<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-K
ANNUAL REPORT
-----------------------
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
X SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
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For the fiscal year ended December 31, 1998
-----------------
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
------
For the transition period from . . . . . . to . . . . . .
Commission file number 0-20255
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Mahoning National Bancorp, Inc.
-------------------------------
(Exact name of registrant as specified in its charter)
OHIO 34-1692031
---- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
23 FEDERAL PLAZA, YOUNGSTOWN, OH 44501-0479
-------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(330) 742-7000
--------------
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
NONE
----
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE, STATED VALUE $1.00
----------------------------------------------
(Title of Class)
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
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 and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The aggregate market value of Common Stock, No Par Value, $1 Stated
Value Per Share, held by non-affiliates on February 28, 1999, was approximately
$170,000,000.
As of February 28, 1999, there were 6,300,000 shares of Common Stock,
No Par Value, $1 Stated Value Per Share, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the registrant's Annual Report to Shareholders for the year
ended December 31, 1998, are incorporated by reference into Parts I,
II, and IV.
(2) The Notice of Annual Meeting of Shareholders and Proxy Statement
relating to the 1999 Annual Meeting of Shareholders of the Corporation
on March 16, 1999, is incorporated by reference into Part III.
<PAGE> 2
Mahoning National Bancorp, Inc.
Form 10-K
PART I
ITEM 1. BUSINESS
Mahoning National Bancorp, Inc. ("the Registrant") was incorporated in
1992 under the laws of the state of Ohio as a bank holding company.
The Registrant has one wholly-owned subsidiary, The Mahoning National
Bank of Youngstown (Mahoning National), which was organized under the
laws of the State of Ohio in 1868.
The Registrant has no employees; however, as of December 31, 1998
Mahoning National employed approximately 375 full-time equivalent
employees.
The Registrant and its subsidiary do not have any banking offices in a
foreign country and with the exception of State of Israel Bonds
totaling $60 thousand, has no foreign assets, liabilities or related
income and expense for the years presented.
A description of the Registrant's business and discussion of operations
is set forth on pages 19 through 29 of the 1998 Annual Report to
Shareholders, included in this Form 10-K as Exhibit 13, and is
incorporated herein by reference.
The following additional financial information as required under Guide
3 disclosure is included in this Form 10-K and is incorporated herein
by reference:
Items I - Distribution of Assets, Liabilities and Stockholders' Equity;
Interest Rates and Interest Differential - The information required is
contained in Management's Discussion and Analysis on pages 20 through
29 in the 1998 Annual Report to Shareholders, included in this Form
10-K as Exhibit 13, incorporated herein by reference.
<PAGE> 3
Mahoning National Bancorp, Inc.
Form 10-K
Item II - Investment Portfolio
The carrying values, fair values, average yields and maturity distributions of
all investment securities are summarized in the following table.
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
AVAILABLE FOR SALE:
Carrying Fair Average Carrying Fair Average
(Amounts in thousands) Value Value Yield* Value Value Yield*
-------------------------------------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury and agencies:
Within one year $ 35,252 $ 35,252 6.00% $ 4,992 $ 4,992 5.47%
After one but within five years 178,363 178,363 5.96% 161,290 161,290 6.14%
---------------------------------- ------------------------------------
213,615 213,615 5.97% 166,282 166,282 6.12%
Mortgaged-backed securities and
collateralized mortgage obligations:
Within one year 2,753 2,753 6.59% 874 874 9.16%
After one but within five years 194 194 9.43% 4,284 4,284 6.78%
After five but within ten years 573 573 9.30% - - -
---------------------------------- ------------------------------------
3,520 3,520 7.19% 5,158 5,158 7.18%
Obligations of states and political
subdivisions:
Within one year 2,345 2,345 4.46% 2,273 2,273 4.67%
After one but within five years 17,813 17,813 4.20% 11,813 11,813 4.40%
After five but within ten years - - - 500 500 4.30%
---------------------------------- ------------------------------------
20,158 20,158 4.23% 14,586 14,586 4.44%
Other 3,744 3,744 3,552 3,552
----------------------- ------------------------
Total investment securities $ 241,037 $ 241,037 $ 189,578 $ 189,578
======================= ========================
<CAPTION>
December 31, 1996
AVAILABLE FOR SALE:
Carrying Fair Average
(Amounts in thousands) Value Value Yield*
------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury and agencies:
Within one year $ 25,045 $ 25,045 6.85%
After one but within five years 99,906 99,906 6.11%
----------------------------------------
124,951 124,951 6.26%
Mortgaged-backed securities and
collateralized mortgage obligations:
Within one year - - -
After one but within five years 5,009 5,009 7.14%
After five but within ten years 393 393 9.36%
----------------------------------------
5,402 5,402 7.30%
Obligations of states and political
subdivisions:
Within one year 1,543 1,543 4.64%
After one but within five years 8,205 8,205 4.48%
After five but within ten years 126 126 4.65%
----------------------------------------
9,874 9,874 4.51%
Other 3,373 3,373
-------------------------
Total investment securities $ 143,600 $ 143,600
=========================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
HELD TO MATURITY:
Carrying Fair Average Carrying Fair Average
(Amounts in thousands) Value Value Yield* Value Value Yield*
---------------------------------------------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury and agencies:
Within one year $ 14,998 $ 14,998 5.40% $ 35,942 $ 35,938 5.77%
After one but within five years - - - 14,982 14,937 5.40%
----------------------------------- -----------------------------------
14,998 14,998 5.40% 50,924 50,875 5.66%
Obligations of states and political
subdivisions:
Within one year 2,624 2,646 4.47% 1,339 1,347 4.46%
After one but within five years 6,228 6,332 4.41% 8,855 8,966 4.43%
----------------------------------- ----------------------------------
8,852 8,978 4.43% 10,194 10,313 4.43%
Other 60 60 60 60
------------------------ -----------------------
Total investment securities $ 23,910 $ 24,036 $ 61,178 $ 61,248
======================== =======================
<CAPTION>
December 31, 1996
HELD TO MATURITY:
Carrying Fair Average
(Amounts in thousands) Value Value Yield*
--------------------------------- -------------------------------------
<S> <C> <C> <C>
U.S. Treasury and agencies:
Within one year $ 23,549 $ 23,573 5.94%
After one but within five years 50,785 50,599 5.66%
-------------------------------------
74,334 74,172 5.75%
Obligations of states and political
subdivisions:
Within one year 1,142 1,143 3.66%
After one but within five years 10,196 10,271 4.43%
-------------------------------------
11,338 11,414 4.35%
Other 60 60
-------------------------
Total investment securities $ 85,732 $ 85,646
=========================
</TABLE>
* Yields on tax exempt securities have not been calculated on a tax
equivalent basis.
<PAGE> 4
Mahoning National Bancorp, Inc.
Form 10-K
Item III - Loan Portfolio - The information required is contained in
Management's Discussion and Analysis on pages 20 through 23 in the 1998
Annual Report to Shareholders, included in this Form 10-K as Exhibit
13, incorporated herein by reference. Potential problem loans at
December 31, 1998, that were not disclosed as nonaccrual, accruing
loans 90 days or more past due or troubled debt restructurings totaled
$3.528 million. These loans represent borrowers with possible credit
problems that may effect the ability of the borrowers to comply with
the present loan repayment terms and result in the disclosure of such
loans pursuant to Item III. C.1. All interest bearing assets have been
disclosed as required under Item III. C.1. or 2.
Item IV - Summary of Loan Loss Experience - The information required is
contained in Management's Discussion and Analysis on pages 22 and 23 in
the 1998 Annual Report to Shareholders, included in this Form 10-K as
Exhibit 13, incorporated herein by reference.
Item V - Deposits - The information required is contained in
Management's Discussion and Analysis on pages 24 and 28 in the 1998
Annual Report to Shareholders, included in this Form 10-K as Exhibit
13, incorporated herein by reference.
Item VI - Return on Equity and Assets - The information required can be
found on page 18 of the 1998 Annual Report to Shareholders, included in
this Form 10-K as Exhibit 13, incorporated herein by reference. In
addition, the average equity to average asset ratio for the previous
five years was as follows:
<TABLE>
<S> <C>
1998 - 11.51%
1997 - 10.56%
1996 - 9.78%
1995 - 9.14%
1994 - 8.67%
</TABLE>
Item VII - Short Term Borrowing - The information required can be found
on page 1 Consolidated Statements of Financial Condition, for year end
balances, and on page 9, Note G - Short Term Borrowings, of the 1998
Annual Report to Shareholders, included in this Form 10-K as Exhibit
13, incorporated herein by reference.
Listed below are the names, ages, positions held and terms in office
for the Registrant's executive officers and their positions held with
the sole subsidiary, The Mahoning National Bank of Youngstown. The
executive officers of the Registrant and the subsidiary serve at the
direction of the Board of Directors, and are elected annually by the
Board of Directors of the appropriate entity.
Gregory L. Ridler
Age - 52
Current Positions - Chairman of the Board, President and Chief
Executive Officer of Mahoning National Bancorp, Inc. (1992).
President and Chief Executive Officer of Mahoning National
Bank (1989).
<PAGE> 5
Mahoning National Bancorp, Inc.
Form 10-K
Norman E. Benden, Jr.
Age - 40
Current Positions - Secretary and Treasurer for Mahoning
National Bancorp, Inc. (1998). Senior Vice President and Chief
Financial Officer of Mahoning National Bank(1996).
Previous five year experience - Treasurer for Mahoning
National Bancorp, Inc. (1992) Senior Vice President and
Comptroller of Mahoning National Bank (1994).
ITEM 2. PROPERTIES
The main office of the Registrant and its sole subsidiary, Mahoning
National, is a thirteen-story office building located at 23 Federal
Plaza in Youngstown, Ohio. Mahoning National owns both the land and the
building at this location. The Registrant and Mahoning National occupy,
and use for banking business 81,521 square feet of the approximately
182,000 square feet of usable space. The remainder of the building is
leased to business and professional tenants.
The Campbell branch office of Mahoning National is located at 809
McCartney Road, Campbell, Ohio. This 3,600 square foot office is used
strictly for banking services. Mahoning National owns both the land and
building at this location.
The South and Midlothian branch of Mahoning National is located at 525
E. Midlothian, Youngstown, Ohio. This 3,400 square foot office is used
strictly for banking services. Mahoning National owns both the land and
building at this location.
The Kinsman branch office of Mahoning National is located at 8222 Main
Street, Kinsman, Ohio. This 4,680 square foot office is used strictly
for banking services. Mahoning National owns both the land and building
at this location.
The Brookfield branch office of Mahoning National is located at 579
Bedford Road, Brookfield, Ohio. This 3,700 square foot office is used
strictly for banking services. Mahoning National owns both the land and
the building at this location.
The South & 224 branch office of Mahoning National, a 3,460 square foot
office located at 7235 South Avenue, Youngstown, Ohio is used strictly
for banking services. Mahoning National owns the building but leases
the land at this location. The lease on the land at South & 224 expires
on 05/31/04 with two 5 year options.
The Boardman branch office of Mahoning National is located at 711
Boardman-Canfield Road, Boardman, Ohio. This 3,500 square foot office
is used strictly for banking services. Mahoning National owns both the
land and building at this location.
The Canfield branch office of Mahoning National is located at 11 Manor
Hill Drive, Canfield, Ohio. This 3,100 square foot office is used
strictly for banking services. Mahoning National owns both the land and
building at this location.
The Austintown branch office of Mahoning National Bank located at 6010
Mahoning Avenue was constructed in the fourth quarter of 1998. This
3,600 square foot office is used strictly for banking services.
Mahoning National owns both the land and building at this location. In
January 1999, the Company consolidated its Jackson Milton and Wedgewood
branch offices into the Austintown branch office.
<PAGE> 6
Mahoning National Bancorp, Inc.
Form 10-K
The Registrant's subsidiary, Mahoning National maintains an additional
twelve banking offices which are located in Mahoning and Trumbull
Counties in northeastern Ohio. All of these locations are leased and
used strictly for banking services.
All of the properties owned or leased by the Registrant's subsidiary
are considered by management to be suitable and adequate for current
operations.
ITEM 3. LEGAL PROCEEDINGS
There is no pending material litigation, other than the ordinary
routine litigation incidental to the business, to which the Registrant
or its subsidiary is a party to or of which any property is subject to.
Further, there are no material proceedings to which any director,
officer or affiliate of the Registrant, or any associate of any such
director, officer or affiliate is a party adverse to the Registrant or
its subsidiary.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders of the Registrant
during the fourth quarter of 1998.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Market Information:
Effective January 5, 1998, the Company's common shares were listed on
The Nasdaq Stock Market under the symbol "MGNB". Currently the
following four brokerage firms serve as market makers for the Company's
common stock: McDonald & Company Securities, Inc., Sandler O'Neill &
Partners, L.P., F. J. Morrissey & Co., Inc. and Everen Securities, Inc.
The following table lists the high and low sales prices as reported by
The Nasdaq Stock Market for 1998. Prior to January 5, 1998, the
Company's common shares were traded Over-the-Counter, generally in the
Youngstown area. The price information reported for 1997 reflects the
high and low bid prices for the year and does not necessarily reflect
prices in actual transactions.
<TABLE>
<CAPTION>
Quarter 1998 1997
---- ----
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
1st $39.00 $26.00 $22.75 $21.50
2nd 45.50 34.25 22.50 21.50
3rd 44.00 32.00 26.25 22.50
4th 34.50 28.25 33.00 26.00
</TABLE>
For additional information on the Company's common stock and related
stockholder matters refer to Note-L on pages 11 and 12 of the 1998
Annual Report to Shareholders, included in this Form 10-K as Exhibit
13, incorporated herein by reference.
<PAGE> 7
Mahoning National Bancorp, Inc.
Form 10-K
Holders of Registrant's Stock:
At the close of business on January 31, 1999 there were approximately
1,544 stockholders of record of Mahoning National Bancorp, Inc. common
stock.
Dividend Information:
The following table lists the frequency and amount of cash dividends
declared in the past two years. While the Company expects comparable
cash dividends will be paid in the future, they will be dependent upon
earnings, financial condition of the Company and other business
factors.
<TABLE>
<CAPTION>
Quarter
1998 1997
---- ----
<S> <C> <C>
1st $0.21 $0.16
2nd 0.21 0.16
3rd 0.21 0.16
4th 0.26 0.21
</TABLE>
The dividend payout ratio of the Registrant for the past five years was
as follows:
<TABLE>
<S> <C>
1998 = 40.45%
1997 = 33.59%
1996 = 30.66%
1995 = 29.09%
1994 = 29.07%
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data for each of the five years in the period
ending December 31, 1998 can be found on page 18 in the 1998 Annual
Report to Shareholders, included in this Form 10-K as Exhibit 13,
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This information is contained on pages 20 through 29 in the 1998 Annual
Report to Shareholders, included in this Form 10-K as Exhibit 13,
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This information is contained on pages 28 and 29 in the 1998 Annual
Report to Shareholders, included in this Form 10-K as Exhibit 13,
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements, Notes to Consolidated Financial
Statements, and the Report of Independent Auditors can be found on
pages 1 through 16 of the 1998 Annual Report to Shareholders, included
in this Form 10-K as Exhibit 13, incorporated herein by reference.
<PAGE> 8
Mahoning National Bancorp, Inc.
Form 10-K
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the caption "Election of Directors and
Information with Respect to Directors and Officers" on pages 2 and 3 of
the Notice of Annual Meeting and Proxy Statement, included in this Form
10-K as Exhibit 99(a), is incorporated herein by reference.
The executive officers of the Registrant are listed under Item 1 of
this document.
Compliance with Section 16(a) of the Securities Exchange Act of 1934.
The information pertaining to compliance with Section 16(a) of
the Securities Exchange Act of 1934 can be found on page 11 of
the Notice of Annual Meeting and Proxy Statement, included in
this Form 10-K as Exhibit 99(a), incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information pertaining to executive compensation can be found on
pages 6 through 10 of the Notice of Annual Meeting and Proxy Statement,
included in this Form 10-K as Exhibit 99(a), incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security ownership of certain beneficial owners.
None
(b) Security ownership of management.
The information pertaining to security ownership of management
can be found on page 4 of the Notice of Annual Meeting and
Proxy Statement, included in this Form 10-K as Exhibit 99(a),
incorporated herein by reference.
The following details the security ownership of the executive
officers of the Registrant:
Norman E. Benden, Jr. - 3,482 shares of common stock
(.055% of class)
(c) Changes in control.
There are no contracts or arrangements known to the
Registrant, that at a subsequent date, could result in a
change in control of the Registrant.
<PAGE> 9
Mahoning National Bancorp, Inc.
Form 10-K
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTION
The information pertaining to certain relationships and related
transactions can be found under the caption "Transactions with
Management" on page 11 of the Notice of Annual Meeting and Proxy
Statement, included in this Form 10-K as Exhibit 99(a), incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
The following consolidated financial statements of the
Registrant appear on pages 1 through 16 of the Registrant's
1998 Annual Report to Shareholders, Exhibit 13 to this Form
10-K, and are incorporated herein by reference:
Consolidated Statements of Financial Condition -
December 31, 1998 and 1997
Consolidated Statements of Income -
Three years ended December 31, 1998
Consolidated Statements of Changes in
Stockholders' Equity -
Three years ended December 31, 1998
Consolidated Statements of Cash Flows -
Three years ended December 31, 1998
Notes to Consolidated Financial Statements
Report of Independent Auditors
2. Financial Statement Schedules:
Schedules normally required of Form 10-K are omitted since the
required information is not applicable, not deemed material or
is shown in the respective consolidated financial statements
or notes thereto.
(b) 1. Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant during the
fourth quarter of 1998.
(c) 1. Exhibits:
(2) Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession. Not applicable.
(3a) The Articles of Incorporation of Mahoning National
Bancorp, Inc., filed on the Registrant's Form S-4,
File # 33-45045 effective February 11, 1992, in
addition Form 8-K, dated March 21, 1995,
Certificate of Amendment by Shareholders to the
Articles of Incorporation of Mahoning National
Bancorp, Inc., and Form 8-K, dated March 19, 1996,
Certificate of Amendment by Shareholders to the
Articles of Incorporation of Mahoning National
Bancorp, Inc., and Amendment of Article Fourth of
the Articles of Incorporation of Mahoning National
Bancorp, Inc., is incorporated herein by
reference.
<PAGE> 10
Mahoning National Bancorp, Inc.
Form 10-K
(3b) The Bylaws of Mahoning National Bancorp, Inc.,
filed on the Registrant's Form S-4, File #33-45045
effective February 11, 1992, is incorporated
herein by reference.
(4) Instruments defining the Rights of Security
Holders, Including Indentures, filed on the
Registrant's Form S-4, File #33-45045 effective
February 11, 1992, is incorporated herein by
reference.
(9) Voting Trust Agreement
Not applicable.
(10) Material Contracts:
(10a) Change-In-Control Protective Agreement
between Mahoning National Bancorp, Inc., and
Norman E. Benden, Jr. - Secretary and
Treasurer (Mahoning National Bancorp, Inc.),
Senior Vice President and Chief Financial
Officer (Mahoning National Bank of
Youngstown), filed with the Registrant's
Form 10-Q dated June 30, 1997, is
incorporated herein by reference.
(10b) Change-In-Control Protective Agreement
between Mahoning National Bancorp, Inc., and
Gregory L. Ridler - Chairman of the Board,
President and Chief Executive Officer
(Mahoning National Bancorp, Inc.), President
and Chief Executive Officer (Mahoning
National Bank of Youngstown), filed with the
Registrant's Form 10-Q dated June 30, 1997,
is incorporated herein by reference.
(10c) Change-In-Control Protective Agreement
between Mahoning National Bancorp, Inc., and
Karen R. DeSalvo - Vice President -
Marketing (Mahoning National Bank of
Youngstown), filed with the Registrant's
Form 10-Q dated June 30, 1997, is
incorporated herein by reference.
(10d) Change-In-Control Protective Agreement
between Mahoning National Bancorp, Inc., and
Martha Drabiski - Vice President, Auditor
and Compliance Officer (Mahoning National
Bank of Youngstown), filed with the
Registrant's Form 10-Q dated September 30,
1998 is incorporated herein by reference.
(10e) Change-In-Control Protective Agreement
between Mahoning National Bancorp, Inc., and
Frank Hierro - Senior Vice President
(Mahoning National Bank of Youngstown),
filed with the Registrant's Form 10-Q dated
June 30, 1997, is incorporated herein by
reference.
(10f) Change-In-Control Protective Agreement
between Mahoning National Bancorp, Inc., and
Dexter Hollen - Vice President
<PAGE> 11
Mahoning National Bancorp, Inc.
Form 10-K
(Mahoning National Bank of Youngstown),
filed with the Registrant's Form 10-Q dated
June 30, 1997, is incorporated herein by
reference.
(10g) Change-In-Control Protective Agreement
between Mahoning National Bancorp, Inc., and
John R. Lewis - Senior Vice President
(Mahoning National Bank of Youngstown),
filed with the Registrant's Form 10-Q dated
June 30, 1997, is incorporated herein by
reference.
(10h) Change-In-Control Protective Agreement
between Mahoning National Bancorp, Inc., and
J. David Sabine - Senior Vice President and
Senior Trust Officer (Mahoning National Bank
of Youngstown), filed with the Registrant's
Form 10-Q dated June 30, 1997, is
incorporated herein by reference.
(10i) Change-In-Control Protective Agreement
between Mahoning National Bancorp, Inc., and
David E. Westerburg - Senior Vice President
(Mahoning National Bank of Youngstown),
filed with the Registrant's Form 10-Q dated
June 30, 1997, is incorporated herein by
reference.
(10j) Change-In-Control Protective Agreement
between Mahoning National Bancorp, Inc., and
Donna J. Mowrey - Vice President Human
Resources (Mahoning National Bank of
Youngstown), filed with the Registrant's
Form 10-K dated December 31, 1997, is
incorporated herein by reference.
(10k) Supplemental Executive Retirement Plan
between Mahoning National Bank of Youngstown
and Gregory L. Ridler, originally filed with
the Registrant's Form 10-K dated December
31, 1995, was amended and refiled with the
Registrant's Form 10-Q dated June 30, 1997,
and is incorporated herein by reference.
(10l) Split Dollar Life Insurance Plan between
Mahoning National Bank and Gregory L. Ridler
filed with the Registrant's Form 10-Q dated
June 30, 1997, is incorporated herein by
reference.
(10m) Executive Phantom Stock Bonus Plan, as
amended December 14, 1998, between The
Mahoning National Bank of Youngstown and
Norman E. Benden, Jr., included in this form
as Exhibit 10(m), is incorporated herein by
reference.
(10n) Executive Phantom Stock Bonus Plan, as
amended December 14, 1998, between The
<PAGE> 12
Mahoning National Bancorp, Inc.
Form 10-K
Mahoning National Bank of Youngstown and
Frank Hierro, included in this form as
Exhibit 10(n), is incorporated herein by
reference.
(10o) Executive Phantom Stock Bonus Plan, as
amended December 14, 1998, between The
Mahoning National Bank of Youngstown and
Gregory L. Ridler, included in this form as
Exhibit 10(o), is incorporated herein by
reference.
(10p) Executive Phantom Stock Bonus Plan, as
amended December 14, 1998, between The
Mahoning National Bank of Youngstown and
David E. Westerburg, included in this form
as Exhibit 10(p), is incorporated herein by
reference.
(10q) Executive Deferred Cash Bonus Plan between
The Mahoning National Bank of Youngstown and
Parker T. McHenry, filed with the
Registrant's Form 10-Q dated September 30,
1997, is incorporated herein by reference.
(11) Statement Regarding Computation of Per Share
Earnings.
The necessary information can be found under
Note A-12 of the Notes to Consolidated
Financial Statements on page 6 of the 1998
Annual Report to Shareholders, included in
this Form 10-K as Exhibit 13, incorporated
herein by reference.
(12) Statement Regarding Computation of Ratios.
Not applicable.
(13) 1998 Annual Report to Shareholders.
(16) Letter Regarding Change in Certifying
Accountant. Not applicable.
(18) Letter Regarding Change in Accounting
Principles Not applicable.
(21) Subsidiaries of the Registrant.
(22) Published Report Regarding Matters Submitted
to Vote of Security Holders. Not applicable.
(23) Consents of Experts and Counsel. Not
applicable.
(24) Power of Attorney. Not applicable.
<PAGE> 13
Mahoning National Bancorp, Inc.
Form 10-K
(27) Financial Data Schedule.
(28) Information from Reports Furnished to State
Insurance Regulatory Authorities. Not
applicable.
(99) Additional Exhibits.
(a) The Registrant's Notice of Annual Meeting
and Proxy Statement dated March 16, 1999.
<PAGE> 14
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on the 16th day of March,
1999.
MAHONING NATIONAL BANCORP, INC.
(Registrant)
/s/ Gregory L. Ridler
------------------------------
GREGORY L. RIDLER
President
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on the 16th day of March, 1999.
/s/ Norman E. Benden, Jr. /s/ Gregory L. Ridler
- -------------------------------------- ------------------------------------
Norman E. Benden, Jr. - Secretary and Gregory L. Ridler
Treasurer (Principal Financial and Chairman of the Board,
Accounting Officer) President and Chief Executive Officer
/s/ William J. Bresnahan /s/ Warren P. Williamson, III
- -------------------------------------- ------------------------------------
William J. Bresnahan - Director Warren P. Williamson, III- Director
/s/ Daniel B. Roth /s/ Charles J. McCrudden, Jr.
- -------------------------------------- ------------------------------------
Daniel B. Roth - Director Charles J. McCrudden, Jr.- Director
<PAGE> 15
Mahoning National Bancorp, Inc.
Form 10-K
EXHIBIT INDEX
Exhibit
Number
10(m) Executive Phantom Stock Bonus Plan (as Amended December 14, 1998)-
Norman E. Benden, Jr.
10(n) Executive Phantom Stock Bonus Plan (as Amended December 14, 1998)-
Frank Hierro
10(o) Executive Phantom Stock Bonus Plan (as Amended December 14, 1998)-
Gregory L. Ridler
10(p) Executive Phantom Stock Bonus Plan (as Amended December 14, 1998)-David
E. Westerburg
13 1998 Annual Report to Shareholders
21 Subsidiaries of the Registrant
27 Financial Data Schedule
99(a) Registrant's Notice of Annual Meeting and Proxy Statement dated
March 16, 1999
<PAGE> 1
MAHONING NATIONAL BANCORP, INC.
FORM 10-K
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K
Exhibit 10 Material Contracts (10m)
Executive Phantom Stock Bonus Plan
as Amended December 14, 1998
Norman E. Benden, Jr.
<PAGE> 2
EXHIBIT 10(m)
THE MAHONING NATIONAL BANK OF YOUNGSTOWN
EXECUTIVE PHANTOM STOCK BONUS PLAN
1998 AMENDMENT TO AGREEMENT
WITH NORMAN E. BENDEN, JR.
This 1998 Amendment modifies the agreement (the "Agreement") that The
Mahoning National Bank of Youngstown restated with Norman E. Benden, Jr. (the
"Executive") on September 15, 1997 pursuant to The Mahoning National Bank of
Youngstown Executive Phantom Stock Bonus Plan (the "Plan").
WHEREAS, the parties to the Agreement mutually desire to amend its
vesting schedule and its provision for distributing benefits upon a change in
corporate control.
NOW, THEREFORE, pursuant to Article IX(c) of the Plan, the undersigned
agree to amend the Agreement as follows, effective immediately on execution
hereof.
1. Article VI of the Plan shall be amended by revising, in its
entirety, Schedule "A" (which is referenced therein). The version of Schedule
"A" that was attached to the Agreement is accordingly superseded, and shall be
replaced by the version of Schedule "A" that is attached to this 1998 Amendment.
2. Article VII(a) of the Plan shall be amended by revising the first
sentence of its second paragraph to provide as follows, with italics herein
highlighting new text:
In order to be effective with respect to the timing of distributions,
the Executive's Election Form must be submitted to the Bank either more
than one year before the date on which the Executive's service with the
Bank terminates for any reason or within 30 days of the Plan's
Effective Date (or more than 90 days before a Change in Control,
provided the Executive files a duly executed "Special Election of
Payment Method after a Change in Control" in the form attached hereto
as Schedule "B").
3. Nothing contained herein shall be held to alter, vary or affect any
of the terms, provisions, or conditions of the Plan, other than as stated above.
[SIGNATURE PAGE FOLLOWS]
<PAGE> 3
Executive Phantom Stock Bonus Plan
1998 Amendment
Page 2
WHEREFORE, on this 14TH day of DECEMBER , 1998, the undersigned hereby
execute this 1998 Amendment to the Agreement.
THE MAHONING NATIONAL BANK
Witnessed by: OF YOUNGSTOWN
/s/ Kathleen A. Rish /s/ Daniel B. Roth
-------------------- By ------------------
A duly authorized Director
Witnessed by: EXECUTIVE
/s/ Kathleen A. Rish /s/ Norman E. Benden, Jr.
- -------------------- -------------------------
Norman E. Benden, Jr.
Pursuant to duly adopted resolutions of its Board of Directors, the
undersigned hereby agrees that its Guarantee Agreement with the Executive shall
be amended to guarantee the obligations of The Mahoning National Bank of
Youngstown that are in effect under the Agreement, as amended by this 1998
Amendment.
