<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, 1998
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, 1998
<PAGE> 2
MAHONING NATIONAL BANCORP, INC.
INDEX
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheet (unaudited) -
March 31, 1998 and
December 31, 1997 3
Consolidated Statements of Income -
Three Months Ended March 31, 1998
and 1997 (unaudited) 4
Consolidated Statements of Comprehensive Income -
Three Months Ended March 31, 1998 and 1997
(unaudited) 5
Condensed Consolidated Statement of Cash Flows -
Three Months Ended March 31, 1998 and 1997
(unaudited) 6
Notes to Consolidated Financial Statements 7 - 8
Item 2 - Management Discussion and Analysis
of Operations and Liquidity and Capital Resources 9 - 18
Item 3 - Summary of Average Balances and Interest Rates 19
PART II - OTHER INFORMATION 20 - 21
Exhibit Number 27 - Financial Data Schedule
SIGNATURES 22
</TABLE>
<PAGE> 3
PART I
FINANCIAL INFORMATION
MAHONING NATIONAL BANCORP INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
(Amounts in thousands, except per share data) 1998 1997
------------------------- -------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $29,160 $29,143
Federal funds sold 13,400 8,800
Investment securities available for sale - at fair value 195,868 189,578
Investment securities held to maturity - at cost
(Market value $50,001 at March 31, 1998
and $61,248 at December 31, 1997) 49,899 61,178
Loans 498,684 492,487
Less allowance for possible loan losses 7,740 7,524
------------------------- -------------------------
Net loans 490,944 484,963
Bank premises and equipment 8,495 8,653
Other assets 14,737 14,551
------------------------- -------------------------
Total assets $802,503 $796,866
========================= =========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing $71,693 $74,500
Interest bearing
Savings 270,155 275,139
Time 196,531 195,472
------------------------- -------------------------
Total deposits 538,379 545,111
Federal funds purchased and securities
sold under agreement to repurchase 147,853 146,245
Short term borrowings 8,455 10,954
Long term borrowings 12,916 3,151
Other liabilities 6,369 4,826
------------------------- -------------------------
Total liabilities 713,972 710,287
------------------------- -------------------------
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 37,150 35,221
Unrealized gain on investment securities
available for sale, net of deferred taxes 981 958
------------------------- -------------------------
Total stockholders' equity 88,531 86,579
------------------------- -------------------------
Total liabilities and
stockholders' equity $802,503 $796,866
========================= =========================
</TABLE>
See Notes to Consolidated Financial Statements
<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, 1998 MARCH 31, 1997
(UNAUDITED) (UNAUDITED)
-------------------------- --------------------------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $10,892 $10,649
Interest on investment securities
Taxable 3,276 3,118
Nontaxable 273 243
Interest on federal funds sold 65 178
-------------------------- --------------------------
14,506 14,188
INTEREST EXPENSE
Interest on deposits 4,012 4,220
Interest on federal funds purchased and
securities sold under agreement to repurchase 1,684 1,489
Interest on short term borrowings 80 98
Interest on long term borrowings 62 54
-------------------------- --------------------------
5,838 5,861
-------------------------- --------------------------
Net interest income 8,668 8,327
PROVISION FOR LOAN LOSSES 726 800
-------------------------- --------------------------
Net interest income after
provision for loan losses 7,942 7,527
OTHER OPERATING REVENUE
Trust department income 788 710
Service charges on deposit accounts 1,009 995
Other service charges 188 191
Other revenue 80 69
Gain on sale of investment securities
available for sale - 178
-------------------------- --------------------------
2,065 2,143
-------------------------- --------------------------
OTHER OPERATING EXPENSE
Salaries and employee benefits 2,834 2,704
Expenses of premises and fixed assets 720 802
Other expense 1,635 1,519
-------------------------- --------------------------
5,189 5,025
-------------------------- --------------------------
Income before income taxes 4,818 4,645
INCOME TAX EXPENSE 1,566 1,512
-------------------------- --------------------------
NET INCOME $3,252 $3,133
========================== ==========================
NET INCOME PER COMMON SHARE $0.52 $0.50
DIVIDENDS PER SHARE 0.21 0.16
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 5
