1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) THE SECURITIES EXCHANGE ACT OF
1934 For quarter ended June 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934. For the transition period ..... to .....
Commission file number: 0-15624
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SECOND BANCORP INCORPORATED
(exact name of registrant as specified in its charter)
Ohio 34-1547453
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(State or other jurisdiction of (I.R.S. Employer
in Company or organization) Identification No.)
108 Main Ave. Warren, Ohio 44482-1311
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(Address of principal executive offices) (Zip Code)
(216) 841-0123
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Registrant's telephone number, including area code
Not applicable
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Former name, former address and former fiscal year, if changed since last
report.
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 periods 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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, without par value - 10,706,550 shares outstanding as of July 31,
1999.
Page 1 of 14
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SECOND BANCORP INCORPORATED AND SUBSIDIARY
INDEX Page
Number
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated balance sheets -
June 30, 1999 and 1998 and December 31, 1998.................................. 3
Consolidated statements of income -
Three and six months ended June 30, 1999 and 1998.................... 4
Consolidated statement of shareholders' equity -
Six months ended June 30, 1999 and 1998.............................. 5
Consolidated statements of cash flows -
Six months ended June 30, 1999 and 1998.............................. 6
Notes to consolidated financial statements - June 30, 1999.................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .............. 8-10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .......................................... 11
Item 2. Changes in Securities .................................. 11
Item 3. Defaults upon Senior Securities ......................... 11
Item 4. Submission of Matters to a Vote of Security
Holders..................................................... 11
Item 5. Other Information .......................................... 11
Item 6. Exhibits and Reports on Form 8-K ......................... 11
SIGNATURES .......................................... 12
Statement 11 Re: Computation of Earnings Per Share .................. 13
Schedule 27 .......................................... 14
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
Second Bancorp Incorporated and Subsidiary
June 30 December 31 June 30
------------------------------------------
(Dollars in thousands) 1999 1998 1998
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ASSETS
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Cash and due from banks $ 35,111 $ 45,478 $ 42,095
Federal funds sold 0 4,000 15,070
Securities:
Available-for-sale (at market value) 384,819 354,415 329,925
Held-to-maturity (market value of $134,289) 0 0 134,351
Loans 1,002,175 970,853 958,607
Less reserve for loan losses 11,872 10,739 9,106
---------- ---------- ----------
Net loans 990,303 960,114 949,501
Premises and equipment 18,276 17,119 17,429
Accrued interest receivable 8,941 8,709 6,728
Goodwill and intangible assets 5,878 5,749 6,069
Other assets 38,888 34,649 20,586
---------- ---------- ----------
Total assets $1,482,216 $1,430,233 $1,521,754
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------
Deposits:
Demand - non-interest bearing $ 110,369 $ 115,624 $ 103,860
Demand - interest bearing 89,605 101,080 93,175
Savings 288,893 274,728 260,631
Time deposits 596,301 611,158 633,379
---------- ---------- ----------
Total deposits 1,085,168 1,102,590 1,091,045
Federal funds purchased and securities sold under
agreements to repurchase 134,985 122,482 166,118
Other borrowed funds 4,812 861 6,091
Federal Home Loan Bank advances 127,533 72,782 122,506
Accrued expenses and other liabilities 7,703 8,245 9,245
---------- ---------- ----------
Total liabilities 1,360,201 1,306,960 1,395,005
Shareholders' equity:
Preferred stock, no par value;
Series A: 1,500,000 shares authorized in June 1998;
718,750 issued and 0 shares outstanding 0
Series B: 1,500,000 shares authorized in June 1998 0
Common stock, no par value; 20,000,000 shares
authorized; 10,754,450; 10,738,850 and 10,720,328
shares issued, respectively 36,953 36,901 36,797
Treasury stock, 50,400 shares (793) (793) (793)
Net unrealized holding (loss) gains on
available-for-sale securities, net of tax (3,670) 3,097 2,555
Retained earnings 89,525 84,068 88,190
---------- ---------- ----------
Total shareholders' equity 122,015 123,273 126,749
---------- ---------- ----------
Total liabilities and shareholders'
