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QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
________________________
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended June 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from
_______________ to _______________
________________________
Commission file number 0-20255
I.R.S. Employer Identification Number 34-1692031
Mahoning National Bancorp, Inc.
(an Ohio Corporation)
23 Federal Plaza
Youngstown, Ohio 44501-0479
Telephone: (330) 742-7000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date: 6,300,000 shares of the
Company's Common Stock (No par value) were outstanding as of July 31, 1996.
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MAHONING NATIONAL BANCORP, INC.
INDEX
Page Number
-----------
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheet (unaudited) -
June 30, 1996 and
December 31, 1995 3
Consolidated Statements of Income-
Six Months Ended June 30, 1996
and 1995 (unaudited) 4
Consolidated Statement of Cash Flows -
Six Months Ended June 30, 1996 and 1995
(unaudited) 5
Notes to Consolidated Financial Statements 6-7
Item 2 - Management Discussion and Analysis
of Operations and Liquidity and Capital Resources 8-16
Item 3 - Summary of Average Balances and Interest Rates 17
PART II - OTHER INFORMATION 18
Exhibit Number 27 - Financial Data Schedule
SIGNATURES 19
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PART I
FINANCIAL INFORMATION
MAHONING NATIONAL BANCORP INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
(Amounts in thousands)
JUNE 30, DECEMBER 31,
ASSETS 1996 1995
---------------- ----------------
<S> <C> <C>
Cash and due from banks $ 31,070 $ 30,731
Federal funds sold -- 2,800
Investment securities available for sale - at market value 130,695 128,397
Investment securities held to maturity - at cost
(Market value $93,796 at June 30, 1996
and $82,255 at December 31, 1995) 94,562 81,690
Loans 479,240 462,435
Less allowance for possible loan losses 7,375 7,156
--------------- ---------------
Net loans 471,865 455,279
Bank premises and equipment 9,267 9,502
Other assets 13,188 11,736
--------------- ---------------
Total assets $ 750,647 $ 720,135
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing $ 66,816 $ 73,432
Interest bearing
Savings 293,329 292,494
Time 208,506 208,882
--------------- ---------------
Total deposits 568,651 574,808
Federal funds purchased and securities
sold under agreement to repurchase 87,583 65,042
Short term borrowings 13,046 5,424
Long term borrowings 4,505 1,302
Other liabilities 4,884 3,918
--------------- ---------------
Total liabilities 678,669 650,494
--------------- ---------------
STOCKHOLDERS' EQUITY (NOTE B)
Common stock (No par value, $1 stated value in 1996,
$10 par value in 1995)
Authorized 15,000,000 shares in 1996 and
7,000,000 shares in 1995, Issued
and Outstanding-6,300,000 shares in 1996 and
3,150,000 shares in 1995 6,300 31,500
Surplus 44,100 15,750
Retained earnings 22,624 21,725
Unrealized (loss) gain on available for sale
investment portfolio (1,046) 666
--------------- ---------
Total stockholders' equity 71,978 69,641
--------------- ---------
Total liabilities and
stockholders' equity $ 750,647 $ 720,135
=============== =========
</TABLE>
See Notes to Consolidated Financial Statements
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MAHONING NATIONAL BANCORP INC
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE FOR THE SIX FOR THE SIX
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
(Amounts in thousands, except per share data) JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1996 JUNE 30, 1995
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
--------------- -------------- --------------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $10,501 $ 9,820 $20,952 $19,185
Interest on investment securities
U.S. treasury 1,603 1,576 3,006 3,363
U.S. government agencies 1,495 1,329 3,075 2,713
States and political subdivisions 216 184 403 355
Other 55 51 110 100
Interest on federal funds sold 66 188 166 197
------------ ------------ ----------- ----------
13,936 13,148 27,712 25,913
INTEREST EXPENSE
Interest on deposits 4,555 4,473 9,171 8,421
Interest on federal funds purchased and
securities sold under agreement to repurchase 985 982 1,927 2,028
Interest on short term borrowings 69 94 145 261
Interest on long term borrowings 62 22 104 41
------------ ------------ ----------- ----------
5,671 5,571 11,347 10,751
------------ ------------ ----------- ----------
Net interest income 8,265 7,577 16,365 15,162
PROVISION FOR LOAN LOSSES 550 450 1,075 900
------------ ------------ ----------- ----------
Net interest income after
provision for loan losses 7,715 7,127 15,290 14,262
OTHER OPERATING REVENUE
Trust department income 664 623 1,266 1,175
Service charges on deposit accounts 874 714 1,698 1,380
Other service charges 188 180 345 325
Other revenue 64 54 144 105
Gain on sale of investment securities
available for sale -- 40 -- 84
