<PAGE> 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 September 30, 1998
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
--- ---
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 - 7,402,326 shares outstanding as of
October 31, 1998. ,
Page 1 of 14
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SECOND BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
INDEX Page
Number
PART 1. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements (unaudited)
Consolidated balance sheets -
September 30, 1998 and 1997 and December 31, 1997........................... 3
Consolidated statements of income -
Three months and nine months ended September 30, 1998 and 1997..... 4
Consolidated statements of cash flows -
Nine months ended September 30, 1998 and 1997...................... 5
Consolidated statement of shareholders' equity -
Nine months ended September 30, 1998 and 1997...................... 6
Notes to consolidated financial statements -September 30, 1998............. 7-8
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
</TABLE>
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<TABLE>
<CAPTION>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
Second Bancorp, Inc. and Subsidiary
September 30 December 31 September 30
---------------------------------------------------------
(Dollars in thousands) 1998 1997 1997
- -------------------------------------------------------------------------------------------------------------
ASSETS
- ----------------------------------------------------
<S> <C> <C> <C>
Cash and due from banks $ 25,346 $ 25,871 $ 26,746
Federal funds sold 10,246 11,444 2,550
Securities (at market value) 252,756 282,694 278,592
Loans 637,104 602,908 606,705
Less reserve for loan losses 7,766 7,367 7,719
---------------------------------------------------------
Net loans 629,338 595,541 598,986
Premises and equipment 10,789 10,062 10,034
Accrued interest receivable 6,430 6,385 6,731
Goodwill and intangible assets 2,916 3,221 3,137
Other assets 18,721 20,616 18,813
---------------------------------------------------------
Total assets $ 956,542 $ 955,834 $ 945,589
=========================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------------------------------------------------
Deposits:
Demand - non-interest bearing $ 85,488 $ 101,721 $ 86,718
Demand - interest bearing 65,506 65,368 59,433
Savings 169,573 165,565 166,738
Time deposits 367,673 408,309 391,181
---------------------------------------------------------
Total deposits 688,240 740,963 704,070
Federal funds purchased and securities sold under
agreements to repurchase 98,804 111,327 116,731
Note payable 0 0 2,500
Other borrowed funds 4,200 3,492 4,683
Federal Home Loan Bank advances 66,715 9,864 31,077
Accrued expenses and other liabilities 7,381 6,488 6,448
---------------------------------------------------------
Total liabilities 865,340 872,134 865,509
Shareholders' equity:
Preferred stock, no par value;
Series A: 1,500,000 shares authorized 0 0 0
Series B: 1,500,000 shares authorized 0 0 0
Common stock, no par value; 20,000,000 shares
authorized; 7,451,126, 7,371,025 and 7,356,720
shares, respectively 36,143 34,484 34,179
Treasury stock, 50,400 shares (793) (793) (793)
Accumulated other comprehensive income 4,608 3,022 1,872
Retained earnings 51,244 46,987 44,822
---------------------------------------------------------
Total shareholders' equity 91,202 83,700 80,080
---------------------------------------------------------
Total liabilities and shareholders' equity $ 956,542 $ 955,834 $ 945,589
=========================================================
</TABLE>
See notes to consolidated financial statements.
Certain reclassifications have been made to amounts previously reported in order
to conform with current year presentation.