equity $1,482,216 $1,430,233 $1,521,754
========== ========== ==========
See notes to consolidated financial statements
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Second Bancorp Incorporated and Subsidiary
Consolidated Statements of Income
For the Three Months For the Six Months
(Dollars in thousands, Ended June 30 Ended June 30
----------------------- -----------------------
except per share data) 1999 1998 1999 1998
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INTEREST INCOME
- -------------------------------------------------
Loans (including fees):
Taxable $ 19,697 $ 19,840 $ 39,583 $ 39,147
Exempt from federal income taxes 168 240 359 362
Securities:
Taxable 4,602 6,114 8,917 12,886
Exempt from federal income taxes 964 821 1,889 1,611
Federal funds sold (26) 151 169 273
----------------------- ---------------------
Total interest income 25,405 27,166 50,917 54,279
INTEREST EXPENSE
- -------------------------------------------------
Deposits 10,318 10,872 20,662 21,911
Federal funds purchased and securities
sold under agreements to repurchase 1,458 1,703 2,855 3,436
Other borrowed funds 33 49 64 82
Federal Home Loan Bank advances 1,473 1,676 2,698 3,095
----------------------- ---------------------
Total interest expense 13,282 14,300 26,279 28,524
----------------------- ---------------------
Net interest income 12,123 12,866 24,638 25,755
Provision for loan losses 844 881 1,673 1,740
----------------------- ---------------------
Net interest income after provision for loan
losses 11,279 11,985 22,965 24,015
NON-INTEREST INCOME
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Service charges on deposit accounts 1,103 1,025 2,056 1,989
Trust fees 895 677 1,690 1,355
Security gains 64 35 175 163
Other operating income 1,964 1,158 3,430 2,002
----------------------- ---------------------
Total non-interest income 4,026 2,895 7,351 5,509
NON-INTEREST EXPENSE
- -------------------------------------------------
Salaries and employee benefits 4,559 4,828 9,253 9,507
Net occupancy 1,027 1,008 2,021 2,002
Equipment 843 774 1,697 1,574
Professional services 420 474 878 970
Assessment on deposits and other taxes 369 395 800 834
Amortization of goodwill and other intangibles 171 202 342 403
Other operating expenses 2,037 2,497 3,951 4,534
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Total non-interest expense 9,426 10,178 18,942 19,824
----------------------- ---------------------
Income before federal income taxes 5,879 4,702 11,374 9,700
Income tax expense 1,541 1,317 2,921 2,650
----------------------- ---------------------
Net income $ 4,338 $ 3,385 $ 8,453 $ 7,050
======================= =====================
NET INCOME PER COMMON SHARE:
Basic $0.41 $0.32 $0.79 $0.66
Diluted $0.40 $0.32 $0.79 $0.66
Weighted average common shares outstanding:
Basic 10,697,333 10,660,154 10,692,916 10,644,148
Diluted 10,755,941 10,750,500 10,747,670 10,741,865
See notes to consolidated financial statements.
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Consolidated Statements of Shareholders' Equity
Second Bancorp, Inc. and Subsidiary
Accumulated
Other
Preferred Common Treasury Comprehensive Retained Comprehen-
(Dollars in thousands) Stock Stock Stock Income (Loss) Earnings Total sive Income
- ----------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1998 $ - $ 35,354 $ (793) $ 2,832 $ 83,590 $120,983
Comprehensive income:
Net income 7,050 7,050 $ 7,050
Other comprehensive income, net of tax
Change in unrealized market value
adjustment on securities available-
for-sale, net of tax (277) (277) (277)
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Comprehensive income $ 6,773
=======
Cash dividends declared:
Common stock ($.23 per share) (2,450) (2,450)
Exercise of stock options 254 254
Common stock issued - dividend
reinvestment plan 1,189 1,189
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Balance, June 30, 1998 $ - 36,797 $ (793) $ 2,555 $ 88,190 $126,749
================================================================
Balance, January 1, 1999 $ 36,901 $ (793) $ 3,097 $ 84,068 $123,273
Comprehensive income:
Net income 8,453 8,453 $ 8,453
Other comprehensive income, net of tax
Change in unrealized market value
adjustment on securities available-
for-sale, net of tax (6,767) (6,767) (6,767)
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Comprehensive income $ 1,686
=======
Cash dividends declared: common ($.28 per
share) (2,996) (2,996)
Common stock issued - dividend
reinvestment plan 52 52
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Balance, June 30, 1999 $ 36,953 $ (793) $(3,670) $ 89,525 $122,015
=====================================================
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Consolidated Statements of Cash Flows
Second Bancorp Incorporated and Subsidiary
For the Six Months Ended
-------------------------------
(Dollars in thousands) June 30 June 30
