (128) 2 (369)
------- ------- ----- ------- ------- ----- ---- -------
Total interest bearing deposits ........... (186) (1,023) 26 (1,183) (98) (339) 1 (436)
Other borrowed money .................. 4,334 96 240 4,670 (127) (156) 10 (273)
------- ------- ----- ------- ------- ----- ---- -------
Total interest expense change ............. 4,148 (927) 266 3,487 (225) (495) 11 (709)
Increase(Decrease) in net interest
income on a Taxable Equivalent
Basis ............................. $ 3,098 $(1,344) $(252) $ 1,502 $ 1,622 $(330) $219 $ 1,511
(Decrease) Increase in Taxable
Equivalent Basis .................. (307) 453
------- -------
Net Interest Income Change ............ $ 1,195 $ 1,964
</TABLE>
OPERATING EXPENSES
The Corporation recognizes the importance of a low efficiency ratio. Low
efficiency ratios indicate the success of the Corporation in controlling
operating expenses; such as salaries, equipment expenses, and other operating
expenses. These expenses are generally measured using the term "Efficiency
Ratio" which is operating expenses divided by the sum of net interest income
plus other operating income. The Corporation's efficiency ratio as of December
31, 1999 was 46% as compared to December 31, 1998 of 47%. This indicates that it
costs the Corporation 46 cents for each dollar of revenue earned before taxes.
The Corporation continues to implement cost saving procedures such as expanding
the use of technology such as networking and on-line teller systems. Efficiency
ratios for peer Banks with asset size distribution from $100 million to $1
billion had an efficiency ratio of 60%, whereas, the efficiency ratio for all
banks located in the Central Region had an efficiency ratio of 58.5%. The
Central Region is defined as Wisconsin, Michigan, Illinois, Indiana, Ohio, and
Kentucky. As the Corporation continues to improve its measure of cost control,
this ratio will continue to decrease. The efficiency ratios for Security
National, Citizens National, and Third Savings and Loan were 46%, 55%, and 47%,
respectively. Overall employment was 323 employees with total salary and
benefits of $12,255,000. Amortization of intangibles was $667,000 as a result of
the Corporation's previous acquisitions. Equipment and occupancy for 24 banking
offices totaled $2,682,000 while other operating expenses were $7,944,000. Other
operating expenses are detailed in the following table:
<PAGE> 7
<TABLE>
OTHER OPERATING EXPENSES
<CAPTION>
000's
- -----------------------------------------------------------
1999 1998
---- ----
<S> <C> <C>
Marketing $ 387 $ 479
Community Donations 169 148
Directors' Fees 212 175
FDIC Insurance 194 185
Appraisals 141 284
Loan and Credit Information 179 358
Exam Fees 296 314
Insurance Premiums 169 190
Legal Fees 214 231
State of Ohio Franchise Tax 984 1,163
Computer Services 1,599 1,325
Forms and Supplies 621 605
Postage and Delivery 578 563
Communications 407 322
Aggregate Other Expense 1,794 2,079
----- -----
$7,944 $8,421
</TABLE>
<PAGE> 8
LOANS
Total average commercial loans increased thirteen percent (13%) to $303,639,000
in 1999 yielding an average rate of eight point sixty-nine percent (8.69%).
Average real estate loans increased eight percent (8%) to $243,541,000, yielding
an average rate of seven point ninty-three percent (7.93%). Average consumer
loans decreased five point three percent (5.3%) to $87,322,000, yielding an
average rate of ten point zero two percent (10.02%).
Total average loans increased to $634,502,000 from $586,524,000 or 8%. This
increase reflected loan growth primarily in commercial loans and real estate
loans partially offset by the decrease in the consumer portfolio. Loans secured
by real estate represented 39% or $254,854,000 of total loans outstanding,
whereas, commercial loans represented 49% or $321,782,000 as of December 31,
1999.
The Corporation provides, as expense, an amount which reflects expected loan
losses. This provision is based on the growth of the loan portfolio, local
economic conditions, and on recent loan loss experience and is called the
provision for loan losses in the Consolidated Statement of Income. Actual losses
on loans are charged against the reserve built up on the Consolidated Statement
of Condition through the allowance for loan losses. The amount of loans actually
removed as assets from the Consolidated Statement of Condition is referred to as
charge-offs. Netting out recoveries on previously charged-off assets with
current year charge-offs provides net charge-offs.
Net charge-offs in 1999 increased to $1,155,000 from $911,000 in 1998. The
provision for loan losses was $1,200,000 in 1999 and $1,540,000 in 1998. The
allowance for loan losses at December 31, 1999 was equivalent to one point zero
seven percent (1.07%) of loans outstanding.
The following table presents loan loss data for the most recent five (5) year
period.
<TABLE>
RESERVE FOR LOAN LOSSES FIVE YEAR HISTORY
<CAPTION>
(000's) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at Jan. 1 ........... $ 6,883 $ 6,254 $ 6,827 $ 5,336 $ 5,101
Acquired allowance .......... 0 0 0 1,285 0
Adjustments ................. 36 0 0 0 0
Provision for loan losses ... 1,200 1,540 1,300 1,875 950
Loans charged off ........... (1,507) (2,106) (2,188) (1,963) (1,077)
Recoveries of loans
previously charged off .. 352 1,195 315 294 362
-------- -------- -------- -------- --------
Balance at Dec. 31 .......... $ 6,964 $ 6,883 $ 6,254 $ 6,827 $ 5,336
Loans outstanding
at Dec. 31 .............. $653,025 $616,942 $562,005 $540,768 $396,570
Reserve as a
percent of loans ........ 1.07% 1.11% 1.11% 1.26% 1.35%
Net loan losses to
average loans ........... 0.18% 0.16% 0.34% 0.39% 0.18%
</TABLE>
<PAGE> 9
INTEREST RATE RISK AND LIQUIDITY MANAGEMENT
INTEREST RATE RISK MANAGEMENT
The Company seeks to achieve consistent growth in net interest income and net
income while managing volatility arising from shifts in interest rates. The
Asset and Liability Management Committee (ALCO) oversees financial risk
management, establishing broad policies and specific operating limits that
govern a variety of financial risks inherent in the Company's operations,
including interest rate, liquidity, and market risks. Balance sheet strategies
are reviewed and monitored regularly by ALCO to ensure consistency with approved
risk tolerances.
Interest rate risk management is a dynamic process, encompassing both the
business flows onto the balance sheet and the changing market and business
environment. Interest rate risk by definition is the risk of decreased net
interest income whenever there are movements in market interest rates. Effective
management of interest rate risk begins with investments and funding sources.
Measurement and monitoring of interest rate risk is an ongoing process. A key
element in this process is the Company's estimation of the amount that net
interest income will change over a twelve to twenty-four month period given a
directional shift in interest rates. The income simulation model used by the
Company captures all assets and liabilities, accounting for significant
variables, which are believed to be affected by interest rates. These include
prepayment speeds on real estate mortgages and consumer installment loans,
principal amortization and maturities on other financial instruments. The model
captures embedded options, e.g. interest rate caps/floors or call options, and
accounts for changes in rate relationships, as various rate indices lead or lag
changes in market rates. While these assumptions are inherently uncertain,
management utilizes probabilities and, therefore, believes that the model
provides an accurate estimate of the interest rate risk exposure. Management
reporting of this information is shared with the Board of Directors.
