1
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the period ended September 30, 1996
or
[ ] Transition Report Pursuant to Section
13 or 15(d) of the Securities Exchange Act
of 1934 For the transition period from
__to__
_____________________
Commission file number 0-20255
I.R.S. Employer Identification Number 34-1692031
Mahoning National Bancorp, Inc.
(an Ohio Corporation)
23 Federal Plaza
Youngstown, Ohio 44501-0479
Telephone: (330) 742-7000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date: 6,300,000 shares of the
Company's Common Stock (No par value) were outstanding as of October 31, 1996.
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MAHONING NATIONAL BANCORP, INC.
INDEX
Page Number
-----------
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheet (unaudited) -
September 30, 1996 and
December 31, 1995 3
Consolidated Statements of Income-
Nine Months Ended September 30, 1996
and 1995 (unaudited) 4
Condensed Consolidated Statement of Cash Flows -
Nine Months Ended September 30, 1996 and 1995
(unaudited) 5
Notes to Consolidated Financial Statements 6-7
Item 2 - Management Discussion and Analysis
of Operations and Liquidity and Capital Resources 8-17
Item 3 - Summary of Average Balances and Interest Rates 18
PART II - OTHER INFORMATION 19
Exhibit Number 27 - Financial Data Schedule
SIGNATURES 20
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PART I
FINANCIAL INFORMATION
MAHONING NATIONAL BANCORP INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Amounts in thousands)
SEPTEMBER 30 DECEMBER 31,
ASSETS 1996 1995
------------ ------------
Cash and due from banks $ 29,003 $ 30,731
Federal funds sold 16,800 2,800
Investment securities available for sale - at market value 136,311 128,397
Investment securities held to maturity - at cost
(Market value $91,866 at September 30, 1996
and $82,255 at December 31, 1995) 91,947 81,690
Loans 486,363 462,435
Less allowance for possible loan losses 7,562 7,156
--------- --------
Net loans 478,801 455,279
Bank premises and equipment 9,247 9,502
Other assets 13,233 11,736
--------- --------
Total assets $ 775,342 $720,135
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing $ 68,413 $ 73,432
Interest bearing
Savings 289,135 292,494
Time 203,953 208,882
--------- --------
Total deposits 561,501 574,808
Federal funds purchased and securities
sold under agreement to repurchase 115,092 65,042
Short term borrowings 15,000 5,424
Long term borrowings 4,286 1,302
Other liabilities 4,867 3,918
--------- --------
Total liabilities 700,746 650,494
--------- --------
STOCKHOLDERS' EQUITY (NOTE B)
Common stock (No par value, $1 stated value in 1996,
$10 par value in 1995)
Authorized 15,000,000 shares in 1996 and
7,000,000 shares in 1995, Issued
and Outstanding-6,300,000 shares in 1996 and
3,150,000 shares in 1995 6,300 31,500
Surplus 44,100 15,750
Retained earnings 24,778 21,725
Unrealized (loss) gain on available for sale
investment portfolio (582) 666
--------- --------
Total stockholders' equity 74,596 69,641
--------- --------
Total liabilities and
stockholders' equity $ 775,342 $720,135
========= ========
See Notes to Consolidated Financial Statements
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MAHONING NATIONAL BANCORP INC
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE FOR THE THREE FOR THE NINE FOR THE NINE
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
(Amounts in thousands, except per share data) SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------------------------------------------------------
INTEREST INCOME
Interest and fees on loans $10,710 $ 9,939 $31,662 $ 29,124
Interest on investment securities
U.S. treasury 1,612 1,522 4,618 4,885
U.S. government agencies 1,428 1,560 4,503 4,273
States and political subdivisions 245 187 648 542
Other securities 57 54 167 154
Interest on federal funds sold 90 188 256 385
----------------------------------------------------------
14,142 13,450 41,854 39,363
INTEREST EXPENSE
Interest on deposits 4,517 4,683 13,688 13,104
Interest on federal funds purchased and
securities sold under agreement to repurchase 1,158 913 3,085 2,941
Interest on short term borrowings 100 112 245 373
Interest on long term borrowings 59 22 163 63
----------------------------------------------------------
5,834 5,730 17,181 16,481
----------------------------------------------------------
Net interest income 8,308 7,720 24,673 22,882
PROVISION FOR LOAN LOSSES 600 450 1,675 1,350
----------------------------------------------------------
Net interest income after
provision for loan losses 7,708 7,270 22,998 21,532
OTHER OPERATING REVENUE
Trust department income 679 643 1,945 1,818
Service charges on deposit accounts 928 735 2,626 2,115
Other service charges 211 200 556 525
Other revenue 68 43 212 148
Loss on sale of investment securities
available for sale -- (111) -- (27)
----------------------------------------------------------
1,886 1,510 5,339 4,579
OTHER OPERATING EXPENSE