MAHONING NATIONAL BANCORP,
Witnessed by: INC.
/s/ Kathleen A. Rish /s/ Daniel B. Roth
-------------------- By ------------------
A duly authorized Director
<PAGE> 4
SCHEDULE "A"
(As revised November 16, 1998)
THE MAHONING NATIONAL BANK OF YOUNGSTOWN
EXECUTIVE PHANTOM STOCK BONUS PLAN
-------------------------------------
VESTING SCHEDULE FOR NORMAN E. BENDEN, JR.
-------------------------------------
<TABLE>
<CAPTION>
-------------------------------------------- ------------------------------------------------------
<S> <C>
DATE ON WHICH PHANTOM SHARES VESTING THAT OCCURS, UNLESS MR. BENDEN TERMINATES
WERE CREDITED EMPLOYMENT BEFORE A PARTICULAR VESTING DATE
-------------------------------------------- ------------------------------------------------------
On or before December 31, 1995 100%
-------------------------------------------- ------------------------------------------------------
After December 31, 1995 100% on the third annual anniversary date of the
date on which the award is made; provided that
vesting shall accelerate to 100% on the date of Mr.
Benden's 55th birthday, and all awards made after
that date shall become 100% vested on December 31st
of the year in which the award is made.
-------------------------------------------- ------------------------------------------------------
</TABLE>
<PAGE> 5
SCHEDULE "B"
THE MAHONING NATIONAL BANK OF YOUNGSTOWN
EXECUTIVE PHANTOM STOCK BONUS PLAN
-------------------------------
Special Election of Payment Method
after a Change in Control
-------------------------------
AGREEMENT, made this ____ day of ________, 199__, by and between
______________ (the "Participant") and The Mahoning National Bank of Youngstown
(the "Bank"), with respect to any distribution of the Participant's entire
account ("Account"), under the Bank's Executive Phantom Stock Bonus Plan (the
"Plan"), that occurs on or after a "Change in Control" (within the meaning of
the Plan).
NOW THEREFORE, it is mutually agreed as follows:
1. FORM OF PAYMENT. The Participant's Account shall be distributed in
cash that is paid --
[ ] in one lump sum.
[ ] in substantially equal payments over a period of _____ years
(no more than 15), with interest accruing according to the
Plan, on the unpaid present value of his Account.
2. TIME OF PAYMENT. Distribution of the Participant's Account shall
begin as soon as practicable after --
[ ] a Change in Control closes.
[ ] the January 1st after a Change in Control closes.
[ ] the _________ annual anniversary of the January 1st after a
Change in Control closes.
3. FREQUENCY OF PAYMENT. The Participant shall receive installment
payments, if elected as a form of payment, on a ______ monthly, ______
quarterly, _____ semi-annual, or _____ annual basis.
<PAGE> 6
Executive Phantom Stock Bonus Plan
Special Election Form
for Change in Control
Page 2
4. FORM OF PAYMENT TO BENEFICIARY. In the event of the Participant's
death, any unpaid balance credited to his Account shall be distributed to his
designated beneficiary --
[ ] in one lump sum payment, determined in the manner described
in paragraph 1 hereof.
[ ] in accordance with the payment schedule selected in paragraphs
1, 2, and 3 hereof (with payments made as though the
Participant survived to collect all benefits, and as though the
Participant terminated service on the date of his death, if
payments had not already begun).
5. DESIGNATION OF BENEFICIARY. In the event of the Participant's death
before he has collected all of the benefits payable under the Plan, the
Participant hereby directs that any amounts unpaid under the Plan be distributed
to the beneficiary or beneficiaries designated under subparagraphs a and b of
this paragraph 5 in the manner elected pursuant to paragraph 4 above:
a. PRIMARY BENEFICIARY. The Participant hereby designates the person(s)
named below to be his primary beneficiary and to receive the balance of any
unpaid benefits under the Plan:
<TABLE>
<CAPTION>
<S> <C> <C>
============================== ===================================== ===========================
Name of Percentage of
Primary Beneficiary Mailing Address Death Benefit
------------------------------ -------------------------------------- --------------------------
%
------------------------------ -------------------------------------- --------------------------
%
============================== ===================================== ===========================
</TABLE>
b. CONTINGENT BENEFICIARY. In the event that the primary beneficiary or
beneficiaries named above are not living at the time of the Participant's death,
the Participant hereby designates the following person(s) to be his contingent
beneficiary for purposes of the Plan:
<TABLE>
<CAPTION>
<S> <C> <C>
============================== ===================================== ===========================
Name of Percentage of
Contingent Beneficiary Mailing Address Death Benefit
------------------------------ -------------------------------------- --------------------------
%
------------------------------ ------------------------------------- ---------------------------
%
============================== ===================================== ===========================
</TABLE>
6. EFFECT OF ELECTION. The elections made in paragraphs 1, 2, and 3
hereof shall become irrevocable on the date 90 days before the closing of a
Change in Control. The Participant may at any time and from time to time change
his designation of, and manner of payment to, a beneficiary. Such election
shall, however, become irrevocable upon the Participant's death.
<PAGE> 7
Executive Phantom Stock Bonus Plan
Special Election Form
for Change in Control
Page 3
7. MUTUAL COMMITMENTS. The Bank agrees to make payment of all amounts
due the Participant in accordance with the terms of the Plan and the elections
made by the Participant herein. The Participant agrees to be bound by the terms
of the Plan, as in effect on the date hereof and as properly amended hereafter.
The parties recognize and agree that this Agreement supersedes and nullifies any
prior distribution election to the extent it is inconsistent herewith.
IN WITNESS WHEREOF, the parties hereto acknowledge that each has
carefully read this Agreement and executed the originals thereof on the day and
year first above-written.
PARTICIPANT
Witnessed by:
- ------------------------ ------------------------------
THE MAHONING NATIONAL BANK OF
YOUNGSTOWN
Witnessed by:
By
- ------------------------ Its-------------------------
-------------------------
<PAGE> 8
EXECUTIVE PHANTOM STOCK BONUS PLAN
As Restated effective September 15, 1997
AGREEMENT made this 15th day of September, 1997 (the "Effective Date"),
restates and supersedes an agreement entered into on the 19th day of November,
1993 between The Mahoning National Bank of Youngstown (hereinafter referred to
as the "Bank"), and Mr. Norman E. Benden, Jr. (hereinafter referred to as
"Executive").
In consideration of the mutual covenants, terms, conditions, and
agreements herein contained the parties hereby agree to enter into this
Executive Phantom Stock Bonus Plan (hereinafter sometimes referred to as the
"Plan"), as follows:
ARTICLE I
PURPOSES
The purposes of this Plan are: (a) to enable the Bank to retain the
Executive in its employ; and (b) to reward the Executive for the time and effort
he expends in his job and for the success achieved.
ARTICLE II
DEFINITIONS
The terms used in this Plan shall have the following meanings:
(a) "Aggregate Phantom Stock Account Value" shall mean the sum of the
Phantom Stock Account Value plus all distributions made to the
Executive pursuant to Article VII, Section (c), prior to the date said
Executive terminates his employment with the Bank.
(b) "Change in Control" shall mean:
(i) the acquisition of ownership, holding or power to vote more than
30% of the Bank's or the Company's voting stock; or
(ii) the acquisition of the ability to control the election of a
majority of the Bank's or the Company's directors; or
(iii) the acquisition of a controlling influence over the management or
policies of the Bank or the Company by any person or by persons acting
as a "group" (within the meaning of Section 13(d) of the Securities
Exchange Act of 1934); or
1
<PAGE> 9
(iv) during any period of two consecutive years, individuals (the
"Continuing Directors") who at the beginning of such period constitute
the Board of Directors of the Bank or the Company (the "Existing
Board") cease for any reason to constitute at least two-thirds thereof,
provided that any individual whose election or nomination for election
as a member of the Existing Board was approved by a vote of at least
two-thirds of the Continuing Directors then in office shall be
considered a Continuing Director.
Notwithstanding the foregoing, in the case of (i), (ii) and (iii)
hereof, ownership or control of the Bank by the Company itself shall
not constitute a Change in Control. For purposes of this paragraph
only, the term "person" refers to an individual or a corporation,
partnership, trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization or any other form of entity
not specifically listed herein.
Notwithstanding the foregoing, no trust department or other designated
fiduciary or other trustee of such trust department of the Bank or a
subsidiary of the Bank, or other similar fiduciary capacity of the Bank
with direct voting control of the stock shall be included or
considered. Further, no profit-sharing, employee stock ownership,
employee stock purchase and savings, employee pension, or other
employee benefit plan of the Bank or any of its subsidiaries, and no
trustee of any such plan in its capacity as such trustee, shall be
included or considered.
(c) "Change-in-Control Account Value" shall equal the sum of (i) the Net
Vested Account Value reasonably estimated as of the closing date of the
Change in Control, and (ii) the present value, which shall in no event
be less than zero, of the difference between (a) and (b) hereof,
assuming a discount at the current long-term applicable federal rate,
compounded monthly, for a period of 15 years.
(a) The future value determined by assuming that the Net
Vested Account Value determined in accordance with clause (i)
above appreciates for 15 years at a rate equal to 8%.
(b) The future value determined by assuming that the Net
Vested Account Value determined in accordance with clause (i)
above appreciates for 15 years at a rate equal to the current
long-term applicable federal rate (compounded monthly).
(d) "Committee" means the members of the Executive Committee of the Board
of Directors of the Bank who are not participants in this Plan.
(e) "Common Stock" and/or "Shares" shall mean shares of common stock of
Mahoning National Bancorp, Inc.
(f) "Election Form" shall mean the form attached hereto as Exhibit "A-1".
2
<PAGE> 10
(g) "Holding Company" means Mahoning National Bancorp, Inc., which owns all
of the issued and outstanding shares of Bank.
(h) "Net Vested Account Value" shall mean the Vested Account Value minus
the aggregate of all distributions to the Participant pursuant to
Article VII, Section (c).
(i) "Permanent Disability" shall mean a situation in which the Executive is
permanently physically or mentally unable to perform his customary
and/or required duties at the Bank. The determination as to whether or
not an Executive is permanently disabled shall be made by the
Committee, and such determination shall be conclusive. Provided,
however, if the Executive is disabled for purposes of the Bank's
disability insurance plan, he shall be conclusively determined to be
disabled under this Plan.
(j) "Phantom Stock Account Value" means the number of Phantom Shares
credited to a Participant's account multiplied by the average fair
market value, over the 10 business days preceding the date of any
valuation, of the Common Stock of Mahoning National Bancorp, Inc.
Notwithstanding the foregoing, in the event of the sale or merger of
the Holding Company, the sale or merger price of the Common Stock shall
determine the Executive's Phantom Stock Account Value.
(k) "Retirement" means a severance from the employment of the Bank under
the Bank's qualified benefit plan as constituted at present or as may
be amended hereafter.
(l) "Salary" and/or "Pay" shall mean the Executive's annual base
compensation, but does not include other compensation, including, but
not limited to hospitalization, pension benefits, etc.
(m) "Termination Date" means the date of Executive's severance from
employment with the Bank by reason of death, disability, retirement,
resignation, or otherwise.
(n) "Vested Account Value" shall equal the Aggregate Phantom Stock Account
Value multiplied by the applicable Vesting Percentage set forth in
Schedule A attached hereto.
(o) "Vesting Percentage" shall mean that percentage listed on Schedule A,
which is attached hereto, which corresponds with the age of the
Executive, at any given time. However, advances and or changes in the
vesting schedule with respect to a change in the age of the Executive
shall be made only on December 31 of each calendar year during which
Executive attained the stated age.
3
<PAGE> 11
ARTICLE III
ADMINISTRATION
(a) The complete and sole administration of this Plan is the responsibility
of those members of the Committee who are not Participants. No member
of the Committee shall be liable for any act done or determination made
in good faith.
(b) The construction and interpretation by the Committee of any provisions
of this Plan shall be final and conclusive. The Committee shall
determine, from time to time, subject to the provisions of this Plan,
the Executives who shall participate in the Plan (sometimes hereinafter
called "Participants").
(c) The Committee may, at its discretion, delegate its duties to the
outside auditors of the Bank, but may not delegate its authority to
apply or interpret the provisions of this Plan or to make
determinations specified in Section (b) of this Article III.
ARTICLE IV
ESTABLISHMENT OF PHANTOM STOCK ACCOUNT
The Bank shall set up an appropriate record (hereinafter called the
"Phantom Stock Account") in the name of each Executive under the Plan, and shall
record all activities of this agreement in the respective Phantom Stock Accounts
of each Executive.
ARTICLE V
CREDITS TO ACCOUNTS OF EXECUTIVES
(a) As of December 31st of each year that the Executive is a full-time
employee of the Bank, the Bank shall credit a number of Phantom Shares
of the Holding Company to the account of each Executive. The number of
Phantom Shares to be credited each year shall be determined by dividing
the Bank's contribution by the fair market value of the Holding
Company's Common Stock as of the date of crediting (December 31). The
contribution by the Bank each year shall be a percentage of the
Executive's salary as determined by the return on equity of the Bank
for the year pursuant to a schedule to be established by the Committee
no later than the close of the first quarter of that year.
The ultimate computation of the number of Phantom Shares to be credited
each year will be determined by interpolation for performance between
the three levels established (i.e., threshold, target, and
distinguished), and return on equity will be calculated after projected
expense attributable to the incentive pay out. Determination of the
number of Phantom Shares shall be solely by the Committee and shall be
final and binding on all parties. Provided, however, if the ROE is
below the threshold for the year, then no crediting based on a
percentage of pay for the year shall be made.
4
<PAGE> 12
(b) So long as this Plan remains in effect, the Bank shall credit each
Participant's account in the special ledger throughout the term of his
employment with the Bank. Phantom Shares equivalent to dividends
payable in cash or property paid from time to time on issued and
outstanding shares of Common Stock, so that the amount of each such
credit will be equivalent to dividends which the Participant would have
received had he been the owner of the number of shares of Common Stock
equal to the number of Phantom Shares in his account. No such credit
shall be made with respect to any dividend paid after a Participant's
termination of employment or after any date of termination of this
Plan, even though the record date is prior thereto.
(c) In the event of any stock dividend on the Common Stock or any split-up
or combination of shares of the Common Stock, appropriate adjustments
shall be made by the Committee in the aggregate number of Phantom
Shares in the account of the Participant. However, the Committee shall
not be required to establish any fractional Phantom Shares.
(d) On or before January 31st of each year, the Bank shall provide to each
Executive a detail of his Phantom Share Account as of December 31 of
the previous year. This detail shall include the number of Phantom
Shares in the Executive's account, and the Net Vested Account Value.
ARTICLE VI
VESTING
So long as the Executive remains an employee of the Bank, he shall
continue to advance in the vesting schedule attached as Schedule A. Upon the
Executive's termination of employment with the Bank, he shall be permanently
vested according to the percentage given on Schedule A on the same line as his
age on the date of his termination of employment. Provided, however, if the
Executive, while in the employ of the Bank, dies or becomes permanently
disabled, he shall become permanently 100% vested. Moreover, if a Change in
Control shall occur while the Executive remains in the employ of the Bank, the
Executive shall also become permanently 100% vested.
ARTICLE VII
PAYMENTS OF BENEFITS
(a) Upon termination of any Participant's employment with the Bank, there
shall be paid to him, or in the event of his death to his beneficiary
or beneficiaries designated under Section (b) of this Article VII, an
amount equal to the Net Vested Account Value of such Participant,
determined in accordance with the valuation formula set forth in
Article II, Section (j) as of the date of termination of employment of
such Participant. Such amounts will be reduced by any amounts required
by law to be withheld by the Bank. Such amounts with interest at the
rate of eight percent (8%) per annum shall be distributed in the manner
elected by the Executive on an Election Form accepted by the
5
<PAGE> 13
Bank. The Executive may elect (1) to begin receiving distributions from
his account on either the first day of the second month after
termination of service with the Bank or the first day of second month
of the calendar year immediately after termination of service with the
Bank and (2) to receive his benefits in either a lump-sum or in
substantially equal monthly installments over a period up to 15 years.
In order to be effective with respect to the timing of distributions,
the Executive's Election Form must be submitted to the Bank either more
than one year before the date on which the Executive's service with the
Bank terminates for any reason or within 30 days of the Plan's
Effective Date. In the absence of a validly completed Election Form,
the Executive's account shall be paid in 60 substantially equal monthly
payments beginning on the first day of the second month after
termination of service with the Bank.
(b) Each person shall file an Election Form with the Bank's Employee
Benefits Plan Administrator designating one or more beneficiaries to
whom payments otherwise due the Executive shall be made in the event of
his death while in the employ of the Bank or after termination
therefrom. The beneficiary or beneficiaries so designated shall be one
or more persons or entities, including a trust or estate, other than
his creditors, or the creditors of his estate, or an entity in which
any of the foregoing may have an interest. The Executive shall have the
right to change the beneficiary or beneficiaries from time to time
whether before or after termination of employment; provided, however,
that any change shall not become effective until an Election Form is
received by the Employee Benefits Plan Administrator.
If the Executive dies before receiving all amounts payable of his Net
Vested Account Value, then the remaining balance of the Executive's
account shall be distributed in a lump sum to the Executive's
designated beneficiary (or estate, in the absence of a validly named or
living beneficiary) as soon as administratively practicable following
the Executive's death; provided that the Executive may direct on an
Election Form that any death benefits payable pursuant to this
Agreement shall instead be distributed over a distribution period that
effectuates the monthly installment payments selected by the Executive
(with payments made as though the Executive survived to collect all
payments, and terminated service on the date of his death if payments
had not previously begun).
(c) At the time of the college education of a child of an Executive, an
amount of money equal to the actual expenses associated with such
child's education may, upon application of the Executive, be disbursed
for such purposes by the Committee, in the Committee's sole discretion,
from the Net Vested Account Value of the Executive's Phantom Stock
Account.
6
<PAGE> 14
ARTICLE VIII
RESTRICTIONS UPON FUNDING
(a) The Bank shall have no obligation to set aside, earmark or entrust any
fund or money with which to pay its obligations under this Agreement.
The Executive, his beneficiaries or any successor in interest to him
shall be and remain simply a general creditor of the Bank in the same
manner as any other creditor having a general claim for matured and
unpaid compensation.
(b) Subject to subsection (d) hereof, the Bank reserves the absolute right
in its sole discretion to either fund the obligations undertaken by
this Agreement or to refrain from funding the same and to determine the
extent, nature, and method of such funding. Should the Bank elect to
fund this Agreement, in whole or in part, through the purchase of life
insurance, mutual funds, disability policies or annuities, the Bank
reserves the absolute right, in its sole discretion, to terminate such
funding at any time, in whole or in part. At no time shall Executive be
deemed to have any lien nor right, title or interest in or to any
specific funding investment or to any assets of the Bank.
(c) If Bank elects to invest in a life insurance, disability or annuity
policy upon the life of Executive, then Executive shall assist the Bank
by freely submitting to a physical exam and supplying such additional
information necessary to obtain such insurance or annuities.
(d) Not later than ten business days before the closing date of a Change in
Control, the Bank shall --
(i) deposit in a grantor trust (the "Trust") that is designed in
accordance with Revenue Procedure 92-64 and has a trustee independent
of the Bank and the Company an amount equal to the Change-in-Control
Account Value, unless the Executive has previously provided a written
release of any claims under this Agreement, and
(ii) provide the trustee of the Trust with a written direction to hold
said amount and any investment return thereon in a segregated account
for the benefit of the Executive, and to follow the payment schedule to
be provided by the Executive, based on this Agreement and the
Executive's Election Form, as to the payment of amounts from the Trust.
Upon the Trust's final payment of all amounts due under this Section
(d) of Article VIII, the trustee of the Trust shall pay to the Bank the
entire balance remaining in the segregated account maintained for the
benefit of the Executive. The Executive shall thereafter have no
further interest in the Trust.
7
<PAGE> 15
ARTICLE IX
MISCELLANEOUS
(a) Neither Executive, his widow nor any other beneficiary under this
Agreement shall have any power or right to transfer, assign,
anticipate, hypothecate, mortgage, commute, modify or otherwise
encumber in advance any of the benefits payable hereunder, nor shall
any of said benefits be subject to seizure for the payment of any
debts, judgments, alimony or separate maintenance owed by the Executive
or his beneficiary, nor be transferable by operation of law in the
event of bankruptcy, insolvency or otherwise. In the event Executive or
any beneficiary attempts assignment, commutation, hypothecation,
transfer or disposal of the benefits hereunder, the Bank's liabilities
shall forthwith cease and terminate. However, in such event, the
Committee may, in its sole discretion, from time to time, make payments
of amounts which would otherwise be due the Executive hereunder, to
such Executive.
(b) The Bank expressly agrees that it shall not merge or consolidate into
or with another Bank or sell substantially all of its assets to another
corporation, firm or person until such corporation, firm or person
expressly agrees, in writing, to assume and discharge the duties and
obligations of the Bank under this Agreement. This Agreement shall be
binding upon the parties hereto, their successors, beneficiaries, heirs
and personal representatives.
(c) It is agreed by and between the parties hereto that, during the
lifetime of the Executive, this Agreement may be amended or revoked at
any time or times, in whole or in part, by the mutual written assent of
the Executive and the Bank.
(d) Whenever in this Agreement words are used in the masculine or neuter
gender, they shall be read and construed as in the masculine, feminine
or neuter gender, whenever they should so apply.
(e) Nothing contained in this Agreement shall affect the right of the
Executive to participate in or be covered by any qualified or
non-qualified pension, profit sharing, group, bonus or other
supplemental compensation or fringe benefit plan constituting a part of
the Bank's existing or future compensation structure.
(f) Headings and Subheadings in this Agreement are inserted for reference
and convenience only and shall not be deemed a part of this Agreement.
(g) The validity and interpretation of this Agreement shall be governed by
the laws of the State of Ohio.
8
<PAGE> 16
ARTICLE X
ERISA PROVISIONS
(a) The "Named Fiduciary and Plan Administrator" of this Plan shall be the
Bank's Employee Benefits Plan Administrator until his resignation or
removal by the Committee. As named Fiduciary and Administrator, the
Employee Benefits Plan Administrator shall be responsible for the
management, control and administration of the Executive Phantom Stock
Bonus Plan as established herein. He may delegate to others certain
aspects of the management and operation responsibilities of the Plan
including the employment of advisors and the delegation of ministerial
duties to qualified individuals.
(b) In the event that benefits under this Plan Agreement are not paid to
the Executive (or to his beneficiary in the case of the Executive's
death) and such claimants feel they are entitled to receive such
benefits, then a written claim must be made to the Named Fiduciary and
Plan Administrator named above within sixty (60) days from the date
payments are refused. The Named Fiduciary and Plan Administrator and
the Bank shall review the written claim and if the claim is denied, in
whole or in part, they shall provide in writing within ninety (90) days
of receipt of such claim their specific reasons for such denial,
reference to the provisions of this Agreement upon which the denial is
based and any additional material or information necessary to perfect
the claim. Such written notice shall further indicate the additional
steps to be taken by claimants for a further review of the claim denial
if the Named Fiduciary and Plan Administrator fails to take any actions
within the aforesaid ninety-day period.
If claimants desire a second review, they shall notify the Named
Fiduciary and Plan Administrator in writing within sixty (60) days of
the first claim denial. Claimants may review the Plan Agreement or any
documents relating thereto and submit any written issues and comments
they may feel appropriate. In its sole discretion, the Named Fiduciary
and Plan Administrator shall then review the second claim and provide a
written decision within sixty (60) days of receipt of such claim. This
decision shall likewise state the specific reasons for the decision,
and shall include reference to specific provisions of the Plan
Agreement upon which the decision is based.
If claimants continue to dispute the benefit denial based upon
completed performance of the Agreement or the meaning and effect of the
terms and conditions thereof, then claimants may submit the dispute to
a Board of Arbitration for final arbitration. Said Board shall consist
of one member selected by the claimant, one member selected by the Bank
and the third member selected by the first two members. The Board shall
operate under any generally recognized set of arbitration rules. The
parties hereto agree that they and their heirs, personal
representatives, successors and assigns shall be bound by the decision
of such Board with respect to any controversy properly submitted to it
for determination.
9
<PAGE> 17
ARTICLE XI
REIMBURSEMENT OF EXECUTIVE FOR ENFORCEMENT PROCEEDINGS
In the event that any dispute arises between the Executive and the Bank
as to the terms or interpretation of this Agreement, whether instituted by
formal legal proceedings or otherwise, including any action that the Executive
takes to defend against any action taken by the Bank or the Company, the Bank
shall reimburse the Executive for all costs and expenses, including reasonable
attorneys' fees, arising from such dispute, proceedings or actions, provided
that the Executive obtains either a written settlement or a final judgement by a
court of competent jurisdiction substantially in his favor. Such reimbursement
shall be paid within ten days of Executive's furnishing to the Bank written
evidence, which may be in the form, among other things, of a cancelled check or
receipt, of any costs or expenses incurred by the Executive.
10
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto acknowledge that each has
carefully read this Agreement and executed the originals thereof on the day and
year first hereinabove written.
ATTEST: THE MAHONING NATIONAL BANK
OF YOUNGSTOWN
/s/ Richard E. Davies /s/ Daniel B. Roth
--------------------- By -------------------------
Its SVP and Cashier Its duly authorized Director
WITNESS:
/s/ Sandra L. Douglas /s/ Norman E. Benden, Jr.
--------------------- -------------------------
Norman E. Benden, Jr.
11
<PAGE> 19
SCHEDULE "A"
THE MAHONING NATIONAL BANK OF YOUNGSTOWN
EXECUTIVE PHANTOM STOCK BONUS PLAN
Vesting Schedule for Norman E. Benden, Jr.
<TABLE>
<CAPTION>
- ---------------------------------------- ------------------------------------- -------------------------------------
Age on 12/31 Preceding Termination of Retirement & Death, Permanent
Employment Termination Disability
Vesting Schedule or Change in Control
- ---------------------------------------- ------------------------------------- -------------------------------------
<S> <C> <C>
35 4.8% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
36 9.6% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
37 14.4% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
38 19.2% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
39 24.0% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
40 28.8% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
41 33.6% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
42 38.4% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
43 43.2% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
44 48.0% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
45 52.8% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
46 57.6% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
47 62.4% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
48 67.2% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
49 72% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
50 76.8% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
51 81.6% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
52 86.4% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
53 91.2% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
54 96% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
55 and over 100% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
</TABLE>
<PAGE> 20
EXHIBIT "A-1"
THE MAHONING NATIONAL BANK OF YOUNGSTOWN
EXECUTIVE PHANTOM STOCK BONUS PLAN
-------------------------------
ELECTION FORM
-------------------------------
AGREEMENT, made this ____ day of ________, 19__, by and between the
undersigned executive (the "Executive") and The Mahoning National Bank of
Youngstown (the "Bank") with respect to distribution of the benefits pursuant to
The Mahoning National Bank of Youngstown Executive Phantom Stock Bonus Plan (the
"Plan") entered into by the parties on September 15, 1997.
NOW THEREFORE, it is mutually agreed as follows:
1. FORM OF PAYMENT. The Executive elects to have his account
distributed as follows:
____ in one lump sum payment.
____ in substantially equal monthly payments over a period
of _____ years (no more than 15).
The Executive must make this election either at least one year before
terminating his service with the Bank or by October 15, 1997 in order for it to
be valid and supersede a prior election.
2. The Executive elects to have distributions from his account begin:
____ on the first day of the second month immediately
following the date in which the Executive ceases
service with the Bank.
____ on the first day of the second month of the calendar
year immediately following the year in which the
Executive ceases service with the Bank.
3. In the event of the Executive's death, his account shall be
distributed:
____ in one lump sum payment.
____ in accordance with the payment schedule selected in
paragraph 1 hereof (with payments made as though the
Executive survived to collect all benefits, and as
though the Executive terminated service on the date
of his death, if payments had not already begun).
<PAGE> 21
Election Form
Page 2
4. PRIMARY BENEFICIARY. The Executive hereby designates the person(s)
named below to be his primary beneficiary and to receive any distributions that
become payable, after the Executive's death, under the Plan:
<TABLE>
<CAPTION>
<S> <C> <C>
============================== ===================================== ===========================
Name of Mailing Address Percentage of
Primary Beneficiary Death Benefit
------------------------------ ------------------------------------- ---------------------------
%
------------------------------ ------------------------------------- ---------------------------
%
============================== ===================================== ===========================
</TABLE>
5. CONTINGENT BENEFICIARY. In the event that the primary beneficiary or
beneficiaries named above are not living at the time any distributions become
payable to them under the Plan, the Executive hereby designates the following
person(s) to be his contingent beneficiary:
<TABLE>
<CAPTION>
<S> <C> <C>
============================== ===================================== ===========================
Name of Mailing Address Percentage of
Contingent Beneficiary Death Benefit
------------------------------ ------------------------------------- ---------------------------
%
------------------------------ ------------------------------------- ---------------------------
%
============================== ===================================== ===========================
</TABLE>
6. EFFECT OF ELECTION. The elections made in paragraph 1 hereof shall
become IRREVOCABLE one year prior to the Executive's termination of service. The
Executive may, by submitting an effective superseding Election Form at any time
and from time to time, prospectively change the beneficiary designation and the
manner of payment to a beneficiary. Such elections shall, however, become
irrevocable upon the Executive's death.