The results of the Company's most recent interest sensitivity analysis indicated
that net interest income would be relatively unchanged by a 100 basis points
increase or decrease in rate (assuming the change occurs evenly over the next
year and that corresponding changes in other market rates occur as forecasted).
Net interest income would be expected to decrease 4.6% if rates were to fall 200
basis points. Net interest income would be expected to increase .91% if rates
were to rise 200 basis points.
LIQUIDITY MANAGEMENT
Liquidity Management is also a significant responsibility of ALCO. The objective
of ALCO in this regard is to maintain an optimum balance of maturities among
assets and liabilities such that sufficient cash, or access to cash, is
available at all times to meet the needs of borrowers, depositors, and
creditors, as well as to fund corporate expansion and other activities without
incurring unacceptable losses.
A chief source of liquidity is derived from the retail deposit base accessible
by its network of branches. While liability sources are many, significant
liquidity is available from the Company's investment portfolio, loan portfolio,
and borrowing lines from the Federal Home Loan Bank. ALCO regularly monitors the
overall liquidity position of the business and ensures that various alternative
strategies exist to cover unanticipated events. At December 31, 1999, sufficient
liquidity was available to meet estimated short-term and long term funding
needs.
<PAGE> 10
MARKET INFORMATION
Security Banc Corporation stock (symbol STYB) is traded in the over-the-counter
market. The following table sets forth the prices for the common stock during
the periods indicated.
<TABLE>
<CAPTION>
1999 1998
------------------------- --------------------------
QUARTER ENDED HIGH BID LOW BID CLOSE HIGH BID LOW BID CLOSE
<S> <C> <C> <C> <C> <C> <C>
March 31 $46.00 $41.50 $41.50 $28.63 $27.25 $28.63
June 30 $41.50 $34.50 $34.50 $30.50 $28.63 $30.50
September 30 $34.50 $26.50 $27.00 $38.50 $30.50 $38.50
December 31 $29.00 $27.50 $28.50 $46.00 $38.50 $46.00
</TABLE>
As of December 31, 1999, the Corporation had 2,108 shareholder accounts of
record. Cash dividends paid per share were $0.55.
<PAGE> 11
<TABLE>
QUARTERLY INFORMATION
<CAPTION>
First Second Third Fourth
(000's) except per share data Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------
1999
- ----
<S> <C> <C> <C> <C>
Interest and fee income ...... $16,628 $17,155 $17,345 $17,590
Interest expense ............. 6,496 6,729 7,120 7,339
------- ------- ------- -------
Net interest income .......... 10,132 10,426 10,225 10,251
Provision for loan losses .... 300 300 300 300
Investment securities gains .. 20 21 73 56
All other income ............. 1,964 2,023 2,110 2,266
Operating expense ............ 5,791 5,698 5,748 6,311
------- ------- ------- -------
Income before income taxes ... 6,025 6,472 6,360 5,962
Provision for income tax ..... 1,964 2,119 2,092 1,626
------- ------- ------- -------
Net income ................... $ 4,061 $ 4,353 $ 4,268 $ 4,336
Per Share
Basic Earnings Per Share ..... 0.33 0.36 0.35 0.36
Diluted Earnings Per Share ... 0.33 0.36 0.35 0.36
Cash Dividends Paid .......... 0.13 0.13 0.13 0.16
Market Price ...................... 41.50 34.50 27.00 28.50
<CAPTION>
1998
- ----
Interest and fee income....... $15,693 $16,029 $16,172 $16,140
Interest expense.............. 5,982 6,052 6,107 6,054
------- ------- ------- -------
Net interest income........... 9,711 9,977 10,065 10,086
Provision for loan losses..... 200 200 870 270
Other operating income
Investment securities gains... 44 42 247 97
All other income.............. 1,830 1,990 1,997 2,242
Operating expense............. 5,744 5,720 5,770 5,740
------- ------- ------- -------
Income before income taxes.... 5,641 6,089 5,669 6,415
Provision for income tax...... 1,924 2,086 1,971 2,213
------- ------- ------- -------
Net Income.................... 3,717 4,003 3,698 4,202
Per Share
Basic Earnings Per Share...... 0.305 0.33 0.30 0.35
Diluted Earnings Per Share.... 0.305 0.33 0.30 0.34
Cash Dividends Paid........... 0.105 0.12 0.12 0.15
Market Price.............. 28.63 30.50 38.50 46.00
</TABLE>
TOTAL CAPITAL (BAR GRAPH) (See Annual Report)
(Thousands)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C>
119,122 $118,129 $108,736 $100,794 $90,237
</TABLE>
<PAGE> 12
IMPACT OF YEAR 2000
In prior years, the Corporation discussed the nature and progress of its plans
to become Year 2000 ready. In late 1999, the Corporation completed its
remediation and testing of systems. As a result of those planning and
implementation efforts, the Corporation experienced no significant disruptions
in mission critical information technology and non-information technology
systems and believes those systems successfully responded to the Year 2000 date
change. The Corporation is not aware of any material problems resulting from
Year 2000 issues, either with its products, its internal systems, or the
products and services of third parties. The Corporation will continue to monitor
its mission critical computer applications and those of its suppliers and
vendors throughout the year 2000 to ensure that any latent Year 2000 matters
that may arise are addressed promptly.
