<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, 1997
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)
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)
(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 -- 6,730,396 shares outstanding as of May 1,
1997.
Page 1 of 13
<PAGE> 2
SECOND BANCORP, INC. AND SUBSIDIARY
INDEX
Page
Number
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated balance sheets -
March 31, 1997 and 1996 and December 31, 1996........................... 3
Consolidated statements of income -
Three months ended March 31, 1997 and 1996.............................. 4
Consolidated statements of cash flows -
Three months ended March 31, 1997 and 1996.............................. 5
Consolidated statement of shareholders' equity -
Year ended December 31, 1996 and
three months ended March 31, 1997................. 6
Notes to consolidated financial statements - March 31, 1997............. 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
Statement 11 Re: Computation of Earnings Per Share ..................... 12
Schedule 27 ......................................... 13
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<PAGE> 3
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
SECOND BANCORP, INCORPORATED AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands) March 31 December 31 March 31
1997 1996 1996
- -----------------------------------------------------------------------------------------------------------------------------
ASSETS (unaudited) (*) (unaudited)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and demand balances due from banks $ 29,649 $ 27,934 $ 32,575
Federal funds sold 3,000 10,000 27,000
Securities 239,775 231,324 218,255
Loans:
Commercial 307,028 297,347 274,978
Consumer 196,055 205,409 188,991
Real estate 65,704 62,981 71,693
------- ------- ------
Total loans 568,787 565,737 535,662
Reserve for loan losses 7,156 7,300 6,764
------ ------ -----
Net loans 561,631 558,437 528,898
Premises and equipment 9,256 8,918 7,450
Accrued interest receivable 5,622 5,086 5,206
Goodwill and intangible assets 3,513 3,701 4,349
Other assets 22,908 21,879 22,309
------- ------- ------
Total assets $ 875,354 $ 867,279 $ 846,042
========= ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------------------
Liabilities:
Demand deposits - non-interest bearing $ 74,763 $ 80,328 $ 74,935
Demand deposits - interest bearing 60,902 69,326 116,172
Savings deposits 152,160 156,180 120,486
Time deposits 373,007 363,563 360,180
-------- -------- -------
Total deposits 660,832 669,397 671,773
Federal funds purchased and securities sold under
agreements to repurchase 94,940 86,787 80,753
Note payable 5,000 5,000 5,000
Borrowed funds 4,398 3,989 4,181
Federal Home Loan Bank advances 33,911 26,557 12,230
Accrued expenses and other liabilities 7,353 6,312 6,953
------ ------ -----
Total liabilities 806,434 798,042 780,890
Shareholders' equity:
Preferred stock, no par value;
Series A: 1,500,000 shares authorized, 718,750 shares
issued and 100, 300 and 603,141 shares
outstanding, respectively 2 6 11,106
Series B: authorized 1,500,000 shares 0 0 0
Common stock, no par value; 10,000,000
shares authorized and 6,780,796, 6,717,174 and
5,352,598 shares issued, respectively 27,927 27,398 16,121
Treasury shares; 50,400, 20,000 and 0 shares, respectively (793) (319) 0
Unrealized holding losses (1,729) (24) (212)
Retained earnings 43,513 42,176 38,137
------- ------- ------
Total shareholders' equity 68,920 69,237 65,152
------- ------- ------
Total liabilities and shareholders' equity $ 875,354 $ 867,279 $ 846,042
========= ========= ========
<FN>
(*) The balance sheet at December 31, 1996 has been derived from the
audited financial statements at that date.