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<TABLE>
<CAPTION>
Consolidated Statements of Income
Second Bancorp, Inc. and Subsidiary
For the Three Months For the Nine Months
(Dollars in thousands, Ended September 30 Ended September 30
-------------------------------- ---------------------------
except per share data) 1998 1997 1998 1997
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INTEREST INCOME
- ------------------------------------------------------
<S> <C> <C> <C> <C>
Loans (including fees):
Taxable $ 13,827 $ 13,791 $ 41,163 $ 40,806
Exempt from federal income taxes 187 176 549 480
Securities:
Taxable 3,215 3,462 10,393 9,499
Exempt from federal income taxes 853 735 2,464 2,089
Federal funds sold 154 79 355 285
-------------------------------- ---------------------------
Total interest income 18,236 18,243 54,924 53,159
INTEREST EXPENSE
- ------------------------------------------------------
Deposits 6,808 6,850 20,536 20,183
Federal funds purchased and securities
sold under agreements to repurchase 1,230 1,448 4,138 3,797
Note payable 0 47 0 234
Other borrowed funds 43 42 124 127
Federal Home Loan Bank advances 807 674 1,885 1,608
-------------------------------- ---------------------------
Total interest expense 8,888 9,061 26,683 25,949
-------------------------------- ---------------------------
Net interest income 9,348 9,182 28,241 27,210
Provision for loan losses 1,851 1,094 3,471 2,706
-------------------------------- ---------------------------
Net interest income after provision for loan
losses 7,497 8,088 24,770 24,504
NON-INTEREST INCOME
- ------------------------------------------------------
Service charges on deposit accounts 770 799 2,211 2,364
Trust fees 677 623 2,032 1,841
Security gains 719 34 882 433
Other operating income 1,229 949 3,031 2,410
-------------------------------- ---------------------------
Total non-interest income 3,395 2,405 8,156 7,048
NON-INTEREST EXPENSE
- ------------------------------------------------------
Salaries and employee benefits 3,733 3,550 11,265 10,738
Merger costs 1,329 0 1,329 0
Net occupancy 836 829 2,520 2,464
Equipment 582 535 1,873 1,582
Professional services 374 510 1,126 1,320
Assessment on deposits and other taxes 241 261 728 778
Amortization of goodwill and other intangibles 163 188 490 564
Other operating expenses 1,380 1,530 4,385 5,431
-------------------------------- ---------------------------
Total non-interest expense 8,638 7,403 23,716 22,877
-------------------------------- ---------------------------
Income before federal income taxes 2,254 3,090 9,210 8,675
Income tax expense 578 666 2,186 1,764
-------------------------------- ---------------------------
Net income $ 1,676 $ 2,424 $ 7,024 $ 6,911
================================ ===========================
NET INCOME PER COMMON SHARE:
Basic $ 0.23 $ 0.33 $ 0.95 $ 0.95
Diluted $ 0.22 $ 0.33 $ 0.94 $ 0.95
Weighted average common shares outstanding:
Basic 7,397,836 7,289,387 7,371,272 7,230,142
Diluted 7,464,085 7,354,657 7,445,927 7,288,630
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
Consolidated Statements of Shareholders' Equity
Second Bancorp, Inc. and Subsidiary Accumulated
Other
Preferred Common Treasury Comprehen- Retained Comprehen-
(Dollars in thousands) Stock Stock Stock sive Income Earnings Total sive Income
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 $ 6 $ 32,580 $ (319) $ (24) $ 40,343 $72,586
Comprehensive income:
Net income 6,911 6,911 $ 6,911
Other comprehensive income, net of tax
Change in unrealized market value
adjustment on securities
available-for-sale, net of tax 1,896 1,896 1,896
------------
Comprehensive income $ 8,807
============
Cash dividends declared:
Common stock ($.33 per share) (2,432) (2,432)
Exercise of stock options 675 675
Common stock issued - dividend reinvestment
plan 920 920
Conversion of preferred stock to common stock (6) 4 (2)
Purchase of treasury stock (474) (474)
------------------------------------------------------------------
Balance, September 30, 1997 $ - $ 34,179 $ (793) $ 1,872 $ 44,822 $80,080
==================================================================
Balance, January 1, 1998 $ - $ 34,484 $ (793) $ 3,022 $ 46,987 $83,700
Comprehensive income:
Net income 7,024 7,024 $ 7,024
Other comprehensive income, net of tax
Change in unrealized market value
adjustment on securities
available-for-sale, net of tax 1,586 1,586 1,586
------------
Comprehensive income $ 8,610
============
Cash dividends declared: common ($.37 per
share) (2,767) (2,767)
Exercise of stock options 377 377
Common stock issued - dividend reinvestment
plan 1,282 1,282
------------------------------------------------------------------
Balance, September 30, 1998 $ - $ 36,143 $ (793) $ 4,608 $ 51,244 $91,202
==================================================================
</TABLE>
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<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Second Bancorp, Inc. and Subsidiary
