January 14, 2000
Dear Shareholder:
FC Banc Corp is pleased to report that in 1999 fully diluted earnings per
share increased 8.4% from $1.55 in 1998 to $1.68. Return on Equity (ROE)
increased from 8.73% in 1998 to 9.31% in 1999. Return on Assets (ROA)
declined slightly from 1.14% in 1998 to 1.11% in 1999 as a result of the
growth the company experienced.
During the fourth quarter of 1999 assets surpassed $100,000,000 for the
first time. In 1999 loans grew 22.6% while deposits grew 7.0%. During 1999
the bank completed the acquisition of the remaining property between the
square and the railroad tracks at the Main Office. Late in the year the bank
was able to acquire an outstanding site for an office in Fredericktown,
which should open in late March.
At the beginning of 1999 FC Banc Corp shares were selling at $27.00 per share.
At December 31, 1999, the most recent trade closed at $28.25 per share.
During the year the company repurchased 13,738 shares under its Stock
Repurchase Plan at an average price of $28.04 per share. The overall market
capitalization increased by approximately $434,000 in 1999.
The automatic dividend deposit program has been well received with 51% of our
shareholders participating. We thank you who are participating and encourage
others to participate. In November the quarterly dividend was increased 6.7% to
$.16 per share per quarter.
For the past 19 consecutive quarters, Farmers Citizens Bank has enjoyed a 5
Star rating from Bauer Financial Reports, Inc. This is the highest rating Bauer
issues and demonstrates the financial strength of the Bank. We continue to
be proud of this recognition. Our focus on First Class Banking continues
with emphasis on Quality Products, Fair Pricing and Exceptional Service.
Our Annual Meeting will be held on March 22, 2000 at the Youth Building,
Crawford County Fairgrounds at 1:30 p.m. preceded by a luncheon at 12:00
noon. Our speaker will be the Honorable Mary Ellen Withrow, Treasurer of
the United States. We will also introduce this year's Farmers Citizens'
Scholars. We have planned a meeting you will enjoy and we encourage your
attendance.
Finally, on behalf of the directors, we want to thank our shareholders,
customers and employees for their support in 1999.
Sincerely,
/s/ Robert D. Hord /s/ G.W. Holden
- -------------------- --------------------
Robert D. Hord G.W. Holden
Chairman President & CEO
<PAGE>
Five-Year Consolidated Financial Summary
<TABLE>
<CAPTION>
In thousands, except per common share amounts and ratios
Years ended December 31, 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Statements of Income
Interest Income $ 6,679 $ 6,380 $ 5,573 $ 5,619 $ 5,564
Interest Expense 2,592 2,541 2,164 2,277 2,442
------ ------ ------ ------ ------
Net interest income 4,087 3,839 3,409 3,342 3,122
Provision for loan losses (130) (75) 27 -- 204
------ ------ ------ ------ ------
Net interest income after provision for loan losses 4,217 3,914 3,382 3,342 2,918
Non-interest income (A) 650 633 556 543 487
Non-interest expenses 3,432 3,215 2,732 3,064 2,906
------ ------ ------ ------ ------
Income before income taxes 1,435 1,332 1,206 821 499
Income tax expense 360 331 304 140 (34)
------ ------ ------ ------ ------
Net income $ 1,075 $ 1,001 $ 902 $ 681 $ 533
====== ====== ====== ====== ======
Per Common Share
Net Income
Basic $1.70 $1.56 $1.40 $1.04 $0.80
Diluted 1.68 1.55 1.40 1.04 0.80
Dividends declared 0.61 0.60 0.60 0.60 0.58
Stockholders' equity 18.32 18.19 17.42 16.41 16.16
Stock price range 28.25-27.00 27.00-22.00 22.00-22.00 22.00-20.25 21.00-20.00
Selected Consolidated Balance Sheet Data at December 31,
Assets $99,236 $93,685 $78,628 $81,445 $83,698
Investment securities 34,795 37,319 32,460 32,194 33,869
Loans (B) 55,975 45,649 40,029 41,043 37,179
Deposits 86,959 81,311 66,092 70,074 70,891
Borrowed funds 29 -- 641 119 1,525
Shareholders' equity 11,402 11,547 11,195 10,667 10,760
Ratios (C)
Per $100 of average assets
Net Interest Income (tax-equivalent basis) $ 4.41 $ 4.51 $ 4.50 $ 4.27 $ 4.01
Provision for loan losses (0.13) (0.09) 0.03 -- 0.25
----- ----- ----- ----- -----
Net interest income after provision for loan losses 4.54 4.60 4.46 4.27 3.76
Non-interest income 0.69 0.72 0.72 0.67 0.60
Non-interest expense 3.57 3.66 3.52 3.76 3.56
----- ----- ----- ----- -----
Income before income taxes 1.66 1.66 1.66 1.17 0.80
Income tax expense 0.55 0.52 0.50 0.34 0.15
----- ----- ----- ----- -----
Net income $ 1.11 $ 1.14 $ 1.16 $ 0.84 $ 0.65
===== ===== ===== ===== =====
Leverage (D) 8.35x 7.66x 7.07x 7.67x 7.79x
Return on average shareholders' equity 9.31% 8.73% 8.22% 6.42% 5.08%
Average shareholders' equity to average assets 11.97% 13.05% 14.14% 13.03% 12.84%
Dividend payout ratio 35.81% 38.26% 42.68% 57.27% 72.98%
Tier 1 capital ratio at December 31 19.35% 22.19% 24.14% 21.87% 22.61%
Tier 1 and Tier 2 capital ratio at December 31 20.62% 23.47% 25.41% 23.13% 23.88%
Leverage ratio 11.98% 13.05% 14.14% 13.04% 12.84%
</TABLE>
(A) Includes gains (losses) from securities transactions of $(3) in 1999,
$11 in 1998, $3 in 1997, and $(13) in 1996.
(B) Net of unearned income.
(C) Based on average balances and net income for the periods.
(D) The ratio of average assets to average shareholders equity.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
===============================================================================
General
FC Banc Corp (the "Holding Company" or "Corporation") is a bank holding
company engaged in the business of commercial and retail banking through
its subsidiary, The Farmers Citizens Bank (the "Bank" or "Farmers Citizens"),
which accounts for substantially all of its revenues, operating income,
and assets.
The following discussion is intended to focus on and highlight certain
financial information regarding FC Banc Corp and should be read in
conjunction with the financial statements and related notes which have been
prepared by the management of FC Banc Corp in conformity with generally
accepted accounting principles. The Audit Committee of the Board of
Directors engaged Robb, Dixon, Francis, Davis, Oneson and Company,
independent auditors, to audit the financial statements. The auditors'
report is included as a part of the 1999 Annual Report. To assist in
understanding and evaluating major changes in the Holding Company's
financial position and results of operations, two, three and five year
comparisons are provided in tabular form for ease of comparison.
Forward-Looking Statements
In addition to the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. Economic circumstances, the operations of the Bank, and the
Holding Company's actual results could differ significantly from those
discussed in the forward-looking statements. Some of the factors that
could cause or contribute to such differences are discussed herein, but also
include changes in economic conditions in the Corporation's (or Bank's)
market area, changes in policies by regulatory agencies, fluctuations
in interest rates, demand for loans in Farmers Citizens' market area and
competition, that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected.
1. Management's determination of the amount of the allowance for loan
losses as set forth under the captions "Financial Condition,"
"Comparison of Results of Operations for the Years Ended December
31, 1999 and 1998";
2. Management's discussion of the liquidity of Farmers Citizens' assets
and regulatory capital of Farmers Citizens as set forth under
"Effects of Inflation/Changing Prices" and "Liquidity and Interest
Rate Sensitivity Management"; and
3. Management's analysis of the interest rate risk of Farmers Citizens
as set forth under "Effects of Inflation/Changing Prices" and
"Liquidity and Interest Rate Sensitivity Management."
The Corporation does not undertake, and specifically disclaims any
obligation, to publicly revise any forward-looking statements to reflect
events or circumstances after the date of such statements or to reflect the
occurrence of anticipated or unanticipated events.
Financial Condition
The Corporation's consolidated total assets amounted to $99.2 million at
December 31, 1999, an increase of $5.6 million or 5.93%, over the $93.7
million in total assets at December 31, 1998. Such increase in assets was
funded primarily by the $5.6 million net increase in deposits.
<PAGE>
Loan Portfolio Loans, as a component of earning assets, represent a
significant portion of earning assets. At December 31, 1999, the Bank's
real estate loans secured by 1-to-4 family residential properties were
$23,770,000. Loans secured by farmland and loans to finance agricultural
production and other loans to farmers were $11,574,000. As noted in Note D,
of the Notes to Consolidated Financial Statements, the Bank also was a
creditor for $3,109,000 of loans to related parties.
Loan Information
<TABLE>
<CAPTION>
In thousands, except ratios
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Loans at December 31,
Commercial $ 3,120 $ 4,336 $ 6,025 $ 6,893 $ 7,118
Agricultural 3,349 4,253 4,596 5,856 6,331
Real estate
Secured by 1-4 family residential properties 23,770 16,402 9,211 8,861 5,790
Secured by other properties 20,564 15,335 14,595 13,749 11,217
Consumer 4,916 5,075 5,310 5,356 6,344
Tax-exempt 251 237 281 315 378
All other 5 11 11 13 1
------ ------ ------ ------ ------
Total $55,975 $45,649 $40,029 $41,043 $37,179
====== ====== ====== ====== ======
Allowance for Loan Losses
Balance at beginning of year $ 1,725 $ 1,480 $ 1,263 $ 1,297 $ 1,601
Provision for loan losses (130) (75) 27 -- 204
Charge-offs
Commercial and agricultural 20 1 405 98 538
Consumer 28 36 1 11 23
Credit card 20 22 12 7 13
Real estate -- -- -- -- --
------ ------ ------ ------ ------
Total Charge-offs 68 59 418 116 574
------ ------ ------ ------ ------
Recoveries
Commercial and agricultural 183 361 598 73 54
Consumer 19 9 6 6 3
Credit card 3 9 4 3 2
Real estate -- -- -- -- 7
------ ------ ------ ------ ------
Total recoveries 205 379 608 82 66
------ ------ ------ ------ ------
Net charge-offs (137) (320) (190) 34 508
------ ------ ------ ------ ------
Balance at end of year $ 1,732 $ 1,725 $ 1,480 $ 1,263 $ 1,297
====== ====== ====== ====== ======
Allocation of Allowance for Loan Losses
Commercial $ 1,296 $ 1,358 $ 1,148 $ 749 $ 640
Consumer 69 75 28 31 21
Real estate 168 71 106 224 315
Unallocated 199 221 198 259 321
------ ------ ------ ------ ------
Total $ 1,732 $ 1,725 $ 1,480 $ 1,263 $ 1,297
====== ====== ====== ====== ======
Credit Quality Ratios
Net charge-offs as a percentage of
average loans (0.27)% (0.73)% (0.48)% 0.09% 1.41%
Allowance for loan losses to
Total loans at year-end 3.09 3.78 3.70 3.08 3.49
Net charge-offs (12.64) (5.39) (7.79) 37.15 2.55
Provision for loan losses to average loans (0.26) (0.17) 0.07 0.00 0.56
Earnings coverage of net charge-offs (10.47) (3.93) (6.49) 24.15 1.38
</TABLE>
<PAGE>
Average loans increased 14.26% in 1999 to represent 56.36% of average
earning assets compared to 53.78% in 1998 and 56.14% in 1997. Year-end
total real estate loans of $44,334,000 represent approximately 79.20% of the
total loans outstanding compared to 69.52% for the previous year-end. As
the total dollars outstanding of loans fluctuated, decreasing during 1993 and
1994 and then increasing through 1999, real estate loans had remained
relatively constant at 33% prior to 1994, when they increased to 43.05%,
55.09%, and 59.47% at year-end 1995, 1996 and 1997, respectively. Installment
loans to individuals have continued to decline steadily since 1990 from
18.77% of loans outstanding to 8.78% at December 31, 1999. The dollar amounts
of commercial loans have also decreased from 19.15% of loans outstanding at
year-end 1995 to 5.57% at December 31, 1999. The Loan Information table
provides a five year loan history.