------------ ------------ ----------- ----------
1,790 1,611 3,453 3,069
------------ ------------ ----------- ----------
OTHER OPERATING EXPENSE
Salaries and employee benefits 2,664 2,520 5,320 5,100
Expenses of premises and fixed assets 813 791 1,622 1,588
Other expense 1,647 1,766 3,285 3,496
------------ ------------ ----------- ----------
5,124 5,077 10,227 10,184
------------ ------------ ----------- ----------
Income before income taxes 4,381 3,661 8,516 7,147
APPLICABLE INCOME TAXES 1,423 1,187 2,766 2,346
------------ ------------ ----------- ----------
NET INCOME $ 2,958 $ 2,474 $ 5,750 $ 4,801
============ ============ =========== ==========
EARNINGS PER COMMON SHARE $ 0.47 $ 0.39 $ 0.91 $ 0.76
DIVIDENDS PER SHARE $ 0.135 $ 0.11 $ 0.27 $ 0.22
</TABLE>
See Notes to Consolidated Financial Statements
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MAHONING NATIONAL BANCORP INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
(Amounts in thousands) JUNE 30, 1996 JUNE 30, 1995
(UNAUDITED) (UNAUDITED)
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities $ 8,325 $ 6,930
Cash flows from investing activities
Proceeds from maturities of investment securities available for sale 11,609 5,523
Proceeds from maturities of investment securities held to maturity 22,710 28,210
Sale of investment securities available for sale -- 9,977
Purchase of investment securities available for sale (16,660) (17,987)
Purchase of investment securities held to maturity (35,468) (2,694)
Net increase in loans (18,179) (27,533)
Net decrease (increase) in federal funds sold 2,800 (18,500)
Capital expenditures (306) (1,794)
------------- -------------
Net cash (used in) provided by investing activities (33,494) (24,798)
Cash flows from financing activities
Net (decrease) increase in deposits (6,157) 12,039
Net increase (decrease) in federal funds purchased and
securities sold under agreement to repurchase 22,542 (5,001)
Net increase in short term borrowings 7,622 8,905
Proceeds from long term borrowings 3,500 --
Payments on long term borrowings (298) (29)
Dividends paid (1,701) (1,386)
------------- -------------
Net cash provided by (used in) financing activities 25,508 14,528
Net increase (decrease) cash and cash equivalents 339 (3,340)
Cash and cash equivalents at beginning of year 30,731 31,872
------------- -------------
Cash and cash equivalents at end of six months $ 31,070 $ 28,532
============= =============
Supplemental disclosures of cash flow information:
Cash paid during the first six months for:
Interest $ 11,262 $ 10,635
============= =============
Income Taxes $ 2,320 $ 2,360
============= =============
Non-cash transactions:
Transfer from loans to other real estate owned $ 34 $ 47
============= =============
Increase (decrease) in unrealized loss on available for sale securities $ 2,634 ($ 3,098)
Less:Increase (decrease) in deferred taxes 922 (1,057)
------------- -------------
Net increase (decrease) in unrealized loss on investment portfolio $ 1,712 ($ 2,041)
============= =============
</TABLE>
See Notes to Consolidated Financial Statements
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MAHONING NATIONAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The financial information presented is prepared in accordance with
generally accepted accounting principles and general policies within the
financial service industry. The financial information included herein has been
prepared by management without audit by independent certified public accountants
who do not express an opinion thereon. All significant intercompany balances and
transactions have been eliminated and the information furnished includes all
adjustments consisting of normal recurring accrual adjustments which are in the
opinion of management, necessary for a fair presentation of results for the
interim period. The results of the interim financial information presented are
not necessarily indicative of the results of operations for the full calendar
year ending December 31, 1996.
NOTE B - CAPITAL ACCOUNTS
On April 15, 1996, the Board of Directors of Mahoning National Bancorp,
Inc. approved a 2 for 1 stock split in the form of a 100% stock dividend payable
on May 15, 1996, to shareholders of record on April 30, 1996, issuable from the
Company's authorized shares.
All share and per share data contained in this report for prior periods
have been adjusted to reflect the effect of the 2 for 1 stock split in the form
of a 100% stock dividend.
On March 19, 1996, at the Annual Shareholders Meeting of Mahoning
National Bancorp, Inc., the shareholders approved increasing the authorized
common shares of the Corporation from 7,000,000 shares to 15,000,000 shares, and
to eliminate "par value" from its authorized common shares. By increasing the
authorized shares of the Corporation, Management and the Board of Directors will
have greater flexibility in paying future share dividends, negotiating further
expansion opportunities and issuing shares for other proper corporate purposes.
