<PAGE> 1
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 March 31, 1997
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 April 30, 1997.
<PAGE> 2
MAHONING NATIONAL BANCORP, INC.
INDEX
Page Number
-----------
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheet (unaudited) -
March 31, 1997 and
December 31, 1996 3
Consolidated Statements of Income-
Three Months Ended March 31, 1997
and 1996 (unaudited) 4
Condensed Consolidated Statement of Cash Flows -
Three Months Ended March 31, 1997 and 1996
(unaudited) 5
Notes to Consolidated Financial Statements 6
Item 2 - Management Discussion and Analysis
of Operations and Liquidity and Capital Resources 7-15
Item 3 - Summary of Average Balances and Interest Rates 16
PART II - OTHER INFORMATION 17-18
Exhibit Number 27 - Financial Data Schedule
SIGNATURES 19
Page 2 of 19
<PAGE> 3
PART I
FINANCIAL INFORMATION
MAHONING NATIONAL BANCORP INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(Amounts in thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1997 1996
------------ ------------
<S> <C> <C>
Cash and due from banks $ 27,067 $ 29,257
Federal funds sold 15,700 19,500
Investment securities available for sale - at fair value 158,822 143,600
Investment securities held to maturity - at cost
(Market value $76,562 at March 31, 1997
and $85,646 at December 31, 1996) 76,991 85,732
Loans 491,361 477,795
Less allowance for possible loan losses 7,530 8,112
--------- ---------
Net loans 483,831 469,683
Bank premises and equipment 8,736 8,981
Other assets 14,201 12,807
--------- ---------
Total assets $ 785,348 $ 769,560
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing $ 68,904 $ 70,706
Interest bearing
Savings 276,322 282,929
Time 200,166 197,363
--------- ---------
Total deposits 545,392 550,998
Federal funds purchased and securities
sold under agreement to repurchase 141,583 122,467
Short term borrowings 10,428 10,235
Long term borrowings 3,841 4,065
Other liabilities 6,310 4,700
--------- ---------
Total liabilities 707,554 692,465
--------- ---------
STOCKHOLDERS' EQUITY
Common stock (No par value, $1 stated value)
Authorized 15,000,000 shares, Issued
and Outstanding - 6,300,000 shares 6,300 6,300
Additional paid-in capital 44,100 44,100
Retained earnings 28,752 26,627
Unrealized (loss) gain on investment securities
available for sale, net of deferred taxes (1,358) 68
--------- ---------
Total stockholders' equity 77,794 77,095
--------- ---------
Total liabilities and
stockholders' equity $ 785,348 $ 769,560
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
Page 3 of 19
<PAGE> 4
MAHONING NATIONAL BANCORP INC
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE
MONTHS ENDED MONTHS ENDED
(Amounts in thousands, except per share data) MARCH 31, 1997 MARCH 31, 1996
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $10,649 $10,451
Interest on investment securities
Taxable 3,118 3,038
Nontaxable 243 187
Interest on federal funds sold 178 100
------- -------
14,188 13,776
INTEREST EXPENSE
Interest on deposits 4,220 4,616
Interest on federal funds purchased and
securities sold under agreement to repurchase 1,489 942
Interest on short term borrowings 98 76
Interest on long term borrowings 54 42
------- -------
5,861 5,676
------- -------
Net interest income 8,327 8,100
PROVISION FOR LOAN LOSSES 800 525
------- -------
Net interest income after
provision for loan losses 7,527 7,575
OTHER OPERATING REVENUE
Trust department income 710 602
Service charges on deposit accounts 995 824
Other service charges 191 157
Other revenue 69 80
Gain on sale of investment securities
available for sale 178 --
------- -------
2,143 1,663
------- -------
OTHER OPERATING EXPENSE
Salaries and employee benefits 2,704 2,656
Expenses of premises and fixed assets 802 809
Other expense 1,519 1,638
------- -------
5,025 5,103
------- -------
Income before income taxes 4,645 4,135
INCOME TAX EXPENSE 1,512 1,343
------- -------
NET INCOME $ 3,133 $ 2,792
======= =======
NET INCOME PER COMMON SHARE $ 0.50 $ 0.44
DIVIDENDS PER SHARE 0.16 $ 0.135
</TABLE>
See Notes to Consolidated Financial Statements
Page 4 of 19
<PAGE> 5
MAHONING NATIONAL BANCORP INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
(Amounts in thousands) ENDED ENDED
MARCH 31, 1997 MARCH 31, 1996
------------------------------
<S> <C> <C>
Cash flows from operating activities $ 5,296 $ 4,621
Cash flows from investing activities