<PAGE> 13
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
Board of Directors
Security Banc Corporation
We have audited the accompanying consolidated statement of condition of
Security Banc Corporation and subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of income, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of Security Banc Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Security Banc
Corporation and subsidiaries at December 31, 1999 and 1998, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
Columbus, Ohio
January 11, 2000
<PAGE> 14
<TABLE>
CONSOLIDATED STATEMENT OF CONDITION
AS OF DECEMBER 31, 1999 AND 1998 (000's)
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks ........................... $ 50,216 $ 34,052
Federal funds sold ................................ 10,010 21,350
-------- --------
Total cash and cash equivalents ........ 60,226 55,402
Interest bearing deposits with other banks ........ 1,560 2,700
Investments (Market value $212,411 in 1999) ... 214,303 167,324
(Market value $167,365 in 1998)
LOANS:
Commercial and agriculture .................... 321,782 285,958
Real Estate ................................... 254,854 252,609
Consumer ...................................... 76,389 78,375
-------- --------
Total Loans ............................ 653,025 616,942
Less allowance for loan losses ......... 6,964 6,883
-------- --------
Net Loans ....................... 646,061 610,059
Premises and equipment ............................ 9,292 9,224
Other Assets ...................................... 44,969 38,791
======== ========
TOTAL ASSETS ...................................... $976,411 $883,500
LIABILITIES
Non interest bearing deposits ..................... $129,127 $131,285
Interest bearing demand deposits .................. 134,864 148,462
Savings deposits .................................. 156,988 154,876
Time deposits, $100,000 and over .................. 54,794 44,794
Other time deposits ............................... 220,773 229,436
-------- --------
Total Deposits .................. 696,546 708,853
Federal funds purchased and securities
sold under agreement to repurchase .............. 24,011 28,993
Federal Home Loan Bank term advances .............. 131,372 22,816
Other liabilities ................................. 5,360 4,709
-------- --------
TOTAL LIABILITIES ................................. 857,289 765,371
SHAREHOLDERS' EQUITY
Common Stock ($1.5625 Par Value) .................. 19,800 19,768
authorized 18,000,000 shares
issued 12,671,932 shares, 1999
issued 12,651,812 shares, 1998
Surplus ........................................... 22,302 22,084
Retained Earnings ................................. 90,084 79,756
Accumulated Other Comprehensive Income ............ (7,143) (121)
Less: Treasury Stock ............................. 5,921 3,358
-------- --------
574,932 shares in 1999 and 485,387 shares in 1998
TOTAL SHAREHOLDERS' EQUITY ............................... 119,122 118,129
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............... $976,411 $883,500
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 15
<TABLE>
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997 (000's)
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
INTEREST AND FEE INCOME
Loans ................................................. $ 54,373 $ 53,093 $ 50,168
Interest bearing deposits with other banks ............ 142 227 182
Federal funds sold .................................... 935 2,375 1,707
Investments-taxable ................................... 12,060 7,739 9,350
Investments-tax exempt ................................ 1,208 600 1,371
----------- ----------- -----------
Total Interest and Fee Income ..................... 68,718 64,034 62,778
INTEREST EXPENSE
Deposits of $100,000 and over ......................... 2,310 2,362 2,214
Other Deposits ........................................ 18,977 20,106 20,689
Federal funds purchased and securities
sold under agreement to repurchase .................. 976 1,151 1,124
Federal Home Loan Bank term advances .................. 5,375 522 820
Demand notes to U. S. Treasury ........................ 46 54 56
----------- ----------- -----------
Total Interest Expense ............................ 27,684 24,195 24,903
----------- ----------- -----------
NET INTEREST INCOME .......................................... 41,034 39,839 37,875
Provision for loan losses ............................. 1,200 1,540 1,300
----------- ----------- -----------
Net interest income after provision for loan losses ... 39,834 38,299 36,575
OTHER OPERATING INCOME
Trust income .......................................... 2,011 1,836 1,616
Service charges on deposit accounts ................... 3,215 3,149 2,958
Securities gains ...................................... 170 430 217
Other income .......................................... 3,137 3,074 2,313
----------- ----------- -----------
Total Other Operating Income ...................... 8,533 8,489 7,104
OPERATING EXPENSE
Salaries and employee benefits ........................ 12,255 11,224 11,005
Equipment and occupancy, net .......................... 2,682 2,656 2,785
Amortization of intangibles ........................... 667 673 752
Other operating expense ............................... 7,944 8,421 8,187
----------- ----------- -----------
Total Operating Expense ........................... 23,548 22,974 22,729
----------- ----------- -----------
INCOME BEFORE INCOME TAXES ................................... 24,819 23,814 20,950
Provision for income tax .............................. 7,801 8,194 6,462
----------- ----------- -----------
NET INCOME ........................................ $ 17,018 $ 15,620 $ 14,488
=========== =========== ===========
PER SHARE DATA (WHOLE DOLLARS)
Basic earnings ........................................ $ 1.40 $ 1.29 $ 1.20
Diluted earnings ...................................... $ 1.39 $ 1.28 $ 1.19
Cash dividends ........................................ $ 0.550 $ 0.495 $ 0.445
Weighted average shares outstanding .......................... 12,165,146 12,143,743 12,117,526
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 16
<TABLE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1999, 1998, and 1997 (000's)
<CAPTION>
Accumulated
Other
Common Retained Treasury Comprehensive Comprehensive
Stock Surplus Earnings Stock Income Total Income
----- ------- -------- ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 .................... $19,658 $21,670 $62,557 ($3,193) $ 102 $100,794
Net income ................................. 0 0 14,488 0 0 14,488 $14,488
Dividend distributions ..................... 0 0 (6,896) 0 0 (6,896)
Exercise of stock options .................. 49 161 0 0 0 210
Net unrealized gains on securities
available for sale net
of income taxes of $75 .................... 0 0 0 0 140 140 $ 140
--------
Total comprehensive income ........... $14,628
------- ------- ------- ------- ------- -------- ========
Balance at December 31, 1997 .................. $19,707 $21,831 $70,149 ($3,193) $ 242 $108,736
Net income ................................. 0 0 15,620 0 0 15,620 $15,620
Cash Dividends ............................. 0 0 (6,013) 0 0 (6,013)
Exercise of stock options .................. 61 253 0 0 0 314
Purchase of treasury stock ................. 0 0 0 (165) 0 (165)
Net unrealized losses on securities
available for sale net
of income taxes of $195 ................... 0 0 0 0 (363) (363) ($ 363)
--------
Total comprehensive income ........... $15,257
------- ------- ------- ------- ------- -------- ========
Balance at December 31, 1998 .................. $19,768 $22,084 $79,756 ($3,358) ($ 121) $118,129
Net income ................................. 0 0 17,018 0 0 17,018 $17,018
Cash Dividends ............................. 0 0 (6,690) 0 0 (6,690)
Exercise of stock options .................. 32 218 0 0 0 250
Purchase of treasury stock ................. 0 0 0 (2,563) 0 (2,563)
Net unrealized losses on securities
available for sale net
of income taxes of $3,781 ................. 0 0 0 0 (7,022) (7,022) ($ 7,022)
--------
Total comprehensive income ........... $ 9,996
------- ------- ------- ------- ------- -------- ========
Balance at December 31, 1999 .................. $19,800 $22,302 $90,084 ($5,921) ($7,143) $119,122
======= ======= ======= ======= ======= ========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 17
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended December 31, 1999, 1998, and 1997 (000's)
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net Income ............................................... $ 17,018 $ 15,620 $ 14,488
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ...................................... 1,119 1,091 1,049
(Gain)/Loss on sale of the following:
Investment Securities available for sale ........ (170) (430) (217)
Other Assets .................................... 20 (74) (119)
Provision for loan losses ......................... 1,200 1,540 1,300
Amortization and accretion, net ................... (52) (306) (97)
Amortization and core deposit intangible .......... 667 676 752
Change in other operating assets and
liabilities, net ................................ (13,367) (22,948) (14,918)
-------- --------- ---------
Total Adjustments ............................. (10,583) (20,451) (12,250)
-------- --------- ---------
NET CASH PROVIDED (USED IN) BY OPERATING ACTIVITIES ........ 6,435 (4,831) 2,238
Cash Flows from Investing Activities:
Net decrease in interest bearing deposits
with other banks ...................................... 1,140 0 3,902
Proceeds from maturities and sales of investment
securities available for sale ......................... 22,947 142,045 192,329
Proceeds from maturities of investments held to
maturity .............................................. 2,778 9,606 15,414
Purchase of:
Investment securities available for sale ............... (81,882) (147,681) (166,286)
Investment securities held to maturity ................. (1,425) (22,129) (722)
Increase in loans ...................................... (38,556) (55,374) (23,611)
Proceeds from sale of other assets ..................... 13,142 21,602 9,614
Capital expenditures ....................................... (1,182) (1,654) (1,163)
Net cash used in acquisition ............................... 0 0 (1,502)
Purchase of life insurance policies ........................ (837) (2,212) (3,054)
Proceeds from surrender of life insurance policies ......... 0 4 239
-------- --------- ---------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES ........ (83,875) (55,793) 25,160
Cash Flows from Financing Activities:
Net (decrease) increase in demand deposits, NOW accounts
and savings accounts ..................................... (13,644) 34,780 14,784
Net increase (decrease) in certificates of deposit ......... 1,337 (3,318) (4,468)
Net increase (decrease) in short-term borrowed funds ....... 22,670 (11,753) 582
Net increase in other borrowed money ....................... 80,904 16,483 2,759
Net purchase and sale of treasury stock .................... (2,563) (165) 0
Dividends paid ............................................. (6,690) (6,013) (5,394)
Proceeds from exercise of stock options .................... 250 314 210
-------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES ....................... 82,264 30,328 8,473
Net increase (decrease) in cash and cash equivalents ............ 4,824 (30,296) 35,871
Cash and cash equivalents at beginning of year .................. 55,402 85,698 49,827
-------- --------- ---------
Cash and Cash Equivalents at End of Year ........................ $ 60,226 $ 55,402 $ 85,698
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. ORGANIZATION
Security Banc Corporation ("Security" or "the Company") is a bank holding
company headquartered in Springfield, Ohio. The Company's principal
subsidiaries, Security National Bank and Trust Company, Citizens National
Bank, and Third Savings and Loan Company are located in Central Ohio and
are engaged in general commercial banking and trust business and are
operated as one segment.