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
SECOND BANCORP, INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
- -------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands, Except Per Share Data) For the Three Months
Ended March 31
--------------
1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME Loans (including fees):
Taxable $12,572 $12,335
Exempt from federal income taxes 170 153
Investment securities:
Taxable 2,877 3,020
Exempt from federal income taxes 654 460
Federal funds sold 91 93
----------------------------------
Total interest income 16,364 16,061
INTEREST EXPENSE
Deposits 6,312 6,642
Federal funds purchased and securities
sold under agreements to repurchase 1,061 860
Note payable 90 93
Other borrowed funds 37 35
Federal Home Loan Bank advances 442 154
----------------------------------
Total interest expense 7,942 7,784
----------------------------------
NET INTEREST INCOME 8,422 8,277
Provision for loan losses 761 755
----------------------------------
Net interest income after provision
for loan losses 7,661 7,522
NON-INTEREST INCOME
Service charges on deposit accounts 730 608
Trust fees 609 584
Security (losses) gains 31 35
Other 677 569
----------------------------------
Total non-interest income 2,047 1,796
NON-INTEREST EXPENSE
Salaries and employee benefits 3,402 3,118
Net occupancy 786 744
Professional services 337 374
Equipment 523 369
Data processing services 300 273
Assessment on deposits and other taxes 235 235
Amortization of goodwill and other intangibles 188 216
Other 1,159 1,178
----------------------------------
Total non-interest expense 6,930 6,507
----------------------------------
Income before federal income taxes 2,778 2,811
Income tax expense 628 738
----------------------------------
NET INCOME $2,150 $2,073
Preferred stock dividends 0 (231)
----------------------------------
Net income applicable to common stock $2,150 $1,842
==================================
Per common share data:
Primary earnings $0.32 $0.35
Fully diluted earnings $0.32 $0.31
Dividends declared $0.12 $0.11
Weighted average number of
primary common shares outstanding 6,748,104 5,346,036
Weighted average number of
Fully diluted common shares outstanding 6,757,406 6,742,683
</TABLE>
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<PAGE> 5
<TABLE>
<CAPTION>
SECOND BANCORP, INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Unrealized
Preferred Common Treasury Holding Retained
(Dollars in thousands) Stock Stock Stock Gain (Loss) Earnings Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $12,731 $14,155 $0 $2,248 $36,899 $66,033
Net income 8,552 8,552
Cash dividends declared:
Common stock ($.44 per share) (2,816) (2,816)
Preferred stock ($.75 per share) (456) (456)
Exercise of stock options 276 276
Common stock issued - dividend reinvestment plan 271 271
Conversion of preferred stock to common stock (12,700) 12,696 (4)
Redemption of preferred stock (25) (3) (28)
Purchase of treasury stock (319) (319)
Market value adjustment securities (2,272) (2,272)
---------------------------------------------------------------------------------
Balance, December 31, 1996 $6 $27,398 ($319) ($24) $42,176 $69,237
=================================================================================
Net income 2,150 2,150
Cash dividends declared:
Common stock ($.12 per share) (813) (813)
Exercise of stock options 549 549
Discount on common stock issued
- dividend reinvestment plan (22) (22)
Conversion of preferred stock to common stock (2) 2 0
Redemption of preferred stock (2) (2)
Purchase of treasury stock (474) (474)
Market value adjustment securities (1,705) (1,705)
---------------------------------------------------------------------------------
Balance, March 31, 1997 $2 $27,927 ($793) ($1,729) $43,513 $68,920
=================================================================================
</TABLE>
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<PAGE> 6
<TABLE>
<CAPTION>
SECOND BANCORP, INC. and SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31
-----------------------------------
(Dollars in Thousands) 1997 1996
- ---------------------- ---- ----
OPERATING ACTIVITIES
- ----------------------------------------------------------------------------
<S> <C> <C>
Net Income $2,150 $2,073
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Provision for Loan Losses 761 755
Provision for Depreciation 375 274
Provision for Amortization of Intangibles 188 216
Amortization of Investment Discount and Premium 6 78
Deferred Income Taxes (28) (21)
Securities Gains (31) (35)
Other Gains, net (215) (119)
Increase in Interest Receivable (536) (178)
Increase in Interest Payable 279 150
Originations of Loans Held-for-Sale (4,372) (2,013)
Proceeds from Sale of Loans Held-for-Sale 4,581 2,130
Increase in Other Assets (123) (415)
Increase (Decrease) in Other Liabilities 762 (723)
---------------------------------------------
Net Cash (Used by) Provided by Operating Activities 3,797 2,172
INVESTING ACTIVITIES
- ----------------------------------------------------------------------------
Proceeds from Maturities of Securities - Available-for-Sale 12,505 28,330
Proceeds from Sales of Securities - Available-for-Sale 7,937 16,694
Purchases of Securities - Available-for-Sale (31,451) (30,515)
Net Increase in Revolving Credit Receivables (249) (484)
Net Increase in Loans (3,706) (1,727)
Net Increase in Premises and Equipment (707) (446)
---------------------------------------------
Net Cash (Used by) Provided by Investing Activities (15,671) 11,852
FINANCING ACTIVITIES
- ----------------------------------------------------------------------------
Net Decrease in Demand Deposits, Insured
Money Market and Interest Checking Accounts, and
Savings Deposits (18,009) (12,281)
Net Increase in Time Deposits 9,444 26,203
Net Increase (Decrease) in Federal Funds Purchased
and Securities Sold Under Agreements
to Repurchase 8,153 (6,189)
Net Increase in Borrowings 409 1,017
Net Advances from Federal Home Loan Bank 7,354 4,834
Cash Dividends (813) (835)
Repurchase of Common Shares into Treasury (474) 0
Redemption of Preferred Stock (2) 0
Issuance of Common Stock 527 341
---------------------------------------------
Net Cash Provided by Financing Activities 6,589 13,090
---------------------------------------------
(Decrease) Increase in Cash and Cash Equivalents (5,285) 27,114
---------------------------------------------
Cash and Cash Equivalents at Beginning of Year 37,934 32,461
---------------------------------------------
Cash and Cash Equivalents at End of Period $32,649 $59,575
=============================================
<FN>
Supplementary Cash Flow Information:
Cash paid for 1) Federal Income taxes - $0 and $738,000 for the three months
ended March 31, 1997 and 1996, respectively and 2) Interest - $7,773,000 and
$7,634,000 for the three months ended March 31, 1997 and 1996, respectively.