Proceeds from maturities of investment securities available for sale 5,084 1,003
Proceeds from maturities of investment securities held to maturity 8,735 8,425
Sale of investment securities available for sale 20,075 --
Purchase of investment securities available for sale (42,377) (6,257)
Purchase of investment securities held to maturity -- (21,864)
Net increase in loans (15,249) (9,776)
Net decrease in federal funds sold 3,800 2,800
Capital expenditures (25) (182)
------------------------------
Net cash (used in) provided by investing activities (19,957) (25,851)
Cash flows from financing activities
Net decrease in deposits (5,606) (7,035)
Net increase in federal funds purchased and
securities sold under agreement to repurchase 19,116 21,592
Net increase in short term borrowings 193 822
Proceeds from long term borrowings -- 3,500
Payments on long term borrowings (224) (82)
Dividends paid (1,008) (851)
------------------------------
Net cash provided by (used in) financing activities 12,471 17,946
Net decrease in cash and cash equivalents (2,190) (3,284)
Cash and cash equivalents at beginning of year 29,257 30,731
------------------------------
Cash and cash equivalents at end of quarter $ 27,067 $ 27,447
==============================
Supplemental disclosures of cash flow information:
Cash paid during the quarter for:
Interest $ 5,919 $ 5,564
==============================
Income Taxes $- $-
==============================
Non-cash transactions:
Transfer from loans to other real estate owned $ 28 $ 17
==============================
</TABLE>
Page 5 of 19
<PAGE> 6
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, 1997.
Page 6 of 19
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Earnings Review
Net income for the first three months of 1997 amounted to $3.133 million or
$0.50 per share. This represents an increase of 12% over net income earned
during the same period in 1996 ($2.792 million or $0.44 per share). The
Company's return on assets (ROA) and return on equity (ROE) were 1.66% and
16.20% respectively for the first three months of 1997 compared to 1.52% and
15.73% respectively for the same period of 1996.
The primary component of earnings is net interest income. Net interest income
for the first three months of 1997 was $8.327 million compared with $8.100
million or a 3% increase from the comparable period in 1996.
Interest and fees on loans increased $198 thousand in the first three months of
1997 compared to the first three months of 1996. This increase was the result of
a $14.682 million increase in average loan balances for the first three months
of 1997 compared to 1996; $484.676 million compared to $469.994 million. The
increase in average loan balances for the first three months of 1997 accounted
for approximately $243 thousand in additional interest and fee income on loans.
This increase was partially offset by a reduction in interest and fee income of
approximately $45 thousand due to a three (3) basis point reduction in loan
yields. Interest expense increased $185 thousand for the first quarter of 1997
compared to the same period in 1996. This increase can be attributed to an
increase in the volume of securities sold under agreements to repurchase as
first quarter 1997 average balances increased $45.421 million over average
balances in the same period of 1996. This increase in funding offset the $14.886
million decrease in average savings deposits in the first quarter of 1997
compared to the same period in 1996. The average balance of time deposits for
the first three months of 1997 decreased $10.363 million from the average
balances for the same period of 1996. The cost of time deposits also decreased
from 5.52% in the first three months of 1996 to 5.31% for the first three months
of 1997, a 21 basis point decrease. While time deposit costs for 1997 are
currently lower than 1996 costs, they should increase throughout the year as
maturing certificates are repricing at higher rates and the local time deposit
market remains extremely competitive. It is the Company's intent to offer
competitive rates on those time deposit maturities that the Asset Liability
Committee (ALCO) determines appropriate. The ALCO will base their decisions on
the Company's balance sheet structure, interest rate forecasts and alternative
funding 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 16.