Operating Activities 1999 1998
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Net income $8,453 $7,050
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 1,673 1,740
Provision for depreciation 1,390 2,257
Provision for amortization of intangibles 342 441
Net (increase) decrease in servicing rights (471) 521
Amortization of investment discount and premium (52) (1,029)
Deferred income taxes 36 (277)
Securities gains (175) (233)
Other gains, net (1,015) (891)
(Increase) decrease in interest receivable (232) 2,054
Increase in interest payable 899 546
Originations of loans held-for-sale (57,483) (39,470)
Proceeds from sale of loans held-for-sale 58,498 40,361
(Increase) decrease in other assets (626) 1,669
Decrease in other liabilities (1,441) (202)
-------------------------------
Net Cash provided by operating activities 9,796 14,537
Investing Activities
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Proceeds from maturities of securities -
available-for-sale 82,103 51,233
Proceeds from maturities of securities -
held-to-maturity 0 47,606
Proceeds from sales of securities - available-for-sale 40,646 36,389
Purchases of securities - available-for-sale (163,342) (108,619)
Purchases of securities - held-to-maturity 0 (12,384)
Net increase in revolving credit receivables (703) (1,660)
Net increase in loans (31,159) (73,414)
Net increase in premises and equipment (2,547) (4,764)
-------------------------------
Net cash used by investing activities (75,002) (65,613)
Financing Activities
- --------------------------------------------------------
Net decrease in demand deposits, insured money market
And interest checking accounts and savings deposits (2,565) (12,021)
Net decrease in time deposits (14,857) (14,629)
Net increase in federal funds purchased
And securities sold under agreements to repurchase 12,503 44,041
Net increase in borrowings 3,951 2,534
Net advances from Federal Home Loan Bank 54,751 46,400
Cash dividends (2,996) (2,451)
Common stock activity - options and dividend
Reinvestment plan 52 1,443
-------------------------------
Net cash provided by financing activities 50,839 65,317
-------------------------------
(Decrease) increase in cash and cash equivalents (14,367) 14,241
-------------------------------
Cash and cash equivalents at beginning of year 49,478 42,924
-------------------------------
Cash and cash equivalents at end of period $35,111 $57,165
===============================
Supplementary Cash Flow Information:
Cash paid for 1) Federal Income taxes - $2,974,000 and $3,214,000 for the six
months ended June 30, 1999 and 1998,
respectively and 2) Interest - $25,792,000 and $28,458,000 for the six months
ended June 30, 1999 and 1998, respectively.
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Notes to Consolidated Financial Statements (unaudited)
Second Bancorp Incorporated and Subsidiary
June 30, 1999
(Dollars in thousands)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three-month and
six-month periods ended June 30, 1999 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1999. Certain
reclassifications have been made to amounts previously reported in order to
conform to current period presentations. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
NOTE B - PER SHARE DATA
The per share data is based upon the weighted average number of shares,
including common stock equivalents, outstanding during the period.
NOTE C - ACQUISITIONS
On August 20, 1998, the Company completed the acquisition of Enfin, Inc. and its
subsidiary, Enterprise Bank. The acquisition was accounted on a
pooling-of-interest accounting basis and, therefore, all historical financial
presentations have been restated to reflect the pooling-of-interests accounting
method. On November 19, 1998, the Company completed the acquisition of Trumbull
Financial Corporation and its subsidiary, Trumbull Savings and Loan. The
acquisition was accounted on a pooling-of-interest accounting basis and,
therefore, all historical financial presentations have been restated to reflect
the pooling-of-interests accounting method.
NOTE D - COMPREHENSIVE INCOME
During the first six months of 1999 and 1998, total comprehensive income
amounted to $1,686 and $6,773, respectively. The components of comprehensive
income, net of tax, for the six-month periods ended June 30, 1999 and 1998 are
as follows:
1999 1998
----------------------
Net income $ 8,453 $ 7,050
Unrealized (losses) on available-for-sale securities (6,767) (277)
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Comprehensive income $ 1,686 $ 6,773
======= =======
Accumulated other comprehensive income (loss), net of related tax, at June 30,
1999, December 31, 1998 and June 30, 1998 totaled $(3,670), $3,097 and $2,555,
respectively and were comprised entirely of accumulated changes in unrealized
market value adjustments on securities available-for-sale, net of tax.