Salaries and employee benefits 2,851 2,539 8,171 7,639
Expenses of premises and fixed assets 775 893 2,397 2,481
Federal deposit insurance 1 (36) 2 581
Other expense 1,531 1,519 4,815 4,398
----------------------------------------------------------
5,158 4,915 15,385 15,099
----------------------------------------------------------
Income before income taxes 4,436 3,865 12,952 11,012
APPLICABLE INCOME TAXES 1,432 1,256 4,198 3,602
----------------------------------------------------------
NET INCOME $ 3,004 $ 2,609 $ 8,754 $ 7,410
==========================================================
EARNINGS PER COMMON SHARE $ 0.48 $ 0.41 $ 1.39 $ 1.18
DIVIDENDS PER SHARE $ 0.135 $ 0.11 $ 0.405 $ 0.33
See Notes to Consolidated Financial Statements
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MAHONING NATIONAL BANCORP INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS NINE MONTHS
ENDED ENDED
(Amounts in thousands) SEPTEMBER 30, SEPTEMBER 30,
1996 1995
(UNAUDITED) (UNAUDITED)
----------------------------
Cash flows from operating activities $ 12,080 $ 10,541
Cash flows from investing activities
Proceeds from maturities of investment securities available for sale 17,016 11,601
Proceeds from maturities of investment securities held to maturity 26,365 33,180
Sale of investment securities available for sale -- 14,904
Purchase of investment securities available for sale (26,915) (36,892)
Purchase of investment securities held to maturity (36,518) (14,372)
Net increase in loans (25,999) (27,028)
Net increase in federal funds sold (14,000) (7,500)
Proceeds from sale of other real estate owned 54 --
Capital expenditures (562) (2,192)
-------------------------
Net cash used in investing activities (60,559) (28,299)
Cash flows from financing activities
Net (decrease) increase in deposits (13,307) 12,961
Net increase in federal funds purchased and
securities sold under agreement to repurchase 50,050 2,454
Net increase in short term borrowings 9,576 4,239
Proceeds from long term borrowings 3,500 --
Payments on long term borrowings (516) (44)
Dividends paid (2,552) (2,079)
-------------------------
Net cash provided by financing activities 46,751 17,531
Net decrease cash and cash equivalents (1,728) (227)
Cash and cash equivalents at beginning of year 30,731 31,872
-------------------------
Cash and cash equivalents at end of nine months $ 29,003 $ 31,645
=========================
Supplemental disclosures of cash flow information:
Cash paid during the first nine months for:
Interest $ 17,118 $ 16,203
=========================
Income Taxes $ 3,735 $ 3,494
=========================
Non-cash transactions:
Transfer from loans to other real estate owned $ 34 $ 46
=========================
Increase (decrease) in unrealized loss on available for sale securities $ 1,920 ($ 3,063)
Less:Increase (decrease) in deferred taxes 672 (1,045)
-------------------------
Net increase (decrease) in unrealized loss on investment portfolio $ 1,248 ($ 2,018)
=========================
See Notes to Consolidated Financial Statements
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MAHONING NATIONAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The financial information presented is prepared in accordance with
generally accepted accounting principles and general policies within the
financial service industry. The financial information included herein has been
prepared by management without audit by independent certified public accountants
who do not express an opinion thereon. All significant intercompany balances and
transactions have been eliminated and the information furnished includes all
adjustments consisting of normal recurring accrual adjustments which are in the
opinion of management, necessary for a fair presentation of results for the
interim period. The results of the interim financial information presented are
not necessarily indicative of the results of operations for the full calendar
year ending December 31, 1996.
NOTE B - CAPITAL ACCOUNTS
On April 15, 1996, the Board of Directors of Mahoning National Bancorp,
Inc. approved a 2 for 1 stock split in the form of a 100% stock dividend payable
on May 15, 1996, to shareholders of record on April 30, 1996, issuable from the
Company's authorized shares.
All share and per share data contained in this report for prior periods
has been adjusted to reflect the effect of the 2 for 1 stock split in the form
of a 100% stock dividend.
On March 19, 1996, at the Annual Shareholders Meeting of Mahoning
National Bancorp, Inc., the shareholders approved increasing the authorized
common shares of the Corporation from 7,000,000 shares to 15,000,000 shares, and
to eliminate "par value" from its authorized common shares. By increasing the
authorized shares of the Corporation, Management and the Board of Directors will
have greater flexibility in paying future share dividends, negotiating further
expansion opportunities and issuing shares for other proper corporate purposes.