In late March of 1997 the Federal Reserve Bank increased the discount rate and
Mahoning National increased its prime lending rate by 25 basis points. With this
increase a
Page 7 of 19
<PAGE> 8
significant portion of the Company's loan portfolio was repriced upward
immediately, while rates on interest bearing deposits and borrowings continued
to increase more deliberately, with existing certificates of deposit repricing
at slightly higher rates than previously experienced. The impact of this pricing
change had minimal impact on first quarter earnings due to the rate adjustments
occurring so late in the first quarter. The net interest margin for the first
quarter of 1997 was 4.74%, a five (5) basis point decrease from the 4.79% net
interest margin in the first quarter of 1996. Management continuously monitors
and manages the potential impact of interest rate changes on earnings, capital
and product mix. With the current uncertainty on which direction the Federal
Reserve will move rates over the next twelve months, the Company analyzed the
effect of a presumed 100 and 200 basis point increase and decrease in interest
rates through its simulation analysis. The results of the simulation indicated
no significant impact on net interest income over the next twelve months.
Other operating revenue of $1.965 million, exclusive of security transactions,
increased $302 thousand or 18% over the first three months of 1996 total of
$1.663 million.
The largest component of other operating revenue in the first quarter of 1997
was service charges on deposit accounts which increased $171 thousand or 21%
over the first quarter of 1996. Other operating revenue, exclusive of security
transactions, as a percentage of average assets was 1.04% for the first three
months of 1997 compared to .91% for the same period in 1996. 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 collection of such fees, are the
reasons for the significant increase. In the first three months of 1997, service
charges on deposit accounts as a percentage of average deposits increased to
.74% from .58% for the same period in 1996. While management expects other
operating revenue to continue to exceed 1996 levels, the increases will not be
as significant as those realized in the first quarter of 1997.
Mahoning National Bank's Trust Department generated $710 thousand in other
revenue in the first three months of 1997, an increase of $108 thousand or 18%
over the $602 thousand earned in the same period of 1996. 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 February of 1997 the Company realized a $178 thousand gain when $20.075
million of U.S. Government Securities were sold from the available for sale
portfolio. There were no security sales in the first three months of 1996.
Provision for loan losses for the first quarter of 1997 amounted to $800
thousand compared to $525 thousand for the comparable period in 1996. This
increase is discussed in more detail under the Provision for Loan Loss heading
later in this discussion.
Other operating expense for the first quarter decreased $78 thousand or
approximately 2% from the comparable period in 1996, $5.025 million from $5.103
million. As a percentage
Page 8 of 19
<PAGE> 9
of average assets, other operating expense was 2.66% for the first quarter of
1997 compared to 2.79% in the same period of 1996.
Salaries and employee benefits expense for the first three months of 1997
increased $48 thousand or 2% from the same period in 1996. Salary expense alone
increased $50 thousand or 2% for the first three months of 1997 when compared to
the same period in 1996. This increase can be attributed to annual merit salary
adjustments which took effect January 1, 1997 and increases in various employee
incentive programs. Health care expenses for the first three months of 1997 were
$185 thousand compared to $168 thousand for the same period in 1996, an increase
of $17 thousand or 10%. It is unknown at this time what the Company's health
care renewal rates will be for the plan year beginning July 1, 1997. These
increases were offset somewhat by a decrease in pension expense for the first
three months of 1997.
Other expenses decreased $119 thousand in the first quarter of 1997, to $1.519
million from $1.638 million for the same period of 1996, a 7% decrease. This
decrease was the result of reduced state franchise taxes, insurance and bond
premiums and professional expenses. Overhead expenses for the remainder of 1997
are expected to approximate 1996 expense levels.
