<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) THE SECURITIES EXCHANGE
ACT OF 1934 For quarter ended March 31, 1995
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
-------
SECOND BANCORP , INCORPORATED
------------------------------------------------------
(exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Ohio 34-1547453
---- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
108 Main Ave. Warren, Ohio 44482-1311
-------------------------- ----------
(Address of principal executive offices) (Zip Code)
</TABLE>
(216) 841-0123
---------------
Registrant's telephone number, including area code
Not applicable
--------------
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 ...
-------------
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 -- 2,518,731 shares outstanding as of May 1,
1995.
Page 1 of 13
<PAGE> 2
<TABLE>
SECOND BANCORP, INC. AND SUBSIDIARY
INDEX
<CAPTION>
Page
Number
<S> <C>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated balance sheets -
March 31, 1995 and 1994 and December 31, 1994............................... 3
Consolidated statements of income -
Three months ended March 31, 1995 and 1994.................................. 4
Consolidated statements of cash flows -
Three months ended March 31, 1995 and 1994.................................. 5
Consolidated statement of shareholders' equity -
Year ended December 31, 1994 and
three months ended March 31, 1995................. 6
Notes to consolidated financial statements - March 31, 1995......................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ... 8-9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................ 10
Item 2. Changes in Securities ........................................... 10
Item 3. Defaults upon Senior Securities.................................. 10
Item 4. Submission of Matters to a Vote of Security Holders.............. 10
Item 5. Other Information................................................ 10
Item 6. Exhibits and Reports on Form 8-K ................................ 10
SIGNATURES ......................................................................... 11
Schedule 27......................................................................... 13
</TABLE>
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<PAGE> 3
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
SECOND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
(Dollars in Thousands) March 31 December 31 March 31
1995 1994 1994
- -----------------------------------------------------------------------------------------------------------
ASSETS (unaudited) (*) (unaudited)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and Demand Balances Due from Banks $32,626 $30,546 $22,715
Federal Funds Sold 8,000 0 0
Time Deposits with Banks and Other Interest Bearing Assets 0 0 995
Securities:
Held-to-Maturity (market value $136,807,
$135,631 and $62,274, respectively) 137,692 140,260 62,961
Available-for-Sale 85,921 86,953 101,963
-------- -------- --------
Total Securities 223,613 227,213 164,924
Loans:
Commercial 247,582 238,053 222,213
Consumer 205,301 202,343 191,016
Real Estate 60,630 65,502 54,158
Loans Held-for-Sale 5,725 0 13,481
-------- -------- --------
Total Loans 519,238 505,898 480,868
Reserve for Loan Losses 6,226 6,126 5,733
-------- -------- --------
Net Loans 513,012 499,772 475,135
Premises and Equipment 5,597 5,765 4,591
Accrued Interest Receivable 4,972 4,828 4,258
Goodwill and Intangible Assets 5,315 5,565 3,158
Other Assets 23,946 13,500 10,998
-------- -------- --------
Total Assets $817,081 $787,189 $686,774
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------
Liabilities:
Demand Deposits (non-interest bearing) $75,275 $83,486 $68,795
Insured Money Market and Interest
Checking Accounts 116,890 116,935 98,150
Savings Deposits 129,734 129,791 114,252
Time Deposits 316,159 285,551 272,319
-------- -------- --------
Total Deposits 638,058 615,763 553,516
Federal Funds Purchased and Securities Sold Under
Agreements to Repurchase 101,202 94,758 65,391
Note Payable 5,000 5,000 0
Borrowed Funds 1,601 3,668 5,771
Federal Home Loan Bank Advances 7,662 7,748 3,944
Accrued Expenses and Other Liabilities 5,562 4,369 3,799
-------- -------- --------
Total Liabilities 759,085 731,306 632,421
Shareholders' Equity:
Preferred Stock, no par value;
Series A: 1,500,000 shares authorized and
718,750 shares issued 13,235 13,235 13,235
Series B: authorized 1,500,000 shares 0 0 0
Common Stock, no par value; 10,000,000
shares authorized and 2,513,343 and 2,509,316
and 2,492,769 shares issued, respectively 13,223 13,140 12,844
Unrealized Holding Losses (1,775) (2,820) (1,000)
Retained Earnings 33,313 32,328 29,274
-------- -------- --------
Total Shareholders' Equity 57,996 55,883 54,353
-------- -------- --------
Total Liabilities and
Shareholders' Equity $817,081 $787,189 $686,774
======== ======== ========
<FN>
(*) The balance sheet at December 31, 1994 has been derived from the audited financial
statements at that date.