MAHONING NATIONAL BANCORP INC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE
MONTHS ENDED MONTHS ENDED
(Amounts in thousands, except per share data) MARCH 31, 1998 MARCH 31, 1997
(UNAUDITED) (UNAUDITED)
------------------------- ----------------------
<S> <C> <C>
Net Income $ 3,252 $ 3,133
------------------------- ----------------------
Other comprehensive income, before tax:
Unrealized holding gains (losses) arising
during period 35 (2,016)
Less: reclassification adjustment for gains
(losses) included in net income - 178
------------------------- ----------------------
Other comprehensive income, before tax 35 (2,194)
Income tax expense (benefit) related to
items of other comprehensive income 12 (767)
------------------------- ----------------------
Comprehensive income $ 3,275 $ 1,706
========================= ======================
Comprehensive income per common share $ 0.52 $ 0.27
========================= ======================
</TABLE>
<PAGE> 6
MAHONING NATIONAL BANCORP INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
(Amounts in thousands) ENDED ENDED
MARCH 31, 1998 MARCH 31, 1997
(UNAUDITED) (UNAUDITED)
-------------------------------------------------
<S> <C> <C>
Cash flows from operating activities $ 5,936 $ 5,296
Cash flows from investing activities
Proceeds from maturities of investment securities available for sale 5,068 5,084
Proceeds from maturities of investment securities held to maturity 11,315 8,735
Sale of investment securities available for sale - 20,075
Purchase of investment securities available for sale (11,320) (42,377)
Purchase of investment securities held to maturity - -
Net increase in loans (7,067) (15,249)
Net (increase) decrease in federal funds sold (4,600) 3,800
Capital expenditures (133) (25)
-------------------------------------------------
Net cash (used in) provided by investing activities (6,737) (19,957)
Cash flows from financing activities
Net decrease in deposits (6,732) (5,606)
Net increase in federal funds purchased and
securities sold under agreement to repurchase 1,609 19,116
Net (decrease) increase in short term borrowings (2,500) 193
Proceeds from long term borrowings 10,000 -
Payments on long term borrowings (236) (224)
Dividends paid (1,323) (1,008)
-------------------------------------------------
Net cash provided by (used in) financing activities 818 12,471
Net increase (decrease) in cash and cash equivalents 17 (2,190)
Cash and cash equivalents at beginning of year 29,143 29,257
-------------------------------------------------
Cash and cash equivalents at end of quarter $ 29,160 $ 27,067
=================================================
Supplemental disclosures of cash flow information:
Cash paid during the quarter for:
Interest $ 5,844 $ 5,919
=================================================
Non-cash transactions:
Transfer from loans to other real estate owned $ 40 $ 28
=================================================
</TABLE>
<PAGE> 7
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
transaction 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, 1998.
NOTE B - STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128
- EARNINGS PER SHARE
In March 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) No. 128, "Earnings Per Share" which is
effective for financial statements for periods ending after December 15, 1997,
including interim periods. SFAS No. 128 simplifies the calculation of earnings
per share (EPS) by replacing primary EPS with basic EPS. It also requires dual
presentation of basic EPS and diluted EPS for entities with complex capital
structures. Basic EPS includes no dilution and is computed by dividing income
available to common shareholders by the weighted-average common shares
outstanding for the period. Diluted EPS reflects the potential dilution of
securities that could share in earnings such as stock options, warrants or other
common stock equivalents. Since the Company had no stock options, warrants or
other common stock equivalents basic EPS and diluted EPS were the same in each
year presented.
NOTE C - STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 130
- REPORTING COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS 130 establishes standards for reporting and display of comprehensive income
and its components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. SFAS No. 130 requires that all items that
are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. It does not require a
specific format for that financial statement but requires that an enterprise
display an amount representing total comprehensive income for the period in that
financial statement.