The elimination of "par value" from the authorized shares of the Corporation
will provide the Corporation with more flexibility in structuring its equity
accounts and in paying future stock dividends.
NOTE C - STATEMENT OF FINANCIAL STANDARDS NO. 122
ACCOUNTING FOR MORTGAGE SERVICING RIGHTS, AN
AMENDMENT OF FASB STATEMENT NO. 65
On January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 122 (SFAS 122) "Accounting for Mortgage Servicing
Rights, an amendment of FASB Statement No. 65." This new standard requires that
a mortgage banking enterprise recognize as a separate asset rights to service
mortgage loans for others, however those servicing rights are acquired. In
circumstances where mortgage loans are originated, separate
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asset rights to service mortgage loans are only recorded when the enterprise
intends to sell such loans. The adoption of this new statement did not have a
material impact on the Company's consolidated financial position or results of
operations.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
On April 15, 1996, The Board of Directors of Mahoning National Bancorp,
Inc. approved a 2 for 1 stock split in the form of a 100% stock dividend payable
on May 15, 1996 to shareholders of record on April 30, 1996, issuable from the
Company's authorized shares.
All per share data contained in this report for prior periods have been
retroactively adjusted to reflect the effect of the 2 for 1 stock split in the
form of a 100% stock dividend.
Earnings Review
Net income for the first six months of 1996 amounted to $5.750 million
or $0.91 per share. This represents an increase of 20% over net income earned
during the same period in 1995. ($4.801 million or $0.76 per share). Mahoning
National Bancorp, Inc.'s net income for the current quarter increased 20% to
$2.958 million or $0.47 per share from $2.474 million or $0.39 per share for the
same quarter in 1995.
The primary component of earnings is net interest income. Net interest
income for the first six months of 1996 was $16.365 million compared with
$15.162 million or an 8% increase from the comparable period in 1995. Net
interest income for the current quarter increased 9% over the comparable period
of 1995 ($8.265 million from $7.577 million).
Interest and fees on loans increased $1.767 million in the first six
months of 1996 compared to the first six months of 1995. This increase was the
result of a $28.551 million increase in average loan balances for the first six
months of 1996 compared to 1995; $471.581 million compared to $443.030 million.
In addition the yield of the loan portfolio for the first six months of 1996 was
8.97% compared to 8.82% for the same period of 1995, a 15 basis point increase.
Interest expense increased $596 thousand for the first six months of 1996
compared to the same period in 1995. This increase in interest expense can be
attributed to time deposit growth as consumers shifted funds from savings
products into the higher yielding time deposits and an increase in the volume of
securities sold under agreements to repurchase as more corporate customers and
political subdivisions deposit into overnight "sweep" repurchase agreements. The
average balances of time deposits for the first six months of 1996, increased
$18.257 million over the average balances for the same period in 1995. The cost
of these funds also increased significantly from 5.15% for the first six months
of 1995 to 5.46% for the first six months of 1996, a 31 basis point increase.
After the first quarter of 1996 the cost of time deposits were 5.46% compared to
4.85% for the first quarter of 1995. Time deposit costs for the remainder of
1996 are expected to continue to be slightly higher than 1995 costs.
For a detailed analysis of the Company's net interest margin, on a tax
equivalent basis, refer to the Summary of Average Balances and Interest Rates;
Item 3 of this report on page 17.
In January of 1996 the Federal Reserve Bank reduced the discount rate
and Mahoning National lowered its prime lending rate by 25 basis points. With
this reduction a significant
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portion of the Company's loan portfolio was repriced downward immediately, while
rates on interest bearing deposits and borrowings continued to decline more
deliberately, with existing certificates of deposit repricing at slightly lower
rates than previously experienced. The pressures of this pricing development
were mitigated by volume increases in the loan portfolio and deposit pricing
strategies. With the current uncertainty on which direction the Federal Reserve
will move rates over the next six months, the Company analyzed the effect of a
presumed 100 and 200 basis point shift in interest rates through its simulation
analysis. The results of the simulation indicated no significant impact on net
interest income over the next 12 months.
Other operating revenue for the first six months of 1996, exclusive of
security transactions, was $3.453 million or a 16% increase over the first six
months of 1995 total of $2.985 million. Other operating revenue for the current
quarter, exclusive of security transactions, was $1.790 million compared to
$1.571 million for the same quarter of 1995, a 14% increase.
The largest component of other operating revenue in the first six
months of 1996 was service charges on deposit accounts which increased $318
thousand or 23% over the first six months of 1995. Service charges on deposit
accounts for the current quarter increased by $160 thousand or 22% over the same
period in 1995, $874 thousand from $714 thousand. Mahoning National annually
reviews all of its fee-based products and services for marketability and
profitability. Adjustments to fees for the Company's products and services and
the strengthening of controls for the collections of such fees are the reasons
for the significant increase.