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</TABLE>
<PAGE> 4
<TABLE>
SECOND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
- -----------------------------------------------------------------------------------
<CAPTION>
(Dollars in Thousands, Except Per Share Data) For the Three Months
Ended March 31
-------------------
1995 1994
-------------------
<S> <C> <C>
INTEREST INCOME
Loans (including fees):
Taxable $11,554 $9,755
Exempt from Federal Income Taxes 208 182
Investment Securities:
Taxable 2,906 1,571
Exempt from Federal Income Taxes 422 442
Federal Funds Sold 83 6
Time Deposits in Banks and Other
Interest Bearing Assets 0 12
------------------
Total Interest Income 15,173 11,968
INTEREST EXPENSE
Deposits 5,671 4,281
Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase 1,191 406
Note Payable 110 0
Other Borrowed Funds 52 37
FHLB Advances 119 66
------------------
Total Interest Expense 7,143 4,790
------------------
NET INTEREST INCOME 8,030 7,178
Provision for Loan Losses 576 679
------------------
Net Interest Income after Provision
for Loan Losses 7,454 6,499
NON-INTEREST INCOME
Trust Fees 550 506
Service Charges on Deposit Accounts 580 422
Security Gains (55) 47
Other 432 236
------------------
Total Non-Interest Income 1,507 1,211
NON-INTEREST EXPENSE
Salaries and Employee Benefits 2,934 2,392
Net Occupancy 725 615
Equipment 526 312
Assessment on Deposits and Other Taxes 380 481
Data Processing Services 337 301
Professional Services 281 295
Amortization of Goodwill and Other Intangibles 250 178
Other 1,183 1,002
------------------
Total Non-Interest Expense 6,616 5,576
------------------
Income before Federal Income Taxes 2,345 2,134
Income Tax Expense 614 555
------------------
NET INCOME $1,731 $1,579
Preferred Stock Dividends (269) (270)
==================
Net Income Applicable to Common Stock $1,462 $1,309
Per Common Share Data:
Primary earnings $0.58 $0.52
Fully Diluted Earnings $0.52 $0.48
Dividends Declared $0.19 $0.16
Weighted Average Number of
Common Shares Outstanding 2,519,972 2,501,819
<FN>
See Footnotes.
-4-
</TABLE>
<PAGE> 5
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
SECOND BANCORP, INC. and SUBSIDIARY
<CAPTION>
For the Three Months Ended March 31
-----------------------------------
(Dollars in Thousands) 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
- ---------------------------------------------------------------------
Net Income $1,731 $1,579
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Provision for Loan Losses 576 679
Provision for Depreciation 241 234
Provision for Amortization of Intangibles 250 178
Goodwill Disposed of from Sale of Student Loans 0 46
Amortization of Investment Discount and Premium 146 556
Amortization of Time Deposits with Banks and Other
Interest Bearing Assets Discount and Premium 0 (8)
Deferred Income Taxes (123) 298
Securities Losses (Gains) 55 (47)
Other (Gains) Losses, net (78) (34)
(Increase) Decrease in Interest Receivable (144) (826)
Increase in Interest Payable 608 229
Originations of Loans Held-for-Sale (9,895) (6,343)
Proceeds from Sale of Loans Available-for-Sale 4,170 15,951
(Increase) in Other Assets (10,862) (1,756)
Increase in Other Liabilities 585 158
-------------------------------
Net Cash Provided by Operating Activities (12,740) 12,614
INVESTING ACTIVITIES
- ---------------------------------------------------------------------
Proceeds from Maturities of Securities - Held-to Maturity 2,746 6,100
Proceeds from Maturities of Securities - Available-for-Sale 1,302 5,925
Proceeds from Sales of Securities - Held-to-Maturity 0 0
Proceeds from Sales of Securities - Available-for-Sale 11,327 9,087
Purchases of Securities - Held-to-Maturity (250) (11,469)
Purchases of Securities - Available-for-Sale (10,142) (12,852)
Net Decrease in Time Deposits with
Banks and Other Interest Bearing Assets 0 7
Net Decrease in Revolving Credit Receivables 282 180
Net (Increase) in Loans (8,313) (19,788)
Net (Increase) in Premises and Equipment (55) (443)
-------------------------------
Net Cash (Used by) Provided by Investing Activities (3,103) (23,253)
FINANCING ACTIVITIES
- ---------------------------------------------------------------------
Net (Decrease) Increase in Demand Deposits, Insured
Money Market and Interest Checking Accounts, and
Savings Deposits (8,313) (2,849)
Net Increase (Decrease) in Time Deposits 30,608 (4,213)
Net Increase in Federal Funds Purchased
and Securities Sold Under Agreements
to Repurchase 6,444 10,437
Net (Decrease) in Borrowings (2,067) (228)
Net (Repayments) Advances from Federal Home Loan Bank (86) 2,976
Cash Dividends (746) (669)
Issuance of Common Stock 83 81
-------------------------------
Net Cash Provided by Financing Activities 25,923 11,233
-------------------------------
Increase in Cash and Cash Equivalents 10,080 594
-------------------------------
Cash and Cash Equivalents at Beginning of Year 30,546 22,121
-------------------------------
Cash and Cash Equivalents at End of Year 40,626 22,715
===============================
<FN>
Supplementary Cash Flow Information: Cash paid for 1) Federal income taxes - $0
and $430,000 for the three months ended March 31, 1995 and 1994, respectively
and 2) Interest - $6,535,000 and $4,676,000 for the three months ended March
31, 1995 and 1994, respectively. FAS 115 mark to market adjustments on the
Available-for-Sale portfolio resulted in a $1,584,000 addition and $1,492,000
reduction for the quarters ended March 31, 1995 and 1994, respectively, with a
resulting period end unrealized holding loss adjustment to shareholders' equity
of $1,045,000 and $1,000,000, respectively.