<PAGE> 8
SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. The consolidated Statements of
Comprehensive Income for the three months ended March 31, 1998 and 1997 are
included in this Form 10-Q on page 5.
NOTE D - STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 131
- DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND
RELATED INFORMATION
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This Statement significantly changes the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about reportable segments in interim financial reports
issued to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. SFAS No. 131
uses a "management approach" to disclose financial and descriptive information
about an enterprise's reportable operating segments which is based on reporting
information the way that management organizes the segments within the enterprise
for making operating decisions and assessing performance. For many enterprises,
the management approach will likely result in more segments being reported. In
addition, the Statement requires significantly more information to be disclosed
for each reportable segment than is presently being reported in annual financial
statements. The Statement also requires that selected information be reported in
interim financial statements. SFAS No. 131 is effective for financial statement
disclosure for the year ended December 31, 1998. At this time, the Company does
not anticipate additional segment reporting will be required.
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Earnings Review
Net income for the first three months of 1998 amounted to $3.252 million or
$0.52 per share. This represents an increase of 4% over net income earned during
the same period in 1997 ($3.133 million or $0.50 per share).
The primary component of earnings is net interest income. Net interest income
for the first three months of 1998 was $8.668 million compared with $8.327
million or a 4% increase from the comparable period in 1997.
Interest and fees on loans increased $243 thousand in the first three months of
1998 compared to the first three months of 1997. This increase was the result of
a $13.358 million increase in average loan balances for the first three months
of 1998 compared to 1997; $498.034 million compared to $484.676 million. The
increase in average loan balances for the first three months of 1998 accounted
for approximately $290 thousand in additional tax effective net interest income
on loans. This increase was partially offset by a reduction in tax effective net
interest income of approximately $61 thousand due to a five (5) basis point
reduction in loan yields. Interest expense decreased $23 thousand for the first
quarter of 1998 compared to the same period in 1997. This decrease can be
attributed to a seven (7) basis point reduction in the cost of funds which
reduced the Company's interest expense by approximately $185 thousand. This
reduction was mostly offset by increases in the average balances of interest
bearing liabilities which accounted for approximately $162 thousand in
additional interest expense. The average balance of securities sold under
agreements to repurchase totaled $137.219 million for the first quarter of 1998,
a $9.978 million increase over 1997 first quarter average balances of $127.241
million. This increase accounted for $122 thousand of the additional $162
thousand of interest expense due to volume increases. The company expects
funding costs to remain below 1997 levels throughout 1998 as the impact of a 25
basis point reduction in the savings rate on February 2, 1998 continues to
positively impact 1998 earnings. In addition, time deposit costs for 1998 are
currently lower than 1997 costs and should remain below 1997 levels throughout
the year as maturing certificates are repricing at lower rates. 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. Based on a modest loan growth forecast
for the remainder of 1998, the Company does not expect to aggressively price its
time deposits. 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 19.
<PAGE> 10
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 to 8.50%
where it has remained for the past twelve months. The net interest margin for
the first quarter of 1998 was 4.81%, a seven (7) basis point increase from the
4.74% net interest margin in the first quarter of 1997.
The Company's primary market risk exposure is interest rate risk. As part of its
effort to monitor and manage interest rate risk the Company uses simulation
analysis and net present value analysis. The simulation analysis monitors
interest rate risk through the impact changes in interest rates can have on net
income. At March 31, 1998, 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 indicated no significant impact on net interest income for
1998, and were within the five percent (5%) of net interest income guidelines
established by the Company. While the results of the simulation indicated no
significant impact on net interest income over the next twelve months, they did
indicate the Company to be negatively impacted by rising interest rates and
positively impacted by falling interest rates due to the liability sensitive
nature of the balance sheet.
The net present valve (NPV) analysis is used to measure the Company's interest
rate risk by computing estimated changes in NPV of its cash flows from assets,
liabilities and off-balance sheet items in the event of a range of assumed
changes in market interest rates. NPV represents the market value of equity and
is equal to the market value of assets minus the market value of liabilities,
with adjustments made for off-balance sheet items. This analysis assesses the
risk of loss in market risk sensitive instruments in the event of a sudden and
sustained 100 to 200 basis point increase or decrease in market interest rates.