SUMMARY OF SIGNIFICANT ACCOUNT POLICIES
The accounting and reporting policies of Security are based on generally
accepted accounting principles and conform to general practices within
the banking industry. The following is a description of the significant
accounting policies followed by Security.
CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All material intercompany transactions and balances
have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results could differ
from those estimates.
INVESTMENT SECURITIES
Securities held to maturity and available for sale: Management determines
the appropriate classification of debt securities at the time of purchase
and reevaluates such designation as of each balance sheet date. Debt
securities are classified as held-to-maturity when Security Banc
Corporation has the positive intent and ability to hold the securities to
maturity. Held-to-maturity securities are stated at amortized cost.
Debt securities not classified as held-to-maturity or trading and
marketable equity securities not classified as trading are classified as
available-for-sale. Available-for-sale securities are stated at fair
value, with the unrealized gains and losses, net of tax, reported in a
separate component of shareholders' equity.
The amortized cost of debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion
of discounts to maturity, or in the case of mortgage-backed securities,
over the estimated life of the security. Such amortization is included in
interest income from investments. Interest and dividends are included in
interest income from investments. Realized gains and losses, and declines
in value judged to be other-than-temporary are included in net securities
gains (losses). The cost of securities sold is based on the specific
identification method.
<PAGE> 19
LOANS
Interest income on loans is accrued using the simple interest method
based on the principal amounts outstanding. Loan fees received in excess
of direct costs involved in origination of a loan are amortized over the
estimated loan term. Accrual of interest is discontinued when
circumstances indicate that collection of loan principal is questionable
or when loans meet regulatory non accrual standards.
The company accounts for impaired loans in accordance with Financial
Accounting Standards Board Statement No. 114, "Accounting by Creditors
for Impairment of a Loan". Certain large commercial loans are considered
impaired loans and are reported at the present value of expected future
cash flows using the loan's effective interest rate, or as a practical
expedient, at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is available for loan charge-offs.
The adequacy of the allowance is based on Management's continuous
evaluation of key factors in the loan portfolio with consideration given
to current economic conditions and past charge-off experience.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation of premises and equipment is determined
using the straight-line method over the estimated lives of the respective
assets. Maintenance and repairs are charged to expense as incurred while
renewals and betterments are capitalized.
INCOME TAXES
Certain income and expense items are accounted for in different time
periods for financial reporting purposes than for income tax purposes.
Appropriate provisions are made in the financial statements for deferred
taxes in recognition of these temporary differences.
CASH FLOWS
For purposes of reporting cash flows, cash and cash requirements include
cash on hand, amounts due from banks and federal funds sold. Federal
funds are purchased for one-day periods.
Interest paid by Security in 1999, 1998, and 1997 was $27,397,000,
$24,269,000 and $25,447,000, respectively.
<PAGE> 20
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalent and interest bearing deposits with other banks:
The carrying amounts reported in the balance sheet for cash and short
term instruments approximate those assets' fair values.
Investment Securities: Fair values for investment securities are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
Loans receivable: For variable rate loans that reprice frequently and
with no significant change in credit risk, fair values are based on
carrying values. The fair values for mortgage loans are based on quoted
market prices of similar loans sold in conjunction with securitization
transactions, adjusted for differences in loan characteristics. The fair
values for other loans (e.g., commercial, agricultural and consumer) are
estimated using discounted cash flow analyses, using interest rates
currently being offered for loans with similar terms to borrowers of
similar credit quality. The carrying amount of accrued interest
approximates its fair value.
Off balance sheet instruments: The carrying amounts reported for Security
Banc Corporation's off balance sheet (letters of credit and lending
commitments) approximate those assets' fair value.
Deposit liabilities: The fair values disclosed for demand deposits (e.g.,
interest and non-interest checking, passbook savings, and certain types
of money market accounts) are, by definition, equal to the amount payable
on demand at the reporting date (i.e., their carrying amounts). The
carrying amounts for variable-rate and fixed term money market accounts
approximate their fair values at the reporting date. Fair values for
fixed rate certificates of deposit are estimated using a discounted cash
flow calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly maturities on
time deposits.
Short term borrowings: The carrying amounts of federal funds purchased
and securities sold under agreement to repurchase approximate their fair
values.
Federal Home Loan Bank term advances: For variable rate and short term
advances, fair values are based on carrying values. The fair values for
other advances are estimated using a discounted cash flow calculation
that applies interest rates currently being offered for advances with
similar terms.