Income Taxes
Income tax expense for the first three months of 1997 amounted to $1.512 million
compared to $1.343 million for the same period in 1996. Income tax expense for
1997 is being accrued at an effective rate of approximately 32.6%, which
compares to an effective tax rate of 32.3% for all of 1996.
The Statement of Condition includes approximately $3.450 million and $2.681
million of net deferred tax assets at March 31, 1997 and December 31, 1996
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.
The following annualized ratios reflect the earnings performance for the first
three months of 1997 compared to the same time period of 1996:
<TABLE>
<CAPTION>
For the three For the three
months ended months ended
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Return on Average Assets 1.66% 1.52%
Return on Average Equity 16.20 15.73
Return on Earnings Assets
- -Taxable Equivalent 8.00 8.07
Interest Cost 3.26 3.28
Net Interest Margin 4.74 4.79
</TABLE>
Page 9 of 19
<PAGE> 10
Statements of Condition
As of March 31, 1997, total assets of Mahoning National amounted to $785.348
million, an increase from December 31, 1996 total assets of $769.560 million.
Average assets for the first quarter of 1997 amounted to $767.458 million
compared to $734.551 million for the same quarter of 1996, a 4% increase.
Through the first three months of 1997 total loans increased $13.566 million or
3% from year end while the investment portfolio increased $6.481 million or 3%
in that same period. The growth in earning assets was primarily funded with a
$19.116 million increase in securities sold under agreements to repurchase and
earnings retention, which were partially offset by a decline in deposits of
$5.606 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. Overnight sweep account
balances were $121.433 million on March 31, 1997, an increase of $19.116 million
from December 31, 1996 balances of $102.317 million. This source of funds has
grown significantly over the past three years. It is expected sweep balances
will remain at current levels into the third quarter of 1997, when balances are
then expected to decline by approximately $30 million due to a corporate sweep
customer consolidating their funds with a financial institution outside of our
market area.
Investment Portfolio
The deposits and other borrowings of Mahoning National, in excess of required
reserves and operating funds of the Bank, are invested in loans, investment
securities 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 offer a
favorable return to the stockholders.
At March 31, 1997 the investment portfolio totaled $235.813 million (net of a
$2.089 million unrealized loss on available for sale securities) which was an
increase of $6.481 million from December 31, 1996.
At March 31, 1997 the Company has classified investment securities with
amortized cost and fair market value of $160.911 and $158.822 million
respectively, or 68% 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 $2.089
million with a decrease in stockholders' equity of $1.358 million net of
deferred income taxes. Those securities classified as available for sale afford
the Company's Asset/Liability Committee the necessary flexibility to manage the
portfolio to meet liquidity needs that may arise.
In the first quarter of 1997, $20.075 million of U.S. Government Securities that
were coming due in 1997 were sold from the available for sale portfolio and were
reinvested in longer term U.S. Treasury securities. There were no security sales
in the first quarter of 1996. No securities were transferred between categories
in the first three months of 1997.
Page 10 of 19
<PAGE> 11
Loans
Total loans outstanding increased by $13.566 million or 3% from $477.795 million
on December 31, 1996, to a historic high of $491.361 million on March 31, 1997.
This growth, coupled with a decline in deposits resulted in a loan to deposit
ratio of 90.09% at March 31, 1997, compared to 86.71% at December 31, 1996.
The increase in the loan portfolio in the first three months of 1997 is the
result of continued loan demand and good results from business development
efforts. The areas of largest growth in the first three months of 1997 were
commercial loans and nonresidential mortgages.
Commercial loans increased by $13.180 million or 15% from $87.117 million to
$100.297 million and nonresidential mortgages increased $4.284 million from
$95.081 million to $99.365 million in the first three months of 1997. 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. Modest commercial loan
growth is projected for the remainder of 1997.