The elimination of "par value" from the authorized shares of the Corporation
will provide the Corporation with more flexibility in structuring its equity
accounts and in paying future stock dividends.
NOTE C - STATEMENT OF FINANCIAL STANDARDS NO. 122
ACCOUNTING FOR MORTGAGE SERVICING RIGHTS, AN
AMENDMENT OF FASB STATEMENT NO. 65
On January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 122 (SFAS 122) "Accounting for Mortgage Servicing
Rights, an amendment of FASB Statement No. 65." This new standard requires that
a mortgage banking enterprise recognize as a separate asset rights to service
mortgage loans for others, however those servicing rights are acquired. In
circumstances where mortgage loans are originated, separate asset rights to
service mortgage loans are only recorded when the enterprise intends to sell
such loans. The adoption of
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this new statement did not have a material impact on
the Company's consolidated financial position or results of operations.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
On April 15, 1996, The Board of Directors of Mahoning National Bancorp,
Inc. approved a 2 for 1 stock split in the form of a 100% stock dividend payable
on May 15, 1996 to shareholders of record on April 30, 1996, issuable from the
Company's authorized shares.
All per share data contained in this report for prior periods has been
retroactively adjusted to reflect the effect of the 2 for 1 stock split in the
form of a 100% stock dividend.
Earnings Review
Net income for the first nine months of 1996 amounted to $8.754 million
or $1.39 per share. This represents an increase of 18% over net income earned
during the same period in 1995. ($7.410 million or $1.18 per share). Mahoning
National Bancorp, Inc.'s net income for the current quarter increased 15% to
$3.004 million or $0.48 per share from $2.609 million or $0.41 per share for the
same quarter in 1995.
The primary component of earnings is net interest income. Net interest
income for the first nine months of 1996 was $24.673 million compared with
$22.882 million or an 8% increase from the comparable period in 1995. Net
interest income for the current quarter increased 8% over the comparable period
of 1995 ($8.308 million from $7.720 million).
Interest and fees on loans increased $2.538 million in the first nine
months of 1996 compared to the first nine months of 1995. This increase was the
result of a $31.782 million increase in average loan balances for the first nine
months of 1996 compared to 1995; $476.181 million compared to $444.399 million.
In addition the yield of the loan portfolio for the first nine months of 1996
was 8.92% compared to 8.85% for the same period of 1995, a 7 basis point
increase. Interest expense increased $700 thousand for the first nine months of
1996 compared to the same period in 1995. This increase in interest expense can
be attributed to time deposit growth as consumers shifted funds from savings
products into the higher yielding time deposits and an increase in the volume of
securities sold under agreements to repurchase as more corporate customers and
political subdivisions deposit into overnight "sweep" repurchase agreements. The
average balances of time deposits for the first nine months of 1996, increased
$11.436 million over the average balances for the same period in 1995. The cost
of these funds also increased from 5.30% for the first nine months of 1995 to
5.41% for the first nine months of 1996, an 11 basis point increase. The average
balance of securities sold under agreement to repurchase increased $14.845
million in the first nine months of 1996 over the same period in 1995, $89.203
million compared to $74.358.
For a detailed analysis of the Company's net interest margin, on a tax
equivalent basis, refer to the Summary of Average Balances and Interest Rates;
Item 3 of this report on page 18.
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In January of 1996 the Federal Reserve Bank reduced the discount rate
and Mahoning National lowered its prime lending rate by 25 basis points. With
this reduction a significant portion of the Company's loan portfolio was
repriced downward immediately, while rates on interest bearing deposits and
borrowings continued to decline more deliberately, with existing certificates of
deposit repricing at slightly lower rates than previously experienced. The
pressures of this pricing development were mitigated by volume increases in the
loan portfolio and deposit pricing strategies. With the current uncertainty on
which direction the Federal Reserve will move rates over the next twelve months,
the Company analyzed the effect of a presumed 100 and 200 basis point increase
and decrease in interest rates through its simulation analysis. The results of
the simulation indicated no significant impact on net interest income over the
next twelve months.
Other operating revenue for the first nine months of 1996, exclusive of
security transactions, was $5.339 million or a 16% increase over the first nine
months of 1995 total of $4.606 million. Other operating revenue for the current
quarter, exclusive of security transactions, was $1.886 million compared to
$1.621 million for the same quarter of 1995, a 16% increase.