7. MUTUAL COMMITMENTS. The Bank agrees to make payment of all amounts
due the Executive in accordance with the terms of the Plan regarding the
elections made by the Executive herein. The Executive agrees to be bound by the
terms of the Plan, as in effect on the date hereof or properly amended
hereafter.
<PAGE> 22
Election Form
Page 3
IN WITNESS WHEREOF, the parties hereto acknowledge that each has
carefully read this Agreement and executed the originals thereof on the day and
year first hereinabove written.
ATTEST: THE MAHONING NATIONAL BANK
OF YOUNGSTOWN
By
- ------------------- ---------------------------
Its SVP and Cashier Its duly authorized Director
WITNESS:
- ------------------- -------------------------------------
Executive
<PAGE> 1
MAHONING NATIONAL BANCORP, INC.
FORM 10-K
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K
Exhibit 10 Material Contracts (10n)
Executive Phantom Stock Bonus Plan
as Amended December 14, 1998
Frank Hierro
<PAGE> 2
Exhibit 10(n)
THE MAHONING NATIONAL BANK OF YOUNGSTOWN
EXECUTIVE PHANTOM STOCK BONUS PLAN
1998 AMENDMENT TO AGREEMENT
WITH FRANK HIERRO
This 1998 Amendment modifies the agreement (the "Agreement") that The
Mahoning National Bank of Youngstown restated with Frank Hierro (the
"Executive") on September 15, 1997 pursuant to The Mahoning National Bank of
Youngstown Executive Phantom Stock Bonus Plan (the "Plan").
WHEREAS, the parties to the Agreement mutually desire to amend its
vesting schedule and its provision for distributing benefits upon a change in
corporate control.
NOW, THEREFORE, pursuant to Article IX(c) of the Plan, the undersigned
agree to amend the Agreement as follows, effective immediately on execution
hereof.
1. Article VI of the Plan shall be amended by revising, in its
entirety, Schedule "A" (which is referenced therein). The version of Schedule
"A" that was attached to the Agreement is accordingly superseded, and shall be
replaced by the version of Schedule "A" that is attached to this 1998 Amendment.
2. Article VII(a) of the Plan shall be amended by revising the first
sentence of its second paragraph to provide as follows, with italics herein
highlighting new text:
In order to be effective with respect to the timing of distributions,
the Executive's Election Form must be submitted to the Bank either more
than one year before the date on which the Executive's service with the
Bank terminates for any reason or within 30 days of the Plan's
Effective Date (or more than 90 days before a Change in Control,
provided the Executive files a duly executed "Special Election of
Payment Method after a Change in Control" in the form attached hereto
as Schedule "B").
3. Nothing contained herein shall be held to alter, vary or affect any
of the terms, provisions, or conditions of the Plan, other than as stated above.
[Signature page follows]
<PAGE> 3
Executive Phantom Stock Bonus Plan
1998 Amendment
Page 2
WHEREFORE, on this 14th day of DECEMBER, 1998, the undersigned hereby
execute this 1998 Amendment to the Agreement.
THE MAHONING NATIONAL BANK
Witnessed by : OF YOUNGSTOWN
/s/ Norman E. Benden, Jr. By /s/ Daniel B. Roth
- ------------------------------ ------------------------------
A duly authorized Director
EXECUTIVE
Witnessed by:
/s/ Frank Hierro
------------------------------
Frank Hierro
/s/ Norman E. Benden, Jr.
- ------------------------------
Pursuant to duly adopted resolutions of its Board of Directors, the
undersigned hereby agrees that its Guarantee Agreement with the Executive shall
be amended to guarantee the obligations of The Mahoning National Bank of
Youngstown that are in effect under the Agreement, as amended by this 1998
Amendment.
MAHONING NATIONAL BANCORP,
Witnessed by: INC.
/s/ Norman E. Benden, Jr. By /s/ Daniel B. Roth
- ------------------------------ ------------------------------
A duly authorized Director
<PAGE> 4
SCHEDULE "A"
(As revised November 16, 1998)
THE MAHONING NATIONAL BANK OF YOUNGSTOWN
EXECUTIVE PHANTOM STOCK BONUS PLAN
-------------------------------------
Vesting Schedule for Frank Hierro
-------------------------------------
<TABLE>
<CAPTION>
<S> <C>
-------------------------------------------- ------------------------------------------------------
DATE ON WHICH PHANTOM SHARES VESTING THAT OCCURS, UNLESS MR. HIERRO
TERMINATES EMPLOYMENT BEFORE A
PARTICULAR VESTING DATE
-------------------------------------------- ------------------------------------------------------
On or before December 31, 1995 100%
-------------------------------------------- ------------------------------------------------------
After December 31, 1995 100% on the third annual anniversary date
of the date on which the award is made;
provided that vesting shall accelerate to
100% on the date of Mr. Hierro's 55th
birthday, and all awards made after that date
shall become 100% vested on December
31st of the year in which the award is made.
-------------------------------------------- ------------------------------------------------------
</TABLE>
<PAGE> 5
SCHEDULE "B"
THE MAHONING NATIONAL BANK OF YOUNGSTOWN
EXECUTIVE PHANTOM STOCK BONUS PLAN
-------------------------------
Special Election of Payment Method
after a Change in Control
-------------------------------
AGREEMENT, made this ____ day of ________, 199__, by and between
______________ (the "Participant") and The Mahoning National Bank of Youngstown
(the "Bank"), with respect to any distribution of the Participant's entire
account ("Account"), under the Bank's Executive Phantom Stock Bonus Plan (the
"Plan"), that occurs on or after a "Change in Control" (within the meaning of
the Plan).
NOW THEREFORE, it is mutually agreed as follows:
1. FORM OF PAYMENT. The Participant's Account shall be distributed in
cash that is paid --
[ ] in one lump sum.
[ ] in substantially equal payments over a period of _____
years (no more than 15), with interest accruing
according to the Plan, on the unpaid present value of
his Account.
2. TIME OF PAYMENT. Distribution of the Participant's Account shall
begin as soon as practicable after --
[ ] a Change in Control closes.
[ ] the January 1st after a Change in Control closes.
[ ] the _________ annual anniversary of the January 1st after
a Change in Control closes.
3. FREQUENCY OF PAYMENT. The Participant shall receive installment
payments, if elected as a form of payment, on a ______ monthly, ______
quarterly, _____ semi-annual, or _____ annual basis.
<PAGE> 6
Executive Phantom Stock Bonus Plan
Special Election Form
for Change in Control
Page 2
4. FORM OF PAYMENT TO BENEFICIARY. In the event of the Participant's
death, any unpaid balance credited to his Account shall be distributed to his
designated beneficiary --
[ ] in one lump sum payment, determined in the manner
described in paragraph 1 hereof.
[ ] in accordance with the payment schedule selected in
paragraphs 1, 2, and 3 hereof (with payments made as
though the Participant survived to collect all benefits,
and as though the Participant terminated service on the
date of his death, if payments had not already begun).
5. DESIGNATION OF BENEFICIARY. In the event of the Participant's death
before he has collected all of the benefits payable under the Plan, the
Participant hereby directs that any amounts unpaid under the Plan be distributed
to the beneficiary or beneficiaries designated under subparagraphs a and b of
this paragraph 5 in the manner elected pursuant to paragraph 4 above:
a. PRIMARY BENEFICIARY. The Participant hereby designates the
person(s) named below to be his primary beneficiary and to receive the balance
of any unpaid benefits under the Plan:
<TABLE>
<CAPTION>
<S> <C> <C>
============================== ===================================== ===========================
Name of Percentage of
Primary Beneficiary Mailing Address Death Benefit
------------------------------ ------------------------------------- ---------------------------
%
------------------------------ ------------------------------------- ---------------------------
%
============================== ===================================== ===========================
</TABLE>
b. CONTINGENT BENEFICIARY. In the event that the primary beneficiary
or beneficiaries named above are not living at the time of the Participant's
death, the Participant hereby designates the following person(s) to be his
contingent beneficiary for purposes of the Plan:
<TABLE>
<CAPTION>
<S> <C> <C>
============================== ===================================== ===========================
Name of Percentage of
Contingent Beneficiary Mailing Address Death Benefit
------------------------------ ------------------------------------- ---------------------------
%
------------------------------ ------------------------------------- ---------------------------
%
=============================== ===================================== ==========================
</TABLE>
6. EFFECT OF ELECTION. The elections made in paragraphs 1, 2, and 3
hereof shall become irrevocable on the date 90 days before the closing of a
Change in Control. The Participant may at any time and from time to time change
his designation of, and manner of payment to, a beneficiary. Such election
shall, however, become irrevocable upon the Participant's death.
<PAGE> 7
Executive Phantom Stock Bonus Plan
Special Election Form
for Change in Control
Page 3
7. MUTUAL COMMITMENTS. The Bank agrees to make payment of all amounts
due the Participant in accordance with the terms of the Plan and the elections
made by the Participant herein. The Participant agrees to be bound by the terms
of the Plan, as in effect on the date hereof and as properly amended hereafter.
The parties recognize and agree that this Agreement supersedes and nullifies any
prior distribution election to the extent it is inconsistent herewith.
IN WITNESS WHEREOF, the parties hereto acknowledge that each has
carefully read this Agreement and executed the originals thereof on the day and
year first above-written.
PARTICIPANT
Witnessed by:
- ------------------------------ ------------------------------
THE MAHONING NATIONAL BANK OF
YOUNGSTOWN
Witnessed by:
By
Its
- ------------------------------ ------------------------------
------------------------------
<PAGE> 8
EXECUTIVE PHANTOM STOCK BONUS PLAN
As Restated effective September 15, 1997
AGREEMENT made this 15th day of September, 1997 (the "Effective Date"),
restates and supersedes an agreement entered into on the 19th day of November,
1993 between The Mahoning National Bank of Youngstown (hereinafter referred to
as the "Bank"), and Mr. Frank Hierro (hereinafter referred to as "Executive").
In consideration of the mutual covenants, terms, conditions, and
agreements herein contained the parties hereby agree to enter into this
Executive Phantom Stock Bonus Plan (hereinafter sometimes referred to as the
"Plan"), as follows:
ARTICLE I
PURPOSES
The purposes of this Plan are: (a) to enable the Bank to retain the
Executive in its employ; and (b) to reward the Executive for the time and effort
he expends in his job and for the success achieved.
ARTICLE II
DEFINITIONS
The terms used in this Plan shall have the following meanings:
(a) "Aggregate Phantom Stock Account Value" shall mean the sum of the
Phantom Stock Account Value plus all distributions made to the
Executive pursuant to Article VII, Section (c), prior to the date said
Executive terminates his employment with the Bank.
(b) "Change in Control" shall mean:
(i) the acquisition of ownership, holding or power to vote more than
30% of the Bank's or the Company's voting stock; or
(ii) the acquisition of the ability to control the election of a
majority of the Bank's or the Company's directors; or
1
<PAGE> 9
(iii) the acquisition of a controlling influence over the management or
policies of the Bank or the Company by any person or by persons acting
as a "group" (within the meaning of Section 13(d) of the Securities
Exchange Act of 1934); or
(iv) during any period of two consecutive years, individuals (the
"Continuing Directors") who at the beginning of such period constitute
the Board of Directors of the Bank or the Company (the "Existing
Board") cease for any reason to constitute at least two-thirds thereof,
provided that any individual whose election or nomination for election
as a member of the Existing Board was approved by a vote of at least
two-thirds of the Continuing Directors then in office shall be
considered a Continuing Director.
Notwithstanding the foregoing, in the case of (i), (ii) and (iii)
hereof, ownership or control of the Bank by the Company itself shall
not constitute a Change in Control. For purposes of this paragraph
only, the term "person" refers to an individual or a corporation,
partnership, trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization or any other form of entity
not specifically listed herein.
Notwithstanding the foregoing, no trust department or other designated
fiduciary or other trustee of such trust department of the Bank or a
subsidiary of the Bank, or other similar fiduciary capacity of the Bank
with direct voting control of the stock shall be included or
considered. Further, no profit-sharing, employee stock ownership,
employee stock purchase and savings, employee pension, or other
employee benefit plan of the Bank or any of its subsidiaries, and no
trustee of any such plan in its capacity as such trustee, shall be
included or considered.
(c) "Change-in-Control Account Value" shall equal the sum of (i) the Net
Vested Account Value reasonably estimated as of the closing date of the
Change in Control, and (ii) the present value, which shall in no event
be less than zero, of the difference between (a) and (b) hereof,
assuming a discount at the current long-term applicable federal rate,
compounded monthly, for a period of 15 years.
(a) The future value determined by assuming that the Net Vested
Account Value determined in accordance with clause (i) above
appreciates for 15 years at a rate equal to 8%.
(b) The future value determined by assuming that the Net Vested
Account Value determined in accordance with clause (i) above
appreciates for 15 years at a rate equal to the current
long-term applicable federal rate (compounded monthly).
(d) "Committee" means the members of the Executive Committee of the Board
of Directors of the Bank who are not participants in this Plan.
(e) "Common Stock" and/or "Shares" shall mean shares of common stock of
Mahoning National Bancorp, Inc.
2
<PAGE> 10
(f) "Election Form" shall mean the form attached hereto as Exhibit "A-1".
(g) "Holding Company" means Mahoning National Bancorp, Inc., which owns all
of the issued and outstanding shares of Bank.
(h) "Net Vested Account Value" shall mean the Vested Account Value minus
the aggregate of all distributions to the Participant pursuant to
Article VII, Section (c).
(i) "Permanent Disability" shall mean a situation in which the Executive is
permanently physically or mentally unable to perform his customary
and/or required duties at the Bank. The determination as to whether or
not an Executive is permanently disabled shall be made by the
Committee, and such determination shall be conclusive. Provided,
however, if the Executive is disabled for purposes of the Bank's
disability insurance plan, he shall be conclusively determined to be
disabled under this Plan.
(j) "Phantom Stock Account Value" means the number of Phantom Shares
credited to a Participant's account multiplied by the average fair
market value, over the 10 business days preceding the date of any
valuation, of the Common Stock of Mahoning National Bancorp, Inc.
Notwithstanding the foregoing, in the event of the sale or merger of
the Holding Company, the sale or merger price of the Common Stock shall
determine the Executive's Phantom Stock Account Value.
(k) "Retirement" means a severance from the employment of the Bank under
the Bank's qualified benefit plan as constituted at present or as may
be amended hereafter.
(l) "Salary" and/or "Pay" shall mean the Executive's annual base
compensation, but does not include other compensation, including, but
not limited to hospitalization, pension benefits, etc.
(m) "Termination Date" means the date of Executive's severance from
employment with the Bank by reason of death, disability, retirement,
resignation, or otherwise.
(n) "Vested Account Value" shall equal the Aggregate Phantom Stock Account
Value multiplied by the applicable Vesting Percentage set forth in
Schedule A attached hereto.
(o) "Vesting Percentage" shall mean that percentage listed on Schedule A,
which is attached hereto, which corresponds with the age of the
Executive, at any given time. However, advances and or changes in the
vesting schedule with respect to a change in the age of the Executive
shall be made only on December 31 of each calendar year during which
Executive attained the stated age.
3
<PAGE> 11
ARTICLE III
ADMINISTRATION
(a) The complete and sole administration of this Plan is the responsibility
of those members of the Committee who are not Participants. No member
of the Committee shall be liable for any act done or determination made
in good faith.
(b) The construction and interpretation by the Committee of any provisions
of this Plan shall be final and conclusive. The Committee shall
determine, from time to time, subject to the provisions of this Plan,
the Executives who shall participate in the Plan (sometimes hereinafter
called "Participants").
(c) The Committee may, at its discretion, delegate its duties to the
outside auditors of the Bank, but may not delegate its authority to
apply or interpret the provisions of this Plan or to make
determinations specified in Section (b) of this Article III.
ARTICLE IV
ESTABLISHMENT OF PHANTOM STOCK ACCOUNT
The Bank shall set up an appropriate record (hereinafter called the
"Phantom Stock Account") in the name of each Executive under the Plan, and shall
record all activities of this agreement in the respective Phantom Stock Accounts
of each Executive.
ARTICLE V
CREDITS TO ACCOUNTS OF EXECUTIVES
(a) As of December 31st of each year that the Executive is a full-time
employee of the Bank, the Bank shall credit a number of Phantom Shares
of the Holding Company to the account of each Executive. The number of
Phantom Shares to be credited each year shall be determined by dividing
the Bank's contribution by the fair market value of the Holding
Company's Common Stock as of the date of crediting (December 31). The
contribution by the Bank each year shall be a percentage of the
Executive's salary as determined by the return on equity of the Bank
for the year pursuant to a schedule to be established by the Committee
no later than the close of the first quarter of that year.
The ultimate computation of the number of Phantom Shares to be credited
each year will be determined by interpolation for performance between
the three levels established (i.e., threshold, target, and
distinguished), and return on equity will be calculated after projected
expense attributable to the incentive pay out. Determination of the
number of Phantom Shares shall be solely by the Committee and shall be
final and binding on all parties. Provided, however, if the ROE is
below the threshold for the year, then no crediting based on a
percentage of pay for the year shall be made.
4
<PAGE> 12
(b) So long as this Plan remains in effect, the Bank shall credit each
Participant's account in the special ledger throughout the term of his
employment with the Bank. Phantom Shares equivalent to dividends
payable in cash or property paid from time to time on issued and
outstanding shares of Common Stock, so that the amount of each such
credit will be equivalent to dividends which the Participant would have
received had he been the owner of the number of shares of Common Stock
equal to the number of Phantom Shares in his account. No such credit
shall be made with respect to any dividend paid after a Participant's
termination of employment or after any date of termination of this
Plan, even though the record date is prior thereto.
(c) In the event of any stock dividend on the Common Stock or any split-up
or combination of shares of the Common Stock, appropriate adjustments
shall be made by the Committee in the aggregate number of Phantom
Shares in the account of the Participant. However, the Committee shall
not be required to establish any fractional Phantom Shares.
(d) On or before January 31st of each year, the Bank shall provide to each
Executive a detail of his Phantom Share Account as of December 31 of
the previous year. This detail shall include the number of Phantom
Shares in the Executive's account, and the Net Vested Account Value.
ARTICLE VI
VESTING
So long as the Executive remains an employee of the Bank, he shall
continue to advance in the vesting schedule attached as Schedule A. Upon the
Executive's termination of employment with the Bank, he shall be permanently
vested according to the percentage given on Schedule A on the same line as his
age on the date of his termination of employment. Provided, however, if the
Executive, while in the employ of the Bank, dies or becomes permanently
disabled, he shall become permanently 100% vested. Moreover, if a Change in
Control shall occur while the Executive remains in the employ of the Bank, the
Executive shall also become permanently 100% vested.
ARTICLE VII
PAYMENTS OF BENEFITS
(a) Upon termination of any Participant's employment with the Bank, there
shall be paid to him, or in the event of his death to his beneficiary
or beneficiaries designated under Section (b) of this Article VII, an
amount equal to the Net Vested Account Value of such Participant,
determined in accordance with the valuation formula set forth in
Article II, Section (j) as of the date of termination of employment of
such Participant. Such amounts will be reduced by any amounts required
by law to be withheld by the Bank. Such amounts with interest at the
rate of eight percent (8%) per annum shall be distributed in the manner
elected by the Executive on an Election Form accepted by the
5
<PAGE> 13
Bank. The Executive may elect (1) to begin receiving distributions from
his account on EITHER the first day of the second month after
termination of service with the Bank or the first day of second month
of the calendar year immediately after termination of service with the
Bank and (2) to receive his benefits in either a lump-sum or in
substantially equal monthly installments over a period up to 15 years.
In order to be effective with respect to the timing of distributions,
the Executive's Election Form must be submitted to the Bank EITHER more
than one year before the date on which the Executive's service with the
Bank terminates for any reason or within 30 days of the Plan's
Effective Date. In the absence of a validly completed Election Form,
the Executive's account shall be paid in 60 substantially equal monthly
payments beginning on the first day of the second month after
termination of service with the Bank.
(b) Each person shall file an Election Form with the Bank's
Employee Benefits Plan Administrator designating one or more
beneficiaries to whom payments otherwise due the Executive
shall be made in the event of his death while in the employ of
the Bank or after termination therefrom. The beneficiary or
beneficiaries so designated shall be one or more persons or
entities, including a trust or estate, other than his
creditors, or the creditors of his estate, or an entity in
which any of the foregoing may have an interest. The Executive
shall have the right to change the beneficiary or
beneficiaries from time to time whether before or after
termination of employment; provided, however, that any change
shall not become effective until an Election Form is received
by the Employee Benefits Plan Administrator.
If the Executive dies before receiving all amounts payable of
his Net Vested Account Value, then the remaining balance of
the Executive's account shall be distributed in a lump sum to
the Executive's designated beneficiary (or estate, in the
absence of a validly named or living beneficiary) as soon as
administratively practicable following the Executive's death;
provided that the Executive may direct on an Election Form
that any death benefits payable pursuant to this Agreement
shall instead be distributed over a distribution period that
effectuates the monthly installment payments selected by the
Executive (with payments made as though the Executive survived
to collect all payments, and terminated service on the date of
his death if payments had not previously begun).
(c) At the time of the college education of a child of an
Executive, an amount of money equal to the actual expenses
associated with such child's education may, upon application
of the Executive, be disbursed for such purposes by the
Committee, in the Committee's sole discretion, from the Net
Vested Account Value of the Executive's Phantom Stock Account.
6
<PAGE> 14
ARTICLE VIII
RESTRICTIONS UPON FUNDING
(a) The Bank shall have no obligation to set aside, earmark or entrust any
fund or money with which to pay its obligations under this Agreement.
The Executive, his beneficiaries or any successor in interest to him
shall be and remain simply a general creditor of the Bank in the same
manner as any other creditor having a general claim for matured and
unpaid compensation.
(b) Subject to subsection (d) hereof, the Bank reserves the absolute right
in its sole discretion to either fund the obligations undertaken by
this Agreement or to refrain from funding the same and to determine the
extent, nature, and method of such funding. Should the Bank elect to
fund this Agreement, in whole or in part, through the purchase of life
insurance, mutual funds, disability policies or annuities, the Bank
reserves the absolute right, in its sole discretion, to terminate such
funding at any time, in whole or in part. At no time shall Executive be
deemed to have any lien nor right, title or interest in or to any
specific funding investment or to any assets of the Bank.
(c) If Bank elects to invest in a life insurance, disability or annuity
policy upon the life of Executive, then Executive shall assist the Bank
by freely submitting to a physical exam and supplying such additional
information necessary to obtain such insurance or annuities.
(d) Not later than ten business days before the closing date of a Change in
Control, the Bank shall --
(i) deposit in a grantor trust (the "Trust") that is designed in
accordance with Revenue Procedure 92-64 and has a trustee
independent of the Bank and the Company an amount equal to the
Change-in-Control Account Value, unless the Executive has
previously provided a written release of any claims under this
Agreement, and
(ii) provide the trustee of the Trust with a written direction to
hold said amount and any investment return thereon in a
segregated account for the benefit of the Executive, and to
follow the payment schedule to be provided by the Executive,
based on this Agreement and the Executive's Election Form, as
to the payment of amounts from the Trust.
Upon the Trust's final payment of all amounts due under this Section
(d) of Article VIII, the trustee of the Trust shall pay to the Bank the
entire balance remaining in the segregated account maintained for the
benefit of the Executive. The Executive shall thereafter have no
further interest in the Trust.
7
<PAGE> 15
ARTICLE IX
MISCELLANEOUS
(a) Neither Executive, his widow nor any other beneficiary under this
Agreement shall have any power or right to transfer, assign,
anticipate, hypothecate, mortgage, commute, modify or otherwise
encumber in advance any of the benefits payable hereunder, nor shall
any of said benefits be subject to seizure for the payment of any
debts, judgments, alimony or separate maintenance owed by the Executive
or his beneficiary, nor be transferable by operation of law in the
event of bankruptcy, insolvency or otherwise. In the event Executive or
any beneficiary attempts assignment, commutation, hypothecation,
transfer or disposal of the benefits hereunder, the Bank's liabilities
shall forthwith cease and terminate. However, in such event, the
Committee may, in its sole discretion, from time to time, make payments
of amounts which would otherwise be due the Executive hereunder, to
such Executive.
(b) The Bank expressly agrees that it shall not merge or consolidate into
or with another Bank or sell substantially all of its assets to another
corporation, firm or person until such corporation, firm or person
expressly agrees, in writing, to assume and discharge the duties and
obligations of the Bank under this Agreement. This Agreement shall be
binding upon the parties hereto, their successors, beneficiaries, heirs
and personal representatives.
(c) It is agreed by and between the parties hereto that, during the
lifetime of the Executive, this Agreement may be amended or revoked at
any time or times, in whole or in part, by the mutual written assent of
the Executive and the Bank.
(d) Whenever in this Agreement words are used in the masculine or neuter
gender, they shall be read and construed as in the masculine, feminine
or neuter gender, whenever they should so apply.
(e) Nothing contained in this Agreement shall affect the right of the
Executive to participate in or be covered by any qualified or
non-qualified pension, profit sharing, group, bonus or other
supplemental compensation or fringe benefit plan constituting a part of
the Bank's existing or future compensation structure.
(f) Headings and Subheadings in this Agreement are inserted for reference
and convenience only and shall not be deemed a part of this Agreement.
(g) The validity and interpretation of this Agreement shall be governed by
the laws of the State of Ohio.
8
<PAGE> 16
ARTICLE X
ERISA PROVISIONS
(a) The "Named Fiduciary and Plan Administrator" of this Plan shall be the
Bank's Employee Benefits Plan Administrator until his resignation or
removal by the Committee. As named Fiduciary and Administrator, the
Employee Benefits Plan Administrator shall be responsible for the
management, control and administration of the Executive Phantom Stock
Bonus Plan as established herein. He may delegate to others certain
aspects of the management and operation responsibilities of the Plan
including the employment of advisors and the delegation of ministerial
duties to qualified individuals.
(b) In the event that benefits under this Plan Agreement are not paid to
the Executive (or to his beneficiary in the case of the Executive's
death) and such claimants feel they are entitled to receive such
benefits, then a written claim must be made to the Named Fiduciary and
Plan Administrator named above within sixty (60) days from the date
payments are refused. The Named Fiduciary and Plan Administrator and
the Bank shall review the written claim and if the claim is denied, in
whole or in part, they shall provide in writing within ninety (90) days
of receipt of such claim their specific reasons for such denial,
reference to the provisions of this Agreement upon which the denial is
based and any additional material or information necessary to perfect
the claim. Such written notice shall further indicate the additional
steps to be taken by claimants for a further review of the claim denial
if the Named Fiduciary and Plan Administrator fails to take any actions
within the aforesaid ninety-day period.
If claimants desire a second review, they shall notify the Named
Fiduciary and Plan Administrator in writing within sixty (60) days of
the first claim denial. Claimants may review the Plan Agreement or any
documents relating thereto and submit any written issues and comments
they may feel appropriate. In its sole discretion, the Named Fiduciary
and Plan Administrator shall then review the second claim and provide a
written decision within sixty (60) days of receipt of such claim. This
decision shall likewise state the specific reasons for the decision,
and shall include reference to specific provisions of the Plan
Agreement upon which the decision is based.
If claimants continue to dispute the benefit denial based upon
completed performance of the Agreement or the meaning and effect of the
terms and conditions thereof, then claimants may submit the dispute to
a Board of Arbitration for final arbitration. Said Board shall consist
of one member selected by the claimant, one member selected by the Bank
and the third member selected by the first two members. The Board shall
operate under any generally recognized set of arbitration rules. The
parties hereto agree that they and their heirs, personal
representatives, successors and assigns shall be bound by the decision
of such Board with respect to any controversy properly submitted to it
for determination.
9
<PAGE> 17
ARTICLE XI
REIMBURSEMENT OF EXECUTIVE FOR ENFORCEMENT PROCEEDINGS
In the event that any dispute arises between the Executive and the Bank
as to the terms or interpretation of this Agreement, whether instituted by
formal legal proceedings or otherwise, including any action that the Executive
takes to defend against any action taken by the Bank or the Company, the Bank
shall reimburse the Executive for all costs and expenses, including reasonable
attorneys' fees, arising from such dispute, proceedings or actions, provided
that the Executive obtains either a written settlement or a final judgement by a
court of competent jurisdiction substantially in his favor. Such reimbursement
shall be paid within ten days of Executive's furnishing to the Bank written
evidence, which may be in the form, among other things, of a canceled check or
receipt, of any costs or expenses incurred by the Executive.
10
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto acknowledge that each has
carefully read this Agreement and executed the originals thereof on the day and
year first herein above written.