Consumer loans decreased $3.891 million or 3% in the first three months of 1997
after decreasing $10.496 million or 8% in 1996. Consumer loan balances are
primarily dependent on the level of indirect automobile financing purchased by
the Bank. Substantial growth of the past years was not sustained in 1996 and the
first three months of 1997 due to a slower market, greater competition among
local lenders and the Company's close monitoring of underwriting criteria due to
increased charge-offs and delinquency trends. Competition from leasing by
captive automobile finance companies (i.e. GMAC, Ford Motor Credit) will impact
future growth and necessitate a commitment to providing the dealer network with
a very high level of service. Given the rapid amortization of the automobile
loan portfolio, which has a short average maturity, and a projected slow down in
our national economy, consumer loan totals are expected to continue to decline
throughout 1997.
As of March 31, 1997, non-performing loans, defined as those loans which are on
non-accrual or are 90 days or more past due and still accruing, totaled $3.872
million compared to $4.629 million at December 31, 1996. Listed below is a
schedule of the Company's non-performing assets:
<TABLE>
<CAPTION>
(Amounts in thousands) March 31, 1997 December 31, 1996
- -------------------------- -------------- -----------------
<S> <C> <C>
Non accrual loans $2,795 $3,698
Accruing loans 90 days
or more past due 1,077 931
------- -------
Non performing loans 3,872 4,629
Restructured loans in
compliance with modified
terms 341 411
Other real estate owned 267 269
------- -------
Total problem assets $4,480 $5,309
====== ======
</TABLE>
Page 11 of 19
<PAGE> 12
<TABLE>
<CAPTION>
<S> <C> <C>
Total problem assets to
total assets 0.57% 0.69%
Non performing loans to
total loans .79 .97
Non performing loans to
allowance for loan losses 51.42 57.06
</TABLE>
Shown below is a summary of the allowance for loan losses:
<TABLE>
<CAPTION>
For the three For the three
months ended months ended
(Amounts in thousands) March 31, 1997 March 31, 1996
- -------------------------- -------------- --------------
<S> <C> <C>
Balance at beginning of period $8,112 $7,156
Provision charged to operating
expense 800 525
Recoveries of loans charged off 122 131
Losses charged to allowance (1,504) (541)
------ ------
Balance at end of period $7,530 $7,271
====== ======
Allowance for loan losses
to total loans 1.53 1.54
Net charge-offs to average
loans .29 .09
</TABLE>
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" is as
follows for the quarter ended March 31:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Principal amount of impaired loans $1,054 $522
Allowance allocated to impaired loans 350 125
------- -----
Portion for which no allowance is allocated $704 $397
======= =====
Average investment in impaired loans for
the quarter ended March 31: $1,136 $555
====== ====
</TABLE>
Total cash collected on impaired loans during the first quarter of 1997 and 1996
was $159 thousand and $108 thousand respectively, all of which was credited to
the principal balance outstanding. Interest that would have been accrued on
impaired loans in the first quarter of 1997 and 1996 was $25 thousand and $14
thousand respectively. No interest income was recognized during the first
quarter of 1997 or 1996 on impaired loans.
Page 12 of 19
<PAGE> 13
Provision For Loan Losses:
The policies of Mahoning National provide for loan loss reserves to adequately
protect the Company against potential unidentified 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, anticipated charge-offs and portfolio trends. As of March
31, 1997, 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.
The provision for loan losses charged to expense during the first quarter of
1997 was $800 thousand, an increase of $275 thousand from the 1996 first quarter
provision. This increase was the result of the growth in the loan portfolio and
increases in consumer loan and commercial loan charge-offs.