The largest component of other operating revenue in the first nine
months of 1996 was service charges on deposit accounts which increased $511
thousand or 24% over the first nine months of 1995. Service charges on deposit
accounts for the current quarter increased by $193 thousand or 26% over the same
period in 1995, $928 thousand from $735 thousand. Mahoning National annually
reviews all of its fee-based products and services for marketability and
profitability. Adjustments to fees for the Company's products and services and
the strengthening of controls for the collections of such fees are the reasons
for the significant increase. While further fee increases are expected,
management does not expect those increases to be as significant as those
realized in the first nine months of 1996.
Mahoning National Bank's Trust Department generated $1.945 million in
other revenue in the first nine months of 1996, an increase of $127 thousand or
7% over the $1.818 million earned in the same period of 1995. The Trust
Department generated $679 thousand of operating income in the third quarter of
1996, a 6% increase over the $643 thousand earned in the comparable quarter of
1995. This increase can be attributed to two factors; an influx of new trust
accounts and market value based fees which increased due to the significant
increase in account market values due to rises in the stock market over the past
year.
In the first nine months of 1995 the Company realized $27 thousand in
security losses when $14.904 million of U.S. Government Securities were sold
from the available for sale portfolio. A loss of $111 thousand was realized in
the third quarter of 1995 when $4.927 million of collateralized mortgage
obligations were sold from the available for sale portfolio. There were no
security sales in the first nine months of 1996.
Provision for loan losses for the first nine months of 1996 amounted to
$1.675 million compared to $1.350 million for the comparable period in 1995. The
provision for the current quarter was $600 thousand compared to $450 thousand
for the same quarter of 1995. This increase is discussed in more detail under
the Provision For Loan Losses heading later in this discussion.
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Other operating expense for the first nine months increased $286
thousand or 2% from the comparable period in 1995 to $15.385 million from
$15.099 million. For the current quarter other operating expense totaled $5.158
million compared to $4.915 million in the same quarter of 1995. As a percentage
of average assets, other annualized operating expense was 2.75% for the first
nine months of 1996 compared to 2.83% in the same time period of 1995.
In September 1995 the Federal Deposit Insurance Corporation (FDIC)
determined that the Bank Insurance Fund (BIF) was fully recapitalized as of the
end of May 1995. As a result, the FDIC reduced Mahoning National's deposit
insurance premium from $.23 per $100 of deposits to $.04 per $100 of deposits
for the period June 1, 1995 thru December 31, 1995. As a result Mahoning
National received a $343 thousand deposit insurance premium rebate in September
1995 for the period June 1, 1995 through September 30, 1995, which reduced third
quarter operating expense. Beginning January 1, 1993, a risk weighted insurance
premium schedule was implemented by the FDIC, which bases assessment rates on
capital levels and bank regulator's ratings of the institution as required by
the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA). For
the first nine months of 1996 the Company was assessed a deposit insurance
premium of $2 thousand which was a savings of $579 thousand over the same period
in 1995. The FDIC premium for the third quarter of 1996 was $1 thousand compared
to a $36 thousand credit for the same period in 1995 as a result of the FDIC
rebate. The premium for the remainder of 1996 will total $1 thousand compared to
$55 thousand, for the last three months of 1995.
On September 30, 1996 the "Deposit Insurance Fund Act of 1996" was
enacted. This Act requires FDIC insured banks to pay a 1.29 basis point
assessment ($.0129 per $100 of deposits) for Bank Insurance Fund deposits, in
1997, 1998 and 1999. As a result of this assessment, management expects FDIC
premium expense for 1997 to increase by approximately $80 thousand over 1996
expense.
Salaries and employee benefits expense for the first nine months of
1996 increased $532 thousand or 7% and $312 thousand or 12% for the most recent
quarter when compared to 1995. Salary expense increased $617 thousand or 10% for
the first nine months of 1996 and $382 thousand for the current quarter when
compared to the same periods in 1995. This increase can be attributed to annual
merit salary adjustments which took effect January 1, 1996 and increases in
various employee incentive programs. In addition, as a result of departmental
restructuring and selective staff reductions a one time charge of approximately
$306 thousand was charged to salary expense in the third quarter of 1996. While
this charge increased 1996 salary expense above expected levels it will provide
for long term salary cost savings. Health care expenses for the first nine
months of 1996 were $414 thousand compared to $506 thousand for the same period
in 1995, a decrease of $92 thousand or 18%, mainly due to lower hospitalization
claims in the first nine months of 1996. Beginning July 1, 1996, the Company's
renewal rates for its health care offerings were slightly below the prior plan
year premiums. The Company's renewal rates for the 1996-1997 plan year should
keep health care expenses stable over the remainder of 1996 and into 1997.