Mahoning National Bank's Trust Department generated $1.266 million in
other revenue in the first six months of 1996, an increase of $91 thousand or 8%
over the $1.175 million earned in the same period of 1995. The Trust Department
generated $664 thousand of operating income in the second quarter of 1996, a 7%
increase over the $623 thousand earned in the comparable quarter of 1995. This
increase can be attributed to two factors; an influx of new trust accounts and
market value based fees which increased due to the significant increase in
account market values due to rises in the stock market over the past year.
In the first six months of 1995 the Company realized $84 thousand in
security gains when $9.977 million of U.S. Government Securities were sold from
the available for sale portfolio. A gain of $40 thousand was realized in the
second quarter of 1995 when $5.044 million of U.S. Government Securities were
sold from the available for sale portfolio. There were no security sales in the
first six months of 1996.
Provision for loan losses for the first six months of 1996 amounted to
$1.075 million compared to $900 thousand for the comparable period in 1995. The
provision for the current quarter was $550 thousand compared to $450 thousand
for the same quarter of 1995. This increase is discussed in more detail under
the Provision For Loan Losses heading later in this discussion.
Other operating expense for the first six months increased $43 thousand
or less than 1% from the comparable period in 1995 to $10.227 million from
$10.184 million. For the current quarter other operating expense totaled $5.124
million compared to $5.077 million in the same
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quarter of 1995. As a percentage of average assets, other operating expense was
2.77% for the first six months of 1996 compared to 2.90% in the same time period
of 1995.
In September 1995 the Federal Deposit Insurance Corporation (FDIC)
determined that the Bank Insurance Fund (BIF) was fully recapitalized as of the
end of May 1995. As a result, the FDIC reduced Mahoning National's deposit
insurance premium from $.23 per $100 of deposits to $.04 per $100 of deposits
for the period June 1, 1995 thru December 31, 1995. Beginning January 1, 1993, a
risk weighted insurance premium schedule was implemented by the FDIC, which
bases assessment rates on capital levels and bank regulator's ratings of the
institution as required by the Federal Deposit Insurance Corporation Improvement
Act of 1991 (FDICIA). For the first six months of 1996 the Company was assessed
a deposit insurance premium of $1 thousand which was a savings of $617 thousand
over the same period in 1995. The FDIC premium for the second quarter of 1996
was $0 compared to $309 thousand for the same period in 1995. The premium for
the remainder of 1996 will total $1 thousand compared to $19 thousand, net of
rebate, for the last six months of 1995.
Salaries and employee benefits expense for the first six months of 1996
increased $220 thousand or 4% and $144 thousand or 6% for the most recent
quarter when compared to 1995. Salary expense increased $235 thousand or 6% for
the first six months of 1996 and $140 thousand for the current quarter when
compared to the same periods in 1995. This increase can be attributed to annual
merit salary adjustments which took effect January 1, 1996 and increases in
various employee incentive programs. As a result of departmental restructuring a
one time charge of approximately $300 thousand will be charged to salary expense
in the third quarter of 1996. While this charge will increase 1996 salary
expense above expected levels it will provide for long term salary cost savings.
Health care expenses for the first six months of 1996 were $328 thousand
compared to $335 thousand for the same period in 1995, a decrease of $7 thousand
or 2%. Beginning July 1, 1996, the Company's renewal rates for its health care
offerings were slightly below the prior plan year premiums. The Company's
renewal rates for the 1996-1997 plan year should reduce health care expenses
over the remainder of 1996 and into 1997.
Expenses of premises and fixed assets for the first six months of 1996
totaled $1.622 million, a 2% increase (34 thousand) from the same period in
1995. Current quarter expense totaled $813 thousand, a 3% increase from the same
quarter in 1995.
Net occupancy expense, which represents various facility management
expenses decreased $52 thousand for the first six months of 1996 to $765
thousand from $817 thousand in 1995. For the current quarter, occupancy expense
decreased to $380 thousand from $405 thousand in the same quarter of 1995. These
decreases are the result of reduced building maintenance and increases in rental
income from Main Office tenants.
Equipment rental, depreciation and maintenance of $857 thousand
increased $86 thousand over the first six months of 1995 and increased $47
thousand in the second quarter of 1996 compared to the same period in 1995 as a
result of increased depreciation expense on equipment, furniture and fixtures
purchased in the second half of 1995 and first six months of 1996.