Disclosure of reclassification amounts:
January 1 to January 1 to
June 30, 1999 June 30, 1998
--------------------------------
Unrealized holding (losses) arising during the period $(6,942) $ (440)
Less: reclassification for gains included in net income (175) (163)
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Net unrealized (losses) on available-for-sale securities $(6,767) $ (277)
======= =======
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Management's Discussion and Analysis of Financial Condition and
Results of Operations Second Bancorp Incorporated and Subsidiary
General
Second Bancorp Incorporated, (the "Company") is a one-bank holding company which
owns The Second National Bank of Warren (the "Bank"), a Warren, Ohio based
commercial bank. Operating through thirty- four branches and one loan production
office, the Bank offers a wide range of commercial and consumer banking and
trust services primarily to business and individual customers in various
communities in a nine county area in northeastern Ohio. The Bank focuses its
marketing efforts primarily on local independent and professional firms and
individuals that are the owners and principals of such firms. The Bank has
emphasized commercial lending and market area expansion.
Financial Condition
At June 30, 1999, the Company had consolidated total assets of $1.48 billion,
deposits of $1.085 billion and shareholders' equity of $122 million. Since June
30, 1998, total assets have decreased by 2.6%. Gross loans have grown by 4.5%
during the past year to exceed $1 billion for the first time. Within the loan
totals, second quarter 1999 average real estate loan balances have increased by
12.8% while average commercial loan balances have increased by 9.8% since the
second quarter of last year to $389 million. Average consumer loan balances have
declined by $15 million to $220 million for the second quarter of 1999 and
reflects the Bank's reduced focus on indirect automobile lending and commitment
to improved credit quality within that portfolio.
Funding growth has primarily been generated through core deposits (DDA and
savings balances up 6.3% and 10.8%, respectively). Advances from the Federal
Home Loan Bank ("FHLB") have increased by approximately $5 million, or 4.1%,
over the past year. Higher cost funding via time deposits has declined by $37
million, or 6.2%, over the same period.
Results of Operations
General. The Company achieved net income of $4,338,000 for the second quarter of
1999, 28% greater than the $3,385,000 earned during the same period last year.
All historical financial presentations have been restated to reflect the
pooling-of-interests accounting method used for both the Enfin Inc. and Trumbull
Financial Corporation acquisitions that occurred in 1998. On a per share basis,
diluted earnings for the quarter were $.40, 25% greater than the $.32 per share
reported for the second quarter of 1998. Return on average assets (ROA) and
return on average total shareholders' equity (ROE) were 1.18% and 13.86%,
respectively for the second quarter of 1999 compared to .91% and 10.80% for last
year's second quarter. Net interest income decreased by 5.8% to $12,123,000 for
the second quarter of 1999, reflecting a 1.8% decline in average earning assets
and a 13 basis point decline in the net interest margin. Non-interest income,
excluding security gains, increased 38.5% from a year ago with increases in
income from trust services, sales of mutual funds, annuities and real estate
loans as well as increased income from bank owned life insurance. Non-interest
expenses declined 7.4% from the same period a year ago, indicating the Company's
continued successful efforts reduce costs and capitalize on synergies from the
acquisitions.
For the first six months of 1999, the Company achieved net income of $8,453,000,
19.9% greater than the $7,050,000 earned during the same period last year. On a
per share basis, diluted earnings were $.79, up 19.7% from the $.66 per share
reported for the first six months of 1998. ROA and ROE were 1.17% and 13.70%,
respectively for the first six months of 1999, compared to .95% and 11.36% for
the same period last year. Net interest income decreased by 4.3% to $24,638,000
for the first six months of 1999, reflecting a 2.6% decline in average earning
assets and a 3 basis point decline in the net interest margin. Non-interest
income increased 34.2% from a year ago with increases in income from trust
services, service charge on deposits, gains on the sale of real estate loans as
well as increased income from bank owned life insurance. Non-interest expenses
were 4.5% lower than the previous year.
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Asset Quality. The reserve for loan losses was 1.20% of total loans at the end
of the second quarter of 1999 and is substantially higher than a year ago due to
lower net charge-offs in the first half of 1999. The reserve was .96% of total
loans at June 30, 1998. Non-accrual loans have declined significantly over the
past year and total $4,295,000 as of June 30, 1999 versus $5,173,000 as of the
same date last year. Net charge-offs also declined significantly and averaged an
annualized .21% of average loans for the second quarter versus .34% for the
second quarter of 1998. Net charge-offs for the first half of 1999 were .11% of
average loans compared to .32% for the first six months of 1998.
Net Interest Income. Net interest income for the second quarter of 1999
decreased by 5.8% from the same period last year to $12,123,000. The decrease
was derived from a decrease of 1.8% in average earning assets to $1.38 billion.