The Board of Directors has adopted an interest rate risk policy which
establishes maximum changes in the NPV of 20% in the event of a sudden and
sustained 100 to 200 basis point increase or decrease in market interest rates.
The following table presents the Company's projected change in NPV for the
various rate shock levels at March 31, 1998. There were no significant changes
from the analysis prepared December 31, 1997.
<TABLE>
<CAPTION>
Changes In
Interest Rate Change In % Change NPV of Equity/
(basis points) NPV of Equity In NPV NPV of Assets
----------------------------------------------------------------------------
<S> <C> <C> <C>
-200 $ 15,404 17.40% 12.67%
-100 9,690 10.94 12.07
0 4,080 4.61 11.48
+100 (1,427) -1.61 10.88
+200 (6,834) -7.72 10.29
</TABLE>
Other operating revenue of $2.065 million, exclusive of security transactions,
increased $100 thousand or 5% over the first three months of 1997 total of
$1.965 million.
The largest component of other operating revenue in the first quarter of 1998
was service charges on deposit accounts which increased $14 thousand or 1% over
the first quarter of
<PAGE> 11
1997. Other operating revenue, exclusive of security transactions, as a
percentage of average assets was 1.06% for the first three months of 1998
compared to 1.04% for the same period in 1997. In the first three months of
1998, service charges on deposit accounts as a percentage of average deposits
increased to .76% from .74% for the same period in 1997. The Company annually
reviews all of its fee-based products and services for marketability and
profitability. Increases realized in the first quarter of 1998 are the result of
growth in the number of retail checking accounts over the past seven months
which coincided with the introduction of two new package checking accounts.
Management expects other operating revenue to continue to exceed 1997 levels,
but the increases will not be as significant as those realized in 1997.
Mahoning National Bank's Trust and Investment Department generated $788 thousand
in other revenue in the first three months of 1998, an increase of $78 thousand
or 11% over the $710 thousand earned in the same period of 1997. Trust
Department assets totaled $435.156 million with a market value of $667.888
million at March 31, 1998 compared to $571.119 million with a market value of
$712.748 million at March 31, 1997. This decrease was the result of a corporate
customer consolidating employee benefit and custody trust accounts with a
financial institution outside of the Company's market area in the second quarter
of 1997. The $78 thousand increase in trust fees, even with the loss of this
large corporate customer, can be attributed to the department's market based
fees, which increased due to the significant increase in account market values
as a result of 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 1998.
Provision for loan losses for the first quarter of 1998 amounted to $726
thousand compared to $800 thousand for the comparable period in 1997. 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 increased $164 thousand or
approximately 3% from the comparable period in 1997, $5.189 million from $5.025
million. As a percentage of average assets, other operating expense was 2.66%
for the first quarter of 1998 and 1997. The Company's efficiency ratio which
measures non-interest expense as a percent of non-interest income plus net
interest income on a fully tax equivalent basis declined 38 basis points from
47.97% in 1997 to 47.59% in 1998. This efficiency ratio would place the Company
near the top of its peer group.
Salaries and employee benefits expense for the first three months of 1998
increased $130 thousand or 5% from the same period in 1997. Salary expense alone
increased $102 thousand or 5% for the first three months of 1998 when compared
to the same period in 1997. This increase can be attributed to annual merit
salary adjustments which took effect January 1, 1998 and increases in various
employee incentive programs. Health care expenses for the first three months of
1998 were $196 thousand compared to $185
<PAGE> 12
thousand for the same period in 1997, an increase of $11 thousand or 6%. It is
unknown at this time what the Company's health care renewal rates will be for
the plan year beginning July 1, 1998. The number of full time equivalent
employees decreased from 393 at March 31, 1997 to 388 at March 31, 1998.