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Other expenses, exclusive of the FDIC insurance assessment, increased
$406 thousand in the first six months of 1996, to $3.284 million from $2.879
million for the same period of 1995, a 14% increase. For the second quarter of
1996 other expense, exclusive of the FDIC insurance assessment, increased $190
thousand, a 13% increase over the second quarter of 1995. This increase is the
result of amortization on software purchased late in the second quarter of 1995,
state franchise tax increases, increased business activity and the rising costs
associated with doing business. Overhead expenses, exclusive of FDIC insurance
assessments, for 1996 are expected to exceed 1995 expenses by approximately 15%
throughout 1996.
The following annualized ratios reflect the earnings performance for
the first six months of 1996 compared to the same time period of 1995:
<TABLE>
<CAPTION>
For the six For the six
months ended months ended
June 30, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
Return on Average Assets 1.56% 1.37%
Return on Average Equity 16.11 15.32
Return on Earning Assets
- -Taxable Equivalent 8.05 7.91
Interest Cost 3.26 3.23
Net Interest Margin 4.79 4.68
</TABLE>
Income Taxes
Income tax expense for the first six months of 1996 amounted to $2.766
million compared to $2.346 million for the same period in 1995. Income tax
expense for 1996 is being accrued at an effective rate of approximately 32.5%,
which compares to an effective tax rate of 31.6% for all of 1995, as a result of
taxable income growth expected for 1996.
The Statement of Condition includes approximately $3.273 million and
$2.288 million of net deferred tax assets at June 30, 1996 and December 31, 1995
respectively. It is management's belief that the Company has adequate taxable
income to realize the deferred tax asset and accordingly no valuation reserve
has been established.
Balance Sheet Analysis
As of June 30, 1996, total assets of Mahoning National reached a
historic high of $750.647 million, an increase from December 31, 1995 total
assets of $720.135 million. Average assets for the first six months of 1996
amounted to $740.262 million compared to $709.211 million for the first six
months of 1995, a 4% increase. Through the first six months of 1996 total
deposits have decreased by $6.157 million while securities sold under agreement
to repurchase and federal funds purchased have increased by $22.541 million. The
significant growth in securities sold under agreements to repurchase are the
result of more corporate customers and political subdivisions depositing into
overnight "sweep" checking accounts. This source of funds has grown
significantly over the past three years and is expected to grow at more
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modest levels over the remainder of 1996.
Investment Portfolio
The deposits of Mahoning National, in excess of required reserves and
operating funds of the Bank are invested in loans, investments and federal funds
sold. The objective of the investment portfolio is to combine liquidity,
earnings and safety of the investment in a prudent manner so as to protect the
depositor, fulfill responsibility to borrowers and to offer a favorable return
to the stockholders.
At June 30, 1996 the investment portfolio totaled $225.257 million (net
of a $1.609 million unrealized loss on available for sale securities) which was
an increase of $15.170 million from December 31, 1995.
At June 30, 1996 the Company has classified investment securities with
amortized cost and fair market value of $132.304 and $130.695 million
respectively, or 58% of the portfolio as available for sale, with the remainder
of the portfolio classified as held to maturity. The adoption of SFAS 115 has
resulted in a decrease in the carrying amount of investment securities of $1.609
million with a decrease in stockholders' equity of $1.046 million net of
deferred income taxes. Those securities classified as available for sale will
afford the Company's Asset/Liability Committee the necessary flexibility to
manage the portfolio to meet liquidity needs that may arise.
In 1995, $9.977 million of U.S. Government Securities were sold from
the available for sale portfolio and were used to fund loan demand. There were
no security sales in the first six months of 1996. No securities were
transferred between categories during the first six months of 1996 or 1995.
Loans
Total loans outstanding increased by $16.805 million or 4% from
$462.435 million on December 31, 1995, to a historical high of $479.240 million
on June 30, 1996, with a loan to deposit ratio of 84.27%. This increase is the
result of continued loan demand coupled with an emphasis on business development
by Mahoning National in the Residential mortgage and commercial loan areas. The
areas of largest growth over the first six months of 1996 have been; the
Commercial loan portfolio which increased by $7.476 million from $80.299 million
to $87.775 million. Residential mortgages which increased $6.239 million from
$144.481 million to $150.720 million and Commercial mortgages which increased
$5.973 million from $80.645 million to $86.618 million. Consumer loans decreased
over the first six months of 1996 to $137.783 million from $139.569 million at
December 31, 1995.
Consumer loan balances are dependent on the level of indirect
automobile financing done by the bank. Substantial growth the past several years
has not been sustained in the first half of 1996 due to a slower market, greater
competition among local lenders and the Company's close monitoring of
underwriting criteria. Consumer loan balances were down 1.3% during the first
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six months of the year and, given the rapid amortization in that portfolio,
further reductions in loan balances are likely. The residential mortgage loan
portfolio grew by 4.3% for the first half of 1996. Recent interest rate
increases are likely to cause that growth to slow in the second half of 1996.