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Expenses of premises and fixed assets for the first nine months of 1996
totaled $2.397 million, a 3% decrease ($84 thousand) from the same period in
1995. Current quarter expense totaled $775 thousand, a 13% decrease from the
same quarter in 1995.
Net occupancy expense, which represents various facility management
expenses decreased $174 thousand for the first nine months of 1996 to $1.118
million from $1.292 million in 1995. For the current quarter, occupancy expense
decreased to $353 thousand from $475 thousand in the same quarter of 1995. In
the third quarter of 1995 a $67 thousand write-off of lease obligations related
to the closing of two branch locations increased occupancy expense. Additional
decreases in 1996 are the result of reduced building maintenance expense and
increases in rental income from Main Office tenants.
Equipment rental, depreciation and maintenance of $1.279 million
increased $90 thousand over the first nine months of 1995 and increased $4
thousand in the third quarter of 1996 compared to the same period in 1995 as a
result of increased depreciation expense on equipment, furniture and fixtures
purchased in the second half of 1995 and first nine months of 1996.
Other expenses, exclusive of the FDIC insurance assessment, increased
$417 thousand in the first nine months of 1996, to $4.815 million from $4.398
million for the same period of 1995, a 9% increase. For the third quarter of
1996 other expense, exclusive of the FDIC insurance assessment, increased $12
thousand, a 1% increase over the third quarter of 1995. This increase is the
result of amortization and support on software purchased late in the second
quarter of 1995, state franchise tax increases, increased business activity and
general inflationary increases. Additional increases in other expenses resulted
from professional fee expenses related to a profitability study performed in the
first half of 1996. These expenses will be off-set by year end with increased
fee income and reduced business expenses realized as a result of that study.
Total overhead expenses, exclusive of FDIC insurance assessments, for 1996 are
expected to exceed 1995 expenses by approximately 10%.
Income Taxes
Income tax expense for the first nine months of 1996 amounted to $4.198
million compared to $3.602 million for the same period in 1995. Income tax
expense for 1996 is being accrued at an effective rate of approximately 32.5%,
which compares to an effective tax rate of 31.6% for all of 1995, as a result of
taxable income growth in 1996.
The Statement of Condition includes approximately $3.023 million and
$2.288 million of net deferred tax assets at September 30, 1996 and December 31,
1995 respectively. It is management's belief that the Company has adequate
taxable income to realize the deferred tax asset and accordingly no valuation
reserve has been established.
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The following annualized ratios reflect the earnings performance for
the first nine months of 1996 compared to the same time period of 1995:
For the nine For the nine
months ended months ended
September 30, 1996 September 30, 1995
------------------ ------------------
Return on Average Assets 1.56% 1.39%
Return on Average Equity 16.14 15.39
Return on Earning Assets
- -Taxable Equivalent 8.01 7.92
Interest Cost 3.24 3.27
Net Interest Margin 4.77 4.65
Balance Sheet Analysis
As of September 30, 1996, total assets of Mahoning National reached a
historic high of $775.342 million, an increase from December 31, 1995 total
assets of $720.135 million. Average assets for the first nine months of 1996
amounted to $746.370 million compared to $713.812 million for the first nine
months of 1995, a 5% increase. Through the first nine months of 1996 total
deposits have decreased by $13.307 million while securities sold under agreement
to repurchase and federal funds purchased have increased by $50.050 million. The
significant growth in securities sold under agreements to repurchase are the
result of more corporate customers and political subdivisions depositing into
overnight "sweep" checking accounts. Overnight sweep account balances were
$76.755 million on September 30, 1996, an increase of $16.497 million from
December 31, 1995 balances of $60.258 million. This source of funds has grown
significantly over the past three years and is expected to continue to grow, at
more modest levels over the remainder of 1996.
Investment Portfolio
The deposits of Mahoning National, in excess of required reserves and
operating funds of the Bank are invested in loans, investments and federal funds
sold. The objective of the investment portfolio is to combine liquidity,
earnings and safety of the investment in a prudent manner so as to protect the
depositor, fulfill responsibility to borrowers and to offer a favorable return
to the stockholders.
At September 30, 1996 the investment portfolio totaled $228.258 million
(net of an $895 thousand unrealized loss on available for sale securities) which
was an increase of $18.171 million from December 31, 1995.