Expenses of premises and fixed assets for the first quarter of 1998 totaled $720
thousand, a 10% decrease ($82 thousand) from the first quarter of 1997 total of
$802 thousand.
Net occupancy expense, which represents various facility management expenses
increased $6 thousand in the first three months of 1998 to $376 thousand from
$370 thousand in the same period of 1997.
Equipment rental, depreciation and maintenance, of $344 thousand, decreased $88
thousand from the first three months of 1997. This decrease was the result of
the termination of various computer equipment leases and their related service
contracts in April 1997. The equipment that was covered by these leases was
either purchased at a discount or disposed of.
Other expenses increased $116 thousand in the first quarter of 1998, to $1.635
million, from $1.519 million for the same period of 1997, an 8% increase. This
increase was the result of increased amortization and support on software
purchased in 1997 and 1998, increased marketing expenses related to the
promotion of loan and deposit products, increased business activity and general
inflationary increases. Other expenses for the remainder of 1998 are expected to
exceed 1997 expenses by approximately 5%.
In early 1997, the Company began to address the Year 2000 issue, which covers
the process of converting computer systems to identify the Year 2000. A Year
2000 committee was formed consisting of senior management and selected
representatives from all areas of the Company. The committee, which meets
regularly, has developed a project plan based on the five (5) phases the Federal
Financial Institutions Examination Council (FFIEC) had outlined to effectively
manage Year 2000 issues. The following are the five (5) phases as outlined by
the FFIEC: Awareness, Assessment, Renovation, Validation and Implementation. At
the end of March 1998, the Awareness and Assessment phases have been completed
and documentation that supports the comprehensive Year 2000 project plan has
been completed. The Company is at various stages of Renovation, Validation and
Implementation on those applications or systems identified as mission-critical
to the Company. An application or system is considered mission-critical if it is
vital to the successful continuance of a core business activity or is an
application that interfaces with a mission-critical system. The Renovation phase
includes the purchase or renovation of hardware and/or software to replace those
items found to be non-compliant with Year 2000. At this time it is not expected
that expenses to address Year 2000 Renovation, Validation and Implementation
issues will materially impact future operating results.
<PAGE> 13
Income Taxes
Income tax expense for the first three months of 1998 amounted to $1.566 million
compared to $1.512 million for the same period in 1997. Income tax expense for
1998 is being accrued at an effective rate of approximately 32.5%, which
compares to an effective tax rate of 32.2% for all of 1997.
The Statement of Condition includes approximately $1.869 million and $1.881
million of net deferred tax assets at March 31, 1998 and December 31, 1997
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 1998 compared to the same time period of 1997.
<TABLE>
<CAPTION>
For the three For the three
months ended months ended
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Return on Average Assets 1.67% 1.66%
Return on Average Equity 14.91 16.20
Return on Earnings Assets
- -Taxable Equivalent 7.99 8.00
Interest Cost 3.18 3.26
Net Interest Margin 4.81 4.74
</TABLE>
Statements of Condition
As of March 31, 1998, total assets of the Company amounted to $802.503 million,
an increase from December 31, 1997 total assets of $796.866 million. Average
assets for the first quarter of 1998 amounted to $790.729 million compared to
$767.458 million for the same quarter of 1997, a 3% increase. Through the first
three months of 1998 total loans increased $6.197 million or 1% from year end
while the investment portfolio decreased $4.989 million or 2% in that same
period. The growth in earning assets was primarily funded with a $9.765 million
increase in long term borrowings and earnings retention, which were partially
offset by a decline in deposits of $6.732 million.
Investment Portfolio
The deposits and other borrowings of the Company, in excess of required reserves
and operating funds of the Mahoning National Bank of Youngstown, 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.
<PAGE> 14
At March 31, 1998, the investment portfolio totaled $245.767 million (which
included a $1.509 million unrealized gain on available for sale securities)
which was a decrease of $4.989 million from December 31, 1997.