Commercial loans and commercial mortgages grew 9.3% and 7.4% respectively. The
momentum established the past several years with a strong sales culture in the
corporate and branch business development areas continue to result in new
relationships. The continued strength of the local economy and good environment
for construction also contributed to the strong growth. Rising interest rates
and a potential for a slower economy over the next six months may result in more
modest loan growth for the second half of 1996.
As of June 30, 1996, non-performing loans, defined as those loans which
are on non-accrual or are 90 days or more past due and still accruing, totaled
$2.107 million compared to $2.258 million at December 31, 1995. Listed below is
a schedule of the Company's non-performing assets:
<TABLE>
<CAPTION>
(Amounts in thousands) June 30, 1996 December 31, 1995
- ------------------------ ------------- -----------------
<S> <C> <C>
Non accrual loans $1,508 $1,322
Accruing loans 90 days
or more past due 599 936
------ ------
Non performing loans 2,107 2,258
Restructured loans in
compliance with modified
terms 547 690
Other real estate owned 34 36
------ ------
Total problem assets $2,688 $2,984
====== ======
Total problem assets to total assets 0.36% 0.41%
</TABLE>
The following ratios will provide additional information on the status
of the loan portfolio:
<TABLE>
<CAPTION>
As of As of
June 30, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
Loan to deposit ratio 84.27% 79.70%
Non performing loans to
total loans .44 .48
Non performing loans to
allowance for loan losses 28.57 29.97
Allowance for loan losses
to total loans 1.54 1.58
Net charge-offs to average
loans .18 .10
Net charge-offs ($000) $ 856 $ 436
</TABLE>
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Provision for Loan Losses
The policies of Mahoning National provide for loan loss reserves to
adequately protect the Company against potential and/or identified loan losses
consistent with sound and prudent banking practice.
In determining the monthly provision for loan losses and the adequacy
of the loan loss reserve, management reviews the current and forecasted economic
conditions and portfolio trends. The primary focus is placed on current problem
loans, delinquencies and anticipated charge-offs. As of June 30, 1996, all loans
classified for regulatory purposes do not represent or result from trends or
uncertainties which management reasonably expects will materially impact future
operating results, liquidity, or capital resources. Management is not aware of
any information which causes serious doubts as to the ability of such borrowers
to comply with the loan repayment terms. These remaining classified loans were
either paying as agreed under original contract or were sufficiently
collateralized to prevent a material loss in the event the loans were to
default.
The provision for loan losses charged to expense during the first six
months of 1996 was $1.075 million, an increase of $175 thousand from the 1995
first six months provision. This increase was the result of the growth in the
loan portfolio and increase in consumer charge-offs. Net charge-offs on consumer
loans and credit card and related plans totaled $824 thousand for the first six
months of 1996 compared to $415 thousand for the same period in 1995. The
national trend of a high level of consumer debt and delinquencies is beginning
to show locally. This trend will continue to be monitored closely during the
year as the Company evaluates the adequacy of the allowance for loan losses.
While future provisions to the loan loss reserve are dependent upon the growth
and quality of the loan portfolio, it is estimated that for the remainder of
1996, quarterly provisions will approximate those of the first two quarters.
Shown below is a summary of the allowance for loan losses:
<TABLE>
<CAPTION>
For the six For the six
months ended months ended
(Amounts in thousands) June 30, 1996 June 30, 1995
- ------------------------ ------------- -------------
<S> <C> <C>
Balance at beginning of period $7,156 $6,694
Provision charged to operating
expense 1,075 900
Recoveries of loans charged off 272 254
Losses charged to allowance (1,128) (690)
-------- -------
Balance at end of period $7,375 $7,158
======== =======
</TABLE>
<PAGE> 15
Page 15 of 19
Information required under Statement of Financial Accounting Standards
No. 114 "Accounting by Creditors for Impairment of a Loan" and No. 118
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosure" which were adopted on January 1, 1995, is as follows for the six
months ended June 30;
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Principal amount of impaired loans $495 $1,100
Allowance allocated to impaired loans 125 443
---- ------
Portion for which no allowance is allocated $370 $657
==== ======
Average investment in impaired loans for
the six months ended June 30; $538 $805
==== ======
</TABLE>
Total cash collected on impaired loans during the first six months of 1996 and
1995 was $136 thousand and $233 thousand respectively, all of which was credited
to the principal balance outstanding, in 1996, while $231 thousand was credited
to the principal balance outstanding and $2 thousand recognized as interest
income on such loans in 1995. Interest that would have been accrued on impaired
loans in the first six months of 1996 and 1995 was $28 thousand and $56 thousand
respectively. Interest income recognized during the first six months of 1996 and
1995, was $0 and $2 thousand respectively.