In addition to the loans reported in the Loan Information table, there
are certain off-balance sheet products such as letters of credit and loan
commitments that are offered under the same credit standards as the loan
portfolio. Since the possibility of a liability exists, generally accepted
accounting principles require that these financial instruments be disclosed
but treated as contingent liabilities and thus, not reflected in the
accompanying financial statements. Management closely monitors the financial
condition of potential creditors throughout the term of the instruments to
assure that they maintain credit standards. Refer to Notes J and K for
additional information on off-balance sheet financial instruments.
Non-Performing Assets While the Bank had experienced increases in
non-performing assets in prior years, at December 31, 1999 and 1998,
there were no loans accounted for as non-accrual and accruing loans which are
contractually past due 90 days more. Management believes that the Allowance
for Loan Losses is adequate to cover any potential losses in the loan
portfolio at December 31, 1999. Refer to the section entitled "Provision for
Loan Losses" for additional detail.
The Non-performing Assets table provides a five year summary of
non-performing assets which are defined as loans accounted for on a
non-accrual basis, accruing loans that are contractually past due 90 days or
more as to principal or interest payments, renegotiated troubled debt, and
other real estate obtained through loan foreclosure.
A loan is placed on non-accrual when payment terms have been seriously
violated (principal and/or interest payments are 90 days or more past due,
deterioration of the borrower's ability to repay, or significant decrease
in value of the underlying loan collateral) and stays on non-accrual until
the loan is brought current as to principal and interest. The classification
of a loan or other asset as non-accruing does not indicate that loan
principal and interest will not be collectible. The Bank adheres to the
policy of the Federal Reserve that banks may not accrue interest on any
loan when the principal or interest is due and has remained unpaid for 90
days or more unless the loan is both well secured and in the process of
collection.
A loan is considered restructured or renegotiated when either the rate
is reduced below current market rate for that type of risk, principal or
interest is forgiven, or the term is extended beyond that which the Bank
would accept for loans with comparable risk. Property obtained from
foreclosing on loans secured by real estate are adjusted to market value
prior to being capitalized in an "Other Real Estate" account for possible
resale. Regulatory provisions on other real estate are such that after
five years, or ten years under special circumstances, property must be
charged-off. This period gives the Bank adequate time to make provisions
for disposing of any real estate property.
Loans accounted for as non-performing (non-accrual, restructured, past
due 90-days or more, and impaired) loans as of year-end 1999 remained at zero,
the same as of year-end 1998. Refer to the "Non-performing Assets and
90-Day Past Due Loans" table for a six year summary.
The lack of non-performing, impaired and past due loans is
attributable to both the amount of loans charged-off in 1999, 1998 and
1997, of $68,000, $59,000 and $418,000, respectively, coupled with the
amount of recoveries on charged-off loans which amounted to $205,000,
$379,000 and $608,000 in 1999, 1998 and 1997, respectively. Please refer
to the following section entitled "Provision for Loan Losses" for
additional explanation.
<PAGE>
Allowance for Loan Losses The allowance for loan losses was established
and is maintained by periodic charges to the provision for loan loss, an
operating expense, in order to provide for losses inherent in the Bank's
loan portfolio. Loan losses and recoveries are charged or credited
respectively to the allowance for loan losses as they occur.
The allowance/provision for loan losses is determined by management by
considering such factors as the size and character of the loan portfolio,
loan loss experience, problem loans, and economic conditions in the Bank's
market area. The risk associated with the lending operation can be minimized
by evaluating each loan independently based on criteria which includes, but
is not limited to, (a) the purpose of the loan, (b) the credit history of
the borrower, (c) the borrower's financial standing and trends, (d) the
market value of the collateral involved, and (e) the down payment received.
Management utilizes an internal loan review procedure to provide for
analysis of operating data, tax returns and financial statement performance
ratios for all significant commercial loans, regulatory classified loans,
past due loans and internally identified "watch" loans. The Bank's examiners
and independent auditors will periodically perform independent credit
reviews of the Bank's borrowers and evaluate the adequacy of the allowance
for loan losses account based upon the results of their review and other
factors.
The results of the quarterly credit reviews in conjunction with
independent collateral evaluations are used by management and the Board of
Directors in determining the adequacy of the allowance for loan loss account
on a quarterly basis.
Approximately 90% of the Bank's total loans are secured by deeds of
trust on real property, security agreements on personal property, or through
the full faith and credit of government agencies.
Investments The investment portfolio represents the second largest use of
financial resources. The Bank's investment portfolio includes United States
securities, state and municipal obligations, other equity securities, and
equity securities of the Federal Reserve Bank.
Investment securities classified as "held-to-maturity" are those
investment debt securities which the Bank has the ability and intent to hold
to maturity. These securities are stated at cost adjusted for amortization of
premium and accretion of discount, computed by the interest method.
Investment securities classified as "available-for-sale" are those investment
debt and equity securities which the Bank has the ability to sell (for
liquidity or other purposes) prior to their maturity, and are carried at
the lower cost or market value.
Securities categorized as "available-for-sale" can and will be sold prior
to maturity to meet liquidity or other funding needs. It is management's
intent to hold those securities categorized as "held-to-maturity" until
their maturity unless they are subject to an earlier redemption via a "call
feature". At December 31, 1999 the Bank's entire investment portfolio was
classified as available-for-sale.
Average investments increased by $568,000 during 1999 from an average
of $35,712,000 during 1998 to $36,280,000 during 1999, or an increase of
1.59%. During the same period, the average balance of the federal funds
sold increased by 25.59% from $2,071,000 in 1998 to $2,601,000 in 1999.
Federal funds sold are consistently maintained at levels that will cover the
short-term liquidity needs of the Bank. Because of changes in interest
rates, the related increase in local loan demand, the purchase of loans on
the open market, and the significant increases of deposit liabilities, a
portion of the excess available funds were invested in federal funds.
Average cash and due from bank balances also increased by $195,000
during 1999.
<PAGE>
The Bank utilizes a number of outside sources to analyze, evaluate, and
obtain advice relative to the management of its investment portfolio.
The Bank does not invest in any one type of security over another. Funds
allocated to the investment portfolio are constantly monitored by management
to ensure that a proper ratio of liquidity and earnings is maintained.
The Bank's investment portfolio includes approximately $2.0 million of
agency structured notes (step-ups, dual-indexed bonds, and a PSA indexed
bond) which represents cash flows dependent on one or more indices in ways
that create risk characteristics similar to forwards or options. The risks
inherent in these types of securities include secondary liquidity risk
(that is, inability to resell the securities if needed for liquidity),
price volatility due to the uncertainty and unpredictability of the cash
flow from the investment, and interest rate risk. Specific goals and
objectives for investments of this type, have been included in the
investment policy of the Bank.
Deposits The Consolidated Average Balance Sheets and Related Yields
and Rates table highlights average deposits and interest rates during the
last three years. Average deposits in 1999 have increased by approximately
$8,705,000, or 11.55% from 1998 averages which had increased $10,076,000,
or 15.43% compared to 1997. The average cost of deposits for the Bank was
approximately 3.52% for the year-ended December 31, 1999 compared to 3.90%
and 3.87% for 1998 and 1997, respectively.
Shareholders' Equity Maintaining a strong capital position in order to
absorb inherent risk is one of management's top priorities. Selected
capital ratios for the last five years, presented in the Five-Year
Consolidated Financial Summary, reveals that the Bank has been able to
maintain an average equity to average asset ratio of greater than 11% for
the past five years. It should be noted that this ratio has decreased by
108 basis points (100 basis points equals one percent) in 1999 to 11.97%
and decreased by 109 basis points in 1998. It should also be noted that
the return on average assets decreased in 1999 by three basis points to
1.11% from 1.14% after decreasing in 1998 by two basis points from 1.16%
in 1997. The declines are due primarily to the increase in earning assets
coupled with a seven basis point decline in the net interest margin in 1998
and 1997, respectively.
The change in balance sheet mix of interest earning assets resulted
in a decline in the Bank's net interest margin in 1999. In 1999, the yield
on earning assets declined by 27 basis points while the yield on
interest-bearing liabilities declined by 38 basis points as compared to
1998. The total average real estate loans outstanding as a percentage of
earning assets increased from 37.62% in 1998 to 49.56% in 1999. As a result,
the net interest margin declined from 4.85% in 1998 to 4.78% in 1999.
Banking regulations in 1989 established minimum capital ratios for banks.
The primary purpose of these requirements is to assess the riskiness of a
financial institution's balance sheet and off-balance sheet financial
instruments in relation to adjusted capital. A minimum total qualifying
capital ratio of at least 8% with at least 4% of capital composed of Tier I
(core) capital had to be maintained. Tier I capital includes common equity,
non-cumulative perpetual preferred stock, and minority interest less good
will and other disallowed intangibles. Tier II (supplementary) capital
includes subordinate debt, intermediate term preferred stock, the allowance
for loan losses and preferred stock not qualifying for Tier I capital.
Tier II capital is limited to 100% of Tier I capital. At December 31,
1999 the Bank's risk-based capital ratio for Tier I and Tier II capital
is 19.35% and 20.62%, respectively, thus meeting the required 4% and 8%
for Tier I and Tier II capital. The Five-Year Consolidated Financial
Summary table and Note Q to Consolidated Financial Statements summarizes the
Bank's risk-based capital, leverage components and ratios.
Comparison of Results of Operations for the Years Ended December 31, 1999
and 1998
General Net income for the year-ended December 31, 1999, amounted
to $1,075,000, an increase of $74,000, or 7.39%, over the $1,001,000 in net
income in 1998. The increase in net income resulted primarily from a
$248,000 increase in net interest income, a decrease of $55,000 in provision
for loan losses and an increase of $17,000 in non-interest income, which was
offset by increases in non-interest expense of $217,000 and federal income
tax expense of $29,000.