ATTEST: THE MAHONING NATIONAL BANK
OF YOUNGSTOWN
/s/ Richard E. Davis By /s/ Daniel B. Roth
- ------------------------------ ------------------------------
Its SVP and Cashier Its duly authorized Director
WITNESS:
/s/ Sandra L. Douglas /s/ Frank Hierro
- ------------------------------ ------------------------------
Frank Hierro
11
<PAGE> 19
SCHEDULE "A"
THE MAHONING NATIONAL BANK OF YOUNGSTOWN
EXECUTIVE PHANTOM STOCK BONUS PLAN
Vesting Schedule for Frank Hierro
<TABLE>
<CAPTION>
<S> <C> <C>
- ---------------------------------------- ------------------------------------- -------------------------------------
Age on 12/31 Preceding Retirement & Death, Permanent
Termination of Employment Termination Disability
Vesting Schedule or Change in Control
- ---------------------------------------- ------------------------------------- -------------------------------------
39 5.9% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
40 11.8% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
41 17.7% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
42 23.6% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
43 29.5% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
44 35.4% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
45 41.3% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
46 47.2% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
47 53.1% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
48 59.0% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
49 64.9% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
50 70.8% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
51 76.7% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
52 82.6% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
53 88.5% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
54 94.4% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
55 and over 100% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
</TABLE>
12
<PAGE> 20
EXHIBIT "A-1"
THE MAHONING NATIONAL BANK OF YOUNGSTOWN
EXECUTIVE PHANTOM STOCK BONUS PLAN
-------------------------------
ELECTION FORM
-------------------------------
AGREEMENT, made this ____ day of ________, 19__, by and between the
undersigned executive (the "Executive") and The Mahoning National Bank of
Youngstown (the "Bank") with respect to distribution of the benefits pursuant to
The Mahoning National Bank of Youngstown Executive Phantom Stock Bonus Plan (the
"Plan") entered into by the parties on September 15, 1997.
NOW THEREFORE, it is mutually agreed as follows:
1. FORM OF PAYMENT. The Executive elects to have his account
distributed as follows:
[ ] in one lump sum payment.
[ ] in substantially equal monthly payments over a period of
_____ years (no more than 15).
The Executive must make this election EITHER at least one year before
terminating his service with the Bank or by October 15, 1997 in order for it to
be valid and supersede a prior election.
2. The Executive elects to have distributions from his account begin:
[ ] on the first day of the second month immediately following
the date in which the Executive ceases service with the
Bank.
[ ] on the first day of the second month of the calendar year
immediately following the year in which the Executive
ceases service with the Bank.
3. In the event of the Executive's death, his account shall be
distributed:
[ ] in one lump sum payment.
[ ] in accordance with the payment schedule selected in
paragraph 1 hereof (with payments made as though the
Executive survived to collect all benefits, and as though
the Executive terminated service on the date of his death,
if payments had not already begun).
<PAGE> 21
Election Form
Page 2
4. PRIMARY BENEFICIARY. The Executive hereby designates the person(s)
named below to be his primary beneficiary and to receive any distributions that
become payable, after the Executive's death, under the Plan:
<TABLE>
<CAPTION>
<S> <C> <C>
============================== ===================================== ===========================
Name of Mailing Address Percentage of
Primary Beneficiary Death Benefit
------------------------------ ------------------------------------- ---------------------------
%
------------------------------ ------------------------------------- ---------------------------
%
============================== ===================================== ===========================
</TABLE>
5. CONTINGENT BENEFICIARY. In the event that the primary beneficiary or
beneficiaries named above are not living at the time any distributions become
payable to them under the Plan, the Executive hereby designates the following
person(s) to be his contingent beneficiary:
<TABLE>
<CAPTION>
<S> <C> <C>
============================== ===================================== ===========================
Name of Mailing Address Percentage of
Contingent Beneficiary Death Benefit
------------------------------ ------------------------------------- ---------------------------
%
------------------------------ ------------------------------------- ---------------------------
%
============================== ===================================== ===========================
</TABLE>
6. EFFECT OF ELECTION. The elections made in paragraph 1 hereof shall
become IRREVOCABLE one year prior to the Executive's termination of service. The
Executive may, by submitting an effective superseding Election Form at any time
and from time to time, prospectively change the beneficiary designation and the
manner of payment to a beneficiary. Such elections shall, however, become
irrevocable upon the Executive's death.
7. MUTUAL COMMITMENTS. The Bank agrees to make payment of all amounts
due the Executive in accordance with the terms of the Plan regarding the
elections made by the Executive herein. The Executive agrees to be bound by the
terms of the Plan, as in effect on the date hereof or properly amended
hereafter.
<PAGE> 22
Election Form
Page 3
IN WITNESS WHEREOF, the parties hereto acknowledge that each has
carefully read this Agreement and executed the originals thereof on the day and
year first hereinabove written.
ATTEST: THE MAHONING NATIONAL BANK
OF YOUNGSTOWN
By
- ------------------------------ ------------------------------
Its SVP and Cashier Its duly authorized Director
WITNESS:
- ------------------------------ ------------------------------
Executive
<PAGE> 1
MAHONING NATIONAL BANCORP, INC.
FORM 10-K
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K
Exhibit 10 Material Contracts (10o)
Executive Phantom Stock Bonus Plan
as Amended December 14, 1998
Gregory L. Ridler
<PAGE> 2
Exhibit 10(o)
THE MAHONING NATIONAL BANK OF YOUNGSTOWN
EXECUTIVE PHANTOM STOCK BONUS PLAN
1998 AMENDMENT TO AGREEMENT
WITH GREGORY L. RIDLER
This 1998 Amendment modifies the agreement (the "Agreement") that The
Mahoning National Bank of Youngstown restated with Gregory L. Ridler (the
"Executive") on September 15, 1997 pursuant to The Mahoning National Bank of
Youngstown Executive Phantom Stock Bonus Plan (the "Plan").
WHEREAS, the parties to the Agreement mutually desire to amend its
provision for distributing benefits upon a change in corporate control.
NOW, THEREFORE, pursuant to Article IX(c) of the Plan, the undersigned
agree to amend the Agreement as follows, effective immediately on execution
hereof.
1. Article VII(a) of the Plan shall be amended by revising the first
sentence of its second paragraph to provide as follows, with italics herein
highlighting new text:
In order to be effective with respect to the timing of distributions,
the Executive's Election Form must be submitted to the Bank either more
than one year before the date on which the Executive's service with the
Bank terminates for any reason or within 30 days of the Plan's
Effective Date (or more than 90 days before a Change in Control,
provided the Executive files a duly executed "Special Election of
Payment Method after a Change in Control" in the form attached hereto
as Schedule "B").
2. Nothing contained herein shall be held to alter, vary or affect any
of the terms, provisions, or conditions of the Plan, other than as stated above.
[SIGNATURE PAGE FOLLOWS]
<PAGE> 3
Executive Phantom Stock Bonus Plan
1998 Amendment
Page 2
WHEREFORE, on this 14th day of December, 1998, the undersigned hereby
execute this 1998 Amendment to the Agreement.
THE MAHONING NATIONAL BANK
Witnessed by: OF YOUNGSTOWN
/s/ Norman E. Benden, Jr. By /s/ Daniel B. Roth
- ------------------------------ ------------------------------
A duly authorized Director
Witnessed by: EXECUTIVE
/s/ Norman E. Benden, Jr. /s/ Gregory L. Ridler
- ------------------------------ ------------------------------
Gregory L. Ridler
Pursuant to duly adopted resolutions of its Board of Directors, the
undersigned hereby agrees that its Guarantee Agreement with the Executive shall
be amended to guarantee the obligations of The Mahoning National Bank of
Youngstown that are in effect under the Agreement, as amended by this 1998
Amendment.
MAHONING NATIONAL BANCORP,
INC.
Witnessed by:
/s/ Norman E. Benden, Jr. By /s/ Daniel B. Roth
- ------------------------------ ------------------------------
A duly authorized Director
<PAGE> 4
SCHEDULE "B"
THE MAHONING NATIONAL BANK OF YOUNGSTOWN
EXECUTIVE PHANTOM STOCK BONUS PLAN
-------------------------------
Special Election of Payment Method
after a Change in Control
-------------------------------
AGREEMENT, made this ____ day of ________, 199__, by and between
______________ (the "Participant") and The Mahoning National Bank of Youngstown
(the "Bank"), with respect to any distribution of the Participant's entire
account ("Account"), under the Bank's Executive Phantom Stock Bonus Plan (the
"Plan"), that occurs on or after a "Change in Control" (within the meaning of
the Plan).
NOW THEREFORE, it is mutually agreed as follows:
1. FORM OF PAYMENT. The Participant's Account shall be distributed in
cash that is paid --
[ ] in one lump sum.
[ ] in substantially equal payments over a period of _____
years (no more than 15), with interest accruing according
to the Plan, on the unpaid present value of his Account.
2. TIME OF PAYMENT. Distribution of the Participant's Account shall
begin as soon as practicable after --
[ ] a Change in Control closes.
[ ] the January 1st after a Change in Control closes.
[ ] the _________ annual anniversary of the January 1st after
a Change in Control closes.
3. FREQUENCY OF PAYMENT. The Participant shall receive installment
payments, if elected as a form of payment, on a ______ monthly, ______
quarterly, _____ semi-annual, or _____ annual basis.
<PAGE> 5
Executive Phantom Stock Bonus Plan
Special Election Form
for Change in Control
Page 2
4. FORM OF PAYMENT TO BENEFICIARY. In the event of the Participant's
death, any unpaid balance credited to his Account shall be distributed to his
designated beneficiary --
[ ] in one lump sum payment, determined in the manner
described in paragraph 1 hereof.
[ ] in accordance with the payment schedule selected in
paragraphs 1, 2, and 3 hereof (with payments made as
though the Participant survived to collect all benefits,
and as though the Participant terminated service on the
date of his death, if payments had not already begun).
5. DESIGNATION OF BENEFICIARY. In the event of the Participant's death
before he has collected all of the benefits payable under the Plan, the
Participant hereby directs that any amounts unpaid under the Plan be distributed
to the beneficiary or beneficiaries designated under subparagraphs a and b of
this paragraph 5 in the manner elected pursuant to paragraph 4 above:
a. PRIMARY BENEFICIARY. The Participant hereby designates the
person(s) named below to be his primary beneficiary and to receive the balance
of any unpaid benefits under the Plan:
<TABLE>
<CAPTION>
<S> <C> <C>
============================== ===================================== ===========================
Name of Percentage of
Primary Beneficiary Mailing Address Death Benefit
------------------------------ ------------------------------------- ---------------------------
%
------------------------------ ------------------------------------- ---------------------------
%
============================== ===================================== ===========================
</TABLE>
b. CONTINGENT BENEFICIARY. In the event that the primary beneficiary
or beneficiaries named above are not living at the time of the Participant's
death, the Participant hereby designates the following person(s) to be his
contingent beneficiary for purposes of the Plan:
<TABLE>
<CAPTION>
<S> <C> <C>
============================== ===================================== ===========================
Name of Percentage of
Contingent Beneficiary Mailing Address Death Benefit
------------------------------ ------------------------------------- ---------------------------
%
------------------------------ ------------------------------------- ---------------------------
%
============================== ===================================== ===========================
</TABLE>
6. EFFECT OF ELECTION. The elections made in paragraphs 1, 2, and 3
hereof shall become irrevocable on the date 90 days before the closing of a
Change in Control. The Participant may at any time and from time to time change
his designation of, and manner of payment to, a beneficiary. Such election
shall, however, become irrevocable upon the Participant's death.
<PAGE> 6
Executive Phantom Stock Bonus Plan
Special Election Form
for Change in Control
Page 3
7. MUTUAL COMMITMENTS. The Bank agrees to make payment of all amounts
due the Participant in accordance with the terms of the Plan and the elections
made by the Participant herein. The Participant agrees to be bound by the terms
of the Plan, as in effect on the date hereof and as properly amended hereafter.
The parties recognize and agree that this Agreement supersedes and nullifies any
prior distribution election to the extent it is inconsistent herewith.
IN WITNESS WHEREOF, the parties hereto acknowledge that each has
carefully read this Agreement and executed the originals thereof on the day and
year first above-written.
PARTICIPANT
Witnessed by:
- ------------------------------ ------------------------------
THE MAHONING NATIONAL BANK OF
YOUNGSTOWN
Witnessed by:
By
Its
- ------------------------------ ------------------------------
------------------------------
<PAGE> 7
EXECUTIVE PHANTOM STOCK BONUS PLAN
As Restated effective September 15, 1997
AGREEMENT made this 15th day of September, 1997 (the "Effective Date"),
restates and supersedes an agreement entered into on the 19th day of November,
1993 between The Mahoning National Bank of Youngstown (hereinafter referred to
as the "Bank"), and Mr. Gregory L. Ridler (hereinafter referred to as
"Executive").
In consideration of the mutual covenants, terms, conditions, and
agreements herein contained the parties hereby agree to enter into this
Executive Phantom Stock Bonus Plan (hereinafter sometimes referred to as the
"Plan"), as follows:
ARTICLE I
PURPOSES
The purposes of this Plan are: (a) to enable the Bank to retain the
Executive in its employ; and (b) to reward the Executive for the time and effort
he expends in his job and for the success achieved.
ARTICLE II
DEFINITIONS
The terms used in this Plan shall have the following meanings:
(a) "Aggregate Phantom Stock Account Value" shall mean the sum of the
Phantom Stock Account Value plus all distributions made to the
Executive pursuant to Article VII, Section (c), prior to the date said
Executive terminates his employment with the Bank.
(b) "Change in Control" shall mean:
(i) the acquisition of ownership, holding or power to vote more than
30% of the Bank's or the Company's voting stock; or
(ii) the acquisition of the ability to control the election of a
majority of the Bank's or the Company's directors; or
1
<PAGE> 8
(iii) the acquisition of a controlling influence over the management or
policies of the Bank or the Company by any person or by persons acting
as a "group" (within the meaning of Section 13(d) of the Securities
Exchange Act of 1934); or
(iv) during any period of two consecutive years, individuals (the
"Continuing Directors") who at the beginning of such period constitute
the Board of Directors of the Bank or the Company (the "Existing
Board") cease for any reason to constitute at least two-thirds thereof,
provided that any individual whose election or nomination for election
as a member of the Existing Board was approved by a vote of at least
two-thirds of the Continuing Directors then in office shall be
considered a Continuing Director.
Notwithstanding the foregoing, in the case of (i), (ii) and (iii)
hereof, ownership or control of the Bank by the Company itself shall
not constitute a Change in Control. For purposes of this paragraph
only, the term "person" refers to an individual or a corporation,
partnership, trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization or any other form of entity
not specifically listed herein.
Notwithstanding the foregoing, no trust department or other designated
fiduciary or other trustee of such trust department of the Bank or a
subsidiary of the Bank, or other similar fiduciary capacity of the Bank
with direct voting control of the stock shall be included or
considered. Further, no profit-sharing, employee stock ownership,
employee stock purchase and savings, employee pension, or other
employee benefit plan of the Bank or any of its subsidiaries, and no
trustee of any such plan in its capacity as such trustee, shall be
included or considered.
(c) "Change-in-Control Account Value" shall equal the sum of (i) the Net
Vested Account Value reasonably estimated as of the closing date of the
Change in Control, and (ii) the present value, which shall in no event
be less than zero, of the difference between (a) and (b) hereof,
assuming a discount at the current long-term applicable federal rate,
compounded monthly, for a period of 15 years.
(a) The future value determined by assuming that the Net
Vested Account Value determined in accordance with clause (i)
above appreciates for 15 years at a rate equal to 8%.
(b) The future value determined by assuming that the Net
Vested Account Value determined in accordance with clause (i)
above appreciates for 15 years at a rate equal to the current
long-term applicable federal rate (compounded monthly).
(d) "Committee" means the members of the Executive Committee of the Board
of Directors of the Bank who are not participants in this Plan.
2
<PAGE> 9
(e) "Common Stock" and/or "Shares" shall mean shares of common stock of
Mahoning National Bancorp, Inc..
(f) "Election Form" shall mean the form attached hereto as Exhibit "A-1".
(g) "Holding Company" means Mahoning National Bancorp, Inc., which owns all
of the issued and outstanding shares of Bank.
(h) "Net Vested Account Value" shall mean the Vested Account Value minus
the aggregate of all distributions to the Participant pursuant to
Article VII, Section (c).
(i) "Permanent Disability" shall mean a situation in which the Executive is
permanently physically or mentally unable to perform his customary
and/or required duties at the Bank. The determination as to whether or
not an Executive is permanently disabled shall be made by the
Committee, and such determination shall be conclusive. Provided,
however, if the Executive is disabled for purposes of the Bank's
disability insurance plan, he shall be conclusively determined to be
disabled under this Plan.
(j) "Phantom Stock Account Value" means the number of Phantom Shares
credited to a Participant's account multiplied by the average fair
market value, over the 10 business days preceding the date of any
valuation, of the Common Stock of Mahoning National Bancorp, Inc.
Notwithstanding the foregoing, in the event of the sale or merger of
the Holding Company, the sale or merger price of the Common Stock shall
determine the Executive's Phantom Stock Account Value.
(k) "Retirement" means a severance from the employment of the Bank under
the Bank's qualified benefit plan as constituted at present or as may
be amended hereafter.
(l) "Salary" and/or "Pay" shall mean the Executive's annual base
compensation, but does not include other compensation, including, but
not limited to hospitalization, pension benefits, etc.
(m) "Termination Date" means the date of Executive's severance from
employment with the Bank by reason of death, disability, retirement,
resignation, or otherwise.
(n) "Vested Account Value" shall equal the Aggregate Phantom Stock Account
Value multiplied by the applicable Vesting Percentage set forth in
Schedule A attached hereto.
(o) "Vesting Percentage" shall mean that percentage listed on Schedule A,
which is attached hereto, which corresponds with the age of the
Executive, at any given time. However, advances and or changes in the
vesting schedule with respect to a change in the age of the Executive
shall be made only on December 31 of each calendar year during which
Executive attained the stated age.
3
<PAGE> 10
ARTICLE III
ADMINISTRATION
(a) The complete and sole administration of this Plan is the responsibility
of those members of the Committee who are not Participants. No member
of the Committee shall be liable for any act done or determination made
in good faith.
(b) The construction and interpretation by the Committee of any provisions
of this Plan shall be final and conclusive. The Committee shall
determine, from time to time, subject to the provisions of this Plan,
the Executives who shall participate in the Plan (sometimes hereinafter
called "Participants").
(c) The Committee may, at its discretion, delegate its duties to the
outside auditors of the Bank, but may not delegate its authority to
apply or interpret the provisions of this Plan or to make
determinations specified in Section (b) of this Article III.
ARTICLE IV
ESTABLISHMENT OF PHANTOM STOCK ACCOUNT
The Bank shall set up an appropriate record (hereinafter called the
"Phantom Stock Account") in the name of each Executive under the Plan, and shall
record all activities of this agreement in the respective Phantom Stock Accounts
of each Executive.
ARTICLE V
CREDITS TO ACCOUNTS OF EXECUTIVES
(a) As of December 31st of each year that the Executive is a full-time
employee of the Bank, the Bank shall credit a number of Phantom Shares
of the Holding Company to the account of each Executive. The number of
Phantom Shares to be credited each year shall be determined by dividing
the Bank's contribution by the fair market value of the Holding
Company's Common Stock as of the date of crediting (December 31). The
contribution by the Bank each year shall be a percentage of the
Executive's salary as determined by the return on equity of the Bank
for the year pursuant to a schedule to be established by the Committee
no later than the close of the first quarter of that year.
The ultimate computation of the number of Phantom Shares to be credited
each year will be determined by interpolation for performance between
the three levels established (i.e., threshold, target, and
distinguished), and return on equity will be calculated after projected
expense attributable to the incentive pay out. Determination of the
number of Phantom Shares shall be solely by the Committee and shall be
final and binding on all parties. Provided, however, if the ROE is
below the threshold for the year, then no crediting based on a
percentage of pay for the year shall be made.
4
<PAGE> 11
(b) So long as this Plan remains in effect, the Bank shall credit each
Participant's account in the special ledger throughout the term of his
employment with the Bank. Phantom Shares equivalent to dividends
payable in cash or property paid from time to time on issued and
outstanding shares of Common Stock, so that the amount of each such
credit will be equivalent to dividends which the Participant would have
received had he been the owner of the number of shares of Common Stock
equal to the number of Phantom Shares in his account. No such credit
shall be made with respect to any dividend paid after a Participant's
termination of employment or after any date of termination of this
Plan, even though the record date is prior thereto.
(c) In the event of any stock dividend on the Common Stock or any split-up
or combination of shares of the Common Stock, appropriate adjustments
shall be made by the Committee in the aggregate number of Phantom
Shares in the account of the Participant. However, the Committee shall
not be required to establish any fractional Phantom Shares.
(d) On or before January 31st of each year, the Bank shall provide to each
Executive a detail of his Phantom Share Account as of December 31 of
the previous year. This detail shall include the number of Phantom
Shares in the Executive's account, and the Net Vested Account Value.
ARTICLE VI
VESTING
The Executive shall be permanently 100% vested as exhibited in Schedule
A.
ARTICLE VII
PAYMENTS OF BENEFITS
(a) Upon termination of any Participant's employment with the Bank, there
shall be paid to him, or in the event of his death to his beneficiary
or beneficiaries designated under Section (b) of this Article VII, an
amount equal to the Net Vested Account Value of such Participant,
determined in accordance with the valuation formula set forth in
Article II, Section (j) as of the date of termination of employment of
such Participant. Such amounts will be reduced by any amounts required
by law to be withheld by the Bank. Such amounts with interest at the
rate of eight percent (8%) per annum shall be distributed in the manner
elected by the Executive on an Election Form accepted by the Bank. The
Executive may elect (1) to begin receiving distributions from his
account on either the first day of the second month after termination
of service with the Bank or the first day of second month of the
calendar year immediately after termination of service with the Bank
and (2) to receive his benefits in either a lump-sum or in
substantially equal monthly installments over a period up to 15 years.
5
<PAGE> 12
In order to be effective with respect to the timing of distributions,
the Executive's Election Form must be submitted to the Bank either more
than one year before the date on which the Executive's service with the
Bank terminates for any reason or within 30 days of the Plan's
Effective Date. In the absence of a validly completed Election Form,
the Executive's account shall be paid in 60 substantially equal monthly
payments beginning on the first day of the second month after
termination of service with the Bank.
(b) Each person shall file an Election Form with the Bank's Employee
Benefits Plan Administrator designating one or more beneficiaries to
whom payments otherwise due the Executive shall be made in the event of
his death while in the employ of the Bank or after termination
therefrom. The beneficiary or beneficiaries so designated shall be one
or more persons or entities, including a trust or estate, other than
his creditors, or the creditors of his estate, or an entity in which
any of the foregoing may have an interest. The Executive shall have the
right to change the beneficiary or beneficiaries from time to time
whether before or after termination of employment; provided, however,
that any change shall not become effective until an Election Form is
received by the Employee Benefits Plan Administrator.
If the Executive dies before receiving all amounts payable of his Net
Vested Account Value, then the remaining balance of the Executive's
account shall be distributed in a lump sum to the Executive's
designated beneficiary (or estate, in the absence of a validly named or
living beneficiary) as soon as administratively practicable following
the Executive's death; provided that the Executive may direct on an
Election Form that any death benefits payable pursuant to this
Agreement shall instead be distributed over a distribution period that
effectuates the monthly installment payments selected by the Executive
(with payments made as though the Executive survived to collect all
payments, and terminated service on the date of his death if payments
had not previously begun).
(c) At the time of the college education of a child of an Executive, an
amount of money equal to the actual expenses associated with such
child's education may, upon application of the Executive, be disbursed
for such purposes by the Committee, in the Committee's sole discretion,
from the Net Vested Account Value of the Executive's Phantom Stock
Account.
6
<PAGE> 13
ARTICLE VIII
RESTRICTIONS UPON FUNDING
(a) The Bank shall have no obligation to set aside, earmark or entrust any
fund or money with which to pay its obligations under this Agreement.
The Executive, his beneficiaries or any successor in interest to him
shall be and remain simply a general creditor of the Bank in the same
manner as any other creditor having a general claim for matured and
unpaid compensation.
(b) Subject to subsection (d) hereof, the Bank reserves the absolute right
in its sole discretion to either fund the obligations undertaken by
this Agreement or to refrain from funding the same and to determine the
extent, nature, and method of such funding. Should the Bank elect to
fund this Agreement, in whole or in part, through the purchase of life
insurance, mutual funds, disability policies or annuities, the Bank
reserves the absolute right, in its sole discretion, to terminate such
funding at any time, in whole or in part. At no time shall Executive be
deemed to have any lien nor right, title or interest in or to any
specific funding investment or to any assets of the Bank.
(c) If Bank elects to invest in a life insurance, disability or annuity
policy upon the life of Executive, then Executive shall assist the Bank
by freely submitting to a physical exam and supplying such additional
information necessary to obtain such insurance or annuities.
(d) Not later than ten business days before the closing date of a Change in
Control, the Bank shall --
(i) Deposit in a grantor trust (the "Trust") that is designed in
accordance with Revenue Procedure 92-64 and has a trustee
independent of the Bank and the Company an amount equal to the
Change-in-Control Account Value, unless the Executive has
previously provided a written release of any claims under this
Agreement, and
(ii) provide the trustee of the Trust with a written direction to
hold said amount and any investment return thereon in a
segregated account for the benefit of the Executive, and to
follow the payment schedule to be provided by the Executive,
based on this Agreement and the Executive's Election Form, as
to the payment of amounts from the Trust.
Upon the Trust's final payment of all amounts due under this Section
(d) of Article VIII, the trustee of the Trust shall pay to the Bank the
entire balance remaining in the segregated account maintained for the
benefit of the Executive. The Executive shall thereafter have no
further interest in the Trust.
7
<PAGE> 14
ARTICLE IX
MISCELLANEOUS
(a) Neither Executive, his widow nor any other beneficiary under this
Agreement shall have any power or right to transfer, assign,
anticipate, hypothecate, mortgage, commute, modify or otherwise
encumber in advance any of the benefits payable hereunder, nor shall
any of said benefits be subject to seizure for the payment of any
debts, judgments, alimony or separate maintenance owed by the Executive
or his beneficiary, nor be transferable by operation of law in the
event of bankruptcy, insolvency or otherwise. In the event Executive or
any beneficiary attempts assignment, commutation, hypothecation,
transfer or disposal of the benefits hereunder, the Bank's liabilities
shall forthwith cease and terminate. However, in such event, the
Committee may, in its sole discretion, from time to time, make payments
of amounts which would otherwise be due the Executive hereunder, to
such Executive.
(b) The Bank expressly agrees that it shall not merge or consolidate into
or with another Bank or sell substantially all of its assets to another
corporation, firm or person until such corporation, firm or person
expressly agrees, in writing, to assume and discharge the duties and
obligations of the Bank under this Agreement. This Agreement shall be
binding upon the parties hereto, their successors, beneficiaries, heirs
and personal representatives.
(c) It is agreed by and between the parties hereto that, during the
lifetime of the Executive, this Agreement may be amended or revoked at
any time or times, in whole or in part, by the mutual written assent of
the Executive and the Bank.
(d) Whenever in this Agreement words are used in the masculine or neuter
gender, they shall be read and construed as in the masculine, feminine
or neuter gender, whenever they should so apply.
(e) Nothing contained in this Agreement shall affect the right of the
Executive to participate in or be covered by any qualified or
non-qualified pension, profit sharing, group, bonus or other
supplemental compensation or fringe benefit plan constituting a part of
the Bank's existing or future compensation structure.
(f) Headings and Subheadings in this Agreement are inserted for reference
and convenience only and shall not be deemed a part of this Agreement.
(g) The validity and interpretation of this Agreement shall be governed by
the laws of the State of Ohio.
8
<PAGE> 15
ARTICLE X
ERISA PROVISIONS
(a) The "Named Fiduciary and Plan Administrator" of this Plan shall be the
Bank's Employee Benefits Plan Administrator until his resignation or
removal by the Committee. As named Fiduciary and Administrator, the
Employee Benefits Plan Administrator shall be responsible for the
management, control and administration of the Executive Phantom Stock
Bonus Plan as established herein. He may delegate to others certain
aspects of the management and operation responsibilities of the Plan
including the employment of advisors and the delegation of ministerial
duties to qualified individuals.
(b) In the event that benefits under this Plan Agreement are not paid to
the Executive (or to his beneficiary in the case of the Executive's
death) and such claimants feel they are entitled to receive such
benefits, then a written claim must be made to the Named Fiduciary and
Plan Administrator named above within sixty (60) days from the date
payments are refused. The Named Fiduciary and Plan Administrator and
the Bank shall review the written claim and if the claim is denied, in
whole or in part, they shall provide in writing within ninety (90) days
of receipt of such claim their specific reasons for such denial,
reference to the provisions of this Agreement upon which the denial is
based and any additional material or information necessary to perfect
the claim. Such written notice shall further indicate the additional
steps to be taken by claimants for a further review of the claim denial
if the Named Fiduciary and Plan Administrator fails to take any actions
within the aforesaid ninety-day period.
If claimants desire a second review, they shall notify the Named
Fiduciary and Plan Administrator in writing within sixty (60) days of
the first claim denial. Claimants may review the Plan Agreement or any
documents relating thereto and submit any written issues and comments
they may feel appropriate. In its sole discretion, the Named Fiduciary
and Plan Administrator shall then review the second claim and provide a
written decision within sixty (60) days of receipt of such claim. This
decision shall likewise state the specific reasons for the decision,
and shall include reference to specific provisions of the Plan
Agreement upon which the decision is based.