For the Nine Months Ended September 30
(Dollars in Thousands) 1998 1997
- ---------------------- ---- ----
OPERATING ACTIVITIES
- --------------------------------------------------------
<S> <C> <C>
Net income $ 7,024 $ 6,911
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 3,471 2,706
Provision for depreciation 1,532 1,035
Provision for amortization of intangibles 490 564
Net increase in servicing rights (185) 0
Amortization of investment discount and premium (724) 66
Deferred income taxes 111 222
Securities gains (882) (433)
Other (gains) losses, net (1,215) (789)
Increase in interest receivable (45) (1,477)
Increase (decrease) in interest payable 35 (115)
Originations of loans held-for-sale (36,920) (30,924)
Proceeds from sale of loans held-for-sale 38,138 31,702
Decrease in other assets 960 1,889
Increase (decrease) in other liabilities 858 (109)
-------------------------------------------
Net cash provided by operating activities 12,648 11,248
INVESTING ACTIVITIES
- --------------------------------------------------------
Proceeds from maturities of securities -
available-for-sale 104,634 34,572
Proceeds from sales of securities -
available-for-sale 75,040 25,713
Purchases of securities - available-for-sale (145,720) (101,926)
Net increase in revolving credit receivables (866) (5,140)
Net increase in loans (36,402) (8,261)
Net increase in premises and equipment (2,262) (1,951)
-------------------------------------------
Net cash used by investing activities (5,576) (56,993)
FINANCING ACTIVITIES
- --------------------------------------------------------
Net decrease in demand deposits, insured money market
and interest checking accounts, and savings
deposits (12,087) (9,028)
Net (decrease) increase in time deposits (40,636) 11,192
Net (decrease) increase in federal funds purchased
and Securities sold under agreements to repurchase (12,523) 29,944
Decrease in note payable 0 (2,500)
Net increase in borrowings 708 694
Net advances from Federal Home Loan Bank 56,851 4,520
Cash dividends (2,767) (2,432)
Conversion/redemption preferred stock 0 (2)
Purchase of treasury stock 0 (474)
Issuance of common stock 1,659 1,595
-------------------------------------------
Net cash (used by) provided by financing activities (8,795) 33,509
-------------------------------------------
Decrease in cash and cash equivalents (1,723) (12,236)
-------------------------------------------
Cash and cash equivalents at beginning of year 37,315 41,532
-------------------------------------------
Cash and cash equivalents at end of period $ 35,592 $ 29,296
===========================================
</TABLE>
Supplementary Cash Flow Information:
Cash paid for 1) Federal Income taxes - $2,186,000 and $1,764,000 for the nine
months ended September 30, 1998 and 1997, respectively and 2) Interest -
$26,648,000 and $26,064,000 for the nine months ended September 30, 1998 and
1997, respectively.
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Second Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements (unaudited)
September 30, 1998 (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- or nine-month periods ended
September 30, 1998 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1998. 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, 1997.
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 two for one stock split effective May 1, 1997.
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 10, 1998, the shareholders of both the Company and Trumbull
Financial Corporation approved the merger of the two companies.
NOTE D - COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standard (SFAS) No. 130, "Reporting Comprehensive Income". SFAS No. 130
establishes new rules for the reporting and display of comprehensive income and
its components; however, the adoption of this Statement had no impact on the
Company's net income or shareholders' equity. SFAS No. 130 requires unrealized
gains or losses on the Company's available-for-sale securities to be included in
other comprehensive income. Prior year financial statements have been
reclassified to conform to the requirements of SFAS No. 130.
During the first nine months of 1998 and 1997, total comprehensive income
amounted to $8,610 and $8,807. The components of comprehensive income, net of
tax, for the nine-month periods ended September 30, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
1998 1997
-----------------------
<S> <C> <C>
Net income $7,024 $6,911
Unrealized losses on available-for-sale securities 1586 1,896
-------------------------
Comprehensive income $8,610 $8,807
========================
</TABLE>
Accumulated other comprehensive income, net of related tax, at September 30,
1998 and December 31, 1997 totaled $4,608 and $1,872, respectively and were
comprised entirely of accumulated changes in unrealized market value adjustments
on securities available-for-sale, net of tax.