<PAGE>
Consolidated Average Balance Sheets and Related Yields and Rates*
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------- ----------------------------- ------------------------------
Interest Average Interest Average Interest Average
Average Income/ Yields/ Average Income/ Yields/ Average Income/ Yields/
Balance Expense Rates Balance Expense Rates Balance Expense Rates
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Cash and due from banks $ 3,479 $ 3,284 $ 3,270
Federal Funds sold 2,601 131 5.04% 2,071 107 5.17% 1,375 75 5.45%
Investment securities
Taxable debt securities 27,511 1,598 5.81% 27,420 1,684 6.14% 23,308 1,431 6.14%
Tax-exempt debt securities 6,734 482 7.15% 7,976 473 5.93% 6,324 387 6.12%
Equity securities 2,035 108 5.31% 316 17 5.38% 96 6 6.25%
------- ------- ------- ------- ------- -------
Total Investment securities 36,280 2,188 6.03% 35,712 2,174 6.09% 29,728 1,824 6.14%
Loans
Real Estate 24,891 2,157 8.67% 16,536 1,504 9.10% 15,198 1,314 8.65%
Consumer 4,665 449 9.62% 5,003 518 10.35% 4,942 487 9.85%
Commercial (includes real estate) 20,668 1,925 9.31% 22,417 2,201 9.82% 19,675 1,955 9.94%
------- ------- ------- ------- ------- -------
Total loans 50,224 4,531 9.02% 43,956 4,223 9.61% 39,815 3,756 9.43%
Total earning assets 89,105 6,850 7.69% 81,739 6,504 7.96% 70,918 5,655 7.97%
Allowance for loan losses (1,714) (1,578) (1,247)
Other assets 5,593 4,443 4,285
------- ------- -------
Total assets $ 96,463 $ 87,888 $ 77,226
======= ======= =======
Liabilities and Shareholders' Equity
Noninterest-bearing deposits 10,461 10,265 9,679
Interest-bearing deposits
NOW accounts 12,856 238 1.85% 12,626 278 2.20% 9,681 241 2.49%
Money market accounts 6,424 182 2.83% 3,350 125 3.73% 1,480 41 2.77%
Savings accounts 18,621 401 2.15% 18,608 501 2.69% 18,745 544 2.90%
Time deposits 35,726 1,770 4.95% 30,534 1,631 5.34% 25,836 1,331 5.15%
------- ------- ------- ------- ------- -------
Total interest-bearing deposits 73,627 2,591 3.52% 65,118 2,535 3.89% 55,742 2,157 3.87%
Borrowed funds 16 1 6.00% 97 6 6.19% 104 7 6.73%
------- ------- ------- ------- ------- -------
Total interest-bearing liabilities 73,643 2,592 3.52% 65,215 2,541 3.90% 55,846 2,164 3.87%
Other liabilities 808 941 740
Shareholders' equity 11,551 11,467 10,961
------- ------- -------
Total liabilities and
shareholders' equity $ 96,463 $ 87,888 $ 77,226
======= ======= =======
Net interest income $ 4,258 $ 3,963 $ 3,491
(tax-equivalent basis) ======= ======= =======
Yield spread 4.17% 4.06% 4.10%
Net interest income to earnings assets 4.78% 4.85% 4.92%
Interest-bearing liabilities to earning assets 82.65% 79.78% 78.75%
</TABLE>
* Interest income/expense and yield/rates are calculated on a tax-equivalent
basis utilizing a federal incremental tax rate of 35% in 1999, 1998 and 1997
Non-accrual loans and the related negative income effect have been included
in the calculation of average rates.
Net interest income Net interest income totaled $4.3 million (on a
tax-equivalent basis) for the year-ended December 31, 1999, an increase of
$295,000 or 7.44%, over the $4.0 million recorded in 1998, due primarily to
an increase in the average balance of the loans outstanding of $6.3 million,
or 14.26%, offset somewhat by a decrease of 59 basis point (100 basis points
equals one percent) in yield from 9.61% in 1998 to 9.02% in 1999. Interest
income on investment securities increased by $14,000 (on a tax-equivalent
basis), or 0.64%, due primarily to a $568,000, or 1.59%, increase in the
average balance of investment securities coupled with a decrease of six
basis points in the weighted-average yield year-to-year, from 6.09% in 1998
to 6.03% in 1999. Interest income on federal funds sold increased by
$24,000 for the year-ended December 31, 1999. The average balance invested in
federal funds sold increased by $530,000, or 25.59%, compared to 1998. The
yield on federal funds sold decreased by 13 basis point to 5.04%
Interest expense on deposits increased by $56,000, or 2.21%, during
1999, due primarily to an increase in the average balance of interest-
bearing deposits outstanding of $8.5 million, or 13.07%, coupled with a
decline in the weighted-average rate from 3.89% to 3.52% in 1999. Interest
expense on short-term borrowings decreased by $5,000 or 83.33%, primarily
due to the decrease in average balance outstanding from $97,000 to $16,000.
As a result of the forgoing changes in interest income and interest
expense, net interest income increased by $295,000 (on a tax-equivalent
basis), or 7.44%, during 1999, as compared to 1998. The interest rate spread
increased by 11 basis points to 4.17% for 1999 as compared to 4.06% for 1998,
while the net interest margin decreased by seven basis points to 4.78% for
year 1999.
Provision for Loan Losses The Bank maintains an allowance for loan
losses in an amount which, in management's judgement, is adequate to absorb
reasonably foreseeable losses inherent in the loan portfolio. The provision
for loan losses is determined by management as the amount to be added to the
allowance for loan losses, after net charge-offs have been deducted, to bring
the allowance to a level which is considered adequate to absorb losses
inherent in the loan portfolio in accordance with generally accepted
accounting principles ("GAAP"). The amount of the provision is based on
management's regular review of the loan portfolio and consideration of such
factors as historical loss experience, generally prevailing economic
conditions, changes in size and composition of the loan portfolio and
considerations relating to specific loans, including the ability of the
borrower to repay the loan and the estimated value of the underlying
collateral. A variety of factors, including the performance of the Bank's
loan portfolio, the economy, changes in real estate values, interest rates and
regulatory requirements regarding asset classifications, may influence
management's determination of the provision. As a result of its analysis,
management concluded that the allowance was adequate as of December 31, 1999.
There can be no assurance that the allowance will be adequate to cover
future losses on non-performing assets.
The Bank had net recoveries of $137,000, $320,000 and $190,000
during the years ended December 31, 1999, 1998 and 1997, respectively. The
Bank's charge-off history is a product of a variety of factors, including
the Bank's underwriting guidelines and the composition of its loan
portfolio. An anlaysis of the Allowance for Loan Losses is presented
in the Loan Information table.
There was a negative provision for loan losses during 1999 of $130,000
as compared to a negative provision of $75,000 in 1998 and a provision
of $27,000 in 1997. The amount of provision was based upon the results of
management's quarterly reviews of the loan portfolio to identify problem
and potential problem loans and to determine appropriate courses of
action on a loan by loan basis. Collection procedures are activated when
a loan becomes past due.
The entire allowance for loan losses is available to absorb any
particular loan loss. For analytical purposes, the allowance could be
allocated based upon net historical charge-offs of each type of loan
for the last five years. However, the primary criteria used to determine
the percentage allocation is based upon the losses experienced, the
type and market value of the collateral securing the loan portfolio,
and the financial standing of certain borrowers due to economic trends
in their related businesses or farming operations.Please refer to the Loan
Information table for the allocation of the allowance.
Management believes significant factors affecting the allowance are
being reviewed regularly and that the allowance is adequate to cover
potentially uncollectible loans as of December 31, 1999. The Bank has no
exposure from troubled debt to lesser-developed countries.
The allowance to loans outstanding at year-end decreased to 3.09% in
1999 from 3.78% and 3.70% in 1998 and 1997, respectively. The decrease was
due primarily to the non-existence of non-performing loans coupled with the
recovery on loans previously charged-off. An analysis of the Allowance for
Loan Losses is presented in the Loan Information table.
Other Income and Other Expense Total other income is comprised of
operating income attributed to providing deposit accounts for bank customers,
the disposition of investment securities prior to their maturity (which are
classified as available for sale), increases in the cash surrender values
of life insurance policies, and fees from banking services.
<PAGE>
Total other expense is comprised of operating expense attributed to
staffing(personnel costs), operation and maintenance of bank buildings and
equipment, banking service promotion, taxes and assessments, and other
operating expenses. The "Income Statement Data" table, contains a summary of
these items for the five years ended December 31, 1995 through 1999.
Income Taxes The provision for federal income taxes totaled $360,000 for
the fiscal year-ended December 31, 1999, an increase of $29,000, or 8.76%,
over the provision in fiscal 1998. The effective tax rates were 25.1% and
24.8% for the years ended December 31, 1999 and 1998.
Impacting the tax provisions for the three years covered in this report
is the level of the provision for possible loan losses (negative provision
$130,000 in 1999 and $75,000 in 1998, and a positive provision of $27,000
in 1997) and the level of tax-exempt income on securities which was $318,000,
$349,000 and $305,000 for the years 1999, 1998, and 1997, respectively. Due
to the continued improvement in credit underwriting standards, the values of
collateral securing the loan portfolio, the financial standing of certain
borrowers in their related businesses or farming operations, and the current
economic trends combined with the amount of recoveries on previously
charged-off loans, management elected to reduce the Bank's provision for
possible loan losses during the fiscal year-ended December 31, 1999.
<TABLE>
<CAPTION>
Consolidated Income Summary
In thousands 1999 Change 1998 Change 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income (tax-equivalent basis) $ 6,850 5.32% $ 6,504 15.01% $ 5,655 $ 5,754 $ 5,723
Interest expense 2,592 2.01% 2,541 17.42% 2,164 2,277 2,442
------ ------ ------ ------ ------
Net interest income 4,258 7.44% 3,963 13.52% 3,491 3,477 3,281
Provision for loan losses (130) (173.33)% (75) (377.78)% 27 -- 204
------ ------ ------ ------ ------
Net interest income after provision for
loan losses 4,389 8.67% 4,038 16.57% 3,464 3,477 3,077
Non-interest income 650 2.69% 633 13.85% 556 543 487
Non-interest expense 3,432 6.75% 3,215 17.68% 2,732 3,064 2,906
------ ------ ------ ------ ------
Income before income taxes 1,606 10.30% 1,456 13.04% 1,288 956 658
Income tax expense 360 8.76% 331 8.88% 304 140 (34)
Tax-equivalent adjustment 171 37.90% 124 51.22% 82 135 159
------ ------ ------ ------ ------
Net income $ 1,075 7.39% $ 1,001 10.98% $ 902 $ 681 $ 533
====== ====== ====== ====== ======
</TABLE>
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standard (SFAS) No. 109, "Accounting for Income Taxes" requiring
a liability approach to accounting for income taxes as opposed to a deferred
approach. The liability approach places emphasis on the accuracy of the
balance sheet while the deferred approach emphasizes the income statement.
Under the liability approach, deferred taxes are computed based on the
tax rates in effect for the periods in which temporary differences are
expected to reverse. An annual adjustment of the deferred tax liability
or asset is made for any subsequent change in tax rates.
Effects of Inflation/Changing Prices The effects of inflation on operations
of the Bank occurs through increased operating costs which can be recovered
through increased prices for services. Virtually all of the Bank's assets
and liabilities are monetary in nature and can be re-priced on a more
frequent basis than in other industries. Every effort is being made through
interest sensitivity management to monitor products and interest rates and
their impact on future earnings.