If claimants continue to dispute the benefit denial based upon
completed performance of the Agreement or the meaning and effect of the
terms and conditions thereof, then claimants may submit the dispute to
a Board of Arbitration for final arbitration. Said Board shall consist
of one member selected by the claimant, one member selected by the Bank
and the third member selected by the first two members. The Board shall
operate under any generally recognized set of arbitration rules. The
parties hereto agree that they and their heirs, personal
representatives, successors and assigns shall be bound by the decision
of such Board with respect to any controversy properly submitted to it
for determination.
9
<PAGE> 16
ARTICLE XI
REIMBURSEMENT OF EXECUTIVE FOR ENFORCEMENT PROCEEDINGS
In the event that any dispute arises between the Executive and the Bank
as to the terms or interpretation of this Agreement, whether instituted by
formal legal proceedings or otherwise, including any action that the Executive
takes to defend against any action taken by the Bank or the Company, the Bank
shall reimburse the Executive for all costs and expenses, including reasonable
attorneys' fees, arising from such dispute, proceedings or actions, provided
that the Executive obtains either a written settlement or a final judgement by a
court of competent jurisdiction substantially in his favor. Such reimbursement
shall be paid within ten days of Executive's furnishing to the Bank written
evidence, which may be in the form, among other things, of a canceled check or
receipt, of any costs or expenses incurred by the Executive.
10
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto acknowledge that each has
carefully read this Agreement and executed the originals thereof on the day and
year first herein above written.
ATTEST THE MAHONING NATIONAL BANK
OF YOUNGSTOWN
/s/ Richard E. Davies By /s/ Daniel B. Roth
- ------------------------------ ------------------------------
Its SVP and Cashier Its duly authorized Director
WITNESS:
/s/ Sandra L. Douglas /s/ Gregory L. Ridler
- ------------------------------ ------------------------------
Gregory L. Ridler
11
<PAGE> 18
SCHEDULE "A"
THE MAHONING NATIONAL BANK OF YOUNGSTOWN
EXECUTIVE PHANTOM STOCK BONUS PLAN
Vesting Schedule for Gregory L. Ridler
Effective September 15, 1997, Gregory L. Ridler's Vested Percentage
under the Agreement shall at all times be 100%.
12
<PAGE> 19
EXHIBIT "A-1"
THE MAHONING NATIONAL BANK OF YOUNGSTOWN
EXECUTIVE PHANTOM STOCK BONUS PLAN
-------------------------------
ELECTION FORM
-------------------------------
AGREEMENT, made this ____ day of ________, 19__, by and between the
undersigned executive (the "Executive") and The Mahoning National Bank of
Youngstown (the "Bank") with respect to distribution of the benefits pursuant to
The Mahoning National Bank of Youngstown Executive Phantom Stock Bonus Plan (the
"Plan") entered into by the parties on September 15, 1997.
NOW THEREFORE, it is mutually agreed as follows:
1. FORM OF PAYMENT. The Executive elects to have his account
distributed as follows:
[ ] in one lump sum payment.
[ ] in substantially equal monthly payments over a period of
_____ years (no more than 15).
The Executive must make this election EITHER at least one year before
terminating his service with the Bank OR by October 15, 1997 in order for it to
be valid and supersede a prior election.
2. The Executive elects to have distributions from his account begin:
[ ] on the first day of the second month immediately
following the date in which the Executive ceases service
with the Bank.
[ ] on the first day of the second month of the calendar year
immediately following the year in which the Executive
ceases service with the Bank.
3. In the event of the Executive's death, his account shall be
distributed:
[ ] in one lump sum payment.
[ ] in accordance with the payment schedule selected in
paragraph 1 hereof (with payments made as though the
Executive survived to collect all benefits, and as though
the Executive terminated service on the date of his death,
if payments had not already begun).
<PAGE> 20
Election Form
Page 2
4. PRIMARY BENEFICIARY. The Executive hereby designates the person(s)
named below to be his primary beneficiary and to receive any distributions that
become payable, after the Executive's death, under the Plan:
<TABLE>
<CAPTION>
<S> <C> <C>
============================== ===================================== ===========================
Name of Mailing Address Percentage of
Primary Beneficiary Death Benefit
------------------------------ ------------------------------------- ---------------------------
%
------------------------------ ------------------------------------- ---------------------------
%
============================== ===================================== ===========================
</TABLE>
5. CONTINGENT BENEFICIARY. In the event that the primary beneficiary or
beneficiaries named above are not living at the time any distributions become
payable to them under the Plan, the Executive hereby designates the following
person(s) to be his contingent beneficiary:
<TABLE>
<CAPTION>
<S> <C> <C>
============================== ===================================== ===========================
Name of Mailing Address Percentage of
Contingent Beneficiary Death Benefit
------------------------------ ------------------------------------- ---------------------------
%
------------------------------ ------------------------------------- ---------------------------
%
============================== ===================================== ===========================
</TABLE>
6. EFFECT OF ELECTION. The elections made in paragraph 1 hereof shall
become IRREVOCABLE one year prior to the Executive's termination of service. The
Executive may, by submitting an effective superseding Election Form at any time
and from time to time, prospectively change the beneficiary designation and the
manner of payment to a beneficiary. Such elections shall, however, become
irrevocable upon the Executive's death.
7. MUTUAL COMMITMENTS. The Bank agrees to make payment of all amounts
due the Executive in accordance with the terms of the Plan regarding the
elections made by the Executive herein. The Executive agrees to be bound by the
terms of the Plan, as in effect on the date hereof or properly amended
hereafter.
<PAGE> 21
Election Form
Page 3
IN WITNESS WHEREOF, the parties hereto acknowledge that each has
carefully read this Agreement and executed the originals thereof on the day and
year first hereinabove written.
ATTEST: THE MAHONING NATIONAL BANK
OF YOUNGSTOWN
By
- ------------------------------ ------------------------------
Its SVP and Cashier Its duly authorized Director
WITNESS:
- ------------------------------ ------------------------------
Executive
<PAGE> 1
MAHONING NATIONAL BANCORP, INC.
FORM 10-K
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K
Exhibit 10 Material Contracts (10p)
Executive Phantom Stock Bonus Plan
as Amended December 14, 1998
David E. Westerburg
<PAGE> 2
Exhibit 10(p)
THE MAHONING NATIONAL BANK OF YOUNGSTOWN
EXECUTIVE PHANTOM STOCK BONUS PLAN
1998 AMENDMENT TO AGREEMENT
WITH DAVID E. WESTERBURG
This 1998 Amendment modifies the agreement (the "Agreement") that The
Mahoning National Bank of Youngstown restated with David E. Westerburg (the
"Executive") on September 15, 1997 pursuant to The Mahoning National Bank of
Youngstown Executive Phantom Stock Bonus Plan (the "Plan").
WHEREAS, the parties to the Agreement mutually desire to amend its
vesting schedule and its provision for distributing benefits upon a change in
corporate control.
NOW, THEREFORE, pursuant to Article IX(c) of the Plan, the undersigned
agree to amend the Agreement as follows, effective immediately on execution
hereof.
1. Article VI of the Plan shall be amended by revising, in its
entirety, Schedule "A" (which is referenced therein). The version of Schedule
"A" that was attached to the Agreement is accordingly superseded, and shall be
replaced by the version of Schedule "A" that is attached to this 1998 Amendment.
2. Article VII(a) of the Plan shall be amended by revising the first
sentence of its second paragraph to provide as follows, with italics herein
highlighting new text:
In order to be effective with respect to the timing of distributions,
the Executive's Election Form must be submitted to the Bank either more
than one year before the date on which the Executive's service with the
Bank terminates for any reason or within 30 days of the Plan's
Effective Date (or more than 90 days before a Change in Control,
provided the Executive files a duly executed "Special Election of
Payment Method after a Change in Control" in the form attached hereto
as Schedule "B").
3. Nothing contained herein shall be held to alter, vary or affect any
of the terms, provisions, or conditions of the Plan, other than as stated above.
[SIGNATURE PAGE FOLLOWS]
<PAGE> 3
Executive Phantom Stock Bonus Plan
1998 Amendment
Page 2
WHEREFORE, on this 14th day of DECEMBER, 1998, the undersigned hereby
execute this 1998 Amendment to the Agreement.
THE MAHONING NATIONAL BANK
OF YOUNGSTOWN
Witnessed by:
/s/ Norman E. Benden, Jr. By /s/ Daniel B. Roth
- ------------------------------ ------------------------------
Its duly authorized Director
EXECUTIVE
Witnessed by:
/s/ Norman E. Benden, Jr. /s/ David E. Westerburg
- ------------------------------ ------------------------------
David E. Westerburg
Pursuant to duly adopted resolutions of its Board of Directors, the
undersigned hereby agrees that its Guarantee Agreement with the Executive shall
be amended to guarantee the obligations of The Mahoning National Bank of
Youngstown that are in effect under the Agreement, as amended by this 1998
Amendment.
MAHONING NATIONAL BANCORP, INC.
Witnessed by:
/s/ Norman E. Benden, Jr. By /s/ Daniel B. Roth
- ------------------------------ ------------------------------
Its duly authorized Director
<PAGE> 4
SCHEDULE "A"
(As revised November 16, 1998)
THE MAHONING NATIONAL BANK OF YOUNGSTOWN
EXECUTIVE PHANTOM STOCK BONUS PLAN
-------------------------------------
VESTING SCHEDULE FOR DAVID E. WESTERBURG
-------------------------------------
<TABLE>
<CAPTION>
<S> <C>
-------------------------------------------- ------------------------------------------------------
DATE ON WHICH PHANTOM SHARES VESTING THAT OCCURS, UNLESS MR.
WERE CREDITED WESTERBURG TERMINATES EMPLOYMENT
BEFORE A PARTICULAR VESTING DATE
-------------------------------------------- ------------------------------------------------------
On or before December 31, 1996 Not Applicable.
-------------------------------------------- ------------------------------------------------------
After December 31, 1996 100% on the third annual anniversary date
of the date on which the award is made;
provided that vesting shall accelerate to
100% on the date of Mr. Westerburg's 55th
birthday, and all awards made after that date
shall become 100% vested on December
31st of the year in which the award is made.
-------------------------------------------- ------------------------------------------------------
</TABLE>
<PAGE> 5
SCHEDULE "B"
THE MAHONING NATIONAL BANK OF YOUNGSTOWN
EXECUTIVE PHANTOM STOCK BONUS PLAN
-------------------------------
Special Election of Payment Method
after a Change in Control
-------------------------------
AGREEMENT, made this ____ day of ________, 199__, by and between
______________ (the "Participant") and The Mahoning National Bank of Youngstown
(the "Bank"), with respect to any distribution of the Participant's entire
account ("Account"), under the Bank's Executive Phantom Stock Bonus Plan (the
"Plan"), that occurs on or after a "Change in Control" (within the meaning of
the Plan).
NOW THEREFORE, it is mutually agreed as follows:
1. FORM OF PAYMENT. The Participant's Account shall be distributed in
cash that is paid --
[ ] in one lump sum.
[ ] in substantially equal payments over a period of _____
years (no more than 15), with interest accruing according
to the Plan, on the unpaid present value of his Account.
2. TIME OF PAYMENT. Distribution of the Participant's Account shall
begin as soon as practicable after --
[ ] a Change in Control closes.
[ ] the January 1st after a Change in Control closes.
[ ] the _________ annual anniversary of the January 1st after
a Change in Control closes.
3. FREQUENCY OF PAYMENT. The Participant shall receive installment
payments, if elected as a form of payment, on a ______ monthly, ______
quarterly, _____ semi-annual, or _____ annual basis.
<PAGE> 6
Executive Phantom Stock Bonus Plan
Special Election Form
for Change in Control
Page 2
4. FORM OF PAYMENT TO BENEFICIARY. In the event of the Participant's
death, any unpaid balance credited to his Account shall be distributed to his
designated beneficiary --
[ ] in one lump sum payment, determined in the manner
described in paragraph 1 hereof.
[ ] in accordance with the payment schedule selected in
paragraphs 1, 2, and 3 hereof (with payments made as
though the Participant survived to collect all benefits,
and as though the Participant terminated service on the
date of his death, if payments had not already begun).
5. DESIGNATION OF BENEFICIARY. In the event of the Participant's death
before he has collected all of the benefits payable under the Plan, the
Participant hereby directs that any amounts unpaid under the Plan be distributed
to the beneficiary or beneficiaries designated under subparagraphs a and b of
this paragraph 5 in the manner elected pursuant to paragraph 4 above:
a. PRIMARY BENEFICIARY. The Participant hereby designates the
person(s) named below to be his primary beneficiary and to receive the balance
of any unpaid benefits under the Plan:
<TABLE>
<CAPTION>
<S> <C> <C>
============================== ===================================== ===========================
Name of Percentage of
Primary Beneficiary Mailing Address Death Benefit
------------------------------ ------------------------------------- ---------------------------
%
------------------------------ ------------------------------------- ---------------------------
%
============================== ===================================== ===========================
</TABLE>
b. CONTINGENT BENEFICIARY. In the event that the primary beneficiary
or beneficiaries named above are not living at the time of the Participant's
death, the Participant hereby designates the following person(s) to be his
contingent beneficiary for purposes of the Plan:
<TABLE>
<CAPTION>
<S> <C> <C>
============================== ===================================== ===========================
Name of Percentage of
Contingent Beneficiary Mailing Address Death Benefit
------------------------------ ------------------------------------- ---------------------------
%
------------------------------ ------------------------------------- ---------------------------
%
=============================== ===================================== ==========================
</TABLE>
6. EFFECT OF ELECTION. The elections made in paragraphs 1, 2, and 3
hereof shall become irrevocable on the date 90 days before the closing of a
Change in Control. The Participant may at any time and from time to time change
his designation of, and manner of payment to, a beneficiary. Such election
shall, however, become irrevocable upon the Participant's death.
<PAGE> 7
Executive Phantom Stock Bonus Plan
Special Election Form
for Change in Control
Page 3
7. MUTUAL COMMITMENTS. The Bank agrees to make payment of all amounts
due the Participant in accordance with the terms of the Plan and the elections
made by the Participant herein. The Participant agrees to be bound by the terms
of the Plan, as in effect on the date hereof and as properly amended hereafter.
The parties recognize and agree that this Agreement supersedes and nullifies any
prior distribution election to the extent it is inconsistent herewith.
IN WITNESS WHEREOF, the parties hereto acknowledge that each has
carefully read this Agreement and executed the originals thereof on the day and
year first above-written.
PARTICIPANT
Witnessed by:
- ------------------------------ ------------------------------
THE MAHONING NATIONAL BANK OF
YOUNGSTOWN
Witnessed by:
By
Its
- ------------------------------ ------------------------------
------------------------------
<PAGE> 8
EXECUTIVE PHANTOM STOCK BONUS PLAN
AGREEMENT made this 15th day of September, 1997 (the "Effective Date"),
between The Mahoning National Bank of Youngstown (hereinafter referred to a the
"Bank"), and Mr. David E. Westerburg (hereinafter referred to as "Executive").
In consideration of the mutual covenants, terms, conditions, and
agreements herein contained the parties hereby agree to enter into this
Executive Phantom Stock Bonus Plan (hereinafter sometimes referred to as the
"Plan"), as follows:
ARTICLE I
PURPOSES
The purposes of this Plan are: (a) to enable the Bank to retain the
Executive in its employ; and (b) to reward the Executive for the time and effort
he expends in his job and for the success achieved.
ARTICLE II
DEFINITIONS
The terms used in this Plan shall have the following meanings:
(a) "Aggregate Phantom Stock Account Value" shall mean the sum of the
Phantom Stock Account Value plus all distributions made to the
Executive pursuant to Article VII, Section (c), prior to the date said
Executive terminates his employment with the Bank.
(b) "Change in Control" shall mean:
(i) the acquisition of ownership, holding or power to vote more than
30% of the Bank's or the Company's voting stock; or
(ii) the acquisition of the ability to control the election of a
majority of the Bank's or the Company's directors; or
(iii) the acquisition of a controlling influence over the management or
policies of the Bank or the Company by any person or by persons acting
as a "group" (within the meaning of Section 13(d) of the Securities
Exchange Act of 1934); or
(iv) during any period of two consecutive years, individuals (the
"Continuing Directors") who at the beginning of such period constitute
the Board of Directors of the Bank or the Company (the "Existing
Board") cease for any reason to constitute at least two-thirds thereof,
provided that any individual whose election or nomination for
1
<PAGE> 9
election as a member of the Existing Board was approved by a vote of at
least two-thirds of the Continuing Directors then in office shall be
considered a Continuing Director.
Notwithstanding the foregoing, in the case of (i), (ii) and (iii)
hereof, ownership or control of the Bank by the Company itself shall
not constitute a Change in Control. For purposes of this paragraph
only, the term "person" refers to an individual or a corporation,
partnership, trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization or any other form of entity
not specifically listed herein.
Notwithstanding the foregoing, no trust department or other designated
fiduciary or other trustee of such trust department of the Bank or a
subsidiary of the Bank, or other similar fiduciary capacity of the Bank
with direct voting control of the stock shall be included or
considered. Further, no profit-sharing, employee stock ownership,
employee stock purchase and savings, employee pension, or other
employee benefit plan of the Bank or any of its subsidiaries, and no
trustee of any such plan in its capacity as such trustee, shall be
included or considered.
(c) "Change-in-Control Account Value" shall equal the sum of (i) the Net
Vested Account Value reasonably estimated as of the closing date of the
Change in Control, and (ii) the present value, which shall in no event
be less than zero, of the difference between (a) and (b) hereof,
assuming a discount at the current long-term applicable federal rate,
compounded monthly, for a period of 15 years.
(a) The future value determined by assuming that the Net
Vested Account Value determined in accordance with clause (i)
above appreciates for 15 years at a rate equal to 8%.
(b) The future value determined by assuming that the Net
Vested Account Value determined in accordance with clause (i)
above appreciates for 15 years at a rate equal to the current
long-term applicable federal rate (compounded monthly).
(d) "Committee" means the members of the Executive Committee of the Board
of Directors of the Bank who are not participants in this Plan.
(e) "Common Stock" and/or "Shares" shall mean shares of common stock of
Mahoning National Bancorp, Inc.
(f) "Election Form" shall mean the form attached hereto as Exhibit "A-1".
(g) "Holding Company" means Mahoning National Bancorp, Inc., which owns all
of the issued and outstanding shares of Bank.
2
<PAGE> 10
(h) "Net Vested Account Value" shall mean the Vested Account Value minus
the aggregate of all distributions to the Participant pursuant to
Article VII, Section (c).
(i) "Permanent Disability" shall mean a situation in which the Executive is
permanently physically or mentally unable to perform his customary
and/or required duties at the Bank. The determination as to whether or
not an Executive is permanently disabled shall be made by the
Committee, and such determination shall be conclusive. Provided,
however, if the Executive is disabled for purposes of the Bank's
disability insurance plan, he shall be conclusively determined to be
disabled under this Plan.
(j) "Phantom Stock Account Value" means the number of Phantom Shares
credited to a Participant's account multiplied by the average fair
market value, over the 10 business days preceding the date of any
valuation, of the Common Stock of Mahoning National Bancorp, Inc.
Notwithstanding the foregoing, in the event of the sale or merger of
the Holding Company, the sale or merger price of the Common Stock shall
determine the Executive's Phantom Stock Account Value.
(k) "Retirement" means a severance from the employment of the Bank under
the Bank's qualified benefit plan as constituted at present or as may
be amended hereafter.
(l) "Salary" and/or "Pay" shall mean the Executive's annual base
compensation, but does not include other compensation, including, but
not limited to hospitalization, pension benefits, etc.
(m) "Termination Date" means the date of Executive's severance from
employment with the Bank by reason of death, disability, retirement,
resignation, or otherwise.
(n) "Vested Account Value" shall equal the Aggregate Phantom Stock Account
Value multiplied by the applicable Vesting Percentage set forth in
Schedule A attached hereto.
(o) "Vesting Percentage" shall mean that percentage listed on Schedule A,
which is attached hereto, which corresponds with the age of the
Executive, at any given time. However, advances and or changes in the
vesting schedule with respect to a change in the age of the Executive
shall be made only on December 31 of each calendar year during which
Executive attained the stated age.
ARTICLE III
ADMINISTRATION
(a) The complete and sole administration of this Plan is the responsibility
of those members of the Committee who are not Participants. No member
of the Committee shall be liable for any act done or determination made
in good faith.
(b) The construction and interpretation by the Committee of any provisions
of this Plan shall be final and conclusive. The Committee shall
determine, from time to time,
3
<PAGE> 11
subject to the provisions of this Plan, the Executives who shall
participate in the Plan (sometimes hereinafter called "Participants").
(c) The Committee may, at its discretion, delegate its duties to the
outside auditors of the Bank, but may not delegate its authority to
apply or interpret the provisions of this Plan or to make
determinations specified in Section (b) of this Article III.
ARTICLE IV
ESTABLISHMENT OF PHANTOM STOCK ACCOUNT
The Bank shall set up an appropriate record (hereinafter called the
"Phantom Stock Account") in the name of each Executive under the Plan, and shall
record all activities of this agreement in the respective Phantom Stock Accounts
of each Executive.
ARTICLE V
CREDITS TO ACCOUNTS OF EXECUTIVES
(a) As of December 31st of each year that the Executive is a full-time
employee of the Bank, the Bank shall credit a number of Phantom Shares
of the Holding Company to the account of each Executive. The number of
Phantom Shares to be credited each year shall be determined by dividing
the Bank's contribution by the fair market value of the Holding
Company's Common Stock as of the date of crediting (December 31). The
contribution by the Bank each year shall be a percentage of the
Executive's salary as determined by the return on equity of the Bank
for the year pursuant to a schedule to be established by the Committee
no later than the close of the first quarter of that year.
The ultimate computation of the number of Phantom Shares to be credited
each year will be determined by interpolation for performance between
the three levels established (i.e., threshold, target, and
distinguished), and return on equity will be calculated after projected
expense attributable to the incentive pay out. Determination of the
number of Phantom Shares shall be solely by the Committee and shall be
final and binding on all parties. Provided, however, if the ROE is
below the threshold for the year, then no crediting based on a
percentage of pay for the year shall be made.
(b) So long as this Plan remains in effect, the Bank shall credit each
Participant's account in the special ledger throughout the term of his
employment with the Bank. Phantom Shares equivalent to dividends
payable in cash or property paid from time to time on issued and
outstanding shares of Common Stock, so that the amount of each such
credit will be equivalent to dividends which the Participant would have
received had he been the owner of the number of shares of Common Stock
equal to the number of Phantom Shares in his account. No such credit
shall be made with respect to any dividend paid after a Participant's
termination of employment or after any date of termination of this
Plan, even though the record date is prior thereto.
4
<PAGE> 12
(c) In the event of any stock dividend on the Common Stock or any split-up
or combination of shares of the Common Stock, appropriate adjustments
shall be made by the Committee in the aggregate number of Phantom
Shares in the account of the Participant. However, the Committee shall
not be required to establish any fractional Phantom Shares.
(d) On or before January 31st of each year, the Bank shall provide to each
Executive a detail of his Phantom Share Account as of December 31 of
the previous year. This detail shall include the number of Phantom
Shares in the Executive's account, and the Net Vested Account Value.
ARTICLE VI
VESTING
So long as the Executive remains an employee of the Bank, he shall
continue to advance in the vesting schedule attached as Schedule A. Upon the
Executive's termination of employment with the Bank, he shall be permanently
vested according to the percentage given on Schedule A on the same line as his
age on the date of his termination of employment. Provided, however, if the
Executive, while in the employ of the Bank, dies or becomes permanently
disabled, he shall become permanently 100% vested. Moreover, if a Change in
Control shall occur while the Executive remains in the employ of the Bank, the
Executive shall also become permanently 100% vested.
ARTICLE VII
PAYMENTS OF BENEFITS
(a) Upon termination of any Participant's employment with the Bank, there
shall be paid to him, or in the event of his death to his beneficiary
or beneficiaries designated under Section (b) of this Article VII, an
amount equal to the Net Vested Account Value of such Participant,
determined in accordance with the valuation formula set forth in
Article II, Section (j) as of the date of termination of employment of
such Participant. Such amounts will be reduced by any amounts required
by law to be withheld by the Bank. Such amounts with interest at the
rate of eight percent (8%) per annum shall be distributed in the manner
elected by the Executive on an Election Form accepted by the Bank. The
Executive may elect (1) to begin receiving distributions from his
account on either the first day of the second month after termination
of service with the Bank or the first day of second month of the
calendar year immediately after termination of service with the Bank
and (2) to receive his benefits in either a lump-sum or in
substantially equal monthly installments over a period up to 15 years.
In order to be effective with respect to the timing of distributions,
the Executive's Election Form must be submitted to the Bank either more
than one year before the date on which the Executive's service with the
Bank terminates for any reason or within 30 days of the Plan's
Effective Date. In the absence of a validly completed Election
5
<PAGE> 13
Form, the Executive's account shall be paid in 60 substantially equal
monthly payments beginning on the first day of the second month after
termination of service with the Bank.
(b) Each person shall file an Election Form with the Bank's Employee
Benefits Plan Administrator designating one or more beneficiaries to
whom payments otherwise due the Executive shall be made in the event of
his death while in the employ of the Bank or after termination
therefrom. The beneficiary or beneficiaries so designated shall be one
or more persons or entities, including a trust or estate, other than
his creditors, or the creditors of his estate, or an entity in which
any of the foregoing may have an interest. The Executive shall have the
right to change the beneficiary or beneficiaries from time to time
whether before or after termination of employment; provided, however,
that any change shall not become effective until an Election Form is
received by the Employee Benefits Plan Administrator.
If the Executive dies before receiving all amounts payable of his Net
Vested Account Value, then the remaining balance of the Executive's
account shall be distributed in a lump sum to the Executive's
designated beneficiary (or estate, in the absence of a validly named or
living beneficiary) as soon as administratively practicable following
the Executive's death; provided that the Executive may direct on an
Election Form that any death benefits payable pursuant to this
Agreement shall instead be distributed over a distribution period that
effectuates the monthly installment payments selected by the Executive
(with payments made as though the Executive survived to collect all
payments, and terminated service on the date of his death if payments
had not previously begun).
(c) At the time of the college education of a child of an Executive, an
amount of money equal to the actual expenses associated with such
child's education may, upon application of the Executive, be disbursed
for such purposes by the Committee, in the Committee's sole discretion,
from the Net Vested Account Value of the Executive's Phantom Stock
Account.
ARTICLE VIII
RESTRICTIONS UPON FUNDING
(a) The Bank shall have no obligation to set aside, earmark or entrust any
fund or money with which to pay its obligations under this Agreement.
The Executive, his beneficiaries or any successor in interest to him
shall be and remain simply a general creditor of the Bank in the same
manner as any other creditor having a general claim for matured and
unpaid compensation.
(b) Subject to subsection (d) hereof, the Bank reserves the absolute right
in its sole discretion to either fund the obligations undertaken by
this Agreement or to refrain from funding the same and to determine the
extent, nature, and method of such funding. Should the Bank elect to
fund this Agreement, in whole or in part, through
6
<PAGE> 14
the purchase of life insurance, mutual funds, disability policies or
annuities, the Bank reserves the absolute right, in its sole
discretion, to terminate such funding at any time, in whole or in part.
At no time shall Executive be deemed to have any lien nor right, title
or interest in or to any specific funding investment or to any assets
of the Bank.
(c) If Bank elects to invest in a life insurance, disability or annuity
policy upon the life of Executive, then Executive shall assist the Bank
by freely submitting to a physical exam and supplying such additional
information necessary to obtain such insurance or annuities.
(d) Not later than ten business days before the closing date of a Change in
Control, the Bank shall --
(i) deposit in a grantor trust (the "Trust") that is designed in
accordance with Revenue Procedure 92-64 and has a trustee
independent of the Bank and the Company an amount equal to the
Change-in-Control Account Value, unless the Executive has
previously provided a written release of any claims under this
Agreement, and
(ii) provide the trustee of the Trust with a written direction to
hold said amount and any investment return thereon in a
segregated account for the benefit of the Executive, and to
follow the payment schedule to be provided by the Executive,
based on this Agreement and the Executive's Election Form, as
to the payment of amounts from the Trust.
Upon the Trust's final payment of all amounts due under this Section (d) of
Article VIII, the trustee of the Trust shall pay to the Bank the entire balance
remaining in the segregated account maintained for the benefit of the Executive.
The Executive shall thereafter have no further interest in the Trust.
ARTICLE IX
MISCELLANEOUS
(a) Neither Executive, his widow nor any other beneficiary under this
Agreement shall have any power or right to transfer, assign,
anticipate, hypothecate, mortgage, commute, modify or otherwise
encumber in advance any of the benefits payable hereunder, nor shall
any of said benefits be subject to seizure for the payment of any
debts, judgments, alimony or separate maintenance owed by the Executive
or his beneficiary, nor be transferable by operation of law in the
event of bankruptcy, insolvency or otherwise. In the event Executive or
any beneficiary attempts assignment, commutation, hypothecation,
transfer or disposal of the benefits hereunder, the Bank's liabilities
shall forthwith cease and terminate. However, in such event, the
Committee may, in its sole discretion, from time to time, make payments
of amounts which would otherwise be due the Executive hereunder, to
such Executive.