At September 30, 1996 the Company has classified investment securities
with amortized cost and fair market value of $137.206 and $136.311 million
respectively, or 60% of the portfolio
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as available for sale, with the remainder of the portfolio classified as held to
maturity. The adoption of SFAS 115 has resulted in a decrease in the carrying
amount of investment securities of $895 thousand with a decrease in
stockholders' equity of $582 thousand net of deferred income taxes. Those
securities classified as available for sale will afford the Company's
Asset/Liability Committee the necessary flexibility to manage the portfolio to
meet liquidity needs that may arise.
In 1995, $14.904 million of U.S. Government Securities and
collateralized mortgage obligations were sold from the available for sale
portfolio and were used to fund loan demand. There were no security sales in the
first nine months of 1996. No securities were transferred between categories
during the first nine months of 1996 or 1995.
Loans
Total loans outstanding increased by $23.928 million or 5% from
$462.435 million on December 31, 1995, to a historical high of $486.363 million
on September 30, 1996, with a loan to deposit ratio of 86.62%. This increase is
the result of continued loan demand coupled with an emphasis on business
development by Mahoning National in the Residential mortgage and commercial loan
areas. The areas of largest growth over the first nine months of 1996 have been;
Residential mortgages which increased by $12.245 million from $144.481 million
to $156.726 million, Commercial Mortgages which increased $7.235 million from
$80.645 million to $87.880 million and the Commercial loan portfolio which
increased by $5.251 million from $80.299 million to $85.550 million. Consumer
loans decreased over the first nine months of 1996 to $132.424 million from
$139.569 million at December 31, 1995.
Consumer loan balances are dependent on the level of indirect
automobile financing done by the bank. Substantial growth the past several years
has not been sustained in the first nine months of 1996 due to a slower market,
greater competition among local lenders and the Company's close monitoring of
underwriting criteria. Consumer loan balances were down 5% during the first nine
months of the year and given the rapid amortization in that portfolio, further
reductions in loan balances are likely. The residential mortgage loan portfolio
grew by 8% for the first nine months of 1996. Recent interest rate increases are
likely to cause that growth to slow in the last three months of 1996. Commercial
loans and commercial mortgages grew 7% and 9% respectively. The momentum
established the past several years with a strong sales culture in the corporate
and branch business development areas continue to result in new relationships.
The continued strength of the local economy and good environment for
construction also contributed to the strong growth. Commercial loans are
expected to decline slightly over the last three months of 1996, with modest
loan growth then projected for 1997.
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As of September 30, 1996, non-performing loans, defined as those loans
which are on non-accrual or are 90 days or more past due and still accruing,
totaled $3.196 million compared to $2.258 million at December 31, 1995. Listed
below is a schedule of the Company's non-performing assets:
(Amounts in thousands) September 30, 1996 December 31, 1995
- ------------------------ ------------------ -----------------
Non accrual loans $1,837 $1,322
Accruing loans 90 days
or more past due 1,359 936
------ ------
Non performing loans 3,196 2,258
Restructured loans in
compliance with modified
terms 479 690
Other real estate owned 17 36
------ ------
Total problem assets $3,692 $2,984
====== ======
Total problem assets to
total assets 0.48% 0.41%
The following ratios will provide additional information on the status
of the loan portfolio:
As of As of
September 30, 1996 September 30, 1995
------------------ ------------------
Loan to deposit ratio 86.62% 79.35%
Non performing loans to
total loans .66 .47
Non performing loans to
allowance for loan losses 42.27 29.13
Allowance for loan losses
to total loans 1.55 1.61
Net charge-offs to average
loans .27 .18
Net charge-offs ($000) $ 1,269 $ 807
Shown below is a summary of the allowance for loan losses:
For the nine For the nine
months ended months ended
(Amounts in thousands) September 30, 1996 September 30, 1995
- ------------------------ ------------------ ------------------
Balance at beginning of period $ 7,156 $ 6,694
Provision charged to operating
expense 1,675 1,350
Recoveries of loans charged off 480 375
Losses charged to allowance (1,749) (1,182)
------- -------
Balance at end of period $ 7,562 $ 7,237
======= =======
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Information required under Statement of Financial Accounting Standards
No. 114 "Accounting by Creditors for Impairment of a Loan" and No. 118
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosure" which were adopted on January 1, 1995, is as follows for the nine
months ended September 30;
1996 1995
---- ----
Principal amount of impaired loans $462 $959
Allowance allocated to impaired loans 125 425
---- ----
Portion for which no allowance is allocated $337 $534
==== ====
Average investment in impaired loans for
the nine months ended September 30; $515 $891
==== ====
Total cash collected on impaired loans during the first nine months of 1996 and
1995 was $170 thousand and $359 thousand respectively, $168 thousand which was
credited to the principal balance outstanding and $2 thousand recognized as
interest income in 1996, while $357 thousand was credited to the principal
balance outstanding and $2 thousand recognized as interest income on such loans
in 1995. Interest that would have been accrued on impaired loans in the first
nine months of 1996 and 1995 was $39 thousand and $82 thousand respectively.