The decline was primarily related to shrinkage in time deposit and security
balances since the Trumbull Financial Corporation acquisition in the fourth
quarter of 1998. A decline in the net interest margin from 3.81% to 3.68% also
contributed to the decline in net interest income. The decline in the net
interest margin resulted from a lower level of lending activity in the second
quarter of 1999. Similarly, net interest income for the first half of 1999
decreased by 4.3% to $24,638,000, reflecting a 2.6% decline in average earning
assets and a 3 basis point decline in the net interest margin.
Non-interest Income. Non-interest income showed significant improvement over the
past year. For the second quarter of 1999, fees from trust services increased by
$218,000, or 32%, over the second quarter of 1998. Other income totaled
$1,964,000 for the second quarter of 1999 versus $1,158,000 for the same period
in 1998. Sales of real estate loans, sales of alternative investment products
and income from the increase in cash surrender value from bank owned life
insurance helped generate the increase in other income. Security sales for the
quarter generated $64,000 in income versus $35,000 in gains for the second
quarter of 1998. Deposit services charges increased by $78,000, or 7.6%,
compared to the second quarter of 1998. For the first half of the year, trust
income is up 24.7% and other non-interest income is up 71.3% primarily from the
sources identified earlier for the second quarter of 1999.
Non-interest Expense. Expenses for the second quarter of 1999 were 7.4% lower
than for the same period in 1998. A decline in salaries and employee benefits
($269,000 or 5.6%) along with declines in professional services, assessment on
deposits and other taxes, amortization of goodwill and other operating expenses
contributed to the overall decline in expenses and represents efficiencies
gained from prior acquisitions. Equipment expense (up 8.9%) and occupancy
expense (up 1.9%) are the only categories of expense to experience increases.
For the first six months of 1999, expenses are down $882,000 or 4.4%.
Shareholders' equity has decreased by $6.2 million from a year ago, primarily
due to the increase in interest rates which has created an unrealized holding
loss (accumulated other comprehensive loss) of $3,670,000 as of June 30, 1999 in
the available-for-sale security portfolio.
Forward-looking statements:
The section that follows contains certain forward-looking statements (as defined
in the Private Securities Litigation Reform Act of 1995). These forward-looking
statements may involve significant risks and uncertainties. Although the Company
believes that the expectations reflected in such forward-looking statements are
reasonable, actual results may differ materially from the expectations discussed
in these forward-looking statements.
Year 2000:
Due to the approach of the Year 2000, the Company is exposed to risks that
equipment or software applications will not be able to distinguish the year 2000
from the year 1900 and will not function properly. To address the issue, the
Company has initiated the process of preparing its computer systems and
applications for the Year 2000. This process involves modifying or replacing
certain hardware and software used by the Company. The software utilized is
primarily originated and serviced by external providers. The Company is
communicating with those providers to ensure that appropriate steps are being
taken to remedy
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any Year 2000 issues. The Company has in place a steering committee to oversee
the Year 2000 readiness effort and has a formal plan in place addressing the
issue. The Awareness phase continues with inclusion of communications with all
retail and commercial customers and employees. The verification of Year 2000
readiness status for hardware and software continues in the Assessment phase.
Additional hardware upgrades and replacements are in progress with the
Renovation effort. Implementation is ongoing as software upgrades are made. The
Validation phase has progressed with completion of testing of most major third
parties. Post-Implementation, or Contingency planning efforts have developed a
full Business Resumption Contingency Plan. The total anticipated capital
expenditure associated with Year 2000 readiness is expected to be approximately
$1.4 million. Of this amount, approximately $900,000 has been expended to date,
with $107,000 being expended in 1999. Operating expenses are estimated to be
minimal, including two full time employees dedicated to the project. Operating
expenses incurred for the first six months of 1999 are approximately $30,000
($92,000 life to date) with an additional $56,000 expected through completion of
the project.
Market Risk Management:
Market risk is the risk of economic loss from adverse changes in the fair value
of financial instruments due to changes in (a) interest rates, (b) foreign
exchange rates, or (c) other factors that relate to market volatility of the
rate, index, or price underlying the financial instrument. The Corporation's
market risk is composed primarily of interest rate risk. The Corporation's
Asset/Liability Committee (ALCO) is responsible for reviewing the interest rate
sensitivity position of the Corporation and establishing policies to monitor and
limit the exposure to interest rate risk. Since nearly the Corporation's entire
interest rate risk exposure relates to the financial instrument activity of the
Bank, the Bank's Board of Directors review the policies and guidelines
established by ALCO.