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Disclosure of reclassification amounts:
<TABLE>
<CAPTION>
January 1 to January 1 to
Sept. 30, 1998 Sept. 30, 1997
--------------------------------
<S> <C> <C>
Unrealized holding (losses) gains arising during the period $ 2,468 $ 2,329
Less: reclassification for gains included in net income (882) (433)
-------------------------
Net unrealized (losses) gains on available-for-sale securities $ 1,586 $ 1,896
=========================
</TABLE>
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-eight 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 seven 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 September 30, 1998, the Company had consolidated total assets of $956.5
million, deposits of $688 million and shareholders' equity of $91 million. Since
September 30, 1997, total assets have grown by 1.2%. Loans have grown by 5%
during the past year to $637 million. Within the loan totals, real estate loan
balances have increased by 49% to $108 million as of September 30, 1998 while
consumer lending has declined by $30 million to $166 million as of the same
date. The decline in consumer loan balances reflects the Bank's reduced focus on
indirect automobile lending and commitment to improved credit quality within
that portfolio. Commercial loan balances have increased by $25 million, or 7%
over the past year.
Funding growth has primarily been generated through advances from the Federal
Home Loan Bank ("FHLB"). FHLB advances have increased by $36 million over the
past year to total $67 at the end of the most recent quarter. The company has
utilized FHLB advances to replace higher priced and shorter term retail time
deposits. Time deposits have declined by $24 million over the same period.
Results of Operations
General. The Company achieved net income of $1,676,000 for the third quarter of
1998, 31% less than the $2,424,000 earned during the same period last year. The
quarter included $1,329,000 in merger costs associated with the third quarter
acquisition of Enfin, Inc. and its subsidiary, Enterprise Bank, in Solon, Ohio
along with merger costs from the pending Trumbull Financial Corporation
acquisition. Excluding those merger costs, net income would have been
$2,771,000, or 14.3% greater than the third quarter of 1997. On a per share
basis, diluted earnings for the quarter were $.22%, 33% less than the $.33 per
share reported for the third quarter of 1997. Excluding merger costs, diluted
earnings per share would have been $.37. Return on average assets (ROA) and
return on average total shareholders' equity (ROE) were .69% and 7.38%,
respectively for the third quarter of 1998 compared to 1.04% and 12.66% for last
year's third quarter. Excluding merger costs, ROA and ROE would have been 1.14%
and 12.20% for the third quarter. Net interest income increased by 1.8% to
$9,348,000 for the third quarter of 1998. Non-interest income increased 41.2%
from a year ago with increases in income from trust services, security gains and
other
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operating income all posting positive results. Excluding merger costs,
non-interest expenses declined 1.3% from the same period a year ago, indicating
the Company's continued successful efforts to contain and reduce costs. During
the quarter, an additional $1,000,000 special provision for loan losses was
added to the reserve for loan losses. The special provision was necessitated by
a bankruptcy filing potentially impacting the collectibility of a single, but
significant, commercial loan relationship. The special provision was partially
offset by $719,000 in security gains realized during the third quarter.
For the first nine months, the Company achieved net income of $7,024,000, 1.6%
greater than the $6,911,000 earned during the same period last year. Excluding
merger costs, net income would have been $8,119,000, or 17.5% greater than the
first nine months of 1997. On a per share basis, diluted earnings were $.94,
virtually unchanged from the $.95 per share reported for the first nine months
of 1997. Excluding merger costs, diluted earnings per share were $1.09. Return
on average assets (ROA) and return on average total shareholders' equity (ROE)
were .97% and 10.68%, respectively for the first nine months of 1998, compared
to 1.00% and 12.30% for the same period last year. Excluding merger costs, ROA
and ROE were 1.12% and 12.34% for the first nine months of 1998. Net interest
income increased by 3.8% to $28,241,000 for the first nine months of 1998.
Non-interest income increased 15.7% from a year ago with increases in income
from trust services, security gains and other operating income all posting
positive results. Excluding merger costs, non-interest expenses were 2.1% lower
than the previous year.