Net charge-offs on consumer loans and credit card related plans totaled $606
thousand for the first three months of 1997 compared to $383 thousand for the
same period in 1996. The Company's experience in 1996 and the first three months
of 1997 followed national trends of deteriorating credit quality in consumer
loans and credit card and related plans brought on by the high level of consumer
debt and record personal bankruptcy filings. In mid-1996 the Company implemented
stricter underwriting guidelines and completed an analysis of the collection
department to strengthen collection efforts. The result of these actions should
have a positive impact on consumer charge-offs starting in the second quarter of
1997.
Late in the first quarter of 1997, the Company became aware of a severe
deterioration in the financials of a particular Commercial loan customer. In the
subsequent loan work-out with this company, which resulted in a secured party
sale, a portion of that loan ($750 thousand), was charged-off.
It is anticipated that some of the amounts charged-off in the first quarter will
be collected in the future and will be added to the allowance for loan losses.
The timing and amounts of these collections are uncertain at this time.
The trends discussed above 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 1997,
quarterly provisions will approximate first quarter levels. At March 31, 1997,
the allowance for loan losses totaled $7.530 million or 1.53% of total loans,
compared to $7.271 million or 1.54% at March 31, 1996.
Page 13 of 19
<PAGE> 14
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 $60 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 March 31,
1997 and December 31, 1996, $391 thousand and $395 thousand of residential
mortgage loans were designated as available for sale respectively. At March 31,
1997, $158.822 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 $24.6 million and funding for one-to-four family residential
mortgage loans and allows the Company an additional tool to manage its interest
rate risk. Mahoning National had $3.841 million outstanding in FHLB borrowings
at March 31, 1997 compared to $4.065 million at December 31, 1996.
Total Capital Accounts have grown $699 thousand or 1% in the first three months
of 1997. This increase reflects retained earnings less dividends paid and also
reflects a $1.426 million unrealized loss on the available for sale investment
portfolio for the first three months of 1997. Dividends paid in 1997 year to
date were $1.008 million or $.16 per share compared to $851 thousand or $.135
per share for the same period in 1996. Book value per share as of March 31, 1997
was $12.35 compared to $12.24 on December 31, 1996.
Under regulations issued by federal banking agencies, 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 March 31, 1997, Mahoning
National Bancorp's leverage, Tier 1 and total risk-based capital ratios were
10.25%, 16.46% and 17.71%, respectively, compared to 10.27%, 16.31% and 17.57%
at December 31, 1996, respectively. The Company has exceeded all required
regulatory capital ratios for each period presented and is considered "well
capitalized" under all federal banking agency regulations. Mahoning National's
risk-based capital ratios are well above the regulatory minimums due to the
capital strength and low risk nature of the 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
Page 14 of 19
<PAGE> 15
while maintaining necessary capital requirements to maintain the "well
capitalized" classification.
Page 15 of 19
<PAGE> 16
MAHONING NATIONAL BANCORP, INC.
SUMMARY OF AVERAGE BALANCES AND INTEREST RATES
TAX EQUIVALENT BASIS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE THREE MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1996
(Amounts in thousands) AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE% BALANCE INTEREST RATE%
---------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST YIELDS
Loans $484,676 $10,701 8.95% $469,994 $10,526 8.98
Investment securities 230,334 3,492 6.15% 215,883 3,326 6.18
Other earning assets 13,439 178 5.31% 7,455 100 5.31
---------------------------------------- ------------------------------------------
Total return on earning assets 728,449 14,371 8.00% 693,332 13,952 8.07
INTEREST COSTS
Interest bearing deposits:
Savings deposits 279,131 1,607 2.33% 294,017 1,728 2.36
Time deposits 199,458 2,613 5.31% 209,821 2,888 5.52
---------------------------------------- ------------------------------------------
Total interest bearing deposits 478,589 4,220 3.58% 503,838 4,616 3.67
Federal funds purchased 70 1 5.23% 975 13 5.28
Repurchase agreements 127,241 1,489 4.74% 81,820 929 4.55
Short term borrowings 7,670 98 5.11% 6,038 76 4.96
Long term borrowings 3,988 53 5.46% 3,026 42 5.58
---------------------------------------- ------------------------------------------
Total interest bearing liabilities $617,558 $5,861 3.85% $595,697 $5,676 3.82
Interest spread $8,510 4.15% $8,276 4.25
=========================== =============================
AS A PERCENT OF AVERAGE EARNING ASSETS
Total return on earning assets 8.00% 8.07
Total interest cost 3.26% 3.28
-------------- --------------
Net Interest Margin 4.74% 4.79
============== ==============
</TABLE>
Page 16 of 19
<PAGE> 17
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
The Annual Shareholders meeting of Mahoning National Bancorp,
Inc. was held March 18, 1997 for the purpose of:
1) To elect three (3) directors to Class II of the Corporation's
staggered Board of Directors to serve a two-year term or until
their successors shall have been elected and qualified.