<PAGE>
Income Statement Data
<TABLE>
<CAPTION>
1999 Over 1998 1998 Over 1997
------------------------------ -----------------------------
In Thousands Volume Yield/Rate Total Volume Yield/Rate Total
<S> <C> <C> <C> <C> <C> <C>
Changes in Tax Equivalent Interest Income *
Interest Income
Time Deposits $ - $ - $ - $ - $ - $ -
Federal funds sold 28 (4) 24 38 (6) 32
Investment securities 34 (20) 14 367 (17) 350
Loans 565 (257) 308 390 77 467
----- ------ ------ ----- ------ ------
Total 627 (281) 346 795 54 849
----- ------ ------ ----- ------ ------
Interest expense
Interest-bearing deposits 300 (244) 56 363 15 378
Borrowed funds (5) -- (5) -- (1) (1)
----- ------ ------ ----- ------ ------
Total 295 (244) 51 363 14 377
----- ------ ----- ----- ------ ------
Net interest income $ 332 $ (37) $ 295 $ 432 $ 40 $ 472
===== ====== ===== ===== ====== ======
* Changes in the average balance/rate are allocated entirely to the
yield/rate changes
</TABLE>
<TABLE>
<CAPTION>
1999 % Change 1998 % Change 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
Analysis of Selected Non-Interest Expenses
Salaries and benefits
Salaries $ 1,168 3.91% $ 1,124 31.00% $ 858 $ 1,109 $ 950
Benefits 495 35.25% 366 28.42% 285 433 417
------ ------ ------ ------ ------
Total $ 1,663 11.61% $ 1,490 30.36% $ 1,143 $ 1,542 $ 1,367
====== ====== ====== ====== ======
Occupancy and equipment
Depreciation $ 391 10.45% $ 354 32.09% $ 268 $ 273 $ 247
Maintenance and repairs 178 (0.56)% 179 13.29% 158 161 102
Real estate taxes 18 20.00% 15 0.00% 15 15 10
Insurance 24 (17.24)% 29 20.83% 24 21 27
Utilities and other 44 11.90% 42 27.27% 33 35 54
------ ------ ------ ------ ------
Total $ 655 6.30% $ 619 24.30% $ 498 $ 505 $ 440
====== ====== ====== ====== ======
Other expenses
Advertising $ 123 51.85% $ 81 (3.57)% $ 84 $ 91 $ 88
ATM fees 49 25.64% 39 34.48% 29 25 25
Bank charges 42 5.00% 40 14.29% 35 38 36
Credit card fees 17 (62.22)% 45 7.14% 42 43 51
Deposit insurance 9 12.50% 8 (55.56)% 18 21 91
Directors' fees 77 6.94% 72 2.86% 70 84 53
Legal and professional 162 (15.84)% 202 (28.62)% 283 217 162
State franchise tax 136 (17.58)% 165 42.24% 116 158 164
Postage, freight & courier 72 10.77% 65 32.65% 49 39 56
Supplies 100 (8.18)% 110 (2.65)% 113 99 99
Travel 31 (22.50)% 40 (9.09)% 44 29 39
Other 296 18.83% 239 14.83% 208 173 176
------ ------ ------ ------ ------
Total $ 1,114 0.45% $ 1,106 1.37% $1,091 $ 1,017 $ 1,040
====== ====== ====== ====== ======
</TABLE>
<PAGE>
Liquidity and Interest Rate Sensitivity Management utilizes several
tools currently available to monitor and ensure that liquid funds are avail-
able to satisfy the normal loan and deposit needs of its customers while
taking advantage of investment opportunities as they arise in order to
maintain consistent growth and interest income. Cash and due from banks,
marketable investment securities with maximum one-year maturities, and
federal funds sold are the principal components of asset liquidity. The
"Interest Rate Sensitivity" table, indicates that the Bank is in a liability
sensitive position which is more beneficial in a period of declining interest
rates since liabilities can be re-priced at lower rates. In periods of
rising interest rates, interest sensitive assets are more favorable since
they allow adjustment of interest sensitive assets prior to maturing
interest sensitive liabilities. The three month category of interest
sensitive liabilities includes approximately $37.4 million consisting of
Savings, NOW accounts, and insured earnings which can be adjusted in
any one category at any time to offset any positive gap in a declining rate
environment.
Interest Rate Sensitivity
<TABLE>
<CAPTION>
Repricing or Maturing
---------------------------------------------------------------
Over Over Over
Within 3 Months 1 Year 3 Years After
In thousands, except ratios 3 Months to 1 Year to 3 Years to 5 Years 5 Year Total
<S> <C> <C> <C> <C> <C> <C>
Loans $ 6,304 $ 4,693 $ 8,138 $ 7,865 $28,975 $55,975
Investment securities 4,591 3,443 7,563 1,939 17,259 34,795
Other earning assets -- -- -- -- -- --
Other assets -- -- -- -- 8,466 8,466
------ ------ ------ ------ ------ ------
Total assets $10,895 $ 8,136 $15,701 $ 9,804 $54,700 $99,236
====== ====== ====== ====== ====== ======
Noninterest-bearing deposits $11,567 $11,567
Interest-bearing deposits $53,451 $17,174 $ 4,663 $ 111 -- 75,399
Borrowed funds -- -- -- -- -- --
Other liabilities and equity -- -- -- -- 12,270 12,270
------ ------ ------ ------ ------ ------
Total liabilities and equity $53,451 $17,174 $ 4,663 $ 111 $23,837 $99,236
------ ------ ------- ------ ------ ------
Gap* $(42,556) $( 9,038) $11,038 $ 9,693 $30,863
Cumulative gap (42,556) (51,594) (40,556) (30,863) --
Cumulative gap as a percent
of total assets (42.79)% (51.88)% (40.78)% (31.03)% --
*Assets - (liabilities + equity) (42.88)% (51.99)% (40.87)% (31.10)% --
</TABLE>
Management utilizes variable rate loans (on a limited basis) and
adjustable rate deposits to maintain desired net interest margins. A
procedural process has been developed to monitor changes in market rates on
interest sensitive assets and liabilities with appropriate action being
taken when warranted. Please refer to the "Interest Rate Sensitivity"
and the "Other Balance Sheet Data" tables for additional information.
<PAGE>
Quarterly Condensed Consolidated Financial Information
<TABLE>
<CAPTION>
1999 Quarters 1998 Quarters
In thousands, except per common ------------------------------------- -------------------------------------
share and ratios Fourth Third Second First Fourth Third Second First
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 1,801 $ 1,676 $ 1,619 $ 1,583 $ 1,667 $ 1,636 $ 1,583 $ 1,494
Interest expense 675 656 644 617 640 646 651 604
------ ------ ------ ------ ------ ------ ------ ------
Net interest income 1,126 1,020 975 966 1,027 990 932 890
Provision for loan losses (30) (50) (25) (25) (25) (25) (25) --
Non-interest income 161 165 164 160 175 159 168 131
Non-interest expense 936 871 795 830 846 863 772 734
------ ------ ------ ------ ------ ------ ------ ------
Income before income taxes 381 364 369 321 381 311 353 287
Income tax expense 84 98 98 80 100 74 89 68
------ ------ ------ ------ ------ ------ ------ ------
Net income $ 297 $ 266 $ 271 $ 241 $ 281 $ 237 $ 264 $ 219
====== ====== ====== ====== ====== ====== ====== ======
Per Common Share
Net income
Basic $0.47 $0.42 $0.43 $0.38 $0.44 $0.37 $0.41 $0.34
Diluted 0.46 0.42 0.42 0.38 0.44 0.36 0.41 0.34
Dividends declared 0.16 0.15 0.30 -- 0.30 -- 0.30 --
Shareholders' equity 18.32 18.49 18.12 18.54 18.18 18.20 17.77 17.77
Stock price range
High 28.25 28.00 28.00 28.00 27.00 27.00 22.00 22.00
Low 28.00 28.00 28.00 27.00 27.00 27.00 27.00 22.00
Tax-equivalent Yields and Rates
Federal funds sold 5.41% 6.01% 4.72% 4.75% 4.84% 5.63% 5.46% 5.45%
Investment securities 5.70% 5.55% 5.43% 5.48% 5.39% 6.00% 6.14% 6.66%
Loans 9.12% 8.81% 8.85% 9.09% 9.86% 9.80% 9.74% 9.02%
Total earning assets 7.70% 7.30% 7.29% 7.42% 7.71% 8.06% 7.98% 7.97%
Interest-bearing deposits 3.54% 3.50% 3.55% 3.53% 3.72% 3.92% 3.92% 4.03%
Borrowed funds N/A N/A N/A N/A N/A 6.25% 6.17% N/A
Total interest-bearing liabilities 3.54% 3.50% 3.55% 3.53% 3.72% 3.92% 3.94% 4.03%
Yield spread 4.16% 3.80% 3.74% 3.89% 4.00% 4.14% 4.04% 3.94%
Net interest income to earning assets 4.81% 4.52% 4.39% 4.53% 4.76% 4.94% 4.77% 4.81%
Ratios
Return on assets 1.19% 1.09% 1.14% 1.04% 1.22% 1.07% 1.18% 1.07%
Leverage 8.70x 8.40x 8.29x 7.95x 7.91x 7.69x 7.81x 7.24x
Return on average shareholders' equity 10.36% 9.16% 9.42% 8.28% 9.68% 8.21% 9.25% 7.75%
Average Assets
Cash and due from banks $ 4,025 $ 3,445 $ 2,899 $ 3,300 $ 1,987 $ 2,984 $ 5,391 $ 2,772
Federal funds sold 3,623 1,863 3,136 1,769 4,216 1,280 659 2,130
Investment securities 35,082 36,898 36,555 37,180 36,970 36,524 38,712 30,643
Loans 54,842 51,596 48,973 46,358 45,600 45,095 41,532 43,597
------ ------ ------ ------ ------ ------ ------ ------
Total earning assets 93,547 90,357 88,664 85,307 86,786 82,899 80,903 76,370
Allowance for loan losses (1,688) (1,662) (1,691) (1,714) (1,646) (1,564) (1,572) (1,531)
Other assets 3,914 5,360 5,549 5,724 4,658 4,460 4,458 4,195
------ ------ ------ ------ ------ ------ ------ ------
Total average assets $99,798 $97,500 $95,421 $92,617 $91,785 $88,779 $89,180 $81,806
====== ====== ====== ====== ====== ====== ====== ======
Average Liabilities and Shareholders' Equity
Noninterest-bearing deposits $10,757 $ 9,632 $ 9,519 $10,119 $10,508 $10,305 $10,508 $ 9,739
Interest-bearing deposits 76,417 74,970 72,631 69,896 68,848 65,865 65,842 59,917
Borrowed funds -- -- -- 8 -- 64 324 --
Other liabilities 1,158 1,286 1,762 945 821 1,004 1,092 845
Shareholders' equity 11,466 11,612 11,509 11,649 11,608 11,541 11,414 11,305
------ ------ ------ ------ ------ ------ ------ ------
Total average liabilities
and shareholders' equity $99,798 $97,500 $95,421 $92,617 $91,785 $88,779 $89,180 $81,806
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
<PAGE>
Other Balance Sheet Data
In thousands, except ratios
Maturity of Total Investment Securities (a)
<TABLE>
<CAPTION>
Carrying Value
Within 1 Year 1-5 Years 5-10 Years After 10 Years Total
Amount/Yield Amount/Yield Amount/Yield Amount/Yield Amount/Yield
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
At December 31, 1999
Investment securities available-for-sale:
U.S. Government Agency $ -- -- $ 6,808 5.84% $ 3,429 6.67% $ -- -- $10,237 6.12%
State and Municipal Obligation (b) 1,511 7.40% 2,537 6.66% 455 5.88% 3,146 7.05% 7,649 6.86%
Mortgage-backed securities -- -- 1,665 5.66% 1,431 5.97% 9,920 6.14% 13,016 6.06%
Corporate securities 591 6.02% 1,424 5.53% -- -- -- -- 2,015 5.67%
Commercial Paper 1,324 5.51% -- -- -- -- -- -- 1,324 5.51%
Equity -- -- -- -- -- -- 554 -- 554 --
------ ------ ------ ------ ------
Total investment securities $ 3,426 6.43% $12,434 5.95% $ 5,315 6.41% $13,620 6.36% $34,795 6.21%
====== ====== ====== ====== ======
Within 1-5 After
Maturity of Loans 1 Year Years 5 Years Total
Fixed Rate
Commercial $ 581 $ 912 $ 295 $17,880
Installment loans to individuals 349 4,065 502 4,916
Residential/Commercial real estate 516 6,988 36,917 44,421
All other 9 27 220 256
------ ------ ------ ------
Total $ 1,455 $11,992 $37,934 $51,381
====== ====== ====== ======
Floating interest rates
Residential/Commercial Real Estate 3,098 164 -- 3,262
Commercial 1,329 3 -- 1,332
------ ----- ------ ------
Total $ 5,882 $12,159 $37,934 $55,975
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Within 3-12 1-2 2-3
Maturity of Time Deposits of $100,000 or more 3 Months Months Years Years Total
<S> <C> <C> <C> <C> <C>
Certificates of deposit and other time $ 5,286 $ 3,891 $ 2,354 $ -- $11,531
====== ====== ====== ====== ======
Deposits at December 31, 1999 1998 1997 1996 1995
------ ------ ------ ------ ------
Non-interest-bearing deposits $11,426 $10,517 $ 9,708 $11,296 $10,766
Interest-bearing deposits
NOW and money market accounts 19,367 18,670 10,972 12,397 13,609
Savings accounts 18,205 18,639 18,063 20,208 21,541
Certificates of deposit 37,961 33,485 27,349 26,173 24,975
------ ------ ------ ------ ------
Total deposit $86,959 $81,311 $66,092 $70,074 $70,891
====== ====== ====== ====== ======
</TABLE>
(a) Based on contractual maturities
(b) The yield on state municipal securities is increased by the benefit of
tax exemption, assuming a 34% federal income tax rate. For the year-ended
December 31,1999, the amount of the increases in the yields for these
securities and for total securities is 1.87% and .42%, respectively.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Shareholders
FC Banc Corp
Bucyrus, Ohio
We have audited the consolidated balance sheets of FC Banc Corp and
subsidiary as of December 31, 1999 and 1998, and the related consolidated
statements of income, changes in shareholders' equity and cash flows for
each of the years in the three year period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of FC Banc Corp and subsidiary as of December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flow for each
of the years in the three-year period ended December 31, 1999, in
conformity with generally accepted accounting principles.