7
<PAGE> 15
(b) The Bank expressly agrees that it shall not merge or consolidate into
or with another Bank or sell substantially all of its assets to another
corporation, firm or person until such corporation, firm or person
expressly agrees, in writing, to assume and discharge the duties and
obligations of the Bank under this Agreement. This Agreement shall be
binding upon the parties hereto, their successors, beneficiaries, heirs
and personal representatives.
(c) It is agreed by and between the parties hereto that, during the
lifetime of the Executive, this Agreement may be amended or revoked at
any time or times, in whole or in part, by the mutual written assent of
the Executive and the Bank.
(d) Whenever in this Agreement words are used in the masculine or neuter
gender, they shall be read and construed as in the masculine, feminine
or neuter gender, whenever they should so apply.
(e) Nothing contained in this Agreement shall affect the right of the
Executive to participate in or be covered by any qualified or
non-qualified pension, profit sharing, group, bonus or other
supplemental compensation or fringe benefit plan constituting a part of
the Bank's existing or future compensation structure.
(f) Headings and Subheadings in this Agreement are inserted for reference
and convenience only and shall not be deemed a part of this Agreement.
(g) The validity and interpretation of this Agreement shall be governed by
the laws of the State of Ohio.
ARTICLE X
ERISA PROVISIONS
(a) The "Named Fiduciary and Plan Administrator" of this Plan shall be the
Bank's Employee Benefits Plan Administrator until his resignation or
removal by the Committee. As named Fiduciary and Administrator, the
Employee Benefits Plan Administrator shall be responsible for the
management, control and administration of the Executive Phantom Stock
Bonus Plan as established herein. He may delegate to others certain
aspects of the management and operation responsibilities of the Plan
including the employment of advisors and the delegation of ministerial
duties to qualified individuals.
(b) In the event that benefits under this Plan Agreement are not paid to
the Executive (or to his beneficiary in the case of the Executive's
death) and such claimants feel they are entitled to receive such
benefits, then a written claim must be made to the Named Fiduciary and
Plan Administrator named above within sixty (60) days from the date
payments are refused. The Named Fiduciary and Plan Administrator and
the Bank shall review the written claim and if the claim is denied, in
whole or in part, they shall provide in writing within ninety (90) days
of receipt of such claim their specific reasons
8
<PAGE> 16
for such denial, reference to the provisions of this Agreement upon
which the denial is based and any additional material or information
necessary to perfect the claim. Such written notice shall further
indicate the additional steps to be taken by claimants for a further
review of the claim denial if the Named Fiduciary and Plan
Administrator fails to take any actions within the aforesaid ninety-day
period.
If claimants desire a second review, they shall notify the Named
Fiduciary and Plan Administrator in writing within sixty (60) days of
the first claim denial. Claimants may review the Plan Agreement or any
documents relating thereto and submit any written issues and comments
they may feel appropriate. In its sole discretion, the Named Fiduciary
and Plan Administrator shall then review the second claim and provide a
written decision within sixty (60) days of receipt of such claim. This
decision shall likewise state the specific reasons for the decision,
and shall include reference to specific provisions of the Plan
Agreement upon which the decision is based.
If claimants continue to dispute the benefit denial based upon
completed performance of the Agreement or the meaning and effect of the
terms and conditions thereof, then claimants may submit the dispute to
a Board of Arbitration for final arbitration. Said Board shall consist
of one member selected by the claimant, one member selected by the Bank
and the third member selected by the first two members. The Board shall
operate under any generally recognized set of arbitration rules. The
parties hereto agree that they and their heirs, personal
representatives, successors and assigns shall be bound by the decision
of such Board with respect to any controversy properly submitted to it
for determination.
ARTICLE XI
REIMBURSEMENT OF EXECUTIVE FOR ENFORCEMENT PROCEEDINGS
In the event that any dispute arises between the Executive and the Bank
as to the terms or interpretation of this Agreement, whether instituted by
formal legal proceedings or otherwise, including any action that the Executive
takes to defend against any action taken by the Bank or the Company, the Bank
shall reimburse the Executive for all costs and expenses, including reasonable
attorneys' fees, arising from such dispute, proceedings or actions, provided
that the Executive obtains either a written settlement or a final judgement by a
court of competent jurisdiction substantially in his favor. Such reimbursement
shall be paid within ten days of Executive's furnishing to the Bank written
evidence, which may be in the form, among other things, of a canceled check or
receipt, of any costs or expenses incurred by the Executive.
9
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto acknowledge that each has
carefully read this Agreement and executed the originals thereof on the day and
year first herein above written.
ATTEST: THE MAHONING NATIONAL BANK
OF YOUNGSTOWN
/s/ Richard E. Davies By /s/ Daniel B. Roth
- ------------------------------ ------------------------------
Its SVP and Cashier Its duly authorized Director
WITNESS:
/s/ Sandra L. Douglas /s/ David E. Westerburg
- ------------------------------ ------------------------------
David E. Westerburg
10
<PAGE> 18
Schedule "A"
THE MAHONING NATIONAL BANK OF YOUNGSTOWN
EXECUTIVE PHANTOM STOCK BONUS PLAN
Vesting Schedule for David E. Westerburg
<TABLE>
<CAPTION>
<S> <C> <C>
- ---------------------------------------- ------------------------------------- -------------------------------------
Age on 12/31 Preceding Retirement & Death, Permanent
Termination of Employment Termination Disability
Vesting Schedule or Change in Control
- ---------------------------------------- ------------------------------------- -------------------------------------
44 8.3% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
45 16.6% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
46 24.9% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
47 33.2% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
48 41.5% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
49 49.8% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
50 58.1% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
51 66.4% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
52 74.7% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
53 83.0% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
54 91.3% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
55 and over 100% 100%
- ---------------------------------------- ------------------------------------- -------------------------------------
</TABLE>
11
<PAGE> 19
EXHIBIT "A-1"
THE MAHONING NATIONAL BANK OF YOUNGSTOWN
EXECUTIVE PHANTOM STOCK BONUS PLAN
-------------------------------
ELECTION FORM
-------------------------------
AGREEMENT, made this ____ day of ________, 19__, by and between the
undersigned executive (the "Executive") and The Mahoning National Bank of
Youngstown (the "Bank") with respect to distribution of the benefits pursuant to
The Mahoning National Bank of Youngstown Executive Phantom Stock Bonus Plan (the
"Plan") entered into by the parties on September 15, 1997.
NOW THEREFORE, it is mutually agreed as follows:
1. FORM OF PAYMENT. The Executive elects to have his account
distributed as follows:
[ ] in one lump sum payment.
[ ] in substantially equal monthly payments over a
period of _____ years (no more than 15).
The Executive must make this election EITHER at least one year before
terminating his service with the Bank or by October 15, 1997 in order for it to
be valid and supersede a prior election.
2. The Executive elects to have distributions from his account begin:
[ ] on the first day of the second month immediately
following the date in which the Executive ceases
service with the Bank.
[ ] on the first day of the second month of the calendar
year immediately following the year in which the Executive
ceases service with the Bank.
3. In the event of the Executive's death, his account shall be
distributed:
[ ] in one lump sum payment.
[ ] in accordance with the payment schedule selected in
paragraph 1 hereof (with payments made as though the
Executive survived to collect all benefits, and as though
the Executive terminated service on the date of his death,
if payments had not already begun).
<PAGE> 20
Election Form
Page 2
4. PRIMARY BENEFICIARY. The Executive hereby designates the person(s)
named below to be his primary beneficiary and to receive any distributions that
become payable, after the Executive's death, under the Plan:
<TABLE>
<CAPTION>
<S> <C> <C>
============================== ===================================== ===========================
Name of Mailing Address Percentage of
Primary Beneficiary Death Benefit
------------------------------ ------------------------------------- ---------------------------
%
------------------------------ ------------------------------------- ---------------------------
%
============================== ===================================== ===========================
</TABLE>
5. CONTINGENT BENEFICIARY. In the event that the primary beneficiary or
beneficiaries named above are not living at the time any distributions become
payable to them under the Plan, the Executive hereby designates the following
person(s) to be his contingent beneficiary:
<TABLE>
<CAPTION>
<S> <C> <C>
============================== ===================================== ===========================
Name of Mailing Address Percentage of
Contingent Beneficiary Death Benefit
------------------------------ ------------------------------------- ---------------------------
%
------------------------------ ------------------------------------- ---------------------------
%
============================== ===================================== ===========================
</TABLE>
6. EFFECT OF ELECTION. The elections made in paragraph 1 hereof shall
become IRREVOCABLE one year prior to the Executive's termination of service. The
Executive may, by submitting an effective superseding Election Form at any time
and from time to time, prospectively change the beneficiary designation and the
manner of payment to a beneficiary. Such elections shall, however, become
irrevocable upon the Executive's death.
7. MUTUAL COMMITMENTS. The Bank agrees to make payment of all amounts
due the Executive in accordance with the terms of the Plan regarding the
elections made by the Executive herein. The Executive agrees to be bound by the
terms of the Plan, as in effect on the date hereof or properly amended
hereafter.
<PAGE> 21
Election Form
Page 3
IN WITNESS WHEREOF, the parties hereto acknowledge that each has
carefully read this Agreement and executed the originals thereof on the day and
year first hereinabove written.
ATTEST: THE MAHONING NATIONAL BANK
OF YOUNGSTOWN
By
- ------------------------------ ------------------------------
Its SVP and Cashier Its duly authorized Director
WITNESS:
- ------------------------------ ------------------------------
Executive
<PAGE> 1
MAHONING NATIONAL BANCORP, INC.
FORM 10-K
EXHIBIT 13
1998 Annual Report To Shareholders
<PAGE> 2
EXHIBIT 13
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
For the Year
--------------------------------------
(Amounts in thousands, except per share data) 1998 1997 Change
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 13,863 $ 12,941 7.1%
Per share 2.20 2.05 7.1
Cash dividends 5,607 4,347 29.0
Per share 0.89 0.69 29.0
At Year End
- ---------------------------------------------------------------------------------------
Assets $ 824,644 $ 796,866 3.5%
Loans 490,743 492,487 (0.4)
Investment securities 264,947 250,756 5.7
Deposits 555,407 545,111 1.9
Stockholders' equity 96,299 86,579 11.2
Book value 15.29 13.74 11.2
Financial Ratios
- ---------------------------------------------------------------------------------------
Return on assets 1.74% 1.67%
Return on equity 15.12 15.82
Net interest margin 4.89 4.79
Capital:
Primary leverage 11.78 11.05
Tier I 18.91 17.70
Risk based 20.16 18.95
</TABLE>
COMMON SHARE INFORMATION
Effective January 5, 1998, the Company's common shares were listed on The Nasdaq
Stock Market under the symbol "MGNB". Currently the following four brokerage
firms serve as market makers for the Company's common stock: McDonald & Company
Securities, Inc.; Sandler O'Neill & Partners, L.P.; F.J. Morrissey & Co., Inc.
and Everen Securities, Inc. The following table lists the high and low sales
prices as reported by The Nasdaq Stock Market for 1998. Prior to January 5,
1998, the Company's common shares were traded Over-the-Counter, generally in the
Youngstown area. The price information reported for 1997 reflects the high and
low bid prices for the year and does not necessarily reflect prices in actual
transactions. The table also lists the dividends declared by the Company during
1998 and 1997.
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------------------
Quarters Ended Mar 31 Jun 30 Sep 30 Dec 31 Mar 31 Jun 30 Sep 30 Dec 31
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High $ 39.00 $ 45.50 $ 44.00 $ 34.50 $ 22.75 $ 22.50 $ 26.25 $ 33.00
Low 26.00 34.25 32.00 28.25 21.50 21.50 22.50 26.00
Dividends 0.21 0.21 0.21 0.26 0.16 0.16 0.16 0.21
</TABLE>
CONTENTS
Consolidated Statements
of Financial Condition...........1
Consolidated Statements
of Income........................2
Consolidated Statements of
Changes in Stockholders' Equity..3
Consolidated Statements
of Cash Flows....................4
Notes to Consolidated
Financial Statements..........5-15
Auditor's and Management's
Reports......................16-17
Comparative Financial Data........18
Business Overview.................19
Management's Discussion
and Analysis.................20-29
<PAGE> 3
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
-------------------
(Amounts in thousands, except per share data) 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 30,556 $ 29,143
Federal funds sold 23,700 8,800
Investment securities available for sale - at market value 241,037 189,578
Investment securities held to maturity - at cost
(Market value $24,036 in 1998 and $61,248 in 1997) 23,910 61,178
Loans 490,743 492,487
Less allowance for possible loan losses 7,789 7,524
-------------------
Net loans 482,954 484,963
Bank premises and equipment 8,844 8,653
Other assets 13,643 14,551
-------------------
Total assets $824,644 $796,866
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Noninterest bearing $ 84,127 $ 74,500
Interest bearing
Savings 274,641 275,139
Time 196,639 195,472
-------------------
Total deposits 555,407 545,111
Federal funds purchased and securities
sold under agreement to repurchase 146,144 146,245
Short term borrowings 4,443 10,954
Long term borrowings 17,191 3,151
Other liabilities 5,160 4,826
-------------------
Total liabilities 728,345 710,287
-------------------
Commitments and contingencies
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 43,477 35,221
Accumulated other comprehensive income 2,422 958
-------------------
Total stockholders' equity 96,299 86,579
-------------------
Total liabilities and stockholders' equity $824,644 $796,866
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
1
<PAGE> 4
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------
(Amounts in thousands, except per share data) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 43,495 $ 43,823 $ 42,397
Interest on investment securities
Taxable 13,557 12,820 12,490
Nontaxable 1,167 1,065 894
Interest on federal funds sold 514 422 300
-----------------------------------
58,733 58,130 56,081
Interest Expense
Interest on deposits 15,682 16,887 18,080
Interest on federal funds purchased and securities
sold under agreement to repurchase 6,063 6,283 4,379
Interest on short term borrowings 391 394 303
Interest on long term borrowings 607 197 220
-----------------------------------
22,743 23,761 22,982
-----------------------------------
Net interest income 35,990 34,369 33,099
PROVISION FOR LOAN LOSSES 2,904 2,975 2,625
-----------------------------------
Net interest income after provision for loan losses 33,086 31,394 30,474
OTHER OPERATING REVENUE
Trust department income 3,019 2,864 2,837
Service charges on deposit accounts 4,274 4,161 3,623
Other service charges 832 827 756
Other revenue 280 280 277
Gain on sale of loans 326 19 --
Gain (loss) on sale of investment securities available for sale 229 182 (319)
-----------------------------------
8,960 8,333 7,174
OTHER OPERATING EXPENSES
Salaries and employee benefits 11,066 11,119 10,789
Net occupancy expense 1,476 1,462 1,485
Equipment rental, depreciation and maintenance 1,401 1,432 1,727
State franchise tax 975 928 1,028
Other expenses 6,499 5,685 5,468
-----------------------------------
21,417 20,626 20,497
-----------------------------------
Income before income taxes 20,629 19,101 17,151
INCOME TAX EXPENSE 6,766 6,160 5,540
-----------------------------------
NET INCOME $ 13,863 $ 12,941 $ 11,611
======== ======== ========
NET INCOME PER COMMON SHARE $ 2.20 $ 2.05 $ 1.84
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 5
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years ended December 31, 1998, 1997 and 1996
-----------------------------------------------------------------
Additional Accumulated Other Total
Common Paid-in Retained Comprehensive Stockholders'
(Amounts in thousands, except share data) Stock Capital Earnings Income Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $ 31,500 $ 15,750 $ 21,725 $ 666 $ 69,641
Par value eliminated from common stock,
stated value of $1 per share established (28,350) 28,350 -- -- --
Stock split in the form of a dividend 3,150 -- (3,150) -- --
Comprehensive income:
Net income for 1996 -- -- 11,611 -- 11,611
Unrealized loss on available for sale investment securities -- -- -- (598) (598)
--------
Total comprehensive income 11,013
Cash dividends paid - $.565 per share -- -- (3,559) -- (3,559)
-----------------------------------------------------------------
Balance at December 31, 1996 6,300 44,100 26,627 68 77,095
Comprehensive income:
Net income for 1997 -- -- 12,941 -- 12,941
Unrealized gain on available for sale investment securities -- -- -- 890 890
--------
Total comprehensive income 13,831
Cash dividends paid - $.69 per share -- -- (4,347) -- (4,347)
-----------------------------------------------------------------
Balance at December 31, 1997 6,300 44,100 35,221 958 86,579
Comprehensive income:
Net income for 1998 -- -- 13,863 -- 13,863
Unrealized gain on available for sale investment securities -- -- -- 1,464 1,464
--------
Total comprehensive income 15,327
Cash dividends paid - $.89 per share -- -- (5,607) -- (5,607)
-----------------------------------------------------------------
Balance at December 31, 1998 $ 6,300 $ 44,100 $ 43,477 $ 2,422 $ 96,299
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 6
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------
(Amounts in thousands) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 13,863 $ 12,941 $ 11,611
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 1,120 1,098 1,072
Provision for loan losses 2,904 2,975 2,625
Amortization and accretion of discounts and premiums (66) (76) (92)
Amortization of deferred loan costs 1,439 1,176 975
Deferred tax (benefit) expense (10) 321 (71)
(Gain) loss on sale of investment securities available for sale (229) (182) 319
Loss on assets sold 113 117 16
Increase (decrease) in taxes payable 117 (104) 274
Increase in interest receivable (19) (281) (167)
(Decrease) increase in interest payable (227) 119 37
Increase in other liabilities 444 111 470
Increase in other assets (963) (1,420) (278)
------------------------------------
Net cash provided by operating activities 18,486 16,795 16,791
Cash flows from investing activities
Proceeds from the sales of investment securities available for sale 5,265 22,242 24,658
Proceeds from maturities of investment securities held to maturity 37,340 24,640 32,575
Proceeds from maturities of investment securities available for sale 28,878 11,840 27,367
Purchase of investment securities held to maturity -- -- (36,738)
Purchase of investment securities available for sale (83,127) (78,519) (68,254)
Net increase in loans (2,471) (20,640) (18,292)
Proceeds from the sale of other real estate owned 1,249 366 54
Net (increase) decrease in federal funds sold (14,900) 10,700 (16,700)
Capital expenditures (1,424) (887) (565)
------------------------------------
Net cash used in investing activities (29,190) (30,258) (55,895)
Cash flows from financing activities
Net increase (decrease) in deposits 10,296 (5,887) (23,810)
Net (decrease) increase in federal funds purchased and
securities sold under agreement to repurchase (101) 23,778 57,425
Net (decrease) increase in short term borrowings (6,511) 719 4,811
Proceeds from long term borrowings 15,000 -- 3,500
Payments on long term borrowings (960) (914) (737)
Dividends paid (5,607) (4,347) (3,559)
------------------------------------
Net cash provided by financing activities 12,117 13,349 37,630
------------------------------------
Net change in cash and cash equivalents 1,413 (114) (1,474)
Cash and cash equivalents at beginning of year 29,143 29,257 30,731
------------------------------------
Cash and cash equivalents at end of year $ 30,556 $ 29,143 $ 29,257
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 22,970 $ 23,642 $ 22,945
======== ======== ========
Income taxes $ 6,644 $ 5,945 $ 5,355
======== ======== ========
Noncash transactions:
Transfer from loans to other real estate owned $ 137 $ 1,209 $ 287
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Summary of Accounting Policies
The financial information presented is prepared in accordance with generally
accepted accounting principles (GAAP) and general policies within the financial
services industry. Unless otherwise indicated amounts are in thousands, except
per share data.
1. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Mahoning
National Bancorp, Inc. (the Company) and its wholly-owned subsidiary The
Mahoning National Bank of Youngstown (the Bank). All significant
intercompany balances and transactions have been eliminated in
consolidation.
2. INDUSTRY SEGMENT INFORMATION
The Company is a one-bank holding company engaged in the business of
commercial and retail banking, and trust and investment services, with
operations conducted through its main office and branches located
throughout Mahoning and Trumbull Counties of Ohio. Mahoning and Trumbull
Counties provide the source for substantially all of the Company's deposit,
loan and trust activities. The majority of the Company's income is derived
from commercial and retail business lending activities and investments.
3. USE OF ESTIMATES
In preparing financial statements in conformity with GAAP, management is
required to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and revenues and
expenses during the reporting period. Actual results could differ from
those estimates. Areas involving the use of management's estimates and
assumptions include the allowance for loan losses, the realization of
deferred tax assets, fair values of certain securities, the determination
and carrying value of impaired loans, the carrying value of loans held for
sale, the carrying value of other real estate, depreciation of premises and
equipment, the postretirement benefit obligation, the actuarial present
value of pension benefit obligations, net periodic pension expense and
prepaid pension costs recognized in the Company's financial statements.
Estimates that are more susceptible to change in the near term include the
allowance for loan losses and the fair value of certain securities.
4. CASH AND CASH EQUIVALENTS
The Company includes demand deposits at other financial institutions as
cash equivalents.
5. INVESTMENT AND AVAILABLE FOR SALE SECURITIES
Investments are classified in up to three categories and accounted for
based on the respective classification. Debt securities that the Company
has the positive intent and ability to hold to maturity are classified as
held to maturity and reported at amortized cost. Securities bought and held
principally for the purpose of selling them in the near term are classified
as trading securities and reported at fair value, with unrealized gains and
losses included currently in income. Equity securities and debt securities
classified as neither held to maturity nor trading securities are
classified as available for sale and reported at fair value, with
unrealized gains and losses excluded from income and reported as a separate
component of stockholders' equity. The Company did not classify any debt or
equity securities as trading securities in 1998, 1997 or 1996. Realized
gains and losses from sales of debt and equity securities are determined by
specific identification of the security sold. Substantially all interest
earned from obligations of state and political subdivisions is not subject
to federal income tax.
6. LOANS
Loans are stated at the principal amount outstanding net of the unamortized
balance of deferred direct loan origination fees and costs. These net
deferred fees and costs are amortized over the lives of the related loans
as an adjustment to interest income using the interest method. Interest is
accrued as earned unless the collectibility of the loan is in doubt.
Uncollectible interest on loans that are contractually past due is charged
off to interest income to the extent of all interest previously accrued,
and income is subsequently recognized only to the extent that cash payments
are received until, in management's judgment, the borrower's ability to
make periodic interest and principal payments has returned to normal, in
which case the loan is returned to accrual status.
The carrying value of loans classified as impaired is periodically adjusted
to reflect cash payments, revised estimates of future cash flows and
increases in the present value of expected cash flows due to the passage of
time. Cash payments representing interest income are reported as such and
other cash payments are reported as reductions in carrying value. Increases
or decreases in carrying value due to changes in estimates of future
payments or the passage of time are reported as reductions or increases in
the provision for loan losses.
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 122, "Accounting for Mortgage Servicing Rights,"
which 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 asset rights to service mortgage loans are only recorded when the
Company intends to sell such loans. Mortgage servicing assets are amortized
against future service fee income based on the anticipated life of the
loans sold. The adoption of this new statement did not have a material
impact on the Company's consolidated financial position or results of
operations.
Loans held for sale are reported at the lower of cost or market value in
the aggregate.
7. ALLOWANCE FOR POSSIBLE LOAN LOSSES
The determination of the balance of the allowance for possible loan losses
is based on analysis of loans and evaluation of among other items, economic
factors, identified problem loans, delinquencies and charge-off experience.
The balance reflects an amount which, in management's judgment, is adequate
to provide for probable loan losses. The annual provision for loan losses
is charged as an operating expense on the consolidated statement of income.
A loan is defined as impaired when, based on current information and
events, it is probable that a creditor will be unable to collect all
amounts due according to the contractual terms of the loan agreement.
5
<PAGE> 8
Notes to Consolidated Financial Statements
Note A - continued
The Company considers its investment in one-to-four family residential
loans, consumer installment loans and credit card loans to be homogeneous
and, therefore, excluded from separate identification for evaluation of
impairment. With respect to the Company's investment in impaired commercial
loans, nonresidential mortgage loans and nonrated industrial development
obligations, such loans are generally collateral-dependent, and as a
result, are carried as a practical expedient at the lower of cost or fair
value.
It is the Company's policy to charge off unsecured commercial credits that
are more than ninety days delinquent. Similarly, collateral-dependent loans
which are more than ninety days delinquent are considered to constitute
more than a minimum delay in repayment and are evaluated for impairment at
that time.
8. BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation is provided for in amounts
sufficient to relate the cost of depreciable assets to operations over
their estimated service lives on a straight-line basis. Leasehold
improvements are amortized over the lives of the respective leases or the
service lives of the improvements, whichever is less.
9. OTHER REAL ESTATE OWNED
Other real estate owned is comprised of properties acquired through
foreclosure proceedings or acceptances of deeds in lieu of foreclosure.
These properties are included in other assets initially at the lower of
cost or fair value, less estimated selling costs. Any reduction from
carrying value of the related loan to fair value at the time of acquisition
is accounted for as a loan loss. Any subsequent reduction in fair value is
reflected as a charge to income. Expenses to carry other real estate are
charged to operations as incurred. Other real estate owned at December 31,
1998 and 1997 totaled $0 and $1.112 million, respectively.
10. INCOME TAXES
The Company follows the liability method of accounting for income taxes.
The liability method provides that deferred income taxes are recognized for
the tax consequences of temporary differences by applying enacted statutory
tax rates applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets and
liabilities. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.
11. BENEFIT PLANS
The Bank provides certain health care and life insurance benefits for
certain retired employees with twenty or more years of service. The Company
records an accrual for the estimated costs of providing postretirement
benefits over the employee service periods. Upon adoption of SFAS 106, the
Company elected to defer recognition of the accumulated postretirement
benefit obligation existing at January 1, 1993 (transition obligation) of
approximately $2.134 million. The transition obligation is being amortized
as part of postretirement costs over a twenty year period. The funding of
these benefits is made as incurred.
The Bank maintains a noncontributory defined benefit pension plan covering
substantially all full-time employees. Benefit payments for normal
retirement are based on employees' years of service and highest five year
average compensation. The Bank's policy is to contribute an amount annually
to the plan that is tax deductible under the Internal Revenue Code. Pension
expense is computed in accordance with SFAS Nos. 87 and 88.
The Bank has established deferred compensation and phantom stock plans with
certain officers and an elective contributory defined contribution 401 (k)
plan which is offered to substantially all employees. The cost of the
deferred compensation and phantom stock plans are recognized over the
participants respective vesting schedules. Bank contributions to the 401
(k) plan, which are discretionary, are expensed when determined. The
Company recognized expenses totaling $350 thousand, $537 thousand and $251
thousand in connection with these benefit plans for the years ended
December 31, 1998, 1997 and 1996, respectively.
12. EARNINGS PER SHARE
Earnings per share is computed by dividing net income by the weighted
average number of shares outstanding during the year. Weighted average
shares outstanding for each of the years ended 1998, 1997 and 1996 were
6.300 million.
13. TRUST DEPARTMENT ASSETS AND INCOME
Property (other than cash deposits) held by the Bank in fiduciary or agency
capacities for its customers is not included in the accompanying
consolidated statements of financial condition since such items are not
assets of the Bank. Trust department income is recognized on the cash basis
which materially approximates amounts that would be recognized under the
accrual method.
14. FAIR VALUES OF FINANCIAL INSTRUMENTS
The consolidated financial statements include estimated fair value
information as of December 31, 1998 and 1997. Such information, which
pertains to the Company's financial instruments, is based on the
requirements set forth in SFAS 107 and does not purport to represent the
aggregate net fair value of the Company. Further, the fair value estimates
are based on various assumptions, methodologies and subjective
considerations, which may vary widely among different financial
institutions and which are subject to change.
The following methods and assumptions were used by the Company in
estimating financial instrument fair values:
Cash and cash equivalents and federal funds sold
------------------------------------------------
The statement of financial condition carrying amounts for cash and federal
funds sold equal the estimated fair values of such assets.
Investment securities
---------------------
Fair values for investment securities are based on quoted market prices, if
available. If quoted market prices are not available, fair values are based
on quoted market prices of comparable instruments.
6
<PAGE> 9
Notes to Consolidated Financial Statements
Note A - continued
Loans receivable
----------------
For variable rate loans which reprice frequently and which entail no
significant change in credit risk, fair values are based on the carrying
values. The estimated fair values of fixed rate loans are estimated based
on discounted cash flow analyses using interest rates currently offered for
loans with similar terms to borrowers of similar credit quality.
Off-balance sheet instruments
-----------------------------
The Bank is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit through
loans approved, but not yet funded, lines of credit and standby letters of
credit. Since some of these commitments may not be utilized, or utilized in
amounts less than the total committed, the total commitment amounts do not
necessarily represent future cash requirements. Management has determined
that due to the uncertainties of cash flows and difficulty in predicting
the timing of such cash flows, fair values could not be reasonably
estimated for these instruments. However, such amounts would not be
significant.
Accrued interest
----------------
The carrying amounts of accrued interest receivable and accrued interest
payable approximate their fair values.
Deposit liabilities
-------------------
The fair values estimated for deposits subject to withdrawal on demand
(e.g., interest and noninterest bearing checking accounts, savings accounts
and certain types of money market accounts) are, by definition, equal to
the amount payable at the reporting date (i.e., their carrying amounts).
The carrying amounts of variable rate time deposits approximate their fair
values at the reporting date. Fair values of fixed rate time deposits are
estimated using discounted cash flow analyses using interest rates
currently offered to a schedule of aggregated expected time deposit
maturities.