Interest income recognized during the first nine months of both 1996 and 1995,
was $2 thousand.
Provision for Loan Losses
The policies of Mahoning National provide for loan loss reserves to
adequately protect the Company against potential and/or identified loan losses
consistent with sound and prudent banking practice.
In determining the monthly provision for loan losses and the adequacy
of the loan loss reserve, management reviews the current and forecasted economic
conditions and portfolio trends. The primary focus is placed on current problem
loans, delinquencies and anticipated charge-offs. As of September 30, 1996, all
loans classified for regulatory purposes do not represent or result from trends
or uncertainties which management reasonably expects will materially impact
future operating results, liquidity, or capital resources. Management is not
aware of any information which causes serious doubts as to the ability of such
borrowers to comply with the loan repayment terms. These remaining classified
loans were either paying as agreed under original contract or were sufficiently
collateralized to prevent a material loss in the event the loans were to
default.
The provision for loan losses charged to expense during the first nine
months of 1996 was $1.675 million, an increase of $325 thousand from the 1995
first nine months provision. This increase was the result of the growth in the
loan portfolio and an increase in consumer loan charge-offs. Net charge-offs on
consumer loans and credit card and related plans totaled $1.285 million for the
first nine months of 1996 compared to $755 thousand for the same period in 1995.
The national trend of a high level of consumer debt and delinquencies is
beginning to show locally. As
16
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a result of these trends and accompanying increases in non-performing loans and
consumer charge-offs, in the first nine months of 1996, management expects to
increase the fourth quarter provision to the loan loss reserve by approximately
$225 thousand over the third quarter provision. These trends will continue to be
monitored closely as the Company evaluates the adequacy of the allowance for
loan losses over the next twelve months.
Liquidity and Capital
It is a primary objective of Mahoning National Bancorp, Inc. to
maintain a level of liquidity deemed adequate to meet the expected and potential
funding needs of loan and deposit customers. It is the Company's policy to
manage its affairs so that liquidity needs are fully satisfied through normal
bank operations. Short-term investments (Federal funds sold) and short-term
borrowings (Federal funds purchased and Repurchase agreements, U.S. Treasury
Demand Notes and Federal Home Loan Bank advances) are used as primary cash
management and liquidity tools. Short term Federal fund lines totaling $57
million have been established at Mahoning National's correspondent banks. When
loan demand increases at a faster rate than deposit growth it may be necessary
to manage the available for sale portion of the investment portfolio to meet
that demand, or to sell conforming Residential mortgages on the secondary
market. At September 30, 1996 and December 31, 1995, $64 thousand and $0 of
Residential mortgage loans were designated as available for sale respectively.
At September 30, 1996, $136.311 million of the investment portfolio was
classified as available for sale. This classification will afford the Company's
Asset/Liability Committee the flexibility to manage the portfolio to meet any
liquidity needs that may arise.
An additional source of liquidity is derived from the Federal Home Loan
Bank of Cincinnati (FHLB). The FHLB provides short term funding alternatives
with a line of credit of $18.2 million and the necessary match funding for one
to four family residential mortgage loans and allows the Company to better
manage its interest rate risk. Mahoning National had $4.286 million outstanding
in FHLB borrowings at September 30, 1996 compared to $1.302 million at December
31, 1995.
Total Capital Accounts have grown $4.955 million or 7% in the first
nine months of 1996. This increase reflects retained earnings less dividends
paid and also reflects a $1.248 million unrealized loss on the available for
sale investment portfolio for the first nine months of 1996. Dividends paid in
1996 year to date were $2.552 million or $.405 per share compared to $2.079
million or $.33 per share for the same period in 1995. Book value per share as
of September 30, 1996 was $11.84 compared to $11.05 on December 31, 1995, (as
adjusted for two for one stock split).
In order to facilitate a wider distribution of the common stock of the
Company and to make it more readily available for investment purposes, thereby
broadening investor interest, the Board of Directors of the Company, on April
15, 1996 approved a 2 for 1 stock split in the form of a 100% stock dividend
payable on May 15, 1996 to shareholders of record on April 30, 1996, issuable
from the Company's authorized shares.
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After payment of a 100% stock dividend the Company has 6,300,000 shares
of its 15,000,000 authorized shares of no par value common stock issued and
outstanding.