/s/ Robb, Dixon, Francis, Davis, Oneson & Company
-------------------------------------------------
Robb, Dixon,
Francis, Davis, Oneson
& Company
Granville, Ohio
February 1, 2000
<PAGE>
CONSOLIDATED BALANCE SHEETS
===============================================================================
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31,
1999 1998
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents
Cash and amounts due from banks $ 4,311 $ 3,964
Interest-bearing deposits with banks 10 5
Federal funds sold 0 3,500
------- -------
Total cash and cash equivalents 4,321 7,469
Investment securities, available-for-sale 34,795 37,319
Loans 55,975 45,649
Allowance for loan losses (1,732) (1,725)
------- -------
Net loans 54,243 43,924
Premises and equipment, net 2,108 1,489
Accured interest receivable 683 711
Cash surrender value of life insurance 2,373 2,385
Deferred income taxes 586 316
Other assets 127 72
------- -------
TOTAL ASSETS $ 99,236 $ 93,685
======= =======
LIABILITIES
Deposits
Noninterest-bearing $ 11,426 $ 10,517
Interest-bearing 75,533 70,794
------- -------
Total Deposits 86,959 81,311
Borrowed funds 29 0
Accrued interest payable 184 188
Other liabilities 662 639
------- -------
TOTAL LIABILITIES 87,834 82,138
------- -------
SHAREHOLDERS' EQUITY
Preferred stock of $25 par value; 750 shares
authorized, no shares issued and outstanding 0 0
Common stock of no par value;
4,000,000 shares authorized, 665,632 shares issued 832 832
Additional paid-in capital 1,371 1,370
Retained earnings 10,769 10,079
Treasury stock, at cost; 43,441 and 30,703 shares (1,047) (685)
Accumulated other comprehensive income (523) (49)
------- -------
TOTAL SHAREHOLDERS' EQUITY 11,402 11,547
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 99,236 $ 93,685
======= =======
</TABLE>
- --------------------------------
See accompanying notes.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
==============================================================================
<TABLE>
<CAPTION>
(Dollars in thousands)
Years ended December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 4,524 $ 4,218 $ 3,756
Interest and dividends on investment securities 2,020 2,055 1,742
Interest on federal funds sold 131 107 75
Interest on bank deposits 4 0 0
------ ------ ------
TOTAL INTEREST INCOME 6,679 6,380 5,573
------ ------ ------
INTEREST EXPENSE
Interest on deposits 2,591 2,535 2,157
Interest on borrowed funds 1 6 7
------ ------ ------
TOTAL INTEREST EXPENSE 2,592 2,541 2,164
------ ------ ------
NET INTEREST INCOME 4,087 3,839 3,409
Provision for loan losses (income) expense (130) (75) 27
------ ------ ------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 4,217 3,914 3,382
OTHER INCOME
Service charges 408 411 368
Gains (losses) from sales of investment securities, net (3) 11 3
Life insurance buildup 130 75 73
Other income 115 136 112
------ ------ ------
TOTAL OTHER INCOME 650 633 556
------ ------ ------
OTHER EXPENSES
Salaries and employee benefits 1,663 1,490 1,143
Net occupancy and equipment expenses 655 619 498
Advertising and public relations 123 81 84
Directors fees 77 72 70
Legal and professional 162 202 283
State taxes 136 165 116
Supplies 100 110 113
Other expenses 516 476 425
------ ------ ------
TOTAL OTHER EXPENSES 3,432 3,215 2,732
------ ------ ------
NET INCOME BEFORE FEDERAL INCOME
TAX EXPENSE 1,435 1,332 1,206
Federal income tax expense 360 331 304
------ ------ ------
NET INCOME $ 1,075 $ 1,001 $ 902
====== ====== ======
EARNINGS PER SHARE:
Basic $ 1.70 $ 1.56 $ 1.40
Diluted $ 1.68 $ 1.55 $ 1.40
</TABLE>
See accompanying notes.
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
================================================================================
<TABLE>
<CAPTION>
(Dollars in thousands)
Years ended December 31, 1999, 1998, and 1997
Accumulated Total
Capital Other Share- Compre-
Common Paid-in Retained Treasury Comprehensive holders' hensive
Stock Capital Earnings Stock Income Equity Income
-------- -------- -------- -------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996 $ 832 $ 1,370 $ 8,944 $ (315) $ (164) $ 10,667
Comprehensive Income
Net Income 902 902 $ 902
Other comprehensive income, net of tax:
Change in unrealized
gain (loss) on securities
Available-for-sale,
net of deferred income tax of $89 180 180 180
------
Total comprehensive income $ 1,082
======
Dividends declared - common ($.60 per share) (385) (385)
Purchase 7,664 shares of treasury stock (169) (169)
-------- -------- -------- -------- -------- --------
Balances at December 31, 1997 832 1,370 9,461 (484) 16 11,195
Comprehensive Income
Net Income 1,001 1,001 $ 1,001
Other comprehensive income, net of tax:
Change in unrealized
gain (loss) on securities
Available-for-sale,
net of deferred income tax of $31 (65) (65) (65)
------
Total comprehensive income $ 936
======
Dividends declared - common ($.60 per share) (383) (383)
Purchase 7,447 shares of treasury stock (201) (201)
-------- -------- -------- -------- -------- --------
Balance at December 31, 1998 832 1,370 10,079 (685) (49) 11,547
Comprehensive Income
Net Income 1,075 1,075 $ 1,075
Other comprehensive income, net of tax:
Change in unrealized
gain (loss) on securities
available-for-sale,
net of deferred income tax of $237 (474) (474) (474)
------
Total comprehensive income $ 601
======
Dividends declared - common ($.61 per share) (385) (385)
Sale 1,000 treasury shares 1 23 24
Purchase 13,738 shares of treasury stock (385) (385)
-------- -------- -------- -------- -------- --------
Balance at December 31, 1999 $ 832 $ 1,371 $ 10,769 $ (1,047) $ (523) $ 11,402
======== ======== ======== ======== ======== ========
</TABLE>
- -----------------------------------
See accompanying notes.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
==============================================================================
<TABLE>
<CAPTION>
(Dollars in thousands)
Years ended December 31,
CASH FLOWS FROM OPERATING ACTIVITIES: 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income $ 1,075 $ 1,001 $ 902
Adjustments to reconcile net income to net cash
Provided by operating activities:
Provision for loan losses (130) (75) 27
(Gain) loss on sales of available-for-sale securities, net 3 (11) (3)
Gain from sale of loans held-for-sale 0 (10) 0
Gain from sale of premises and equipment (1) 0 0
Gain on sale of other real estate owned (1) 0 0
Income accrued on life insurance contracts (130) (75) (73)
Origination of loans held-for-sale 0 (1,287) 0
Proceeds from sale of loans held-for-sale 0 1,297 0
Depreciation 391 357 268
Deferred income taxes (20) 0 147
Investment securities amortization (accretion), net 198 134 77
Net change in:
Accrued interest receivable 28 21 104
Accrued interest payable (4) 7 (4)
Other assets (55) 76 35
Other liabilities 23 120 119
------ ------ ------
Net cash provided by operating activities 1,377 1,555 1,599
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities available-for-sale (9,937) (22,287) (10,835)
Proceeds from sales of securities available-for-sale 711 6,065 3,363
Proceeds from maturities of securities
available-for-sale 10,826 11,144 7,402
Proceeds from sale of loans 282 0 0
Net (increase) decrease in loans (10,521) (5,300) 1,203
Proceeds from sale of other real estate owned 51 0 0
Purchases of premises and equipment (1,010) (429) (208)
Sale of premises and equipment 1 0 0
Purchases of life insurance contracts (560) (840) 0
Proceeds from redemption of life insurance contracts 702 0 0
------ ------ ------
Net cash provided by (used in) investing activities (9,455) (11,647) 925
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in:
Noninterest-bearing, interest bearing, demand,
and savings deposits 1,112 9,084 (5,140)
Certificates of deposit 4,536 6,135 1,158
Net increase (decrease) in short-term borrowed funds 0 (600) 600
Proceeds from note payable 30 0 0
Payments on note payable (1) (41) (78)
Proceeds from stock option exercises 23 0 0
Purchase of treasury stock (385) (201) (169)
Cash dividends paid (385) (383) (385)
------ ------ ------
Net cash provided by (used in) financing activities 4,930 13,994 (4,014)
------ ------ ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,148) 3,902 (1,490)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 7,469 3,567 5,057
------ ------ ------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,321 $ 7,469 $ 3,567
====== ====== ======
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for interest $ 2,596 $ 2,534 $ 2,168
Cash paid during the year for income taxes 498 197 181
Loans transferred to other real estate owned 50 0 0
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
=============================================================================
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
FC Banc Corp (the Bancorp) is a bank holding company whose principal
activity is the ownership and management of its wholly-owned subsidiary,
Farmers Citizens Bank, (the Bank). The Bank generates commercial (including
agricultural), mortgage and consumer loans and receives deposits from
customers located primarily in Crawford County, Morrow County and the
surrounding areas. The Bank operates under a state bank charter and
provides full banking services. As a state bank, the Bank is subject to
regulations by the State of Ohio Division of Financial Institutions and
the Federal Reserve System through the Federal Reserve Bank of
Cleveland (FRB).
Basis of Consolidation
The consolidated financial statements include the accounts of FC Banc Corp,
and its wholly-owned subsidiary, Farmers Citizens Bank, after elimination of
all material intercompany transactions and balances.
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 reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The determination of the adequacy of the allowance for loan losses is based
on estimates that are particularly susceptible to significant changes in
the economic environment and market conditions. In connection with the
determination of the estimated losses on loans, management obtains
independent appraisals for significant collateral.