</TABLE>
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<PAGE> 6
<TABLE>
SECOND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
Unrealized
(Dollars in Thousands) Preferred Common Holding Retained
Stock Stock Losses Earnings Total
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $13,235 $12,763 $0 $28,364 $54,362
Net Income 6,643 6,643
Common Stock Issued - Dividend Reinvestment Plan 342 342
Exercise of Stock Options 35 35
Cash Dividends Declared
Common Stock (1,601) (1,601)
Preferred Stock (1,078) (1,078)
Adjustment to Net Unrealized Losses on
Available-for-Sale Securities, net of tax (2,820) (2,820)
--------------------------------------------------
Balance, December 31, 1994 13,235 13,140 (2,820) 32,328 55,883
Net Income 1,731 1,731
Common Stock Issued - Dividend Reinvestment Plan 83 83
Cash Dividends Declared
Common Stock (477) (477)
Preferred Stock (269) (269)
Adjustment to Net Unrealized Losses on
Available-for-Sale Securities, net of tax 1,045 1,045
--------------------------------------------------
Balance, March 31, 1995 13,235 13,223 (1,775) 33,313 57,996
==================================================
</TABLE>
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<PAGE> 7
SECOND BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1995
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 period ended March 31,
1995 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1995. Certain reclassifications have been made to
amounts previously reported in order to conform with 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, 1994.
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, as restated
for the three for two stock split effective May 1, 1995.
NOTE C -
Effective January 1, 1995, the company adopted Financial Accounting Standards
Board Statement 114, "Accounting by creditors for Impairment of Loans". Under
the new standard, the 1995 reserve for loan losses related to loans that are
considered impaired is based on discounted cash flows using the loan's initial
effective interest rate and the fair value of the collateral for certain
collateral dependent loans. The effect of adopting this new standard did not
have a material effect on the company's results of operations.
The company's definition of impaired loans includes nonaccrual and past due
loans. The reserve for loan losses related to impaired loans was approximately
$275,000.
-7-
<PAGE> 8
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 (the "Company") achieved net income of $1,731,000
for the first quarter of 1995, 9.6% higher than the $1,579,000 earned during
the same period last year. On a per share basis, primary earnings for the
quarter were $.58, up from the $.52 per share reported for the first quarter,
1994. Fully diluted earnings per share were $.52 for the first quarter of
1995, 8% greater than the $.48 per share reported for the same period in 1994.
Return on assets (ROA) and return on equity (ROE) were .87% and 13.37%
respectively for the first quarter of 1995 compared to .93% and 12.57% for last
year's first quarter.
The increase in net income was largely due to a 12% increase in net interest
income. The increase in net interest income to $8,030,000 for the first quarter
can be attributed to a 16.6% increase in average earning assets to $745,244,000
for the most current quarter and a decrease in net interest margin from 4.68%
for the first quarter of 1994 to 4.48% for the latest quarter. The decrease in
the net interest margin resulted from a steep increase in interest rates caused
by Federal Reserve Bank efforts during the last year to slow the economy and
control inflation coupled with the Company's negative short term interest rate
gap position. The increased short term rates have flattened the yield curve and
increased deposit costs faster and greater than assets could reprice.
Non-interest income showed significant improvement over the past year. DDA
service charge income increased by $158,000, or 37%, over the first quarter of
1994 while other income improved by 83% to $196,000 as the Company generated
increased income from loan sales and new income programs. Security sales for
the quarter resulted in a $55,000 loss compared to a $47,000 gain for the first
quarter of 1994.
First quarter 1995 expenses increased 19% over 1994's first quarter, in line
with Second Bancorp's asset growth during that period. Assets totaled
$817,081,000 as of March 31, 1995, 19% greater than the $686,774,000 reported
for the same date a year ago. The third quarter 1994 acquisition of four
Portage County, Ohio branches from the Resolution Trust Corporation was
primarily responsible for a 22% increase in salaries and benefits, an 18%
increase in net occupancy expense and a 40% increase in amortization of
goodwill and other intangible expenses. Expenses are expected to stabilize as
the Company completes consolidation of the acquired branches allowing its net
overhead ratio to continue its recent improvement.