On March 19, 1996 at the Annual Shareholders Meeting of Mahoning
National Bancorp, Inc., the shareholders approved increasing the authorized
common shares of the Corporation from 7,000,000 shares to 15,000,000 shares, and
to eliminate "par value" from its authorized common shares. By increasing the
authorized shares of the Corporation, Management and the Board of Directors will
have greater flexibility in paying future share dividends, negotiating further
expansion opportunities and issuing shares for other proper corporate purposes.
The elimination of "par value" from the authorized shares of the Corporation
will provide the Corporation with more flexibility in structuring its equity
accounts and in paying future stock dividends.
Under regulations issued by the Federal Reserve and the Comptroller of
the Currency, banks and bank holding companies are required to maintain certain
minimum capital ratios known as the risk-based capital ratio and the leverage
ratio. At September 30, 1996, Mahoning National's leverage, Tier I and
risk-based capital ratios were 10.07%, 15.70% and 16.96% respectively, compared
to 9.62%, 15.02% and 16.27% at December 31, 1995. The Company has exceeded all
required regulatory capital ratios for each period presented and is considered
"well capitalized" under all FDIC regulations. Mahoning National's risk-based
capital ratios are well above the regulatory minimums due to the capital
strength and low risk nature of Mahoning's balance sheet and off-balance sheet
commitments. The structure of the Company's balance sheet is such that nearly
all of the investment portfolio is invested in U.S. Government obligations or
other low risk categories, and over 20% of the loan portfolio is invested in one
to four family residential mortgage loans which have a 50% risk weight
assessment. It is the Company's intent to prudently manage the capital base in
an effort to increase return on equity performance while maintaining necessary
capital requirements and maintaining the FDIC "well capitalized" classification
to ensure the lowest deposit insurance premium assessment.
18
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MAHONING NATIONAL BANCORP, INC.
SUMMARY OF AVERAGE BALANCES AND INTEREST RATES
TAX EQUIVALENT BASIS
For the Nine Months Ended For the Nine Months Ended
September 30, 1996 September 30, 1995
(Amounts in thousands) Average Average Average Average
Balance Interest Rate% Balance Interest Rate%
-------------------------------------- --------------------------------------
INTEREST YIELDS
Loans $476,181 $31,901 8.92 $444,399 $29,415 8.85
Investment securities (1) 223,436 10,285 6.13 221,584 10,145 6.12
Other earning assets 6,425 256 5.23 8,666 385 5.87
-------------------------------------- --------------------------------------
Total return on earning assets 706,042 42,442 8.01 674,649 39,945 7.92
INTEREST COSTS
Interest bearing deposits:
Savings deposits 293,305 5,179 2.35 294,761 5,249 2.38
Time deposits 209,675 8,509 5.41 198,239 7,855 5.30
-------------------------------------- --------------------------------------
Total interest bearing deposits 502,980 13,688 3.63 493,000 13,104 3.55
Federal funds purchased 1,530 64 5.50 4,099 186 5.98
Repurchase agreements 89,203 3,021 4.51 74,358 2,755 4.95
Short term borrowings 6,370 245 5.05 8,550 373 5.83
Long term borrowings 4,035 163 5.39 1,342 63 6.28
-------------------------------------- --------------------------------------
Total interest bearing liabilities $604,118 $17,181 3.79 $581,349 $16,481 3.79
Interest spread $25,261 4.22 $23,464 4.13
================== ====================
AS A PERCENT OF AVERAGE EARNING ASSETS
Total return on earning assets 8.01 7.92
Total interest cost 3.24 3.27
------ ------
Net Interest Margin 4.77 4.65
====== ======
<FN>
(1) Investment securities average balance is based on average carrying value
while the average rate is calculated using average historical cost.
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PART II
OTHER INFORMATION
Mahoning National Bancorp, Inc.
Item 1 - Legal Proceedings
None
Item 2 - Changes in the Rights of the Company's Security Holders
None
Item 3 - Default Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None
Item 6(a) - Exhibits
(27) Financial Data Schedule
Item 6(b) - Reports on Form 8-K
None
20
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report on Form 10-Q for the nine
months ended September 30, 1996 to be signed on its behalf by the undersigned
thereunto duly authorized.
DATE: November 12, 1996 Mahoning National Bancorp, Inc.
---------------------
/s/ Gregory L. Ridler
------------------------------------
Gregory L. Ridler
Chairman of the Board,
President and Chief
Executive Officer
DATE: November 12, 1996
---------------------
/s/ Norman E. Benden, Jr.
------------------------------------
Norman E. Benden, Jr.
Treasurer