At March 31, 1998, the Company has classified investment securities with
amortized cost and fair market value of $194.359 and $195.868 million
respectively, or 80% of the portfolio as available for sale, with the remainder
of the portfolio classified as held to maturity. 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
rise. The Company did not hold any on or off balance sheet derivatives during
1997, and does not expect to in 1998.
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 1998. No securities were transferred between categories
in the first three months of 1998.
Loans
Total loans outstanding increased by $6.197 million or 1% from $492.487 million
on December 31, 1997, to a historic high of $498.684 million on March 31, 1998.
This growth, coupled with a decline in deposits resulted in a loan to deposit
ratio of 92.63% at March 31, 1998, compared to 90.35% at December 31, 1997.
The increase in the loan portfolio in the first three months of 1998 is the
result of modest loan demand and good results from business development efforts.
The area of largest growth in the first three months of 1998 was commercial
loans.
Commercial loans, which declined by 9% for the year ended December 31, 1997,
increased by $7.723 million or 10% from $79.517 million at December 31, 1997 to
$87.240 million at March 31, 1998. As the competition for commercial loans
increases throughout 1998, with banks looking to continue past growth trends in
their loan portfolios, the Company does not intend to compromise its credit
standards for the sake of loan growth.
Consumer loans increased $763 thousand in the first three months of 1998 after
increasing $7.0 million, or 5%, in 1997. Consumer loan balances are primarily
dependent on the level of indirect automobile financing purchased by the Bank.
The growth rate of 1997 was not sustained in the first three months of 1998 due
to a slower market, greater competition among local lenders and the Company's
close monitoring of underwriting criteria due to the increased charge-offs and
delinquency trends of the past few years. 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, competition in the market
<PAGE> 15
area, and a projected slowdown in our national economy, consumer loan totals are
expected to remain at current levels over the remainder of 1998.
Residential mortgage growth remained relatively flat over the first three months
of 1998. The Company, which expects to be more active in the secondary market in
1998, sold approximately $1.1 million in mortgages in the first quarter of 1998
after selling approximately $1.0 million in all of 1997. The Company will
continue to place emphasis on generating salable loans, with servicing retained,
over the remainder of 1998. With the expected increase in secondary market
sales, only modest growth is expected for residential mortgages over the
remainder of 1998.
As of March 31, 1998, non-performing loans, defined as those loans which are on
non-accrual or are 90 days or more past due and still accruing, totaled $2.988
million compared to $2.881 million at December 31, 1997. Listed below is a
schedule of the Company's non-performing assets:
<TABLE>
<CAPTION>
(Amounts in thousands) March 31, 1998 December 31, 1997
- ---------------------- -------------- -----------------
<S> <C> <C>
Non accrual loans $2,507 $2,227
Accruing loans 90 days
or more past due 481 654
----- -----
Non performing loans 2,988 2,881
Restructured loans in
compliance with modified
terms 58 --
Other real estate owned 1,095 1,112
----- -----
Total problem assets $4,141 $3,993
====== ======
Total problem assets to
total assets 0.52% 0.50%
</TABLE>
The following ratios provide additional information on the status of the loan
portfolio:
<TABLE>
<CAPTION>
As of As of
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Loan deposit ratio 92.63% 90.09%
Non performing loans to
total loans .60 .79
Non performing loans to
allowance for loan losses 38.61 51.42
Allowance for loan losses
to total loans 1.55 1.53
Net charge-offs to average
loans .10 .29
Net charge-offs ($000) $ 510 $ 1,382
</TABLE>
<PAGE> 16
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, 1998 March 31, 1997
- ---------------------- -------------- --------------
<S> <C> <C>
Balance at the beginning of period $ 7,524 $ 8,112
Provision charged to operating expense 726 800
Recoveries of loans charged off 215 122
Losses charged to allowance (725) (1,504)
------- -------
Balance at end of period $ 7,740 $ 7,530
======= =======
</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>
1998 1997
---- ----
<S> <C> <C>
Principal amount of impaired loans $1,434 $1,054
Allowance allocated to impaired loans 325 350
------ ------
Portion for which no allowance is allocated $1,109 $ 704
====== ======
Average investment in impaired loans for
the quarter ended March 31: $1,145 $1,136
====== ======
</TABLE>
Total cash collected on impaired loans during the first quarter of 1998 and 1997
was $23 thousand and $159 thousand respectively, $21 thousand of which was
credited to principal and $2 thousand which was credited to interest in 1998 and
$159 thousand which was credited to principal in 1997. Interest that would have
been accrued on impaired loans in the first quarter of 1998 and 1997 was $39
thousand and $25 thousand respectively. No interest income was recognized during
the first quarter of 1998 or 1997.