The Bank's loans are generally secured by specific items of collateral
including real property, consumer assets, and business assets. Although the
Bank has a diversified loan portfolio, a substantial portion of its debtors'
ability to honor their contracts is dependent on local economic conditions
in the agricultural industry.
While management uses available information to recognize losses on loans,
further reductions in the carrying amounts of loans may be necessary based
on changes in local economic conditions. In addition, regulatory agencies,
as an integral part of their examination process, periodically review the
estimated losses on loans. Such agencies may require the Bank to recognize
additional losses based on their judgments about information available to
them at the time of their examination. Because of these factors, it is
reasonably possible that the estimated losses on loans may change materially
in the near term. However, the amount of the change that is reasonably
possible cannot be estimated.
Investment Securities
All debt securities are classified as available-for-sale. Securities
available-for-sale are carried at fair value with unrealized gains and
losses reported in other comprehensive income. Realized gains (losses) on
securities available-for-sale are included in other income (expense) and,
when applicable, are reported as a reclassification adjustment, net of tax,
in other comprehensive income. Gains and losses on sales of securities are
determined on the specific-identification method.
<PAGE>
Loans
Loans are stated at unpaid principal balances, less the allowance for loan
losses.
Interest income generally is not recognized on specific impaired loans
unless the likelihood of further loss is remote. Interest payments received
on such loans are applied as a reduction of the loan principal balance.
Interest income on other nonaccrual loans is not recognized until all
principal payments have been made in full.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level which, in management's
judgment, is adequate to absorb credit losses inherent in the loan portfolio.
The amount of the allowance is based on management's evaluation of the
collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specific
impaired loans, and economic conditions and other risks inherent in the
portfolio. Allowances for impaired loans are generally determined based on
collateral values or the present value of estimated cash flows. Although
management uses available information to recognize losses on loans, because
of uncertainties associated with local economic conditions, collateral
values, and future cash flows on impaired loans, it is reasonably possible
that a material change could occur in the allowance for loan losses in the
near term. However, the amount of the change that is reasonably possible
cannot be estimated. The allowance is increased by a provision for loan
losses, which is charged to expense, and reduced by charge-offs, net of
recoveries. Changes in the allowance related to impaired loans are charged
or credited to the provision for loan losses.
Premises and Equipment
Land is carried at cost. Other premises and equipment are recorded at cost
net of accumulated depreciation. Depreciation is computed using the straight-
line method based principally on the estimated useful lives of the assets.
Maintenance and repairs are expensed as incurred while major additions and
improvements are capitalized.
Other Real Estate Owned
Real estate properties acquired through or in lieu of loan foreclosure are
initially recorded at the lower of the Bank's carrying amount or fair value
less estimated selling cost at the date of foreclosure. Any write-downs
based on the asset's fair value at the date of acquisition are charged to the
allowance for loan losses. After foreclosure, these assets are carried at
the lower of their new cost basis or fair value less cost to sell. Costs of
significant property improvements are capitalized, whereas costs relating to
holding property are expensed. The portion of interest costs related to
development of real estate is capitalized. Valuations are periodically
performed by management, and any subsequent write-downs are recorded as a
charge to operations, if necessary, to reduce the carrying value of a
property to the lower of its cost or fair value less cost to sell.
Postretirement Benefits
Postretirement health care and life insurance benefits are charged to
salaries and employee benefits expense when paid. In December, 1990, the
Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions. Under SFAS No.106, beginning in 1995,
postretirement benefits other than pensions were accounted for in a manner
similar to current standards for accounting for pensions. SFAS No. 106
requires that the accumulated postretirement benefit obligation be either
charged in the income statement as a cumulative effect of a change in
accounting in the period of adoption or delayed and amortized over future
periods as part of future postretiremnt benefits costs.
<PAGE>
Off-Balance Sheet Financial Instruments
In the ordinary course of business the Bank has entered into off-balance
sheet financial instruments consisting of commitments to extend credit,
commitments under credit card arrangements, and standby letters of credit.
Such financial instruments are recorded in the financial statements when
they become payable.
Advertising
Advertising cost are charged to operations when incurred.
Stock Options
The Bancorp has elected to continue accounting for employee stock
compensation plans under APB Opinion 25 and related Interpretations.
However, the Company discloses in the Notes to Consolidated Financial
Statements in accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS No.123 encourages, but does not require companies
to recognize compensation expense for grants of stock, stock options and
other equity instruments based on the fair value of those instruments.
Income Taxes
Income taxes are provided for the tax effects reported in the financial
statements and consist of taxes currently due plus deferred taxes related
primarily to differences between the basis of available-for-sale securities,
allowance for loan losses, accumulated depreciation, income on nonaccrual
loans, deferred compensation, and accretion income. The deferred tax
assets and liabilities represent the future tax return consequences of
those differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled. Deferred tax assets and liabilities
are reflected at income tax rates applicable to the period in which the
deferred tax assets and liabilities are expected to be realized or settled.
As changes in tax laws or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes. The Bancorp
files consolidated income tax returns with its subsidiary.
Reclassifications
Certain amounts in 1998 and 1997 have been reclassified to conform with the
1999 presentation.
NOTE B - RESTRICTION ON CASH AND DUE FROM BANKS
The Bank is required to maintain reserve funds in cash or on deposit with
the Federal Reserve Bank. The required reserve at December 31, 1999 and
1998, was $717,000 and $736,000, respectively.
<PAGE>
NOTE C - INVESTMENT SECURITIES
The amortized cost of securities and their approximate fair values are as
follows:
Available-for-sale
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31, 1999 December 31, 1998
---------------------------------------- ------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
-------- ---------- ---------- -------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Federal agencies $10,428 $ 0 $(191) $10,237 $ 7,818 $ 1 $ (83) $ 7,736
State &
municipal
securities 7,858 18 (227) 7,649 8,669 118 (22) 8,765
Mortgage-backed
securities 13,400 5 (389) 13,016 18,976 42 (119) 18,899
Corporate
debt securities 2,047 0 (32) 2,015 1,608 0 (10) 1,598
Commercial paper 1,324 0 0 1,324 0 0 0 0
Equity
securities 534 20 0 554 321 0 0 321
------- --- ----- ------- ------- ---- ----- -------
Total $35,591 $43 $(839) $34,795 $37,392 $161 $(234) $37,319
======= === ====== ======= ======= ==== ====== =======
</TABLE>
The amortized cost and estimated fair value of securities available-for-sale
at December 31, 1999, by contractual maturity, are as follows:
(Dollars in thousands)
Amounts maturing in: Amortized Fair
Cost Value
---- -----
One year or less $ 3,423 $ 3,426
After one year through five years 10,819 10,657
After five years through ten years 3,988 3,883
After ten years 3,427 3,259
Mortgage-backed securities 13,400 13,016
Equity securities 534 554
------- -------
Total $ 35,591 $ 34,795
======== ========
<PAGE>
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations without call or
prepayment penalties.
During 1999, the Bank sold securities available-for-sale for total proceeds
of approximately $711,000 resulting in gross realized losses of approximately
$3,000. During 1998, the Bank sold securities available-for-sale for total
proceeds of approximately $6,065,000, resulting in gross realized gains of
approximately $12,000 and gross losses of approximately $1,000. During 1997,
the Bank sold securities available-for-sale for total proceeds of
approximately $3,363,000 resulting in gross realized gains of approximately
$7,000 and gross losses of approximately $4,000.
Investment securities with a carrying value of approximately $14,798,000 and
$11,775,000 were pledged at December 31, 1999 and 1998 to secure certain
deposits.
NOTE D - LOANS AND ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
Loans at December 31, 1999 and 1998 are summarized as follows:
(Dollars in thousands)
1999 1998
---- ----
<S> <C> <C>
Loans secured by real estate:
Construction $ 416 $ 517
Farmland 8,225 7,327
1-4 family residential properties 23,770 16,402
Nonfarm nonresidential properties 11,923 7,491
Agricultural production 3,349 4,253
Commercial and industrial 3,120 4,336
Consumer 4,916 5,075
Municipal 251 237
Other 5 11
------- -------
Total $55,975 $45,649
======= =======
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Allowance for loans losses:
Balance, beginning of year $ 1,725 $ 1,480 $ 1,263
Provision for loan losses (income) expense (130) (75) 27
Recoveries on loans 205 379 608
Loans charged-off (68) (59) (418)
------ ------ ------
Balance, end of year $ 1,732 $ 1,725 $ 1,480
====== ====== ======
</TABLE>
At December 31, 1999 and 1998, there was no recorded investment in impaired
loans. The average recorded investment in impaired loans amounted to
approximately $0, $175,000 and $531,000 for the years ended December 31,
1999, 1998 and 1997, respectively. No interest income on impaired loans was
recognized for cash payments received for the years ended December 31, 1999,
1998 and 1997.
<PAGE>
The Bank has no loans which have been modified. The Bank has entered into
transactions with certain directors, executive officers, significant
shareholders, and their affiliates. Such transactions were on substantially
the same terms, including interest rates and collateral, as those prevailing
at the time of comparable transactions with other customers, and did not, in
the opinion of management, involve more than a normal credit risk or present
any other unfavorable features. The aggregate amount of loans to such
related parties at December 31, 1999 was $3,109,000. During the year ended
loans made to such related parties amounted to $1,613,000 and payments
amounted to $699,000.
NOTE E - PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31, 1999 and 1998 follows:
(Dollars in thousands)
1999 1998
---- ----
Land $ 514 $ 221
Buildings 1,736 1,251
Equipment 1,338 1,607
Construction in process 261 349
------ ------
3,849 3,428
Accumulated depreciation (1,741) (1,939)
------ -----
Total $ 2,108 $ 1,489
====== ======
NOTE F - CASH SURRENDER VALUE OF LIFE INSURANCE
The Bank is the beneficiary of insurance on the lives of twelve of its past
and present officers and directors. At December 31, 1999 and 1998, there
were no notes payable to the insurance company.
NOTE G - DEPOSITS
Deposit account balances at December 31, 1999 and 1998, are summarized
as follows:
(Dollars in thousands)
1999 1998
---- ----
Noninterest bearing demand $ 11,426 $ 10,517
Interest-bearing demand 13,399 13,175
Savings accounts 24,173 24,134
Certificates of deposit 37,961 33,485
------- ------
Total $ 86,959 $ 81,311
======== ======
<PAGE>
The aggregate amount of certificates of deposit with a minimum denomination
of $100,000 was approximately $11,531,000 and $10,063,000 at December 31,
1999 and 1998.
Certificates maturing in years ending December 31, as of December 31, 1999:
2000 $32,044
2001 5,526
2002 380
2003 11
2004 and thereafter 0
------
Total $37,961
======
The Bank held related party deposits of approximately $1,159,000 and
$735,800 at December 31, 1999 and 1998, respectively.
Overdrawn demand deposits reclassified as loans totaled $5,000 and
$10,000 at December 31, 1999 and 1998, respectively.