The Company's asset quality position remained strong with its reserve for loan
losses standing at 1.20% of total loans at the end of the first quarter and its
non-performing loans representing only 1.02% of quarter-end loans. The
Company's coverage ratio at the end of first quarter 1995 was 118%, 6
percentage points higher than a year ago, and net charge-offs averaged an
annualized .37% of total loans for the quarter, in line with the Company's low
charge-off levels for the last two years. The improved credit quality
position has allowed the Company to reduce its provision for loan losses to
$576,000 for the first quarter of 1995, compared to $679,000 for the same
period in 1994.
-8-
<PAGE> 9
Loan growth remains strong with commercial loans increasing by 11.4% to just
under $250 million at the end of the first quarter from a year ago, while total
earning assets have increased by 16% and now represent 91.9% of total assets.
Shareholders' equity has increased by 6.7% over the same period, with retained
earnings increasing by 14%. Unrealized holding losses were $1,775,000 as of
March 31, 1995 which is an increase from the $1,000,000 unrealized loss as of
March 31, 1994 but a decreased from the $2,820,000 unrealized loss reported as
of December 31, 1994. The tier I leverage ratio was 6.71% as of March 31,
1995, down from 7.64% as of the same date in 1994 due to the steep increase in
assets. Similarly, risk based capital decreased from 11.22% as of March 31,
1994 to 10.63% as of the end of the most recent quarter.
-9-
<PAGE> 10
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 will be
held on May 9, 1995. The results of the votes on the matters
presented to shareholders will be reported in the June 30, 1995 Form
10-Q.
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 Corporation did not file any reports on Form 8-K during the three months
ended March 31, 1995.
-10-
<PAGE> 11
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, INC.
Date: May 4, 1995 /s/ David L. Kellerman
----------- --------------------------
David L. Kellerman, Treasurer
Signing on behalf of the registrant
and as principal accounting officer
and principal financial officer.
-11-
<PAGE> 1
<TABLE>
(11) - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<CAPTION>
(Dollars in Thousands) Three Months Ended
March 31
----------------------
1995 1994
----------------------
<S> <C> <C>
PRIMARY:
Average shares outstanding 2,511,707 2,491,362
Net effect of dilutive stock options -
based on the treasury stock method
using average market price. 8,266 10,457
----------------------
2,519,972 2,501,819
Net income applicable to Common Stock $1,462 $1,309
Per share amount $0.58 $0.52
FULLY DILUTED:
Average shares outstanding 2,511,707 2,491,362
Net effect of dilutive stock options -
based on the treasury stock method
using average market price or period-
end market price, whichever is higher. 8,508 10,899
Assumed conversion of $1.50 Preferred
Stock Series A-1 803,420 803,420
----------------------
3,323,634 3,305,681
Net income $1,731 $1,579
Per share amount $0.52 $0.48
</TABLE>
-12-
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000803112
<NAME> SECOND BANCORP INC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 32,626
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 8,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 85,921
<INVESTMENTS-CARRYING> 137,692
<INVESTMENTS-MARKET> 136,807
<LOANS> 519,238
<ALLOWANCE> 6,226
<TOTAL-ASSETS> 817,081
<DEPOSITS> 638,058
<SHORT-TERM> 1,601
<LIABILITIES-OTHER> 5,562
<LONG-TERM> 12,662
<COMMON> 13,223
0
13,235
<OTHER-SE> 31,538
<TOTAL-LIABILITIES-AND-EQUITY> 817,081
<INTEREST-LOAN> 11,762
<INTEREST-INVEST> 3,411
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 15,173
<INTEREST-DEPOSIT> 5,671
<INTEREST-EXPENSE> 7,143
<INTEREST-INCOME-NET> 8,030
<LOAN-LOSSES> 576
<SECURITIES-GAINS> (55)
<EXPENSE-OTHER> 1,183
<INCOME-PRETAX> 2,345
<INCOME-PRE-EXTRAORDINARY> 2,345
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,731
<EPS-PRIMARY> .58
<EPS-DILUTED> .52
<YIELD-ACTUAL> 8.17
<LOANS-NON> 3,876
<LOANS-PAST> 1,381
<LOANS-TROUBLED> 621
<LOANS-PROBLEM> 8,422
<ALLOWANCE-OPEN> 6,126
<CHARGE-OFFS> 624
<RECOVERIES> 148
<ALLOWANCE-CLOSE> 6,226
<ALLOWANCE-DOMESTIC> 6,226
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