Provision for Loan Losses
The policies of the Company provide for loan loss reserves to adequately protect
the Company against reasonably probable 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 March
31, 1998, 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.
<PAGE> 17
The provision for loan losses charged to expense during the first quarter of
1998 was $726 thousand, a decrease of $74 thousand from the 1997 first quarter
provision.
Net charge-offs on consumer loans and credit card related plans totaled $550
thousand for the first three months of 1998 compared to $606 thousand for the
same period in 1997. This decrease was the result of stricter underwriting
standards adopted over the past year along with more pro-active collection
efforts. The Company's experience in 1997 and the first three months of 1998
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.
A complete analysis of the loan underwriting and loan collection departments was
performed in 1997. As a result of that analysis, stricter underwriting
guidelines have been established along with more pro-active collection efforts.
These actions should continue to have a positive impact on reducing consumer
loan charge-offs in 1998.
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.
This area will continue to be monitored closely during the coming year as the
Company continues to evaluate the adequacy of the allowance for loan losses with
future provisions to the allowance being dependent upon the growth and quality
of the loan portfolio. As a result of possible changes in economic conditions
there can be no guarantee that the level of the provision or allowance for loan
losses will not be increased by the Company. At March 31, 1998, the allowance
for loan losses totaled $7.740 million or 1.55% of total loans, compared to
$7.530 million or 1.53% of total loans at March 31, 1997.
Liquidity and Capital
It is a primary objective of the Company 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 primarily as cash management and liquidity tools. Short term
Federal fund lines totaling $60 million have been established at the Company'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, 1998, and December 31, 1997
$2.495 million and $298 thousand of residential mortgage loans were designated
as held for sale respectively. At March 31, 1998, $195.868 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.
<PAGE> 18
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
remaining available line of credit of $40.154 million and funding for
one-to-four family residential mortgage loans and allows the Company to better
manage its interest rate risk. The Company had $12.916 million outstanding in
FHLB borrowings at March 31, 1998 compared to $3.151 million at December 31,
1997.
Total capital Accounts have grown $1.952 million or 2% in the first three months
of 1998. This increase reflects retained earnings less dividends paid and also
reflects a $23 thousand unrealized gain, net of deferred taxes, on the available
for sale investment portfolio for the first three months of 1998. Dividends paid
in 1998 year to date were $1.323 million or $.21 per share compared to $1.008
million or $.16 per share for the same period in 1997. Book value per share as
of March 31, 1998 was $14.05 per share compared to $13.74 on December 31, 1997.
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, 1998, the
Company's leverage, Tier 1 and total risk-based capital ratios were 11.07%,
17.83% and 19.09%, receptively, compared to 11.05%, 17.70% and 18.95% at
December 31, 1997, receptively. The Company has exceeded all required regulatory
capital ratios for each period presented and is considered "well capitalized"
under all federal banking agency regulations. The Company'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 while maintaining necessary capital
requirements to maintain the "well capitalized" classification.