NOTE H - BORROWED FUNDS
Borrowed funds balances at December 31, 1999 and 1998 are summarized as
follows:
(Dollars in thousands)
1999 1998
---- ----
Federal funds purchased $ 0 $ 0
Note payable 29 0
---- ----
Total borrowed funds $ 29 $ 0
===== =====
<PAGE>
NOTE I - FEDERAL INCOME TAXES
The consolidated provision for income taxes for the years ended December 31,
1999, consist of the following:
(Dollars in thousands)
1999 1998 1997
---- ---- ----
Income tax expense
Current tax expense $344 $331 $157
Deferred tax expense 16 0 147
---- ---- ----
Total $360 $331 $304
==== ==== ====
The consolidated provision for federal income taxes differs from that
computed by applying federal statutory rates to income before federal income
tax expenses, as indicated in the following analysis:
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Federal statutory income tax at 34% $ 488 34.0% $453 34.0% $410 34.0%
Tax exempt interest (113) (7.8)% (130) (9.8%) (104) (8.6%)
Life insurance income (44) (3.0)% (25) (1.9%) (25) (2.1%)
Interest and other non-deductible expenses 24 1.7% 24 1.8% 20 1.7%
Other 5 0.1% 9 0.7% 3 0.2%
----- ---- ----- ----- ----- -----
Total $ 360 25.0% $331 24.8% $304 25.2%
==== ===== ==== ===== ==== =====
</TABLE>
A cumulative net deferred tax asset is included in other assets at December
31, 1999 and 1998. The components of the asset are as follows:
(Dollars in thousands)
1999 1998
---- ----
Differences in available-for-sale securities $ 272 $ 24
Differences in depreciation methods (37) (33)
Differences in accounting for loan losses 227 271
Differences in nonaccrual loan interest 0 0
Differences in accrued expenses and benefits 135 97
Differences in discount accretion (11) (16)
Other 0 (27)
----- -----
Total $ 586 $ 316
===== =====
Deferred tax assets $ 634 $ 392
Deferred tax liabilities (48) (76)
----- -----
Net deferred tax assets $ 586 $ 316
===== =====
<PAGE>
NOTE J - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
In the normal course of business, the Bank has outstanding commitments and
contingent liabilities, such as commitments to extend credit and standby
letters of credit, which are not included in the accompanying consolidated
financial statements. The Bank's exposure to credit loss in the event of
nonperformance by the other party to the financial instruments for
commitments to extend credit and standby letters of credit is represented by
the contractual or notional amount of those instruments. The Bank uses the
same credit policies in making such commitments as it does for instruments
that are included in the consolidated balance sheets.
Financial instruments whose contract amount represents credit risk were as
follows:
(Dollars in thousands)
1999 1998
---- ----
Home equity lines of credit $ 967 $ 818
Credit card lines 0 900
Other commitments to extend credit 3,234 3,288
Standby letters of credit 615 613
------- -------
$ 4,816 $ 5,619
======= =======
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Bank
evaluates each customer's creditworthiness on a case-by-case basis. The
amount and type of collateral obtained, if deemed necessary by the Bank
upon extension of credit, is based on management's credit evaluation.
Collateral held varies but may include accounts receivable, inventory,
property and equipment, and income-producing commerical properties.
Standby letters of credit are conditional commitments issued by the Bank
to guarantee the performance of a customer to a third party. Standby
letters of credit generally have fixed expiration dates or other
termination clauses and may require payment of a fee. The credit risk
involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. The Bank's policy for
obtaining collateral, and the nature of such collateral, is essentially
the same as that involved in making commitments to extend credit.
The Bank has not been required to perform on any financial guarantees
during the past three years. The Bank has not incurred any losses on its
commitments during the last three years.
The Bank maintains bank accounts at five banks. Accounts at each institution
are insured by the Federal Deposit Insurance Corporation (FDIC) up to
$100,000. Cash at one of these institutions exceeded federally insured
limits. The amount in excess of the FDIC limit totaled $1,631,000.
<PAGE>
NOTE K - COMMITMENTS AND CONTINGENT LIABILITIES
The Bancorp and Bank periodically are subject to claims and lawsuits which
arise in the ordinary course of business. It is the opinion of management
that the disposition or ultimate resolution of such claims and lawsuits will
not have a material adverse effect on the consolidated financial position of
the Bancorp.
NOTE L - RESTRICTION ON DIVIDENDS
The Bank is subject to certain restrictions on the amount of dividends that
it may pay without prior regulatory approval. The Bank normally restricts
dividends to a lesser amount. At December 31, 1999, retained earnings of
approximately $1,880,000 was available for the payment of dividends without
prior regulatory approval.
NOTE M - EMPLOYEE BENEFITS
Savings Plan
In 1989, the Bank initiated a 401(k) retirement savings plan, with all
employees eligible for inclusion in the plan. Participants may make salary
savings contributions up to 15% of the compensation, a portion of which will
be matched by the Bank. Additional contributions to the Plan may be made at
the discretion of the Board of Directors based upon earnings of the Bank.
Contributions by the Bank charged to operations were $57,000, $47,000 and
$37,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
Directors Retirement
The Bank implemented a director retirement plan in late 1998 which provides
that any director with 15 years of continuous service will receive an annual
retirement benefit equal to that director's board fees in the year before
retirement. The annual retirement benefit will be paid for 15 years. In 1999
the plan was amended to provide for pro rata benefits for any director who
is unable to satisfy the 15 years of continuous service requirement due to
the mandatory director's retirement provision upon reaching 70 years of age.
The Bank is the owner and beneficiary of the insurance contracts. The
expense charged to operations was $31,000 in 1999 and $0 in 1998.
Executive Compensation
The Bancorp and the Bank also entered into a Salary Continuation Agreement
(the Agreement) with their President. The Agreement provides that the
Bancorp and the Bank will be obliged to continue to pay the president or his
designated beneficiary(ies) for a period of 15 years following his retirement,
death or disability or following a change in control of FC Banc Corp. A
benefit is also paid if he terminates employment (other than by discharge
for cause) before he attains the age of 65. In that event, the amount of
the benefit depends upon his years of service. The Corporation has purchased
an individual life insurance contract with respect to this program. The
Corporation is the owner and beneficiary of the insurance contract. The
President is a general creditor of the Corporation with respect to this
benefit. The expense charge to operations was $31,000 in 1999 and $0 in
1998.
<PAGE>
NOTE N - POSTRETIREMENT BENEFITS
The Bank sponsors two defined benefit postretirement plans. One plan
provides health care coverage and the other provides life insurance benefits.
Both plans are noncontributory. The Bank's funding policy is to contribute
as billed with their normal health care plan. For 1999, 1998 and 1997, the
aggregate contributions were $23,000, $23,000 and $23,000, respectively.
The following table sets forth the plan's funded status reconciled with the
amount shown in the Bank's balance sheet at December 31, 1999 and 1998:
(Dollars in thousands)
1999 1998
---- ----
Accumulated postretirement benefit obligation:
Retirees $238 $274
Other active plan participants 40 39
--- ---
Total 278 313
Plan assets at fair value 0 0
Accumulated postretirement benefit
Obligation in excess of plan assets 278 313
Unrecognized net gain (loss) from past experience
Different from that assumed and effects of
any changes in assumptions 18 (20)
Unrecognized transition obligation,
net of amortization (131) (139)
----- -----
Accrued postretirement cost in the
balance sheet $ 165 $ 154
===== =====
Postretirement expense for 1999, 1998, and 1997 includes the following
components:
(Dollars in thousands)
1999 1998 1997
---- ---- ----
Service cost $ 5 $ 4 $ 7
Interest cost on accumulated
benefit obligation 20 19 23
Amortization of transition
obligation over 20 years 9 9 9
----- ----- -----
Total $ 34 $ 32 $ 39
===== ===== =====
The health care cost trend rate assumption has a small effect on the amounts
reported. Increasing the assumed health care cost trend rates by one
percentage point in each year would increase the accumulated postretirement
benefit obligation as of December 31, 1999 by an immaterial amount.
<PAGE>
For measurement purposes an 11.0% and 8.0% annual rate of increase in the
per capita of covered health care benefits for those under and over 65,
respectively, was assumed for 1999. The rate was assumed to decrease
gradually to 6.00% at 2013 and remain at that level thereafter.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 6.75%.
NOTE O - STOCK OPTIONS
The Bancorp has a fixed director and employee stock-based compensation plan.
Under the plan, the company may grant options for up to 65,004 shares of
common stock. The exercise price for the purchase of shares subject to a
stock option may not be less than 100% of the fair market value of the
shares covered by the option on the date of the grant. The term of stock
options will not exceed 10 years from the date of grant.
The Bancorp applies APB Opinion 25 in accounting for its stock compensation
plan. Accordingly, no compensation cost has been recognized for the plan in
1999, 1998 and 1997. Had compensation cost been determined on the basis of
fair value pursuant to SFAS No. 123, net income would have been reduced as
follows:
(Dollars in thousands)
1999 1998 1997
---- ---- ----
Net income
As reported $1,075 $1,001 $902
Proforma 1,060 987 902
The following is a summary of the status of the plan during 1999, 1998 and
1997:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Exercise of Exercuse
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 50,550 $22.00 31,550 $22.00 0 $ 0.00
Granted 16,400 28.00 20,800 22.00 31,550 22.00
Exercised (1,000) 22.00
Forfeited (8,200) 23.00 (1,800) 22.00 0.00 0.00
------- ----- ------- ----- ------ ------
Outstanding at end of year 57,750 $23.52 50,550 $22.00 $ 31,550 $ 22.00
====== ====== ====== ====== ======== =======
Options exercisable at year-end 15,020 5,950
Weighted-average fair value of
Options granted during the year $6.37
</TABLE>
<PAGE>
The Black-Scholes model was used to estimate the weighted-average fair value
of options granted during each year. The following assumptions were used each
year:
(Dollars in thousands)
1999 1998 1997
---- ---- ----
Risk-free interest rate 6.43% 4.68% 5.74%
Expected life 8.06 years 8.68 years 9.89 years
Expected volatility 7.98% 7.38% 3.89%
Expected dividends 2.59% 2.69% 2.76%
The following is a summary of the status of fixed options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Options Options
Outstanding Exercisable
------------ -----------
Weighted
Range Number Average Number Weighted-
Of Outstanding Remaining Weighted Exercisable Average
Exercise At Contractual Average At Exercise
Price Dec. 31, 1999 Life Exercise Price Dec. 31, 1999 Price
----- ------------- ---- -------------- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
$22.00 26,670 7.33 years $22.00 11,340 $22.00
$22.00 16,480 8.33 $22.00 3,680 $22.00
$28.00 14,600 9.25 $28.00 0 $28.00
------ ------
$22 to 28 57,750 8.11 $23.52 15,020 $22.00
====== ======
</TABLE>
NOTE P - EARNINGS PER SHARE
The following data show the amounts used in computing earnings per share and
the effects on income and the weighted average number of dilutive potential
common stock. The number of shares used in the calculation for 1998 reflect
a 2-for-1 stock split in July 1998.
(Dollars in thousands)
1999 1998
---- -----
Net income $1,075 $1,001
====== ======
Weighted average number of common
shares used in basic EPS 631,984 640,198
Effect of dilutive securities:
Stock options 8,874 6,411
------- -------
Weighted number of common
Shares and dilutive potential common
Stock used indiluted EPS 640,858 646,609
======= =======
<PAGE>
NOTE Q - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered
by its primary federal regulator, the Federal Reserve System. Failure to
meet minimum capital requirements can initiate certain mandatory, and
possible additional discretionary actions by regulators that, if undertaken,
could have a direct material affect on the Bancorp and the consolidated
financial statements. Under the regulatory capital adequacy guidelines and
the regulatory framework for prompt corrective action, the Bank must meet
specific capital guidelines that involve quantitative measures of the Bank's
assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classfication under the prompt corrective action guidelines are also
subject to qualitative judgments by the regulators about components,
risk weightings, and other factors.
Qualitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of: total
risk-based capital and Tier I capital to risk-weighted assets (as defined
in the regulations), Tier I capital to average assets (as defined).