<PAGE> 21
EARNINGS PER COMMON SHARE
SFAS No. 128 requires dual presentation of basic and diluted earnings per share
on the face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator of the
basic earnings per share computation to the corresponding amounts of the diluted
earnings per share computation. The computation of earnings per Common Share is
as follows:
<TABLE>
Years ended December 31,
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
EARNINGS APPLICABLE TO COMMON SHARE $17,018,000 $15,620,000 $14,488,000
- -----------------------------------------------------------------------------------------------
BASIC EARNINGS PER SHARE
Weighted Average Common Shares Outstanding 12,165,146 12,143,743 12,117,526
Earnings Applicable to Common Shares $17,018,000 $15,620,000 $14,488,000
Basic Earnings per Share $ 1.40 $ 1.29 $ 1.20
- -----------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE
Weighted Average Common Shares Outstanding 12,165,146 12,143,743 12,117,526
Dilutive Common Stock Options 53,675 83,549 77,366
----------- ----------- -----------
Weighted Average Common Shares and Common Share
Equivalents Outstanding 12,218,821 12,227,292 12,194,892
=========== =========== ===========
Earnings Applicable to Common Shares 17,018,000 $15,620,000 $14,488,000
Diluted Earnings per Share $ 1.39 $ 1.28 $ 1.19
</TABLE>
<PAGE> 22
2. ACQUISITIONS
JEFFERSONVILLE BRANCH
On November 6, 1997, Security National Bank and Trust Co. purchased
certain assets and assumed approximately $11,700,000 in deposit
liabilities of the Jeffersonville Branch from a Bank competitor.
This acquisition allowed Security National to expand its services to
Fayette County. The premium for the above transaction was $944,000 which
will be amortized over a period of 25 years for the portion allocated to
goodwill and 10 years for the portion allocated to Core Deposit
Intangible.
<PAGE> 23
3. RESERVE BALANCE REQUIREMENTS
The Company's subsidiaries are required to maintain certain daily cash
and due from banks reserve balances in accordance with regulatory
requirements. The balances maintained under such requirements were
$13,070,000 at December 31, 1999 and $11,585,000 at December 31, 1998.
<PAGE> 24
4. INVESTMENT SECURITIES
The following table lists the book value and market value of debt
securities and other investments as of December 31.
<TABLE>
<CAPTION>
(000's) 1999
----
Gross Gross
Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Available for Sale Investments
Debt Securities
U. S. Treasury .............................. $ 1,999 $ 0 $ (8) $ 1,991
U. S. Government Agencies and Corporations .. 56,050 0 (2,216) 53,834
Mortgage Backed Securities .................. 131,297 0 (8,823) 122,474
-------- ---- -------- --------
Total Debt Securities .......................... 189,346 0 (11,047) 178,299
Equity Investments ............................. 227 88 0 315
-------- ---- -------- --------
Total Available for Sale Investments ........... 189,573 88 (11,047) 178,614
======== ==== ======== ========
Held to Maturity Investments
Debt Securities
State and Political Subdivisions ............ 25,930 147 (1,982) $ 24,095
Mortgage Backed Securities .................. 1,840 1 (58) 1,783
-------- ---- -------- --------
Total Debt Securities .......................... 27,770 148 (2,040) 25,878
Federal Reserve Stock and Other ............. 7,919 0 0 7,919
-------- ---- -------- --------
Total Held to Maturity Investments ............. $ 35,689 $148 $ (2,040) $ 33,797
======== ==== ======== ========
</TABLE>
The market value of the available for sale investments ($178,614,000)
plus the cost of the held to maturity investments ($35,689,000) is the
total investments carrying value of $214,303,000.
<TABLE>
<CAPTION>
(000's) 1998
----
Gross Gross
Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Available for Sale Investments
Debt Securities
U. S. Treasury ............................... $ 7,464 $ 43 $ (1) $ 7,506
U. S. Government Agencies and Corporations ... 59,697 42 (89) 59,650
Mortgage Backed Securities ................... 67,687 36 (298) 67,425
-------- ---- ----- --------
Total Debt Securities .......................... 134,848 121 (388) 134,581
Equity Securities .............................. 150 79 0 229
-------- ---- ----- --------
Total Available for Sale Investments ........... 134,998 200 (388) 134,810
======== ==== ===== ========
Held to Maturity Investments
Debt Securities
State and Political Subdivisions ............. 26,859 307 (257) 26,909
Mortgage Backed Securities ................... 2,332 14 (23) 2,323
-------- ---- ----- --------
Total Debt Securities .......................... 29,191 321 (280) 29,232
Federal Reserve Stock and Other .............. 3,323 0 0 3,323
-------- ---- ----- --------
Total Held to Maturity Investments ............. $ 32,514 $321 $(280) $ 32,555
======== ==== ===== ========
</TABLE>
The market value of the available for sale investments ($134,810,000)
plus the cost of the held to maturity investments ($32,514,000) is the
total investments carrying value of $167,324,000.
<PAGE> 25
The following tables summarizes the cost and market value of debt
securities at December 31, 1999 and 1998 by contractual maturity.
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations.
<TABLE>
<CAPTION>
(000's) 1999 1998
---- ----
Market Market
Cost Value Cost Value
---- ----- ---- -----
<S> <C> <C> <C> <C>
Available for Sale Investments
Due in one year or less ...................... $ 1,000 $ 1,000 $ 5,967 $ 5,990
Due after one year and through five years .... 57,049 54,825 40,694 40,716
Due after five years and through ten years ... 0 0 20,500 20,450
-------- -------- -------- --------
58,049 55,825 67,161 67,156
Mortgage Backed Securities ................... 131,297 122,474 67,687 67,425
-------- -------- -------- --------
Total available for sale investments ........... $189,346 $178,299 $134,848 $134,581
======== ======== ======== ========
Held to Maturity Investments
Due in one year or less ...................... $ 250 $ 253 $ 2,295 $ 2,303
Due after one year and through five years .... 2,981 3,102 1,543 1,592
Due after five years and through ten years ... 3,211 3,028 2,398 2,631
Due after ten years .......................... 19,488 17,712 20,623 20,383
-------- -------- -------- --------
25,930 24,095 26,859 26,909
Mortgage backed securities ..................... 1,840 1,783 2,332 2,323
-------- -------- -------- --------
Total Held to Maturity Investments ............ $ 27,770 $ 25,878 $ 29,191 $ 29,232
======== ======== ======== ========
</TABLE>
Proceeds from sales of investments available for sale in 1999 were
$398,000. Gross gains on investments available for sale in 1999 were
$170,000. Proceeds from sales of investments available for sale in 1998
were $100,443,000. Gross gains on investments available for sale in 1998
were $430,000. Proceeds from sales of investments available for sale in
1997 were $168,732,000. Gross gains on investments available for sale in
1997 were $243,000. Gross losses recognized on investments available for
sale in 1997 were $30,000.
The following table summarizes investment income for the years ended
December 31.
<TABLE>
<CAPTION>
(000's) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
U. S. Treasury Available for sale ........... $ 216 $4,873 $ 7,965
U. S. Government Agencies and Corporations .. 11,365 2,662 1,204
States and Political Subdivisions ........... 1,208 600 1,371
Federal Reserve stock and other ............. 479 204 181
------- ------ -------
Total ..................................... $13,268 $8,339 $10,721
======= ====== =======
</TABLE>
Securities with a carrying value of $151,733,000 at December 31, 1999,
and $112,963,000 at December 31, 1998, were pledged to secure deposits
and repurchase agreements.