The primary objective of asset/liability management is to provide an optimum and
stable net interest margin, after-tax return on assets and return on equity
capital, as well as adequate liquidity and capital. Interest rate risk is
monitored through the use of two complementary measures: dynamic gap analysis
and earnings simulation models. While each of the measurement techniques has
limitations, taken together they represent a reasonably comprehensive tool for
measuring the magnitude of interest rate risk inherent in the Corporation.
The earnings simulation model forecasts earnings for a one-year horizon frame
under a variety of interest rate scenarios. Management evaluates the impact of
the various rate simulations against earnings in a stable interest rate
environment. The most recent model projects net income would decrease by 2.2% if
interest rates would immediately rise by 200 basis points. It projects a
decrease in net income of .2% if interest rates would immediately fall by 200
basis points. Management believes this reflects a low level of risk from
interest rate movements and within management approved guideline levels of +/-
3% for the one-year time horizon. Similarly, the most recent model projects net
interest income would decrease by 1.4% if interest rates would immediately rise
by 200 basis points. It projects an increase in net interest income of .1% if
interest rates would immediately fall by 200 basis points. Management believes
this reflects a low level of risk from interest rate movements and within
management approved guideline levels of +/- 2% for the one-year time horizon.
The earnings simulation model includes assumptions about how the various
components of the balance sheet and rate structure are likely to react through
time in different interest rate environments. These assumptions are derived from
historical analysis and management's outlook.
Interest rate sensitivity is managed through the use of security portfolio
management techniques, the use of fixed rate long-term borrowings from the FHLB,
the establishment of rate and term structures for time deposits and loans and
the sale of long-term fixed rate mortgages through the secondary mortgage
market. Although the Corporation has available to it the use of off-balance
sheet swap instruments to manage interest rate risk, these instruments are
historically rarely utilized. Management expects interest rates to be relatively
stable with an upwards bias during 1999 and believes that the current modest
level of interest rate risk is appropriate.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings -
The Company is subject to various pending and threatened lawsuits in which
claims for monetary damages are asserted in the ordinary course of business.
While any litigation involves an element of uncertainty, in the opinion of
management, liabilities, if any, arising from such litigation or threat thereof
will not have a material impact on the financial position or results of
operations of the Company.
Item 2. Changes in Securities - Not Applicable
Item 3. Defaults upon Senior Securities - Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders -
(a) - (d) Second Bancorp, Incorporated's Annual Shareholders Meeting was held on
March 11, 1999. The results of the votes on the matters presented to
shareholders were included in the Form 10Q for the period ended March 31, 1999.
Item 5. Other Information - Not Applicable
Item 6. Exhibits and Reports on Form 8-K:
The following exhibits are included herein:
(11) Statement re: computation of earnings per share
The Company did not file any reports on Form 8-K during the quarter ended June
30, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SECOND BANCORP INCORPORATED
Date: August 13, 1999 /s/ David L. Kellerman
----------------------------------------------------------------
David L. Kellerman, Treasurer
Signing on behalf of the registrant and as principal accounting officer and
principal financial officer.
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Statement 11 Re: Computation of Earnings Per Share
Second Bancorp Incorporated and Subsidiary
For the Three Months Ended For the Six Months Ended
---------------------------- ----------------------------
June 30 June 30 June 30 June 30
1999 1998 1999 1998
------- ------- ------- -------
(Dollars in thousands, except per share
data)
BASIC:
Weighted average shares issued 10,747,733 10,710,554 10,743,316 10,694,548
Less: Treasury shares (50,400) (50,400) (50,400) (50,400)
---------------------------- ----------------------------
Net Weighted average shares outstanding 10,697,333 10,660,154 10,692,916 10,644,148
============================ ============================
Net income $4,338 $3,385 $8,453 $7,050
============================ ============================
Basic Earnings Per Share $0.41 $0.32 $0.79 $0.66
============================ ============================
DILUTED:
Weighted average shares issued 10,747,733 10,710,554 10,743,316 10,694,548
Less: Treasury shares (50,400) (50,400) (50,400) (50,400)
Net effect of dilutive stock options -
based on the treasury stock method
using average market price 58,608 90,346 54,754 97,717
---------------------------- ----------------------------
10,755,941 10,750,500 10,747,670 10,741,865
============================ ============================
Net income $4,338 $3,385 $8,453 $7,050
============================ ============================
Diluted Earnings Per Share $0.40 $0.32 $0.79 $0.66
============================ ============================
-13-