Management believes, as of December 31, 1999, that the Bank meets all of the
capital adequacy requirements to which it is subject.
As of December 31, 1999, the most recent notification from the FRB, the
Bank was categorized as well capitalized under the regulatory framework for
prompt corrective action. To remain categorized as well capitalized, the
Bank will have to maintain minimum total risk-based, Tier I risk-based, and
Tier I leverage ratios as disclosed in the table below. There are no
conditions or events since the most recent notification that management
believes have changed the Bank's prompt corrective action category.
The Bank's actual and required capital amounts and ratios are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------ ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total Risk-Based Capital
(to Risk-Weighted Assets) $12,537 20.6% $4,864 8.0% $6,080 10.0%
Tier I Capital
(to Risk-Weighted Assets) 11,765 19.4% 2,432 4.0% 3,648 6.0%
Tier I Capital
(to Average Assets) 11,765 11.8% 3,992 4.0% 4,990 5.0%
As of December 31, 1998:
Total Risk-Based Capital
(to Risk-Weighted Assets) $12,240 23.5% $4,173 8.0% $5,216 10.0%
Tier I Capital
(to Risk-Weighted Assets) 11,575 22.2% 2,086 4.0% 3,129 6.0%
Tier I Capital
(to Average Assets) 11,575 12.6% 3,761 4.0% 4,589 5.0%
</TABLE>
<PAGE>
NOTE R - FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures about Fair Value of Financial Instruments, requires
disclosure of fair value information about financial instruments, whether or
not recognized in the consolidated balance sheets. 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
instruments. Statement No. 107 excluded 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 following methods and assumptions were used by the Bancorp in
estimating its fair value disclosures for financial instrument.
Cash and cash equivalents: The carrying amounts reported in the
consolidated balance sheets for cash and cash equivalents 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: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying amounts.
The fair values for other loans (for example, fixed rate commercial real
estate and rental property mortgage loans and commercial and industrial
loans) are estimated using discounted cash flow analysis, based on interest
rates currently being offered for loans with similar terms to borrowers of
similar credit quality. Loan fair value estimates include judgments
regarding future expected loss experience and risk characteristics. Fair
values for impaired loans are estimated using discounted cash flow
analysis or underlying collateral values, where applicable.
Deposits: The fair values disclosed for demand deposits are, by definition,
equal to the amount payable on demand at the reporting date (that is, their
carrying amounts). The carrying amounts of variable-rate, fixed-term
money-market accounts and certificates of deposit approximate their fair
values. Fair values for fixed-rate certificates of deposit are estimates
using a discounted cash flow calculation that applies interest rates
currently offered on certificates to a schedule of aggregated contractual
expected monthly maturities on time deposits.
Accrued interest: The carrying amounts of accrued interest approximate
the fair values.
Borrowed funds: The carrying amounts of short-term borrowings and notes
payable approximate their fair values.
<PAGE>
The estimated fair values of the Bank's financial instruments are as follows:
(Dollars in thousands)
December 31,
1999 1998
---------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
Financial assets:
Cash and cash equivalents $ 4,321 $ 4,321 $ 7,469 $ 7,469
Investment securities 34,795 34,795 37,319 37,319
Loans 54,243 53,127 43,924 44,960
Accrued interest receivable 683 683 711 711
Financial liabilities:
Deposits 86,959 86,808 $81,311 $81,430
Borrowed funds 29 30 0 0
Accrued interest payable 184 184 188 188
NOTE S - PARENT COMPANY FINANCIAL INFORMATION
Balance Sheets
(Dollars in thousands)
At December 31,
1999 1998
---- -----
Assets
Noninterest-bearing deposit with subsidiary bank $ 7 $ 2
Investment in subsidiary bank 11,222 11,526
Other equity investments, at market 153 0
Other assets 25 19
------- -------
Total assets $11,407 $11,547
======= =======
Liabilities
Accrued expenses $ 5 $ 0
------- -------
Shareholders' equity 11,402 11,547
Total Liabilities and Shareholders' Equity $11,407 $11,547
======= =======
<PAGE>
<TABLE>
<CAPTION>
Statements of Income
(Dollars in thousands)
Years Ended December 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income
Dividends from subsidiary bank $ 920 $ 576 $ 445
Dividends-equity investments 4 0 0
Expenses
Legal and professional fees 44 32 39
Organizational 1 11 11
Other 13 16 13
------- ----- ------
Total expenses 58 59 63
------- ----- ------
Income before income tax benefit and equity in undistributed
earnings ofsubsidiary 866 517 382
Income tax benefit 19 20 21
------ ------ ------
Income before undistributed earnings of subsidiary 885 537 403
Equity in undistributed net income of subsidiary 190 464 499
------ ------ ------
Net income $1,075 $1,001 $ 902
====== ====== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of Cash Flows
Years ended December 31,
(Dollars in thousands)
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $1,075 $1,001 $ 902
Adjustments to reconcile net income to net cash
Flows from operating activities:
Equity in undistributed income of subsidiary (190) (464) (499)
Change in other assets (6) 13 139
----- ------ ------
Change in other liabilities 6 0 0
Net cash from operating activities 885 550 542
----- ----- ----
Cash Flows from Investing Activities:
Proceeds from stock option exercises 23 0 0
Purchase of investments available for sale (133) 0 0
Cash Flows From Financing Activities:
Proceeds from stock option exercises 23 0 0
Purchase oftreasury stock (385) (201) (169)
Cash dividends paid (385) (383) (385)
------ ------ ------
Net cash used for financing activities (747) (584) (554)
------ ------ ------
Net increase (decrease) in cash and cash equivalents: 5 (34) (12)
Cash and cash equivalents
Beginning of year 2 36 48
----- ----- ----
End of year $ 7 $ 2 $ 36
===== ===== ====
</TABLE>
<TABLE>
<CAPTION>
<S><C> <C> <C> <C>
G.W. Holden Anne Spreng Darla Hadsell Darla Sprague
President and Bank Officer and Accounting Clerk Teller (PT)
Chief Executive Officer Bank Manager
John Zajac Vicki Allen Amy Cauvel Mitch Wagner
Vice President and Mortgage Loan Officer Assistant Data Teller
Administrative Manager Processing Manager
Donald Denney Jennifer Gingery Molly Stump Joe Bardon
Vice President and Executive Secretary Loan Documentation Teller (PT)
Chief Lending Officer
Robin Davis Scott Langenderfer Dawn Cooper Stephen Lust
Asst. Vice President and Management Associate Assistant Operations Teller (PT)
Human Resources Manager Supervisor
Rebecca Barr Kriste Allen Lisa Ward Tracy Cleland
Asst. Vice President and Management Associate Card Services Manager Teller (PT)
Chief Technology Officer
Jeffrey Wise Carrie Diebler Anita Stewart Tanya Clingman
Asst. Vice President and Accountant Account Service (PT) Teller (PT)
Chief Financial Officer
Craig Stump Wilma Poorman Beth A. Kahle Aaron Pinion
Asst. Vice President and New Accounts Teller (PT) Teller (PT)
Fredericktown City Representative
President
Kelly LaRue Jennifer Eckert Virginia Hammontree Jackie Biedman
Auditor and New Accounts Loan Teller Account Service
Compliance Officer Representative
Eric Bogan Carol Mosher Kimberly McGowan Patricia Petras
Assistant Vice President New Accounts Centralized Data Teller (PT)
Consumer Loan Officer Representative Input (PT)
Susan Sutherland Neeta Conant Cindy Knecht Jennifer Clark
Banking Officer and New Accounts Receptionist Teller
Loan Administration Representative
Manager
Kelly Rinehart Monica Greathouse Angela Holbrook Pam Clinger
Bank Officer and Head Teller Teller Teller (PT)
Data Processing Manager
Nancy Kalb Annette Lester Darla Johnson Joan Jones
Bank Officer and Head Teller Teller Trainee
Training Coordinator
Michelle Bacon Amanda Poland Kelly Allen
Consumer Loan Manager Head Teller Teller
Eric Anglin Teri Gray Jeremy Crall
Bank Officer and Head Teller Teller
Bank Manager
</TABLE>
<TABLE>
<CAPTION>
<C> <C>
Directors Honorary Directors
Robert D. Hord, Chairman Fred Christman
President Hord Livestock Co., Inc
G.W. Holden, President & CEO Richard O. Kime
Terry L. Gernert, Secretary & Treasurer
Attorney at Law William D. Foulk
David G. Dostal
President Auck-Dostal Insurance Agency, Inc. John O. Spreng
Patrick J. Drouhard
Superintendent Cardington-Lincoln Local
Schools James Stemen
Samuel J. Harvey
Retired
Charles W. Kimerline There were 623,239 common shares of
President Bucyrus Road Materials, Inc. FC Banc Corp outstanding January 31, 2000,
John O. Spreng, Jr. held of record by approximately 563
Vice President Longacre Farms,Inc. shareholders. The following represents the high
Joan C. Stemen and low trading prices and dividends declared
Retired during each respective quarter since December
31, 1996.
Executive Officer of FC Banc Corp Dividends
G.W. Holden President and CEO 1997 HIGH LOW DECLARED
First quarter $22.00 $22.00 $0.00
Executive Officers of Farmers Citizens Bank Second quarter 22.00 22.00 0.00
G.W. Holden President and CEO Third quarter 22.00 22.00 0.00
John Zajac Fourth quarter 22.00 22.00 0.60
Vice President and Administrative Manager 1998
Jeffrey Wise First quarter $22.00 $22.00 $0.00
Assistant Vice President and CFO Second quarter 27.00 22.00 0.30
Third quarter 27.00 27.00 0.00
Fourth quarter 27.00 27.00 0.30
Annual Meeting 1999
Wednesday, March 22, 2000 at 1:30 p.m. First quarter $28.00 $27.00 $0.00
Youth Building Second quarter 28.00 28.00 0.30
Crawford County Fairgrounds Third quarter 28.00 28.00 0.15
Whetstone Street, Bucyrus, Ohio Fourth quarter 28.00 28.00 0.16
A copy of FC Banc Corp's Annual Report on Investor Information:
Form 10-KSB as filed with the Securities Investors, analysts and others seeking
and Exchange Commission, will be available financial information may contact:
at no charge to shareholders upon request to:
Farmers Citizens Bank G.W. Holden, President and CEO
105 Washington Square FC Banc Corp
Bucyrus, Ohio 44820 105 Washington Square
Attn: G.W. Holden, President Bucyrus, Ohio 44820
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<C> <C>
General Counsel Independent Auditors
Kennedy, Purdy, Hoeffel & Gernert Robb, Dixon, Francis, Davis, Oneson & Company
107 Washington Square 1205 Weaver Drive
Bucyrus, Ohio 44820 Granville, Ohio 43023
Cardington Local Advisory Board Fredericktown Local Advisory Board
Richard N. Carsner Jim Braddock
Steven C. Gist Michael R. Burch
Robert E. Gompf Dr. William A. Elder
Ann L. Goodman James E. Fox
Donald L. Lee Dan Humphrey
Danny R. Robinson Roger D. Reed
James R. Spires Anna M. Ronk
Jack Taylor
BANKING LOCATIONS
Main Office South Office
105 Washington Square 1605 Marion Road
Bucyrus, Ohio Bucyrus, Ohio
North Office Cardington Office
233 North Sandusky Ave 103 East Main Street
Bucyrus, Ohio Cardington, Ohio
Fredericktown
240 West Sandusky Street
Fredericktown, Ohio
(opening soon)
</TABLE>