<PAGE> 26
5. LOANS
Loans as of December 31, by various categories are as follows:
<TABLE>
<CAPTION>
(000'S) 1999 1998
---- ----
<S> <C> <C>
Loans secured by real estate:
Construction and land development ................. $ 20,550 $ 22,128
Secured by farmland ............................... 10,167 8,760
Secured by residential properties ................. 277,274 268,850
Secured by nonresidential properties .............. 115,474 86,076
Loans to finance agricultural production .............. 18,940 19,619
Commercial and industrial loans ....................... 125,267 122,244
Loans to individuals for household, family and other .. 81,099 85,812
Tax exempt obligations ................................ 2,572 1,790
Other loans ........................................... 1,641 1,493
Lease financing ....................................... 41 170
-------- --------
TOTAL LOANS ........................................... $653,025 $616,942
======== ========
</TABLE>
Nonperforming loans totaled $4,716,000 and $3,525,000 at December 31,
1999 and 1998 respectively. Nonaccrual loans included in these amounts
totaled $2,162,000 and $2,154,000 at December 31, 1999 and 1998,
respectively. Interest income not recorded on these loans was $247,000 in
1999 and $180,000 in 1998.
The following table presents the aggregate amount of loans outstanding to
directors and executive officers (including their related interests) as
of December 31, 1999 and December 31, 1998, and an analysis of activity
in such loans during 1999. All such loans were made on substantially the
same terms, including interest rates and collateral, as those prevailing
at the same time for comparable transactions with other persons. These
loans do not involve more than normal risk of collectability or any other
unfavorable features.
<TABLE>
<CAPTION>
(000's)
<S> <C>
Balance, December 31, 1998 ........................................... $ 8,965
New loans ........................................................ 12,319
Repayments ....................................................... 12,100
Net increase due to change in director/executive officer status .. 0
-------
Balance, December 31, 1999 ........................................... $ 9,184
=======
</TABLE>
<PAGE> 27
6. ALLOWANCE FOR LOAN LOSSES
A summary of the activity in the allowance for loan losses is shown in
the following table.
<TABLE>
<CAPTION>
(000'S) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance - beginning of year .. $ 6,883 $ 6,254 $ 6,827
Adjustments .................. 36 0 0
Charge-offs ................ (1,507) (2,106) (2,188)
Recoveries ................. 352 1,195 315
------- ------- -------
Net charge-offs .............. (1,155) (911) (1,873)
Provision for loan losses .... 1,200 1,540 1,300
------- ------- -------
Balance - end of year ........ $ 6,964 $ 6,883 $ 6,254
======= ======= =======
</TABLE>
<PAGE> 28
7. PREMISES AND EQUIPMENT
Premises and Equipment as of December 31, are summarized in the following
table.
<TABLE>
<CAPTION>
(000'S) 1999 1998
---- ----
<S> <C> <C>
Land .............................. $ 1,508 $ 1,508
Buildings ......................... 10,485 10,468
Equipment ......................... 10,106 9,844
Construction in process ........... 114 150
------- -------
Total premises and equipment ...... 22,213 21,970
Less: Accumulated depreciation
and amortization .................. 12,921 12,746
------- -------
Net premises and equipment ........ $ 9,292 $ 9,224
======= =======
</TABLE>
<PAGE> 29
8. FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENT TO
REPURCHASE
The following table is a summary of short-term borrowings at December 31:
<TABLE>
<CAPTION>
(000's) 1999 1998
---- ----
<S> <C> <C>
Federal funds purchased ........................ $ 75 $ 0
Securities sold under agreement to repurchase .. 22,575 28,787
Demand note due U. S. Treasury ................. 1,361 206
------- -------
Total .............................. $24,011 $28,993
======= =======
</TABLE>
The following table is a summary of securities pledged against the
securities sold under agreement to repurchase contracts as of December
31:
<TABLE>
<CAPTION>
(000's) 1999 1998
---- ----
Book Market Book Market
<S> <C> <C> <C> <C>
U. S. Government Securities....... $34,058 $31,979 $36,713 $36,694
</TABLE>
<PAGE> 30
9. ADVANCES FROM FHLB
The Company's affiliates are members of the Federal Home Loan Bank
("FHLB").
Federal Home Loan Bank advances to the affiliates of the Company were
$131,372,000 as of December 31, 1999 and $22,816,000 as of December 31,
1998. Advances from the FHLB are used for loan funding and interest rate
matching purposes. Advances are due on various maturity dates through
2009 with adjustable and fixed rates ranging from 4.61% to 7.40%. FHLB
advances are collateralized by each respective affiliate's real estate
loan portfolio.
<PAGE> 31
10. COMMITMENTS AND CONTINGENT LIABILITIES
Security Banc Corporation has various commitments and contingent
liabilities outstanding, such as letters of credit and loan commitments,
that are not reflected in the consolidated financial statements. Letters
of credit commit the Corporation to make payments on behalf of customers
when certain specified future events occur. Loan commitments are made to
accommodate the financial needs of Security Banc Corporation's customers.
These arrangements have credit risk essentially the same as that involved
in extending loans to customers and are subject to Security Banc
Corporation's normal credit policies. Collateral is obtained based on
Management's credit assessment of the customer.
Unfunded loan commitments and unused lines of credit as of December 31,
1999 were $143,063,000. The aggregate amount of outstanding letters of
credit was $2,225,000 at December 31, 1999. No significant losses are
anticipated as a result of these commitments.
<PAGE> 32
11. INCOME TAX
The components of income tax expense are:
<TABLE>
<CAPTION>
(000S) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Federal income taxes currently payable .. $8,267 $8,557 $6,727
Deferred tax provision .................. (466) (363) (265)
------ ------ ------
Total income tax expense ................ $7,801 $8,194 $6,462
====== ====== ======
</TABLE>
A reconciliation of income tax expense at the statutory rate to income
tax expense at the company's effective rate is as follows:
<TABLE>
<CAPTION>
(000S) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Computed tax at the statutory rate ... $8,687 $8,335 $7,332
Tax effect of tax free income and
non-deducible interest expense ..... (422) (288) (711)
Other ................................ (464) 147 (159)
------ ------ ------
Income Tax Expense ................... $7,801 $8,194 $6,462
====== ====== ======
</TABLE>
Income taxes paid were $8,587,000, $8,249,000 and $6,987,000 in 1999,
1998, and 1997 respectively. Income tax expense associated with security
gains was $90,000 in 1999, $150,000 in 1998, and $74,000 in 1997.
Significant components of the Corporation's deferred tax assets and
liabilities exclusive of securities mark to market adjustments at
December 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
DEFERRED ASSETS 1999 1998
---- ----
<S> <C> <C>
Allowance for loan losses ................. $2,368 $2,194
Deferred Compensation ..................... 1,085 685
Other ..................................... 80 80
------ ------
Total deferred assets ..................... $3,533 $2,959
DEFERRED LIABILITIES
Employee benefits ......................... $ 231 $ 195
Depreciation .............................. 420 420
Other ..................................... 611 539
------ ------
Total deferred liabilities ................ 1,262 1,154
------ ------
Net deferred assets ............................... $2,271 $1,805
====== ======
Deferred Assets on Available for sale securities .. $3,814 $ 64
</TABLE>
<PAGE> 33
12. STOCK OPTIONS
The Corporation sponsors non-qualified and incentive stock option plans.