<PAGE> 19
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, 1998 MARCH 31, 1997
(Amounts in thousands) AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE% BALANCE INTEREST RATE%
----------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST YIELDS
Loans $498,034 $ 10,930 8.90% $484,676 $ 10,701 8.95%
Investment securities 243,203 3,697 6.16% 230,334 3,492 6.15%
Other earning assets 4,667 65 5.57% 13,439 178 5.31%
----------------------------------------- ----------------------------------------
Total return on earning assets 745,904 14,692 7.99% 728,449 14,371 8.00%
INTEREST COSTS
Interest bearing deposits:
Savings deposits 272,595 1,454 2.16% 279,131 1,607 2.33%
Time deposits 196,881 2,558 5.27% 199,458 2,613 5.31%
----------------------------------------- ----------------------------------------
Total interest bearing deposits 469,476 4,012 3.47% 478,589 4,220 3.58%
Federal funds purchased 8,593 119 5.56% 70 1 5.23%
Repurchase agreements 137,219 1,565 4.62% 127,241 1,488 4.74%
Short term borrowings 6,327 80 5.06% 7,670 98 5.11%
Long term borrowings 4,735 62 5.30% 3,988 54 5.46%
----------------------------------------- ----------------------------------------
Total interest bearing liabilities $626,350 $ 5,838 3.78% $617,558 $ 5,861 3.85%
Interest spread $ 8,854 4.21% $ 8,510 4.15%
============================= ============================
AS A PERCENT OF AVERAGE EARNING ASSETS
Total return on earning assets 7.99% 8.00%
Total interest cost 3.18% 3.26%
--------- --------
Net Interest Margin 4.81% 4.74%
========= ========
</TABLE>
<PAGE> 20
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 17, 1998 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>
William J. Bresnahan I 4,991,636 47,555
Frank A. Kramer I 4,982,736 56,455
Warren P. Williamson, III I 4,953,186 86,005
</TABLE>
The following are the Directors whose terms in office as
Directors continued after the meeting:
<TABLE>
<CAPTION>
Director Class
-------- -----
<S> <C>
Charles J. McCrudden, Jr. II
Gregory L. Ridler II
Daniel B. Roth II
</TABLE>
Item 5 - Other Information
None
<PAGE> 21
Item 6(a) - Exhibits
(27) Financial Data Schedule
Item 6(b) - Reports on Form 8-K
Form 8-K dated January 2, 1998 announced that Mahoning
National Bancorp, Inc., had listed its shares of common stock
on the NASDAQ National Market System, effective January 5,
1998, trading under the symbol "MGNB".
<PAGE> 22
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, 1998 to be signed on its behalf by the undersigned
thereunto duly authorized.
DATE: May 11, 1998 Mahoning National Bancorp, Inc.
-------------------------
/S/ Gregory L. Ridler
--------------------------------
Gregory L. Ridler
Chairman of the Board,
President and Chief
Executive Officer
DATE: May 11, 1998 /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 MARCH 31, 1998
AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31,
1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 29,160
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 13,400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 195,868
<INVESTMENTS-CARRYING> 49,899
<INVESTMENTS-MARKET> 50,001
<LOANS> 498,684
<ALLOWANCE> 7,740
<TOTAL-ASSETS> 802,503
<DEPOSITS> 538,379
<SHORT-TERM> 156,308
<LIABILITIES-OTHER> 6,369
<LONG-TERM> 12,916
6,300
0
<COMMON> 0
<OTHER-SE> 82,231
<TOTAL-LIABILITIES-AND-EQUITY> 802,503
<INTEREST-LOAN> 10,892
<INTEREST-INVEST> 3,549
<INTEREST-OTHER> 65
<INTEREST-TOTAL> 14,506
<INTEREST-DEPOSIT> 4,012
<INTEREST-EXPENSE> 5,838
<INTEREST-INCOME-NET> 8,668
<LOAN-LOSSES> 726
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,189
<INCOME-PRETAX> 4,818
<INCOME-PRE-EXTRAORDINARY> 3,252
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,252
<EPS-PRIMARY> .52
<EPS-DILUTED> .52
<YIELD-ACTUAL> 7.99
<LOANS-NON> 2,507
<LOANS-PAST> 481
<LOANS-TROUBLED> 58
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,524
<CHARGE-OFFS> 725
<RECOVERIES> 215
<ALLOWANCE-CLOSE> 7,740
<ALLOWANCE-DOMESTIC> 7,740
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 783
</TABLE>