Short term borrowings
---------------------
The carrying amounts of federal funds purchased, borrowings under
repurchase agreements, and other short term borrowings approximate their
fair values.
Long term borrowings
--------------------
The fair value of fixed-rate long term borrowings are estimated using
discounted cash flow analyses at interest rates currently offered to the
borrowing repayment schedules.
15. RECLASSIFICATIONS
Certain reclassifications have been made to the prior year's consolidated
financial statements to conform to the current year presentation. The
reclassifications had no effect on net income or stockholders' equity.
Note B - Investment Securities
The amortized costs, unrealized gains and losses and estimated fair values of
investment securities available for sale and held to maturity at December 31,
1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities $ 90,128 $ 1,788 $-- $ 91,916 $ 95,257 $ 865 $ (34) $ 96,088
Securities of other U.S. government agencies 120,060 1,798 (159) 121,699 69,781 476 (63) 70,194
Obligations of states and political subdivisions 19,897 278 (17) 20,158 14,427 159 -- 14,586
Mortgage-backed securities and
collateralized mortgage obligations 3,482 38 -- 3,520 5,087 71 -- 5,158
---------------------------------------------------------------------------------
Total debt securities available for sale 233,567 3,902 (176) 237,293 184,552 1,571 (97) 186,026
Federal Reserve Bank Stock 945 -- -- 945 945 -- -- 945
Federal Home Loan Bank Stock 2,799 -- -- 2,799 2,607 -- -- 2,607
---------------------------------------------------------------------------------
Total investment securities available for sale $ 237,311 $ 3,902 $ (176) $ 241,037 $ 188,104 $ 1,571 (97) $ 189,578
========= ======= ====== ========= ========= ========= ====== =========
SECURITIES HELD TO MATURITY:
U.S. Treasury securities $ 14,998 $ 2 $ (2) $ 14,998 $ 39,924 $ 34 $ (60) $ 39,898
Securities of other U.S. government agencies -- -- -- -- 11,000 3 (26) 10,977
Obligations of states and political subdivisions 8,852 126 -- 8,978 10,194 120 (1) 10,313
Other debt securities 60 -- -- 60 60 -- -- 60
---------------------------------------------------------------------------------
Total debt securities held to maturity $ 23,910 $ 128 $ (2) $ 24,036 $ 61,178 $ 157 $ (87) $ 61,248
========= ======= ====== ========= ========= ========= ====== =========
</TABLE>
7
<PAGE> 10
Notes to Consolidated Financial Statements
Note B - continued
The amortized cost and estimated fair values of debt securities at December 31,
1998, by contractual maturity, are shown below. Expected maturities may differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
------------------
DEBT SECURITIES AVAILABLE FOR SALE:
<S> <C> <C>
Due in one year or less $ 37,339 $ 37,597
Due after one year through five years 192,746 196,176
------------------
230,085 233,773
Mortgage-backed securities and
collateralized mortgage obligations 3,482 3,520
------------------
Total debt securities available for sale $233,567 $237,293
======== ========
DEBT SECURITIES HELD TO MATURITY:
Due in one year or less $ 17,622 $ 17,644
Due after one year through five years 6,288 6,392
------------------
Total debt securities held to maturity $ 23,910 $ 24,036
======== ========
</TABLE>
Proceeds from the sales of securities available for sale during 1998, 1997 and
1996 were $5.265 million, $22.242 million and $24.658 million, respectively.
Gross gains and losses in 1998 were $229 thousand and $0, respectively. Gross
gains and losses in 1997 were $184 thousand and $2 thousand, respectively. Gross
gains and losses in 1996 were $0 and $319 thousand, respectively.
Securities with a carrying value of $233.449 million and $227.952 million were
pledged to secure public deposits and for other purposes as required or
permitted by law at December 31, 1998 and 1997, respectively.
The Company did not hold any off-balance sheet derivative financial instruments
such as futures, forwards, swap or option contracts during 1998 or 1997.
Included in the available for sale portfolio are mortgage backed securities and
collateralized mortgage obligations which are subject to prepayment risk as a
result of interest rate fluctuations.
During 1998, 1997 and 1996 there were no sales of investment securities held to
maturity.
Note C - Loans
<TABLE>
<CAPTION>
The loan portfolio is comprised of:
December 31,
---------------------
1998 1997
- -----------------------------------------------------------
<S> <C> <C>
Residential mortgage loans $ 149,766 $ 161,236
Nonresidential mortgage loans 117,308 106,738
Commercial and industrial loans 77,776 79,518
Consumer loans to individuals 136,053 134,952
Nonrated industrial development
obligations 4,504 4,379
Other loans 3,735 4,129
---------------------
489,142 490,952
Unearned discount (61) (90)
Unamortized deferred loan costs, net 1,662 1,625
---------------------
$ 490,743 $ 492,487
========= =========
</TABLE>
Note C - continued
Residential mortgage loans held for sale at December 31, 1998 and 1997 totaled
$3.275 million and $298 thousand, respectively.
Loans made to directors, executive officers, principal stockholders or to
entities in which these persons are associated totaled $9.080 million and
$10.792 million at December 31, 1998 and 1997, respectively. The terms and
conditions of these loans are established within the normal lending policies of
the Bank. A summary of transactions during 1998 is as follows:
<TABLE>
<S> <C>
Loan balances at January 1, 1998 $ 10,792
New loans during the year 23,064
Repayments of loan principal (20,369)
Other (4,407)
---------
Loan balances at December 31, 1998 $ 9,080
=========
</TABLE>
Note D - Allowance for Possible Loan Losses
Transactions in the allowance for possible loan losses and information
regarding impaired loans are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $7,524 $8,112 $7,156
Provision charged to
operating expense 2,904 2,975 2,625
Losses charged to allowance
Mortgage loans 208 360 71
Installment loans 1,871 2,051 1,981
Credit card and related plans 501 375 308
Commercial loans 893 1,407 --
------------------------
Total charge-offs 3,473 4,193 2,360
Recoveries of loans charged-off
Mortgage loans 75 8 23
Installment loans 569 558 522
Credit card and related plans 70 40 48
Commercial loans 120 24 98
------------------------
Total recoveries 834 630 691
------------------------
Balance at end of year $7,789 $7,524 $8,112
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------
<S> <C> <C> <C>
Year-end impaired loans with no
allowance for loan losses allocated $ 500 $419 $ 319
Year-end impaired loans with
allowance for loan losses allocated 35 784 890
Amount of the allowance allocated 35 325 350
Average of impaired loans
during the year 952 922 663
Interest income recognized during
impairment 8 9 2
Cash-basis interest income recognized 8 9 2
</TABLE>
Loans with carrying values of $137 thousand and $1.209 million were
transferred to other real estate owned, in 1998 and 1997, respectively.
8
<PAGE> 11
Notes to Consolidated Financial Statements
Note E - Premises and Equipment
Bank premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31,
1998 1997
- --------------------------------------------------------------
<S> <C> <C>
Buildings and improvements $ 6,130 $ 5,976
Furniture, fixtures and equipment 6,238 6,361
Leasehold improvements 2,110 2,234
---------------------
14,478 14,571
Accumulated depreciation and amortization 8,350 7,819
---------------------
6,128 6,752
Construction in progress 532 150
Land 2,184 1,751
---------------------
$ 8,844 $ 8,653
======== =========
</TABLE>
Note F - Deposits
The aggregate amount of short term interest bearing time deposits, each with a
minimum denomination of $100 thousand or more was approximately $33.891 million
and $17.004 million in 1998 and 1997, respectively.
At December 31, 1998, the scheduled maturities of time deposits were as follows:
<TABLE>
<S> <C>
1999 $151,442
2000 26,509
2001 8,834
2002 5,090
2003 4,764
---------
$196,639
=========
</TABLE>
Note G - Short Term Borrowings
Information pertaining to borrowings arising from federal funds purchased,
securities sold under agreement to repurchase and U.S. Treasury demand note is
summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Average balance of borrowings
outstanding during the year $ 142,775 $ 140,338 $ 101,884
Maximum balance of borrowings
at any month end $ 157,641 $ 157,199 $ 132,702
Weighted average interest rate:
December 31 4.31% 4.69% 4.58%
For entire year 4.52% 4.76% 4.60%
</TABLE>
Note H - Long Term Borrowings
Advances from the Federal Home Loan Bank (FHLB) were collateralized
as of December 31, 1998 by pledges of certain residential mortgage loans
totaling $25.909 million and the Bank's investment in FHLB stock. FHLB
advances were comprised of the following at December 31:
<TABLE>
<CAPTION>
Current
Interest Balance
Rate 1998 1997
- ------------------------------------------------------------
<S> <C> <C> <C>
Fixed rate advances, with
monthly interest payments:
Advances due in 2000 4.82% $ 5,000 $ --
Advances due in 2008 5.13 10,000 --
Fixed rate advances, with
monthly principal and
interest payments:
Advances due in 2000 4.90 1,093 1,981
Advances due in 2001 6.45 1,098 1,170
-----------------
$17,191 $ 3,151
======= =======
</TABLE>
At December 31, 1998, the minimum future annual principal payments on borrowings
are as follows:
<TABLE>
<S> <C>
1999 $ 1,010
2000 5,242
2001 939
2002 -
2003 and thereafter 10,000
---------
$ 17,191
=========
</TABLE>
9
<PAGE> 12
Notes to Consolidated Financial Statements
Note I - Income Taxes
Federal income taxes consist of the following components:
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------
<S> <C> <C> <C>
Current expense $ 6,776 $ 5,839 $ 5,611
Deferred (benefits) expenses (10) 321 (71)
----------------------------
$ 6,766 $ 6,160 $ 5,540
======= ======= =======
</TABLE>
The change in net deferred tax each year represents the effect of changes in the
amounts of temporary differences. The Company has not established a valuation
allowance as it is management's belief that it has adequate taxable income and
carrybacks to realize the net deferred tax asset. The sources of gross deferred
tax assets and gross deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------
<S> <C> <C>
Allowance for possible loan losses $ 2,726 $ 2,633
Deferred compensation, pension
and other postretirement benefits 696 568
Deferred loan fees and costs 87 80
Other 49 132
---------------------
Total deferred tax assets 3,558 3,413
---------------------
Unrealized gain on investment securities
available for sale 1,304 516
Investment securities accretion 122 152
Depreciation on premises and equipment 95 256
Deferred pension 604 393
FHLB stock dividends 280 212
Other 70 3
---------------------
Total deferred tax liabilities 2,475 1,532
---------------------
Net deferred tax asset $ 1,083 $ 1,881
========= =========
</TABLE>
A reconciliation setting forth the difference between the effective tax rate of
the Company and the U.S. statutory rate is as follows:
<TABLE>
<CAPTION>
Years ended December 31
1998 1997 1996
- --------------------------------------------------------------
<S> <C> <C> <C>
Income tax at statutory rate 35.0% 35.0% 35.0%
Reductions in tax resulting
from nontaxable investment
and loan income (2.1) (2.6) (3.1)
Other (0.1) (0.2) 0.4
--------------------------
32.8% 32.2% 32.3%
===== ===== =====
</TABLE>
Income tax expense (benefit) attributable to sales of securities available for
sale approximated $80 thousand, $64 thousand and ($112) thousand for the years
ended December 31, 1998, 1997 and 1996, respectively.
Note J
<TABLE>
<CAPTION>
Information about the pension plan was as follows:
1998 1997
- --------------------------------------------------------------
<S> <C> <C>
Change in benefit obligation:
Beginning benefit obligation $ 10,531 $ 9,273
Service cost 471 469
Interest cost 689 688
Actuarial gain 43 371
Benefits paid (302) (270)
----------------------
Ending benefit obligation 11,432 10,531
Change in plan assets, at fair value:
Beginning plan assets 10,902 8,799
Actual return 1,981 1,404
Employer contribution 862 969
Benefits paid (302) (270)
----------------------
Ending plan assets 13,443 10,902
Funded status 2,011 371
Unrecognized net actuarial (gain) loss (73) 850
Unrecognized prior service cost (71) (107)
----------------------
Prepaid benefit cost $ 1,867 $ 1,114
======== ========
</TABLE>
<TABLE>
<CAPTION>
The components of pension expense and the related actuarial assumptions were as
follows:
1998 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 471 $ 469 $ 425
Interest cost 689 688 611
Expected return on plan assets (1,015) (855) (667)
Amortization of prior
service cost (35) (59) (59)
Recognized net actuarial loss -- 89 80
----------------------------------
$ 110 $ 332 $ 390
======== ======== ========
Discount rate on benefit
obligation 6.75% 7.25% 7.25%
Long term expected rate of
return on plan assets 9.75% 9.75% 9.75%
Rate of compensation increase 5.00% 5.00% 5.00%
</TABLE>
10
<PAGE> 13
Notes to Consolidated Financial Statements
Note J - continued
<TABLE>
<CAPTION>
Information about the postretirement benefit plan was as follows:
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Change in benefit obligation:
Beginning benefit obligation $ 1,461 $ 1,767
Interest cost 98 120
Participants' contributions 79 --
Actuarial gain 64 (226)
Benefits paid (291) (200)
------------------
Ending benefit obligation 1,411 1,461
Change in plan assets, at fair value:
Beginning plan assets -- --
Employer contributions 212 200
Participants' contributions 79 --
Benefits paid (291) (200)
------------------
Ending plan assets -- --
Funded status (1,411) (1,461)
Unrecognized net actuarial loss 414 366
Unrecognized transition obligation 751 805
------------------
Accrued benefit cost $ (246) $ (290)
======= =======
</TABLE>
The components of postretirement benefit expense were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest costs $ 99 $ 120 $ 141
Amortization of transition
obligation 54 54 54
Recognized net actuarial loss 16 28 47
-----------------------------
$ 169 $ 202 $ 242
======= ======= =======
Discount rate on benefit
obligation 6.75% 7.25% 7.25%
</TABLE>
Assumed health care costs trend rates have a significant effect on the amounts
reported for the health care plan. A one-percentage-point change in assumed
health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1-Percentage 1-Percentage
Point Increase Point Decrease
-------------------------------
<S> <C> <C>
Effect on total of service and interest
cost components $ 3 $ (3)
Effect on postretirement benefit
obligation $ 68 $ (63)
</TABLE>
Note K - Commitments and Contingencies
There are various contingent liabilities that are not reflected in the financial
statements, including claims and legal actions arising in the ordinary course of
business. In the opinion of management, after consultation with legal counsel,
the ultimate disposition of these matters is not expected to have a material
effect on the Company's financial condition or results of operations.
At year-end 1998 and 1997, reserves of $1.690 million and $11.152 million were
required as deposits with the Federal Reserve or as cash on hand. These reserves
do not earn interest.
The Bank grants commercial and industrial loans, commercial and residential
mortgages, and consumer loans to customers in the Mahoning Valley. Although the
Bank has a diversified portfolio, exposure to credit loss can be adversely
impacted by downturns in local economic and employment conditions.
The Bank is party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit through loans
approved, but not yet funded, lines of credit and standby letters of credit. The
Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments. The Bank evaluates each
customer's creditworthiness on a case-by-case basis, and the amount of
collateral obtained is based upon the credit evaluation. Collateral held varies
but may include accounts receivable, inventory, property, plant and equipment,
income-producing properties, stocks, bonds, certificates of deposit and other
deposit accounts, real estate and vehicles. Commercial loans may also require
the personal guarantees of various business owners and/or key management.
The commitments to extend credit generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since some of these
commitments may not be utilized, or utilized in amounts less than the total
committed, the total commitment amounts do not necessarily represent future cash
requirements. The majority of the unfunded commitments at December 31, 1998 are
variable rate commitments, with approximately 10% or $17 million having fixed
rates. A summary of estimated commitments to extend credit at December 31, 1998
and 1997, follows:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------
Commitment Commitment
Amount Amount
---------------------------
<S> <C> <C>
Standby letters of credit $ 6,529 $ 11,685
Commitments to extend credit 141,344 121,478
Credit card arrangements 14,761 12,343
Unfunded loans in process 6,652 7,609
---------------------------
$ 169,286 $ 153,115
========== =========
</TABLE>
Note L - Stockholders' Equity
On April 15, 1996, the Board of Directors authorized a stock split in the amount
of 3,150,000 shares. The stock split, effected in the form of a stock dividend,
was issued on May 15, 1996. After issuance of the stock dividend, the Company
had 6,300,000 shares of its 15,000,000 authorized shares of no par value common
stock issued and outstanding. All net income and dividend per share information
presented has been adjusted to reflect the stock split on a retroactive basis.
On March 19, 1996, at the Annual Stockholders' Meeting of Mahoning National
Bancorp, Inc., the stockholders approved increasing the authorized common shares
of the Company from 7,000,000 shares to
11
<PAGE> 14
Notes to Consolidated Financial Statements
Note L - continued
15,000,000 shares, and to eliminate "par value" from its authorized common
shares.
The approval of the Comptroller of the Currency is required for national banks
to pay dividends in excess of earnings retained in the current year plus
retained net profits for the preceding two years. As of December 31, 1998,
approximately $1.698 million of undistributed earnings of the Bank was available
for distribution to the parent company as dividends without prior regulatory
approval.
The Company and Bank are subject to regulatory capital requirements
administered by federal banking agencies. Capital adequacy guidelines and prompt
corrective action regulations involve quantitative measures of assets,
liabilities and certain off-balance-sheet items calculated under regulatory
accounting practices. Capital amounts and classifications are also subject to
qualitative judgments by regulators about components, risk weightings and other
factors, and the regulators can lower classifications in certain cases. Failure
to meet various capital requirements can initiate regulatory action that could
have a direct material effect on the financial statements.
The prompt corrective action regulations provide five classifications, including
well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized, although these terms are not
used to represent overall financial condition. If adequately capitalized,
regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required. The minimum
requirements are:
<TABLE>
<CAPTION>
Capital to risk-
weighted assets
---------------- Tier 1 capital
Total Tier 1 to average assets
----------------------------------
<S> <C> <C> <C>
Well capitalized 10% 6% 5%
Adequately capitalized 8% 4% 4%
Undercapitalized 6% 3% 3%
</TABLE>
The Company was considered well capitalized as of December 31, 1998 and 1997.
Management is not aware of any events or circumstances that have occurred since
year-end that would change the Company's capital category.
<TABLE>
<CAPTION>
At year-end, actual capital levels and minimum required levels were:
Minimum Required
To Be Well
Minimum Required Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Regulations
- ------------------------------------------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998
Total capital (to risk weighted assets)
Consolidated $ 100,081 20.16% $ 39,706 8.00% $49,633 10.00%
Bank $ 76,355 15.39% $ 39,701 8.00% $49,626 10.00%
Tier I capital (to risk weighted assets)
Consolidated $ 93,857 18.91% $ 19,853 4.00% $29,780 6.00%
Bank $ 70,133 14.13% $ 19,851 4.00% $29,776 6.00%
Tier I capital (to average assets)
Consolidated $ 93,857 11.78% $ 31,871 4.00% $39,839 5.00%
Bank $ 70,133 8.80% $ 31,868 4.00% $39,835 5.00%
1997
Total capital (to risk weighted assets)
Consolidated $ 91,687 18.95% $ 38,709 8.00% $48,387 10.00%
Bank $ 71,339 14.75% $ 38,704 8.00% $48,380 10.00%
Tier I capital (to risk weighted assets)
Consolidated $ 85,621 17.70% $ 19,355 4.00% $29,032 6.00%
Bank $ 65,273 13.49% $ 19,352 4.00% $29,028 6.00%
Tier I capital (to average assets)
Consolidated $ 85,621 11.05% $ 30,994 4.00% $38,742 5.00%
Bank $ 65,273 8.42% $ 30,992 4.00% $38,739 5.00%
</TABLE>
12
<PAGE> 15
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Note M - Fair Value of Financial Instruments
The following table provides summary information on the fair value of financial
instruments.
December 31,
----------------------------------------------------------
1998 1997
Carrying Estimated Carrying Estimated
Amount of Fair Value of Amount of Fair Value of
Assets and Assets and Assets and Assets and
(Liabilities) (Liabilities) (Liabilities) (Liabilities)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 30,556 $ $30,556 $ 29,143 $ 29,143
Federal funds sold 23,700 23,700 8,800 8,800
Investment securities 264,947 265,073 250,756 250,826
Loans receivable 482,954 496,577 484,963 488,437
Accrued interest receivable 6,265 6,265 6,246 6,246
Deposits (555,407) (555,855) (545,111) (545,355)
Short term borrowings (150,587) (150,587) (157,199) (157,199)
Long term borrowings (17,191) (17,179) (3,151) (3,122)
Accrued interest payable (1,752) (1,752) (2,014) (2,014)
</TABLE>
Note N - Other Comprehensive Income
Comprehensive income consists of net income and other comprehensive income.
Other comprehensive income includes unrealized gains and losses on securities
available for sale, which are also recognized as separate components of equity.
The accounting standard that requires reporting comprehensive income first
applies for 1998, with prior information restated to be comparable.
Other comprehensive income components and related taxes for the years ended
December 31, are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized holding gains (losses) on available for sale securities $ 2,481 $ 1,550 $(1,239)
Less reclassification adjustment for gains (losses) later recognized in income 229 182 (319)
----------------------------
Net unrealized gains (losses) 2,252 1,368 (920)
Tax effect 788 478 (322)
----------------------------
Other comprehensive income $ 1,464 $ 890 $ (598)
======= ======= =======
</TABLE>
13
<PAGE> 16
Notes to Consolidated Financial Statements
Note O - Parent Company Financial Information
Statements of Financial Condition
<TABLE>
<CAPTION>
Mahoning National Bancorp, Inc.
(Parent Company Only)
December 31,
1998 1997
- ----------------------------------------------------------------------
<S> <C> <C>
Assets
Cash $14,659 $ 250
Advances to subsidiary -- 15,000
Investment in subsidiary 72,574 66,231
Other assets 9,066 5,098
-----------------
Total assets $96,299 $86,579
======= =======
Stockholders' equity
Common stock $ 6,300 $ 6,300
Additional paid-in capital 44,100 44,100
Retained earnings 43,477 35,221
Accumulated other comprehensive income 2,422 958
-----------------
Total stockholders' equity $96,299 $86,579
======= =======
</TABLE>
Statements of Income
<TABLE>
<CAPTION>
Mahoning National Bancorp, Inc.
(Parent Company Only)
For the years ended December 31,
1998 1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income
Dividends from bank subsidiary $ 9,000 $ 9,377 $ 18,644
Interest income 70 424 12
-------------------------------
9,070 9,801 18,656
Expenses
Other expenses 95 122 94
-------------------------------
Income before tax benefit and equity in
undistributed net income of subsidiary 8,975 9,679 18,562
Income tax benefit (expense) 9 (117) 31
-------------------------------
Income before equity in undistributed net income of subsidiary 8,984 9,562 18,593
Equity in undistributed net income of subsidiary 4,879 3,379 (6,982)
-------------------------------
Net income $ 13,863 $ 12,941 $ 11,611
======== ======== ========
</TABLE>
Statements of Cash Flows
<TABLE>
<CAPTION>
Mahoning National Bancorp, Inc.
(Parent Company Only)
For the years ended December 31,
1998 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 13,863 $ 12,941 $ 11,611
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in undistributed net income of subsidiary (4,879) (3,379) 6,982
Amortization -- 5 14
Increase in other assets (3,968) (5,025) (9)
--------------------------------
Net cash provided by operating activities 5,016 4,542 18,598
Cash flows from investing activities:
Decrease (increase) in short term advances 15,000 (15,000) --
Decrease (increase) in short term deposits -- 15,000 (15,000)
--------------------------------
Net provided by (cash used) in investing activities 15,000 -- (15,000)
Cash flows from financing activities:
Cash dividends paid (5,607) (4,347) (3,559)
--------------------------------
Net cash used in financing activities (5,607) (4,347) (3,559)
--------------------------------
Net increase in cash 14,409 195 39
Cash at beginning of year 250 55 16
--------------------------------
Cash at end of year $ 14,659 $ 250 $ 55
======== ======== ========
</TABLE>
14
<PAGE> 17
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Note P - Quarterly Financial Data (Unaudited)
1998
Three months ended
-----------------------------------------------
March 31 June 30 September 30 December 31
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $14,506 $14,726 $14,696 $14,805
Interest expense 5,838 5,793 5,667 5,445
-----------------------------------------------
Net interest income 8,668 8,933 9,029 9,360
Provision for loan losses 726 726 726 726
Noninterest income 2,065 2,253 2,294 2,348
Noninterest expense 5,189 5,251 5,190 5,787
-----------------------------------------------
Income before income taxes 4,818 5,209 5,407 5,195
Income taxes 1,566 1,703 1,774 1,723
-----------------------------------------------
Net income $ 3,252 $ 3,506 $ 3,633 $ 3,472
======= ======= ======= =======
Per share data:
Net income $ 0.52 $ 0.55 $ 0.58 $ 0.55
Dividends $ 0.21 $ 0.21 $ 0.21 $ 0.26
</TABLE>
<TABLE>
<CAPTION>
1997
Three months ended
-----------------------------------------------
March 31 June 30 September 30 December 31
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $14,188 $14,554 $14,595 $14,793
Interest expense 5,861 5,983 5,942 5,975
-----------------------------------------------
Net interest income 8,327 8,571 8,653 8,818
Provision for loan losses 800 725 725 725
Noninterest income 2,143 2,085 2,101 2,004
Noninterest expense 5,025 5,111 5,055 5,435
-----------------------------------------------
Income before income taxes 4,645 4,820 4,974 4,662
Income taxes 1,512 1,568 1,619 1,461
-----------------------------------------------
Net income $ 3,133 $ 3,252 $ 3,355 $ 3,201
======= ======= ======= =======
Per share data:
Net income $ 0.50 $ 0.51 $ 0.53 $ 0.51
Dividends $ 0.16 $ 0.16 $ 0.16 $ 0.21
</TABLE>
15
<PAGE> 18
Report of Independent Auditors
[LOGO]
[CROWE CHIZEK]
Board of Directors and Stockholders
Mahoning National Bancorp, Inc.
We have audited the accompanying consolidated statements of financial
condition of Mahoning National Bancorp, Inc. as of December 31, 1998 and 1997
and the related consolidated statements of income, changes in stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Mahoning
National Bancorp, Inc. as of December 31, 1998 and 1997 and the consolidated
results of its operations and its consolidated cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
Cleveland, Ohio /s/ Crowe, Chizek and Company LLP
January 8, 1999
Crowe, Chizek and Company LLP
16
<PAGE> 19
Report on Internal Controls over Financial Reporting
MAHONING NATIONAL BANCORP, INC.
23 FEDERAL PLAZA
YOUNGSTOWN, OHIO 44501-0479
Management is responsible for preparing financial statements and
establishing and maintaining effective internal controls over financial
reporting presented in conformity with both generally accepted accounting
principles and the Federal Financial Institutions Examination Council
instructions for Consolidated Reports of Condition and Income (call report
instructions). The internal control system contains monitoring mechanisms, and
actions are taken to correct deficiencies identified.
There are inherent limitations in the effectiveness of any system of
internal control, including the possibility of human error and the circumvention
or overriding of controls. Accordingly, even an effective internal control
system can provide only reasonable assurance with respect to financial statement
preparation. Further, because of changes in conditions, the effectiveness of an
internal control system may vary over time.
Management assessed the Company's internal controls over financial
reporting presented in conformity with both generally accepted accounting
principles and call report instructions as of December 31, 1998. This assessment
was based on criteria for effective internal control over financial reporting
described in Statement on Auditing Standards No. 78 "Internal Control in a
Financial Statement Audit" issued by the Auditing Standards Board of the
American Institute of Certified Public Accountants. Based on this assessment,
management believes that, as of December 31, 1998, Mahoning National Bancorp,
Inc. maintained effective internal controls over financial reporting presented
in conformity with both generally accepted accounting principles and call report
instructions.
/s/ Gregory L. Ridler /s/ Norman E. Benden, Jr.
Gregory L. Ridler Norman E. Benden, Jr.