Approximately 600,000 shares have been authorized under the plans, 23,520
shares of which were available at December 31, 1999 for future grants.
All options granted have a maximum term of 10 years. Options granted vest
ratably over five years.
The Corporation has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under FASB Statement No.
123, "Accounting for Stock-Based Compensation", requires use of option
valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of Security
employee stock options equals the market price of the underlying stock on
the date of grant, no compensation expense is recognized.
The Corporation stock option activity and related information for the
periods ended December 31, 1999, 1998, and 1997 is summarized below:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period .................. 226,565 $21.94 162,960 $13.23 193,912 $12.43
Granted ...................... 6,585 34.88 108,485 36.60 7,200 21.25
Exercised .................... (20,120) 12.38 (39,440) 7.96 (31,152) 6.74
Forfeited/Expired ............ (6,380) 37.12 (5,440) 29.88 (7,000) 16.50
------------------- ------------------- -------------------
Outstanding at end of
period ..................... 206,650 26.19 226,565 21.94 162,960 13.23
------------------- ------------------- -------------------
Exercisable end of period .... 54,880 $15.70 52,360 $13.95 66,880 $ 9.52
</TABLE>
Exercise prices for options outstanding as of December 31, 1999, ranged
from $7.62 to $46.00.
Management estimated the fair value of the options granted using the
Black-Scholes option pricing model. The following weighted average
assumptions were used for 1999, 1998, and 1997 respectively; risk free
interest rates of 4.90% in 1999, 4.90% in 1998, and 5.00% in 1997;
dividend yields of 1.50% in 1999, 1.50% in 1998, and 1.98% in 1997;
volatility factors of the expected market price of Security common stock
of .092 in 1999,.092 in 1998, and .059 in 1997 and a weighted average
expected option life of seven (7) years. The effect of applying the
Statement 123 fair value method to stock options results in net income
and earnings per share that are not materially different from amounts
reported in the consolidated statements of income, pro forma information
has not been provided.
<PAGE> 34
13. RETIREMENT PLANS
Security Banc Corporation has a non-contributory defined benefit pension
plan that covers all employees who have reached the age of twenty-one
(21) and have one thousand (1,000) hours of service during their
anniversary year. The amount of the benefit is determined pursuant to a
formula contained in the retirement plan which, among other things, takes
into account the employee's average earnings in the highest sixty (60)
consecutive calendar months. Accrued benefits are fully vested after five
(5) years of service. Security Banc Corporation's funding policy is to
make annual contributions to the plan which at least equals the minimum
required contributions. Plan assets consist of U. S. Treasury notes and
bonds and common stock equities.
Disclosure of net periodic Pension cost for 1999, 1998, and 1997 is as
follows:
<TABLE>
<CAPTION>
(000's) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Service cost ......................... $ 583 $ 530 $ 511
Interest cost ........................ 619 553 527
Expected return on plan assets ....... (767) (653) (625)
Amortization of transition amount .... (43) (43) (43)
Amortization of prior service cost ... (1) (1) (1)
----- ----- -----
Net periodic pension cost ............ $ 391 $ 386 $ 369
===== ===== =====
</TABLE>
The following table sets forth the plan's funded status and amount
recognized in Security Banc Corporation's consolidated statement of
condition as of December 31, 1999 and 1998.
<TABLE>
<CAPTION>
(000's) 1999 1998
---- ----
<S> <C> <C>
Change in benefit obligation:
Benefit Obligation at the beginning of the year .. $ 7,815 $ 7,176
Service Cost ..................................... 583 530
Interest Cost .................................... 619 553
Actuarial loss(gain) ............................. 543 305
Benefits paid during year ........................ (631) (749)
------- -------
Benefit Obligation at the end of the year ........ 8,929 7,815
Change in plan assets:
Fair value of plan assets at beginning of year ... 9,711 8,286
Actual return on assets .......................... 814 1,689
Employer contributions ........................... 493 485
Benefits paid .................................... (631) (749)
------- -------
Fair value of plan assets at end of year ......... 10,387 9,711
Funded status of the plan ........................ 1,458 1,896
Unrecognized transition amount ................... (86) (128)
Unrecognized prior service cost .................. (13) (14)
Unrecognized net (gain) or loss .................. (699) (1,195)
------- -------
Prepaid (accrued) benefit cost ................... $ 660 $ 559
======= =======
</TABLE>
Assumptions used in accounting for the Plan were:
<TABLE>
<CAPTION>
(000's) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Discount rate ......................... 7.5% 7.5% 7.5%
Expected return on plan assets ........ 8.0% 8.0% 8.0%
Salary rate of compensation increase .. 4.5% 4.5% 4.5%
</TABLE>
The Corporation developed an nonqualified Supplemental Retirement Plan
for certain employees in 1999. All benefits provided under the plan are
unfunded. At December 31, 1999, $900,000 was included in other
liabilities for the Plan with the same amount recorded as expense in
1999.
<PAGE> 35
14. PROFIT SHARING PLAN
All employees of Security Banc Corporation and its affiliates become
eligible participants in the plan when they have completed one (1) year
of eligibility service; have worked at least five hundred (500) hours and
are at least age twenty-one (21). Eligible participants may make
contributions to the plan by deferring up to fifteen percent (15%) of
their annual earnings.
The Board of Directors of the Corporation annually determines the bank's
matching contribution to the plan. For the plan year ended December 31,
1999 and December 31, 1998, the matching contribution was fifty percent
(50%) of the employee's contribution up to the first six percent (6%) of
annual earnings contributed by the participant.
Employee contributions are one hundred percent (100%) vested immediately.
The bank's matching contributions are vested at twenty percent (20%) for
each year of eligibility service, based on five (5) year vesting
schedule.
The contribution by the Corporation for 1999, 1998, and 1997 was
$213,000, $193,000, and $190,000, respectively.
<PAGE> 36
15. SECURITY BANC CORPORATION (PARENT ONLY) AND REGULATORY RESTRICTIONS
Dividends paid by the Company's subsidiaries are subject to various legal
and regulatory restrictions. In 1999, the subsidiaries paid $6,690,000 in
dividends to the parent company.
The subsidiaries can initiate dividend payments in 2000 equal to their
net profits, as defined by statute, up to the date of any such dividend
declared.