</TABLE>
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<PAGE> 7
SECOND BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1997
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, 1997
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1997. 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, 1996.
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. Per share and
share data have been restated for the two for one stock split effective May 1,
1997.
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<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
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 twenty-six 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 five county area in northeastern Ohio.
The Bank focuses its marketing efforts primarily on local independent and
professional firms and individuals who are the owners and principals of such
firms. The Bank has emphasized commercial lending and market area expansion.
FINANCIAL CONDITION
At March 31, 1997, the Company had consolidated total assets of $875 million,
deposits of $661 million and shareholders' equity of $69 million. Since march
31, 1996, total assets have grown by 3.5%. Loan growth remains strong with
commercial loans increasing by 12% from a year ago to approximately $307 million
at March 31, 1997. Total earning assets have increased by 4% and now total $812
million or 92.7% of total assets. To accommodate the demand for commercial
lending, the Company deceased balances in federal funds sold over the past year.
Funding growth has primarily been generated through time deposits, Federal Home
Loan Bank (FHLB) advances and retail repurchase agreements. While deposits have
decreased by 1.6% over the past year, time deposits have increased by 4% to $373
million. FHLB advances have increased by $22 million over the past year and now
total almost $34 million as of March 31, 1997. Retail repurchase agreement
accounts have also provided funding for the Company, increasing, along with
Federal funds purchased, to over $95 million as of March 31, 1997 versus $81
million as of the same date in 1996.
RESULTS OF OPERATIONS
GENERAL. The Company achieved net income of $2,150,000 for the first quarter of
1997, 3.7% greater than the $2,073,000 earned during the same period last year.
On a per share basis, as restated to reflect the two for one stock split of May
1, 1997, fully diluted earnings for the quarter were $.32, up from the $.31 per
share reported for the first quarter of 1996. Return on assets (ROA) and return
on total shareholders' equity (ROE) were .99% and 12.33%, respectively for the
first quarter of 1997 compared to 1.00% and 12.45% for last year's first
quarter.
-8-
<PAGE> 9
ASSET QUALITY. The Company's asset quality position remained relatively stable
since year-end 1996. The reserve for loan losses was 1.26% of total loans at the
end of the first quarter of 1997. The reserve was 1.29% and 1.26% of total loans
at December 31, 1996 and March 31, 1997. Non-performing loans totaled $8,134,000
as of March 31, 1997 versus $3,743,000 as of the same date last year and
$8,943,000 as of December 31, 1996. Net charge-offs averaged an annualized .64%
of average loans for the first quarter which represents an increase from the
level of .55% of average loans for the first quarter of 1996. Management
continues to emphasize credit quality in underwriting loans and expects both the
charge-off and non-performing loan ratios to decrease prior to year end 1997.
NET INTEREST INCOME. Net interest income for the first quarter of 1997 increased
by 2% to $8,422,000. The increase came from an increase of almost 4% in average
earning assets to $812 million. The positive impact of the increase in average
earning assets was partially offset by a decline in the net interest margin.
Net interest margin was 4.37% for the first quarter of 1997, compared to 4.45%
for the same period in 1996.