The following Directors were elected to the Company's Board of
Directors:
<TABLE>
<CAPTION>
Withhold
Authority
Nominee Class For to Vote
------- ----- --- -------
<S> <C> <C> <C>
Charles J. McCrudden, Jr. II 4,545,574 26,119
Gregory L. Ridler II 4,543,538 28,155
Daniel B. Roth II 4,544,374 27,319
</TABLE>
The following are the Directors whose terms in office as
Directors continued after the meeting:
Director Class
-------- -----
Dominic A. Bitonte I
Frank A. Kramer I
Warren P. Williamson, III I
Item 5 - Other Information
None
Page 17 of 19
<PAGE> 18
Item 6(a) - Exhibits
(27) Financial Data Schedule
Item 6(b) - Reports on Form 8-K
None
Page 18 of 19
<PAGE> 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 three
months ended March 31, 1997 to be signed on its behalf by the undersigned
thereunto duly authorized.
DATE: May 12, 1997 Mahoning National Bancorp, Inc.
---------------------------
/s/ Gregory L. Ridler
-----------------------------
Gregory L. Ridler
Chairman of the Board,
President and Chief
Executive Officer
DATE: May 12, 1997
/s/ Norman E. Benden, Jr.
--------------------------- -----------------------------
Norman E. Benden, Jr.
Treasurer
Page 19 of 19
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MAHONING
NATIONAL BANCORP, INC., CONSOLIDATED STATEMENT OF CONDITION AT MARCH 31, 1997
AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<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> 27,067
<INT-BEARING-DEPOSITS> 2
<FED-FUNDS-SOLD> 15,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 158,822
<INVESTMENTS-CARRYING> 76,991
<INVESTMENTS-MARKET> 76,562
<LOANS> 491,361
<ALLOWANCE> 7,530
<TOTAL-ASSETS> 785,348
<DEPOSITS> 545,392
<SHORT-TERM> 152,011
<LIABILITIES-OTHER> 6,310
<LONG-TERM> 3,841
<COMMON> 6,300
0
0
<OTHER-SE> 71,494
<TOTAL-LIABILITIES-AND-EQUITY> 785,348
<INTEREST-LOAN> 10,649
<INTEREST-INVEST> 3,361
<INTEREST-OTHER> 178
<INTEREST-TOTAL> 14,188
<INTEREST-DEPOSIT> 4,220
<INTEREST-EXPENSE> 5,861
<INTEREST-INCOME-NET> 8,327
<LOAN-LOSSES> 800
<SECURITIES-GAINS> 178
<EXPENSE-OTHER> 5,025
<INCOME-PRETAX> 4,645
<INCOME-PRE-EXTRAORDINARY> 3,133
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,133
<EPS-PRIMARY> .50
<EPS-DILUTED> .50
<YIELD-ACTUAL> 8.00
<LOANS-NON> 2,795
<LOANS-PAST> 1,077
<LOANS-TROUBLED> 341
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 8,112
<CHARGE-OFFS> 1,504
<RECOVERIES> 122
<ALLOWANCE-CLOSE> 7,530
<ALLOWANCE-DOMESTIC> 7,530
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 794
</TABLE>