Asset Quality. The reserve for loan losses was 1.22% of total loans at the end
of the third quarter of 1998. The reserve was 1.27% of total loans at September
30, 1997. Non-performing loans have declined significantly over the past year
and total $6,037,000 as of September 30, 1998 versus $9,281,000 as of the same
date last year. Net charge-offs averaged an annualized 1.15% of average loans
for the third quarter, which is an historically high level for the Company. Net
charge-offs include the commercial loan associated with the bankruptcy filing
mentioned previously. Net charge-offs averaged .67% of average loans for the
first nine months of 1998, up from .60% for the same period in 1997. A $2.4
million receivable due the Bank that was reclassified from loans to other assets
at the end of 1997 was substantially recovered during the first quarter of 1998
and further indicates an improved credit quality position.
Net Interest Income. Net interest income for the third quarter of 1998 increased
by 1.8% from the same period last year to $9,348,000. The increase was derived
from an increase of 3.6% in average earning assets to $910 million. The net
interest margin was marginally lower in the third quarter of 1998 at 4.34%,
compared to 4.39% for the same period in 1997. Similarly, net interest income
for the first nine months of 1998 increased by 3.8% from the same period last
year to $28,241,000. The increase was derived from an increase of 4.9% in
average earning assets to $909 million. The net interest margin was marginally
lower in the first nine months of 1998 at 4.37%, compared to 4.39% for the same
period in 1997. A slight decrease in the loan to asset ratio is primarily
responsible for the decline in the net interest margin. Loan represent 64.6% of
average total assets at the end of the third quarter 1998, compared to 65.3% a
year earlier.
Non-interest Income. Non-interest income showed significant improvement over the
past year. For the third quarter of 1998, fees from trust services increased by
$54,000, or 9%, over the third quarter of 1997. Other income totaled $1,229,000
for the third quarter of 1998 versus $949,000 for the same period in 1997. 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 $719,000 in income versus $34,000 in gains for the third quarter of
1997. For the first nine months of 1998, non-interest income totaled $8,156,000,
or 15.7% greater than the same period in 1997. Fees from trust services
increased by $191,000, or 10%, over the first nine months of 1997. Other income
totaled $3031,000 for the first nine months of 1998 versus $2,410,000 for the
same period in 1997. 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 first nine months of 1998 generated $882,000 in income
versus $433,000 in gains for the first nine months of 1997.
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Non-interest Expense. Excluding $1,329,000 in merger related expenses, expenses
for the third quarter of 1998 were 1.3% lower than for the same period in 1997.
Increases in salaries and employee benefits (5.2%) along with equipment expense
(8.9%) related to the companies migration of data processing and information
management systems to an in-house environment and were the primary factors
affecting the increase in expenses. Professional services, assessments on
deposits and other taxes, amortization of goodwill and other intangibles and
other operating expenses were lower from a year ago. For the first nine months
of 1998 and excluding merger costs, total non-interest expenses are $490,000, or
2.1% lower than the same period in 1997.
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. The Company also has available to it $15 million in lines of credit from
other financial institutions.
Shareholders' equity has increased by 13.9% over the past year, with retained
earnings also increasing by 14%. Accumulated other comprehensive income, which
consists of unrealized gains on available-for-sale securities, totaled
$4,608,000 as of September 30, 1998. The tier I leverage ratio was 8.70% as of
September 30, 1998, up from 7.78% as of the same date in 1997. Similarly, the
risk- based capital ratio increased from 12.52% as of September 30, 1997 to
13.21% as of the end of the most recent quarter.
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 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. Contingency planning efforts are part of the plan
are substantially completed for all major operations and functions of the
Company. Company-wide in-house testing has begun and is ongoing. The Company is
also in contact with its corporate customers, communicating the issues involved
with the Year 2000 issue and assessing their state of readiness. The total
anticipated capital expenditure associated with Year 2000 readiness is expected
to be approximately $1.4 million. Of this amount, approximately $150,000 has
been expended to date. Operating expenses are estimated to be minimal, including
two full time employees dedicated to the project. Operating expenses incurred
for the first nine months of 1998 are approximately $50,000 with an additional
$50,000 expected through completion of the project.