<TABLE>
SECURITY BANC CORPORATION
STATEMENT OF CONDITION FOR THE YEARS ENDED DECEMBER 31 (000'S)
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Assets
Cash $ 1,005 $ 1,383
Investments in Securities 315 0
Investments in Subsidiaries 117,823 116,752
Other Assets 105 158
-------- --------
TOTAL ASSETS $119,248 $118,293
======== ========
Liabilities $ 126 $ 164
-------- --------
TOTAL LIABILITIES 126 164
======== ========
Stockholders' equity
Common Stock 19,800 19,768
Surplus 22,302 22,084
Retained Earnings 90,084 79,756
Accumulated Other Comprehensive Income (7,143) (121)
Less: Treasury Stock (5,921) (3,358)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 119,122 118,129
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $119,248 $118,293
======== ========
</TABLE>
<TABLE>
SECURITY BANC CORPORATION
STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31 (000'S)
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income from subsidiaries $ 8,488 $ 7,812 $ 37,022
Other Income 111 0 0
------- ------- --------
TOTAL INCOME $ 8,599 $ 7,812 $ 37,022
======= ======= ========
Operating Expenses $ 104 $ 48 $ 163
------- ------- --------
TOTAL EXPENSES 104 248 163
======= ======= ========
Income before taxes and undistributed
income 8,495 7,564 36,859
Income taxes 627 538 0
Equity in undistributed income 9,150 8,594 (22,371)
------- ------- --------
TOTAL INCOME $17,018 $15,620 $ 14,488
======= ======= ========
</TABLE>
<PAGE> 37
<TABLE>
SECURITY BANC CORPORATION
STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31 (000'S)
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $17,018 $15,620 $ 14,488
Adjustment to reconcile net income to Net Cash
(Gain) or loss on sales of assets (101) 0 0
Equity in undistributed (earnings) losses (9,150) (8,594) 22,371
Net change in liabilities (69) 54 110
Net change in other assets 53 57 37
Total adjustments (9,267) (8,483) 22,518
------- ------- --------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 7,751 7,137 37,006
------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities (454) 0 0
Sales and maturities of securities available
for sale 328 0 0
Payments for investments in and advances
to subsidiaries 0 0 (30,210)
NET CASH (USED) PROVIDED BY INVESTING
ACTIVITIES (126) 0 (30,210)
------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Note payment from subsidiary 1,000 0 0
Proceeds from issuance of common stock 250 314 210
Payment to repurchase common stock (2,563) (165) 0
Dividends paid (6,690) (6,013) (5,394)
Other, net 0 0 (1,502)
------- ------- --------
NET CASH (USED) PROVIDED BY FINANCING
ACTIVITIES (8,003) (5,864) (6,686)
------- ------- --------
CASH AND CASH EQUIVALENTS
Net (decrease) increase in cash and cash
equivalents (378) 1,273 110
Cash and cash equivalents at beginning of year 1,383 110 0
------- ------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,005 $ 1,383 $ 110
======= ======= ========
</TABLE>
<PAGE> 38
16. CAPITAL RATIOS
The following table reflects various measures of capital at December 31,
1999 and December 31, 1998.
<TABLE>
<CAPTION>
1999 1998
---- ----
(000's) Amount Ratio Amount Ratio
------ ----- ------ -----
<S> <C> <C> <C> <C>
Total equity (1) ............... $119,122 18.23% $118,129 19.63%
Tier 1 capital (2) ............. $114,945 17.59% $106,260 17.66%
Total risk-based capital (3) ... $121,909 18.66% $113,143 18.80%
Leverage (4) ................... $114,945 11.79% $106,260 12.45%
</TABLE>
(1) Computed in accordance with generally accepted accounting
principles, including unrealized market value adjustment of
securities available-for-sale.
(2) Stockholders' equity less certain intangibles and the unrealized
market value adjustment of securities available-for-sale; computed
as a ratio to risk-adjusted assets as defined.
(3) Tier 1 capital plus qualifying loan loss allowance, computed as a
ratio to risk-adjusted assets, as defined.
(4) Tier 1 capital computed as a ratio to average total assets less
certain intangibles.
The Corporation's Tier 1, total risk-based capital and leverage ratios are well
above both the required minimum levels of 4.00%, 8.00%, and 4.00%, respectively,
and the well-capitalized levels of 6.00%, 10.00%, and 5.00%, respectively.
At December 31, 1999, all of the Corporation's subsidiary financial institutions
met the well-capitalized levels under the capital definitions prescribed in the
FDIC Improvement Act of 1991.
<PAGE> 39
17. FAIR VALUES OF FINANCIAL INSTRUMENTS
FASB Statement No. 107, "Disclosures about Fair Value of Financial
Instruments", requires disclosure of fair value information about
financial instruments, whether or not recognized in the statement of
condition, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in
immediate settlement of the instrument. Statement 107 excludes certain
financial instruments and all nonfinancial instruments from its
disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the bank.
The estimated fair values of the bank's financial instruments not
disclosed elsewhere are as follows:
<TABLE>
<CAPTION>
(000S) 1999 1998
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
--------------------- ---------------------
<S> <C> <C> <C> <C>
LOANS .............. $653,025 $651,526 $616,942 $622,824
DEPOSITS ........... $696,546 $696,684 $708,853 $710,279
FHLB ADVANCES ...... $131,372 $107,565 $ 22,816 $ 23,876
</TABLE>
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-59244) pertaining to the Security Banc Corporation 401(k) Profit
Sharing Savings Plan, the Registration Statement (Form S-8 No. 33-80761)
pertaining to the Security Banc Corporation 1995 Stock Option Plan, and the
Registration Statement (Form S-8 No. 333-61877) pertaining to the Security Banc
Corporation 1998 Stock Option Plan of our report dated January 11, 2000, with
respect to the consolidated financial statements of Security Banc Corporation
incorporated by reference in their Annual Report (Form 10-K) for the year ended
December 31, 1999.
/s/ Ernst & Young LLP
Columbus, Ohio
March 22, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 50,216
<INT-BEARING-DEPOSITS> 1,560
<FED-FUNDS-SOLD> 10,010
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 178,614
<INVESTMENTS-CARRYING> 35,689
<INVESTMENTS-MARKET> 33,797
<LOANS> 653,025
<ALLOWANCE> 6,964
<TOTAL-ASSETS> 976,411
<DEPOSITS> 696,546
<SHORT-TERM> 57,731
<LIABILITIES-OTHER> 5,360
<LONG-TERM> 97,652
0
0
<COMMON> 19,800
<OTHER-SE> 99,322
<TOTAL-LIABILITIES-AND-EQUITY> 976,411
<INTEREST-LOAN> 54,373
<INTEREST-INVEST> 13,268
<INTEREST-OTHER> 1,077
<INTEREST-TOTAL> 68,718
<INTEREST-DEPOSIT> 21,287
<INTEREST-EXPENSE> 27,684
<INTEREST-INCOME-NET> 41,034
<LOAN-LOSSES> 1,200
<SECURITIES-GAINS> 170
<EXPENSE-OTHER> 23,548
<INCOME-PRETAX> 24,819
<INCOME-PRE-EXTRAORDINARY> 17,018
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,018
<EPS-BASIC> 1.40
<EPS-DILUTED> 1.39
<YIELD-ACTUAL> 7.97
<LOANS-NON> 2,162
<LOANS-PAST> 2,554
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 11,630
<ALLOWANCE-OPEN> 6,883
<CHARGE-OFFS> 1,507
<RECOVERIES> 352
<ALLOWANCE-CLOSE> 6,964
<ALLOWANCE-DOMESTIC> 4,640
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,324
</TABLE>