Liquidity and Capital
It is a primary objective of Mahoning National Bancorp, Inc. to
maintain a level of liquidity deemed adequate to meet the expected and potential
funding needs of loan and deposit customers. It is the Company's policy to
manage its affairs so that liquidity needs are fully satisfied through normal
bank operations. Short-term investments (Federal funds sold) and short-term
borrowings (Federal funds purchased and Repurchase agreements, U.S. Treasury
Demand Notes and Federal Home Loan Bank advances) are used as primary cash
management and liquidity tools. Short term Federal fund lines totaling $57
million have been established at Mahoning National's correspondent banks. When
loan demand increases at a faster rate than deposit growth it may be necessary
to manage the available for sale portion of the investment portfolio to meet
that demand, or to sell conforming Residential mortgages on the secondary
market. At June 30, 1996 and December 31, 1995, $66 thousand and $0 of
Residential mortgage loans were designated as available for sale respectively.
At June 30, 1996, $130.695 million of the investment portfolio was classified as
available for sale. This classification will afford the Company's
Asset/Liability Committee the flexibility to manage the portfolio to meet any
liquidity needs that may arise.
An additional source of liquidity is derived from the Federal Home Loan
Bank of Cincinnati (FHLB). The FHLB provides short term funding alternatives
with a line of credit of $17.9 million and the necessary match funding for one
to four family residential mortgage loans and allows the Company to better
manage its interest rate risk. Mahoning National had $4.505 million outstanding
in FHLB borrowings at June 30, 1996 compared to $1.302 million at December 31,
1995.
<PAGE> 16
Page 16 of 19
Total Capital Accounts have grown $2.337 million or 3% in the first six
months of 1996. This increase reflects retained earnings less dividends paid and
also reflects a $1.712 million unrealized loss on the available for sale
investment portfolio for the first six months of 1996. Dividends paid in 1996
year to date were $1.701 million or $.27 per share compared to $1.386 million or
$.22 per share for the same period in 1995. Book value per share as of June 30,
1996 was $11.43 compared to $11.05 on December 31, 1995, (as adjusted for two
for one stock split).
In order to facilitate a wider distribution of the common stock of the
Company and to make it more readily available for investment purposes, thereby
broadening investor interest, the Board of Directors of the Company, on April
15, 1996 approved a 2 for 1 stock split in the form of a 100% stock dividend
payable on May 15, 1996 to shareholders of record on April 30, 1996, issuable
from the Company's authorized shares.
After payment of a 100% stock dividend the Company has 6,300,000 shares
of its 15,000,000 authorized shares of no par value common stock issued and
outstanding.
On March 19, 1996 at the Annual Shareholders Meeting of Mahoning
National Bancorp, Inc., the shareholders approved increasing the authorized
common shares of the Corporation from 7,000,000 shares to 15,000,000 shares, and
to eliminate "par value" from its authorized common shares. By increasing the
authorized shares of the Corporation, Management and the Board of Directors will
have greater flexibility in paying future share dividends, negotiating further
expansion opportunities and issuing shares for other proper corporate purposes.
The elimination of "par value" from the authorized shares of the Corporation
will provide the Corporation with more flexibility in structuring its equity
accounts and in paying future stock dividends.
Under regulations issued by the Federal Reserve and the Comptroller of
the Currency, banks and bank holding companies are required to maintain certain
minimum capital ratios known as the risk-based capital ratio and the leverage
ratio. At June 30, 1996, Mahoning National's leverage, Tier I and risk-based
capital ratios were 9.86%, 15.54% and 16.79% respectively, compared to 9.62%,
15.02% and 16.27% at December 31, 1995. The Company has exceeded all required
regulatory capital ratios for each period presented and is considered "well
capitalized" under all FDIC regulations. Mahoning National's risk-based capital
ratios are well above the regulatory minimums due to the capital strength and
low risk nature of Mahoning's balance sheet and off-balance sheet commitments.
The structure of the Company's balance sheet is such that nearly all of the
investment portfolio is invested in U.S. Government obligations or other low
risk categories, and over 20% of the loan portfolio is invested in one to four
family residential mortgage loans which have a 50% risk weight assessment. It is
the Company's intent to prudently manage the capital base in an effort to
increase return on equity performance while maintaining necessary capital
requirements and maintaining the FDIC "well capitalized" classification to
ensure the lowest deposit insurance premium assessment.
<PAGE> 17
Page 17 of 19
MAHONING NATIONAL BANCORP, INC.