NON-INTEREST INCOME. Non-interest income showed significant improvement over the
past year. For the first quarter of 1997, deposit service charge income
increased by $122,000, or 20%, over the first quarter of 1996. Trust fee income
was higher by $25,000, or 4%, while other income totaled $677,000 for the first
quarter of 1997 versus $569,000 for the same period in 1996. Sales of SBA and
real estate loans as well as sales of alternative investment products helped
generate the increase in other income. Security sales for the quarter generated
$31,000 in income versus $35,000 in gains for the first quarter of 1996.
NON-INTEREST EXPENSE. The expenses for the first quarter of 1997 were 6.5%
greater than for the same period in 1996. Increases in salaries and employee
benefits along with equipment expense related to the companies migration of data
processing and information management systems were the primary factors affecting
the increase in expenses.
LIQUIDITY AND CAPITAL RESOURCES. The Company provides funds for asset growth,
deposit withdrawals and other liability maturities through maturing securities,
payments made on loans, and through the acquisition of new deposits. The Company
also has the ability to borrow in excess of $20 million in overnight funds
through correspondent banks to satisfy short-term liquidity needs. The Company
also uses advances from the Federal Home Loan Bank to provide funding for
growth.
Shareholders' equity has increased by 6% over the past year, with retained
earnings increasing by 14%. Unrealized holding losses were $1,729,000 as of
March 31, 1997. The tier I leverage ratio was 7.77% as of March 31, 1997, up
from 7.25% as of the same date in 1996. Similarly, the risk-based capital ratio
increased from 11.60% as of March 31, 1996 to 12.00% as of the end of the most
recent quarter.
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<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 13, 1997. The results of the votes on the matters
presented to shareholders will be disclosed in the Form 10-Q for the
quarter ended June 30, 1997.
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
(27) Financial Data Schedule
The Corporation filed a report on Form 8-K dated March 21, 1997 relating to the
disclosure of the declaration of a two-for-one stock split effective May 1,
1997.
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<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: March 13, 1997 /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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<PAGE> 1
SECOND BANCORP, INCORPORATED AND SUBSIDIARY
STATEMENT 11 RE: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------
1997 1996
---- ----
<S> <C> <C>
PRIMARY:
Average shares outstanding 6,700,252 5,294,148
Net effect of dilutive stock options -
based on the treasury stock method
using average market price. 47,852 51,888
------- -------
6,748,104 5,346,036
Net income applicable to Common Stock $2,150 $1,842
Per share amount $0.32 $0.34
FULLY DILUTED:
Average shares outstanding 6,700,252 5,294,148
Net effect of dilutive stock options -
based on the treasury stock method
using average market price or period-
end market price, whichever is higher. 57,154 51,888
Assumed conversion of $1.50 Preferred
Stock Series A-1 0 1,396,647
-- ---------
6,757,406 6,742,683
Net income $2,150 $2,073
Per share amount $0.32 $0.31
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 29,649
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 239,775
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 568,787
<ALLOWANCE> 7,156
<TOTAL-ASSETS> 875,354
<DEPOSITS> 660,832
<SHORT-TERM> 107,338
<LIABILITIES-OTHER> 7,353
<LONG-TERM> 33,911
<COMMON> 70,647
0
2
<OTHER-SE> (1,729)
<TOTAL-LIABILITIES-AND-EQUITY> 875,354
<INTEREST-LOAN> 12,742
<INTEREST-INVEST> 3,531
<INTEREST-OTHER> 91
<INTEREST-TOTAL> 16,364
<INTEREST-DEPOSIT> 6,312
<INTEREST-EXPENSE> 7,942
<INTEREST-INCOME-NET> 8,422
<LOAN-LOSSES> 761
<SECURITIES-GAINS> 31
<EXPENSE-OTHER> 6,930
<INCOME-PRETAX> 2,778
<INCOME-PRE-EXTRAORDINARY> 2,778
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,150
<EPS-PRIMARY> .32
<EPS-DILUTED> .32
<YIELD-ACTUAL> 4.37
<LOANS-NON> 6,393
<LOANS-PAST> 1,576
<LOANS-TROUBLED> 165
<LOANS-PROBLEM> 7,894
<ALLOWANCE-OPEN> 7,300
<CHARGE-OFFS> 1,085
<RECOVERIES> 186
<ALLOWANCE-CLOSE> 7,156
<ALLOWANCE-DOMESTIC> 7,156
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
PER SHARE AMOUNTS ADJUSTED RETROACTIVELY FOR A TWO-FOR-ONE STOCK SPLIT
EFFECTIVE MAY 1, 1997.
</FN>
</TABLE>