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<PAGE> 11
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 Special Shareholders Meeting was held
on November 10, 1998. The results of the votes on the matters presented to
shareholders are as follows: Of the 7,063,144 issued and outstanding shares
eligible to vote, 6,047,310 were represented at the meeting. The shareholders
approved Proposal 1 regarding the merger of Trumbull Financial Corporation with
and into the Company with votes "for" of 5,667,547, votes "against" of 157,438
and votes "abstained" of 100,422. The shareholders approved Proposal 2 to
increase the number of directors of the Company from seven (7) to eight (8) with
votes "for" of 5,631,828, votes "against" of 319,438 and votes "abstained" of
96,032. The shareholders approved Proposal 3 to elect Dr. David A. Allen to the
Company's Board of Directors for a term ending on the date of the Company's 1999
annual meeting of shareholders with votes "for" of 5,861,906 and votes
"withheld" of 185,397. The shareholders also approved Proposal 4 to amend the
Company's articles for the purpose of eliminating the Company's two classes of
preferred shares with votes "for" of 5,696,182, votes "against" of 98,962 and
votes "abstained" of 130,661
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
September 30, 1998.
-11-
<PAGE> 12
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: November 13, 1998 /s/ David L. Kellerman
----------------------------------------------------------
David L. Kellerman, Treasurer
Signing on behalf of the registrant and as principal accounting officer and
principal financial officer.
-12-
<PAGE> 1
<TABLE>
<CAPTION>
Statement 11 Re: Computation of Earnings Per Share
Second Bancorp, Inc. and Subsidiary
For the Three Months Ended For the Nine Months Ended
-----------------------------------------------------------------
September 30 September 30 September 30 September 30
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
(Dollars in thousands, except per share data)
BASIC:
Weighted average shares issued 7,448,236 7,339,787 7,421,672 7,278,154
Less: Treasury shares (50,400) (50,400) (50,400) (48,012)
-----------------------------------------------------------------
Net Weighted average shares outstanding 7,397,836 7,289,387 7,371,272 7,230,142
=================================================================
Net income $ 1,676 $ 2,424 $ 7,024 $ 6,911
=================================================================
Basic Earnings Per Share $ 0.23 $ 0.33 $ 0.95 $ 0.95
DILUTED:
Weighted average shares issued 7,448,236 7,339,787 7,421,672 7,278,154
Less: Treasury shares (50,400) (50,400) (50,400) (48,012)
Net effect of dilutive stock options -
based on the treasury stock method
using average market price 66,249 65,270 74,655 58,488
Assumed conversion of $1.50 Preferred
Stock Series A-1 0 0 0 113
-----------------------------------------------------------------
7,464,085 7,354,657 7,445,927 7,288,630
=================================================================
Net income $ 1,676 $ 2,424 $ 7,024 $ 6,911
Diluted Earnings Per Share $ 0.22 $ 0.33 $ 0.94 $ 0.95
</TABLE>
-13-
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 25,346
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 10,246
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 252,756
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 637,104
<ALLOWANCE> 7,766
<TOTAL-ASSETS> 956,542
<DEPOSITS> 688,240
<SHORT-TERM> 103,004
<LIABILITIES-OTHER> 7,381
<LONG-TERM> 66,715
0
0
<COMMON> 36,143
<OTHER-SE> 55,059
<TOTAL-LIABILITIES-AND-EQUITY> 956,542
<INTEREST-LOAN> 41,712
<INTEREST-INVEST> 12,857
<INTEREST-OTHER> 355
<INTEREST-TOTAL> 54,924
<INTEREST-DEPOSIT> 20,536
<INTEREST-EXPENSE> 26,683
<INTEREST-INCOME-NET> 28,241
<LOAN-LOSSES> 3,471
<SECURITIES-GAINS> 882
<EXPENSE-OTHER> 23,716
<INCOME-PRETAX> 9,210
<INCOME-PRE-EXTRAORDINARY> 9,210
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,024
<EPS-PRIMARY> .95
<EPS-DILUTED> .94
<YIELD-ACTUAL> 4.37
<LOANS-NON> 4,989
<LOANS-PAST> 1,048
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 6,037
<ALLOWANCE-OPEN> 6,855
<CHARGE-OFFS> 4,660
<RECOVERIES> 1,588
<ALLOWANCE-CLOSE> 7,766
<ALLOWANCE-DOMESTIC> 7,766
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