SUMMARY OF AVERAGE BALANCES AND INTEREST RATES
TAX EQUIVALENT BASIS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1995
(Amounts in thousands) AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE% BALANCE INTEREST RATE%
-------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST YIELDS
Loans $471,581 $ 21,096 8.97 $443,030 $ 19,376 8.82
Investment securities (1) 222,110 6,811 6.15 220,610 6,722 6.14
Other earning assets 6,288 166 5.22 6,627 197 5.92
-------------------------------------- --------------------------------------
Total return on earning assets 699,979 28,073 8.05 670,267 26,295 7.91
INTEREST COSTS
Interest bearing deposits:
Savings deposits 293,875 3,451 2.36 296,917 3,519 2.39
Time deposits 210,271 5,720 5.46 192,014 4,902 5.15
-------------------------------------- --------------------------------------
Total interest bearing deposits 504,146 9,171 3.65 488,931 8,421 3.47
Federal funds purchased 2,017 54 5.30 6,064 182 5.98
Repurchase agreements 83,739 1,873 4.48 73,229 1,846 5.08
Short term borrowings 5,921 145 4.86 6,646 188 5.63
Long term borrowings 3,835 104 5.44 3,626 114 6.34
-------------------------------------- --------------------------------------
Total interest bearing liabilities $599,658 $ 11,347 3.79 $578,496 $ 10,751 3.75
Interest spread $ 16,726 4.25 $ 15,544 4.16
============================ ============================
AS A PERCENT OF AVERAGE EARNING ASSETS
Total return on earning assets 8.05 7.91
Total interest cost 3.26 3.23
----------- ----------
Net Interest Margin 4.79 4.68
=========== ==========
<FN>
(1) Investment securities average balance is based on average carrying value
while the average rate is calculated using average historical cost.
</TABLE>
<PAGE> 18
Page 18 of 19
PART II
OTHER INFORMATION
Mahoning National Bancorp, Inc.
Item 1 - Legal Proceedings
None
Item 2 - Changes in the Rights of the Company's Security Holders
None
Item 3 - Default Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None
Item 6(a) - Exhibits
(27) Financial Data Schedule
Item 6(b) - Reports on Form 8-K
Form 8-K dated May 13, 1996, which disclosed the engaging of
the accounting firm of Crowe, Chizek and Company LLP to serve
as independent accountants for Mahoning National Bancorp, Inc.
and the termination of Grant Thornton LLP as independent
accountants effective May 13, 1996.
<PAGE> 19
Page 19 of 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report on Form 10-Q for the six months
ended June 30, 1996 to be signed on its behalf by the undersigned thereunto duly
authorized.
DATE: August 9, 1996 Mahoning National Bancorp, Inc.
------------------------
/s/ Gregory L. Ridler
------------------------------
Gregory L. Ridler
Chairman of the Board,
President and Chief
Executive Officer
DATE: August 9, 1996 /s/ Norman E. Benden, Jr.
------------------------ ------------------------------
Norman E. Benden, Jr.
Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MAHONING
NATIONAL BANCORP, INC., CONSOLIDATED STATEMENT OF CONDITION AT JUNE 30, 1996
AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 31,069
<INT-BEARING-DEPOSITS> 1
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 130,695
<INVESTMENTS-CARRYING> 94,562
<INVESTMENTS-MARKET> 93,796
<LOANS> 479,240
<ALLOWANCE> 7,375
<TOTAL-ASSETS> 750,647
<DEPOSITS> 568,651
<SHORT-TERM> 100,629
<LIABILITIES-OTHER> 4,884
<LONG-TERM> 4,505
<COMMON> 6,300
0
0
<OTHER-SE> 65,678
<TOTAL-LIABILITIES-AND-EQUITY> 750,647
<INTEREST-LOAN> 20,952
<INTEREST-INVEST> 6,594
<INTEREST-OTHER> 166
<INTEREST-TOTAL> 27,712
<INTEREST-DEPOSIT> 9,171
<INTEREST-EXPENSE> 11,347
<INTEREST-INCOME-NET> 16,365
<LOAN-LOSSES> 1,075
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 10,227
<INCOME-PRETAX> 8,516
<INCOME-PRE-EXTRAORDINARY> 5,750
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,750
<EPS-PRIMARY> .91
<EPS-DILUTED> .91
<YIELD-ACTUAL> 8.05
<LOANS-NON> 1,508
<LOANS-PAST> 599
<LOANS-TROUBLED> 547
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,156
<CHARGE-OFFS> 1,128
<RECOVERIES> 272
<ALLOWANCE-CLOSE> 7,375
<ALLOWANCE-DOMESTIC> 7,375
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 876
</TABLE>