Chairman of the Board, Secretary and Treasurer
President and
Chief Executive Officer
17
<PAGE> 20
<TABLE>
<CAPTION>
COMPARATIVE FINANCIAL DATA
Years ended December 31,
--------------------------------------------------------------------
(Amounts in thousands, except per share data) 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EARNINGS
Interest income $ 58,733 $ 58,130 $ 56,081 $ 53,145 $ 47,135
Interest expense 22,743 23,761 22,982 22,193 17,410
--------------------------------------------------------------------
Net interest income 35,990 34,369 33,099 30,952 29,725
Provision for loan losses 2,904 2,975 2,625 1,900 1,900
Noninterest income 8,960 8,333 7,174 6,038 5,495
Noninterest expense 21,417 20,626 20,497 20,380 20,642
--------------------------------------------------------------------
Income before income taxes 20,629 19,101 17,151 14,710 12,678
Income taxes 6,766 6,160 5,540 4,640 4,118
--------------------------------------------------------------------
Net income $ 13,863 $ 12,941 $ 11,611 $ 10,070 $ 8,560
======== ======== ======== ======== ========
YEAR-END BALANCES
Assets $824,644 $796,866 $769,560 $720,135 $707,874
Loans 490,743 492,487 477,795 462,435 425,367
Investment securities 264,947 250,756 229,332 210,087 235,174
Deposits 555,407 545,111 550,998 574,808 554,609
Securities sold under agreements to repurchase 146,144 146,245 122,467 65,042 81,247
Stockholders equity 96,299 86,579 77,095 69,641 60,031
AVERAGE BALANCES
Assets $796,780 $774,847 $749,811 $717,097 $676,745
Loans 492,366 490,167 478,237 445,594 407,028
Investment securities 253,691 235,814 225,042 221,580 226,952
Deposits 544,242 543,335 565,219 558,546 547,450
Securities sold under agreements to repurchase 132,524 128,843 93,810 75,512 58,508
Stockholders equity 91,705 81,802 73,328 65,527 58,657
PER SHARE DATA (1)
Net income $ 2.20 $ 2.05 $ 1.84 $ 1.60 $ 1.36
Dividends 0.890 0.690 0.565 0.465 0.395
Book value 15.29 13.74 12.24 11.05 9.53
RATIOS
Return on average assets 1.74% 1.67% 1.55% 1.40% 1.26%
Return on average equity 15.12 15.82 15.83 15.37 14.59
Net interest margin (2) 4.89 4.79 4.78 4.68 4.76
Efficiency ratio (3) 47.39 47.71 49.62 53.77 57.27
Stockholders equity to assets 11.68 10.86 10.02 9.67 8.48
Dividends to net income 40.45 33.59 30.66 29.09 29.07
Loans to deposits 88.36 90.35 86.71 80.45 76.70
Allowance for loan losses to total loans 1.59 1.53 1.70 1.55 1.57
Nonperforming loans to total loans 0.34 0.58 0.97 0.49 0.51
(1) Adjusted for 2:1 stock split in the form of a 100% stock dividend in 1996
and 1994.
(2) Tax equivalent basis.
(3) Other operating expenses as a percentage of net interest income on a
fully-taxable equivalent basis and noninterest income (excluding security
gains and gains on sales of loans).
</TABLE>
18
<PAGE> 21
BUSINESS OVERVIEW
Mahoning National Bancorp, Inc.
Mahoning National Bancorp, Inc. (Mahoning National) is a one-bank holding
company located in Youngstown, Ohio, and has total assets of $824.644 million.
The sole subsidiary of the Company is The Mahoning National Bank of Youngstown.
Mahoning National, locally-owned and independent, serves the Mahoning-Shenango
Valley market area. This area has a population of approximately 600,000
residents served by Mahoning National's twenty-one (21) banking locations in
Mahoning and Trumbull Counties. As of December 31, 1998, Mahoning National
employed 411 individuals, or a full-time equivalent of 375 employees.
Mahoning National offers a full-range of financial products and services. The
core accounts are represented by an array of personal and nonpersonal checking
products that include interest and noninterest bearing checking accounts. A
comprehensive offering of credit products includes: installment loans, student
loans, home mortgages, construction loans, commercial loans, revolving lines of
credit, MasterCard(R), VISA(R) and home equity loans, which can accommodate a
full-range of individual borrower's needs.
Other retail products and services offered are: Certificates of Deposits, IRAs,
safe deposit boxes, wire transfers, night depository, U.S. savings bonds,
traveler's checks, money orders and cashiers checks.
To further meet the needs of its diversified customer base, the hours of
operation offered at Mahoning National were expanded; in fact, Mahoning National
provides a wide variety of delivery channels from which customers can choose to
accommodate their particular lifestyles. Traditional branch banking with
personalized, one-on-one service is available at all Mahoning National Branch
Offices, while telephone banking is also available by calling Mahoning
National's Centralized Customer Service Center. Continuing to grow in
popularity, TeleBank, Mahoning National's automated 24-hour-a-day telephone
response system, is also available, allowing all customers to bank at their
convenience.
Following its business strategy of providing customers with value-added products
and services, as well as to accommodate our business customers, in August,
Mahoning National Bank introduced ExecuBank, a new interactive Cash Management
system that instantly puts its customers in touch with their accounts 24 hours a
day, 7 days a week. This new PC-based electronic product allows authorized
individuals access to account cash positions, account management and funds
management within their accounts from the privacy of their own offices.
Mahoning National's trust and investment customers also have direct access to
their account information: customers can review receipts and disbursements and
determine portfolio market values via Trust Web, a confidential Internet
service, while other clientele have telephone access to review balances and make
investment changes through a user-friendly telephone Voice Response Unit.
Mahoning National continued its commitment to the Mahoning Valley by reinvesting
in its own franchise. In December 1998, Mahoning National Bank opened a new
state-of-the-art branch facility in Austintown. This 3,600-square-foot brick
facility houses a fully-functional Customer Service Counter, an innovative
approach to banking aimed at providing better, more efficient customer service.
Instead of having to wait in line for a teller, customers are now able to
perform all noncash transactions, such as deposits and payments, at the counter,
as well as obtain information regarding new accounts, check orders, loans,
account changes, safe deposit boxes and other financial products and services. A
Financial Services Center for alternative investment products, expanded hours
and drive-up facilities, including a drive-up ATM, further enhance customer
service at this new branch.
Mahoning National's Financial Services Center, located within the Bank's Trust
and Investments Department, makes alternative investment products, such as
annuities, mutual funds and accommodative brokerage services, available to
customers and the general public through an arrangement with a third-party
vendor.
Mahoning National also offers a full-range of trust services through its Trust
and Investments Department. The services are provided by highly educated
professionals and include Recordkeeping, Investment Management and Full
Administration for Agency, Estate, Trust and Employee Benefit accounts. The
Department also offers two, highly flexible and unique services known as
Preferred Living Trust and MNB Select Asset Allocation. These specialized
services are designed to cater specifically to investors growing their
portfolios and living trust clients not currently utilizing full administration
services.
A highly competitive financial market environment with both intra- and
interstate competition can be found throughout the State of Ohio. Mahoning
National's major competitors include local financial institutions, regional
financial institutions and large nonbanking investment concerns, such as
insurance and brokerage firms.
Mahoning National Bancorp, Inc., is subject to supervision and regulation by the
Federal Reserve Board under the Bank Holding Company Act of 1956, as amended.
Since it is a bank holding company, the services provided by Mahoning National
are required to be closely related to the business of banking. The only
subsidiary of Mahoning National is The Mahoning National Bank of Youngstown,
which is a national commercial bank. As a result of being a national bank,
Mahoning National Bank is supervised and regulated by the Office of the
Comptroller of the Currency and is subject to yearly examination.
19
<PAGE> 22
MANAGEMENT'S DISCUSSION & ANALYSIS
Mahoning National Bancorp, Inc.
The following Management's Discussion and Analysis of the financial condition
and results of operations of Mahoning National Bancorp, Inc., (Company) should
be read in conjunction with the Consolidated Financial Statements, related Notes
and the Comparative Financial Data contained in this annual report.
Note regarding forward-looking statements
In addition to the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. When used herein, the terms "anticipates," "plans," "expects,"
"believes" and similar expressions as they relate to the Company or its
management are intended to identify such forward-looking statements. The
Company's actual results, performance or achievements may materially differ from
those expressed or implied in the forward-looking statement. Risks and
uncertainties that could cause or contribute to such material differences
include, but are not limited to, general economic conditions, interest rate
environment, competitive condition in the financial services industry, changes
in law, governmental policies and regulations and rapidly changing technology
affecting financial services.
Statements of Condition
Total assets at December 31, 1998 reached a historic high of $824.644 million,
which was an increase of $27.778 million or 3.5% over December 31, 1997 total
assets of $796.866 million. Total earning assets at December 31, 1998 were
$779.390 million, an increase of $27.347 million from the $752.043 million in
earning assets at December 31, 1997. This growth in earning assets was primarily
funded with a $14.040 million increase in Federal Home Loan Bank advances and a
$10.296 million increase in deposits.
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 ("Mahoning
National" or "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 the responsibility to borrowers and offer a favorable return
to the stockholders.
At December 31, 1998, the investment portfolio totaled $264.947 million, (which
included a $3.726 million net unrealized gain on available for sale securities)
which was an increase of $14.191 million from December 31, 1997. In 1998,
$66.218 million of the portfolio matured compared to $36.480 million in 1997,
and $5.265 million was sold in 1998 compared to $22.242 million in 1997. These
matured and sold securities were reinvested into the portfolio in both 1998 and
1997.
At December 31, 1998, the Company has classified investment securities with
amortized cost and fair value of $237.311 million and $241.037 million,
respectively or 90% of the portfolio, as available for sale, with the remainder
of the portfolio classified as held to maturity. At December 31, 1997, the
Company had classified investment securities with amortized cost and fair value
of $188.104 million and $189.578 million, respectively, or 75% of the portfolio,
as available for sale, with the remainder of the portfolio classified as held to
maturity. No securities were transferred between categories in 1998 or 1997.
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. The Company did not hold any on- or
off-balance sheet derivatives during 1998 or 1997, and does not expect to in
1999. The carrying amount of investment securities available for sale at
December 31, 1998 reflects a net increase, related to unrealized gains, of
$3.726 million with a corresponding increase to stockholders' equity, net of
deferred taxes, of $2.422 million, compared to a net increase in the carrying
amount at December 31, 1997, of $1.474 million with a corresponding $958
thousand increase in stockholders' equity.
The Company's portfolio is comprised mainly of U.S. Treasuries and agencies
(86%) and obligations of state and political subdivisions (11%). The quality of
the portfolio is evidenced by 99.6% of the investments being AAA rated. At
December 31, 1998 the weighted average maturity of the portfolio was 2 years 5
months compared to 2 years 3 months at December 31, 1997. It is the Company's
intent to keep the average duration of the portfolio at this level in order to
assure adequate liquidity and to capitalize on potential changes in interest
rate environments.
During 1998, the Company continued to add tax-free municipals to the investment
portfolio in an effort to reduce its effective tax rate and improve net income.
The average balance of tax-free municipals for 1998 was $26.737 million, an
increase of $2.661 million over the 1997 average balance of $24.076 million and
$6.511 million over the 1996 average balance of $20.226 million. The Company
expects to continue to add to this portfolio in 1999.
The tax equivalent yield of the investment portfolio decreased by 1 basis point
from 6.13% in 1997 to 6.12% in 1998. For additional investment portfolio
information refer to Note B - Investment Securities found on pages 7 and 8 of
this report.
Loans
At December 31, 1998, loans outstanding totaled $490.743 million, which was a
decrease of $1.744 million or less than 1% from December 31, 1997 loan totals of
$492.487 million. While actual December 31, 1998 loan balances decreased,
average loan balances increased $2.199 million in 1998 compared to 1997. The
loan portfolio, which is the Company's most profitable earning asset, totaled
65% of average earning assets in 1998 compared to 67% in 1997. The loan to
deposit ratio at December 31, 1998 was 88.36% compared to 90.35% at December 31,
1997.
The loan portfolio, with the exception of nonresidential mortgages and consumer
loans, experienced a decline from December 31, 1997 totals due to a competitive
loan pricing environment and the Company's decision to maintain more strict
underwriting standards. As interest margins continue to shrink due to the flat
yield curve, loan pricing and loan terms have become very competitive. The
Company has made a decision not to chase loan volume with rates or terms that
would jeopardize the quality of the loan portfolio.
The area of largest growth in 1998 was nonresidential mortgages which increased
as a result of loan demand and results from business development efforts. This
growth was offset by a decrease in residential mortgage loans that resulted from
the Company selling originated long term fixed rate mortgage loans in the
secondary market.
Nonresidential mortgages increased approximately $10.6 million or 10% in 1998
following $11.4 million or 12% growth in 1997. The continued strength of the
local economy, a good environment for construction and a favorable interest rate
environment contributed to the growth in 1998. The dollar fluctuation of
nonresidential mortgages can be more volatile than other loan products due to
the nature of the product and larger dollar amount of individual loans. As the
competition for nonresidential mortgages increases throughout 1999, 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.
Residential mortgage loans declined approximately $11.5 million or 7% in 1998,
compared to $4.5 million or 3% growth in 1997. The
20
<PAGE> 23
Management's Discussion & Analysis
Company, which was more active in the secondary market in 1998, sold
approximately $21.5 million in long term fixed rate mortgages compared to $1.0
million in 1997. The increase in the sale of long term fixed rate mortgages was
the result of an asset liability management strategy of not adding long term
fixed rate assets to the balance sheet. The Company expects to continue to
generate saleable loans, with servicing retained in 1999. With the current
emphasis on selling long term fixed rate mortgages in the secondary market and
continued refinancing pressures due to the historically low mortgage interest
rate environment, a continued decline in the residential mortgage loan portfolio
is expected in 1999.
<TABLE>
<CAPTION>
Five Year Loan History
December 31,
(Amounts in thousands) 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Residential mortgage loans $ 149,766 $ 161,236 $ 156,693 $ 144,708 $ 135,840
Nonresidential mortgage loans 117,308 106,738 95,312 86,757 85,713
Commercial and industrial loans 77,776 79,518 87,130 80,310 69,202
Consumer loans to individuals 136,053 134,952 127,947 138,443 119,938
Nonrated industrial
development obligations 4,504 4,379 7,253 8,806 10,485
Other loans 3,735 4,129 2,481 2,732 3,960
--------------------------------------------------------------------------
489,142 490,952 476,816 461,756 425,138
Unearned discount (61) (90) (123) (149) (125)
Unamortized deferred
loan costs, net 1,662 1,625 1,102 828 354
--------------------------------------------------------------------------
490,743 492,487 477,795 462,435 425,367
Allowance for possible
loan losses (7,789) (7,524) (8,112) (7,156) (6,694)
--------------------------------------------------------------------------
Net loans $ 482,954 $ 484,963 $ 469,683 $ 455,279 $ 418,673
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Maturities and Sensitivities of Commercial Loans to Changes in Rates
As of December 31, 1998
Over One
One Year through Over
(Amounts in thousands) or Less Five Years Five Years Total
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial and
industrial loans $19,445 $54,041 $ 4,290 $77,776
Nonrated industrial
development obligations 1,810 2,041 653 4,504
------- ------- ------- -------
$21,255 $56,082 $ 4,943 $82,280
======= ======= ======= =======
Fixed interest rates $19,857 $ 4,124
======= =======
Variable interest rates $36,225 $ 819
======= =======
</TABLE>
Consumer loans increased approximately $1.1 million or 1% in 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 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) continues to remain strong. These
companies have been offering a variety of below market lease and loan programs,
which has reduced the amount of new car financing available to bank lenders. To
effectively compete in this environment, the Company must continue to provide
the dealer network with a very high level of quality service that can help
offset lower rate alternatives. While the automobile financing market remains
highly competitive, the Company was able to increase market share through the
development of new dealer relationships and incentive plans for the dealer
network. In addition, the Company has benefited from regional bank competitors
consolidating operations out of the market area, which has not allowed them to
service the dealer network as efficiently as Mahoning National. The Company
currently purchases indirect auto loans from 100 dealers throughout the
Company's market area.
Deposits
Total deposits for 1998 increased $10.296 million, or 2%, to $555.407 million,
compared to a $5.887 million or 1% decrease in 1997. Savings and interest
bearing checking accounts decreased only $498 thousand, time deposits increased
$1.167 million while noninterest bearing demand deposits increased $9.627
million or 13% in 1998. The Company does not maintain any brokered deposits.
While actual deposit balances at December 31, 1998 increased $10.296 million
from year-end balances of 1997, the Company's average deposit totals for 1998,
$544.242 million, remained at approximately the same level as 1997, $543.335
million. While deposits increased in 1998, consumers continue to move their
funds from the banking industry into mutual funds or other investment products
which tend to offer higher returns. In addition, competitive pressures from
within the banking and savings and loan industries to increase market share are
making it much more difficult to retain deposits. To address these competitive
pressures, in 1998 the Company continued to evaluate its branch network and
alternative delivery channels in order to improve the delivery of its products
and services. As a result, the hours of operation offered to the Company's
customer base were expanded at branch offices. In addition, the Company's
automated 24-hour-a-day telephone response system and automated bill payment
system saw continued growth in transaction volumes. Two new value-added checking
accounts introduced in the fourth quarter of 1997 to meet the needs of today's
value conscious customer continued to add to the Company's customer base during
1998 and provides cross sale opportunities and increased fee income. In August
1998, the Company introduced ExecuBank, a new interactive cash management system
that allows our commercial customers access to their accounts 24 hours a day, 7
days a week from their own office via a personal computer. It is imperative that
the Company offer the products that our customers want at competitive prices and
that we continue to provide the quality service that distinguishes Mahoning
National from its peers.
The Company's repurchase agreements, which include Corporate Investment
Accounts, continued to grow in 1998. While actual balances at December 31, 1998
were $101 thousand less than December 31, 1997 balances, average balances for
1998 increased $3.681 million over 1997 average balances. The Company's
Corporate Investment account is an overnight "sweep" repurchase agreement which
is used by large corporate customers and local political subdivisions. While
these types of accounts are considered more volatile than traditional deposit
liabilities, management believes they provide a strong base of funds, which
allows the Company to support loan growth and expand its investment security
portfolio. Corporate Investment accounts are expected to remain a stable source
of funds for the Company in 1999 as existing relationships expand and new
customers are solicited.
Stockholders' Equity
Total stockholders' equity grew $9.720 million or 11% to a record high of
$96.299 million in 1998. This increase reflects retained earnings less dividends
paid and also reflects a $2.422 million unrealized gain, net of deferred taxes,
on the available for sale investment portfolio during 1998, which is a component
of equity. The stockholders' equity-to-asset ratio of 11.68% and 10.86% for 1998
and 1997 respectively, continues to remain strong when compared to industry
standards.
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 December 31, 1998 the
Company's leverage, Tier 1 and total risk-based
21
<PAGE> 24
Management's Discussion & Analysis
capital ratios were 11.78%, 18.91% and 20.16%, respectively compared to 11.05%,
17.70% and 18.95% at December 31, 1997, 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. 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. Due to the increased level of capital in 1999, management is
reviewing various capital management strategies. It is the Company's intent to
prudently manage the capital base in an effort to increase return on equity
performance while maintaining the necessary capital requirements to maintain the
"well capitalized" classification. For additional information on the Company's
risk-based capital ratios and equity transactions refer to Note L-Stockholders'
Equity on pages 11 and 12 of this report.
The 24% dividend increase, from $.21 per share to $.26 per share in the fourth
quarter of 1998 represented the thirty-third consecutive year the Company has
increased the annual dividend. Dividends paid in 1998 amounted to $5.607 million
or $.89 per share compared to $4.347 million or $.69 per share in 1997 and
$3.559 million or $.565 per share in 1996. The Company's dividend payout ratio
increased for the fourth consecutive year to 40.45% for 1998 from 33.59% in 1997
and 30.66% in 1996. The book value per share as of December 31, 1998 reached a
record high of $15.29 compared to $13.74 and $12.24 at year-end 1997 and 1996,
respectively.
Asset Quality
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 practices. 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
December 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.
The following exhibits show the allocation of the allowance for loan losses to
the various risk categories of the loan portfolio and a five year history of the
allowance.
The provision for loan losses charged to expense for the year-ended December 31,
1998 was $2.904 million, representing a 2% decrease from the $2.975 million
provision charged to expense in 1997 and an 11% increase over the $2.625 million
provision charged to expense in 1996. In the three year period ended December
31, 1998, the increase in provision charged to expense was due in part to growth
of the overall loan portfolio and in response to certain credits and general
economic uncertainties.
Net charge-offs declined $924 thousand or 26% from $3.563 million in 1997 to
$2.639 million in 1998. Net charge-offs as a percent of average loans were
0.54%, 0.73% and 0.35% for 1998, 1997 and 1996, respectively.
The Company's experience in 1998 and 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. Net charge-offs of consumer loans and credit card and related plans
totaled $1.733 million in 1998 compared to $1.828 million in 1997 and $1.719
million in 1996.
A complete analysis of the loan underwriting and loan collection departments was
performed throughout 1997. As a result of this analysis, management established
more strict underwriting guidelines along with more proactive collection
efforts. These changes had a positive impact in 1998 as net charge-offs on
consumer loans and credit card related plans decreased by $95 thousand. As of
December 31, 1998 consumer loan delinquencies showed significant improvement
over the delinquencies at December 31, 1997. In addition, the number of
bankruptcy notices received and automobile repossessions were down 18% and 24%,
respectively for 1998 compared to 1997. 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
<TABLE>
<CAPTION>
Allowance for Possible Loan Losses
For the years ended December 31,
(Amounts in thousands) 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $7,524 $8,112 $7,156 $6,694 $5,213
Provision charged to
operating expense 2,904 2,975 2,625 1,900 1,900
Losses charged to allowance
Mortgage loans 208 360 71 72 43
Installment loans 1,871 2,051 1,981 1,439 1,000
Credit cards and related plans 501 375 308 183 108
Commercial loans 893 1,407 -- 382 5
------------------------------------------------------
Total charge-offs 3,473 4,193 2,360 2,076 1,156
Recoveries of loans charged off
Mortgage loans 75 8 23 136 49
Installment loans 569 558 522 423 442
Credit cards and related plans 70 40 48 43 48
Commercial loans 120 24 98 36 198
------------------------------------------------------
Total recoveries 834 630 691 638 737
------------------------------------------------------
Balance at end of year $7,789 $7,524 $8,112 $7,156 $6,694
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Allocation of the Allowance for Possible Loan Losses
1998 1997 1996
Amount Loans to Amount Loans to Amount Loans to
(Amounts in thousands) Allocated Total Loans Allocated Total Loans Allocated Total Loans
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial $1,805 16.7% $1,801 17.0% $1,806 18.8%
Commercial real estate 2,546 24.0 2,202 21.7 2,017 20.0
Nonrated industrial
development obligations 59 0.9 60 0.9 156 1.5
Residential real estate 277 30.5 303 32.8 298 32.9
Consumer loans 2,140 27.9 2,130 27.6 2,034 26.8
Off balance sheet commitments -- -- -- -- 235 --
Impaired loans 35 -- 325 -- 350 --
General risk 927 -- 703 -- 1,216 --
---------------------------------------------------------------------
Allowance for loan losses $7,789 100.0% $7,524 100.0% $8,112 100.0%
====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
1995 1994
Amount Loans to Amount Loans to
(Amounts in thousands) Allocated Total Loans Allocated Total Loans
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial and industrial $1,527 18.0% $1,597 17.2%
Commercial real estate 1,779 18.7 1,738 20.2
Nonrated industrial
development obligations 119 1.9 161 2.5
Residential real estate 550 31.2 534 31.9
Consumer loans 1,657 30.2 1,375 28.2
Off balance sheet commitments 182 -- 196 --
Impaired loans 125 -- -- --
General risk 1,217 -- 1,093 --
-------------------------------------------
Allowance for loan losses $7,156 100.0% $6,694 100.0%
====== ====== ====== ======
</TABLE>
22
<PAGE> 25
Management's Discussion & Analysis
future provisions to the allowance being dependent upon the growth and quality
of the loan portfolio. The area's largest employer, General Motors' Lordstown,
is currently in negotiations with General Motors (GM) to secure production of
the auto maker's Delta car, scheduled to begin in 2003. The Lordstown plant
currently produces GM's J car, Chevrolet Cavaliers, Pontiac Sunfires and Toyota
Cavaliers, which will cease production with the 2002 model. The local economy
could be significantly impacted if Lordstown were not successful in obtaining
the Delta car project. 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.
The charge-offs detailed in the five year Allowance for Possible Loan Losses
schedule represent loans fully or partially charged off where the ultimate
amount to be collected was deemed to be uncertain at the time of charge-off. It
is anticipated that some of the amounts charged off will be collected in the
future and will be added to the allowance for loan losses. The timing and the
amounts of these collections are uncertain at this time.
Nonperforming Assets:
---------------------
It is the Company's objective to maintain above average asset quality of its
loan portfolio through conservative lending policies and prudent underwriting.
Detailed reviews of the loan portfolio are undertaken regularly to identify
probable problem loans or trends early and to provide for adequate estimates of
probable losses. The Company normally considers loans to be nonperforming when
payments are 90 days or more past due or when the loan review analysis indicates
that repossession of the collateral may be necessary to satisfy the loan. In
addition, loans are considered to be impaired when, in management's opinion, it
is probable that the borrower will be unable to meet the contractual terms of
the loan. Nonperforming loans totaled $1.693 million at December 31, 1998, a
$1.188 million decrease from the December 31, 1997 total of $2.881 million.
Nonaccrual loans of $1.075 million at December 31, 1998 were $1.152 million less
than December 31, 1997 nonaccrual balances of $2.227 million. At December 31,
1998, commercial, residential real estate and consumer loan nonaccruals
decreased by $782 thousand, $277 thousand and $172 thousand, respectively from
nonaccrual loan totals at December 31, 1997. These nonaccrual loans are in
various stages of collection and significant principal losses are not
anticipated due to their underlying collateral values.
The following schedule is a five year summary of nonaccrual, past due and
restructured loans and other real estate owned of the Company.
<TABLE>
<CAPTION>
Nonaccrual, Past Due and Restructured Loans
(Amounts in thousands) 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 1,075 $2,227 $3,698 $ 1,322 $ 1,944
Accruing loans 90 days or
more past due 618 654 931 936 211
---------------------------------------------------------------
Nonperforming loans 1,693 2,881 4,629 2,258 2,155
Restructured loans in
compliance with modified
terms 51 -- 411 690 1,076
Other real estate owned -- 1,112 269 36 --
---------------------------------------------------------------
Total problem assets $ 1,744 $ 3,993 $ 5,309 $ 2,984 $ 3,231
======= ======= ======= ======= =======
Nonperforming loans to
total loans 0.34% 0.58% 0.97% 0.49% 0.51%
Nonperforming loans to
allowance for loan losses 21.73% 38.29% 57.06% 31.55% 32.20%
Allowance for loan losses
to total loans 1.59% 1.53% 1.70% 1.55% 1.57%
Total problem assets to
total assets 0.21% 0.50% 0.69% 0.41% 0.46%
</TABLE>
Other Real Estate Owned ("OREO") represents properties acquired through
foreclosure or acceptances of deeds in lieu of foreclosure. At December 31, 1998
the Company had no OREO compared to $1.112 million at December 31, 1997. The
disposal of OREO property during 1998 increased other operating expense by $242
thousand.
The Company's nonperforming loans to allowance for loan loss ratio of 21.73% and
nonperforming loans to total loan ratio of 0.34% decreased significantly in 1998
and are currently well below peer levels of 48.37% and 0.80%, respectively. The
allowance for loan losses to total loans ratio increased from 1.53% at December
31, 1997 to 1.59% at December 31, 1998, and is approximately six basis points
below peer.
Earnings Review for the Years Ended December 31, 1998 and 1997
For the eighth consecutive year, the Company achieved record earnings. Net
income for 1998 was $13.863 million or $2.20 per share, an increase of $922
thousand or 7% over 1997 earnings of $12.941 million or $2.05 per share.
The primary component of the Company's earnings growth in 1998 was net interest
income which was primarily due to a reduction in funding costs. Net interest
income and noninterest income, exclusive of security transactions, increased 5%
and 7%, respectively in 1998 compared to 1997, while the provision for loan
losses declined 2%. Noninterest expense increased 4% over that same period.
The prime interest rate, which had been at 8.50% from March 1997 until October
1998, declined to 7.75% at December 31, 1998. In the fourth quarter of 1998 the
Federal Reserve Bank took the following actions: (1) October 1, 1998, lowered
the federal funds rate by 25 basis points, (2) October 16, 1998, lowered the
federal funds rate an additional 25 basis points and reduced the discount rate
by 25 basis points and (3) November 17, 1998, lowered the federal funds rate and
discount rate an additional 25 basis points. As a result of these Federal
Reserve rate adjustments, the Company reduced its prime lending rate by 75 basis
points in the fourth quarter to 7.75%. As the Company's interest rate
simulations and net economic value analysis indicated these rate reductions had
a positive impact on net interest income in the fourth quarter of 1998. Due to
the liability sensitive nature of the Company's balance sheet, rate reductions
in the fourth quarter of 1998 are expected to positively impact net interest
income in 1999. With declining interest rates in 1998, the Company's net
interest margin increased to 4.89% from 4.79% in 1997.
The Company's return on assets (ROA) for 1998 increased to 1.74% from 1.67% in
1997. As a result of the Company's significant growth in equity in 1998, $9.720
million, return on average stockholders' equity (ROE) declined to 15.12% in 1998
from 15.82% in 1997. The Company's stockholders' equity to asset ratio increased
to 11.68% in 1998 from 10.86% in 1997.
As of December 31, 1998, the Company was not aware of any recommendations by the
regulatory authorities which, if implemented, would have a material effect on
the Company's liquidity, capital resources or operations.
Net Interest Income
Net interest income is the primary component of the Company's earnings and is
the difference between interest and fees earned on loans, investments and other
interest earning assets and the interest expense on deposits and other interest
bearing liabilities which fund those assets.
The Company's return on interest earning assets decreased from 8.03% in 1997 to
7.91% in 1998 while funding costs decreased from 3.84% in 1997 to 3.64% in 1998.
The $21.831 million increase in average earning
23
<PAGE> 26
Management's Discussion & Analysis
Average Balances and Interest Yields and Costs
The following table represents an analysis of Mahoning National Bancorp, Inc.'s
tax-equivalent net interest income for the prior three-year period. Income from
tax exempt loans and investments has been adjusted to a fully taxable equivalent
basis (FTE) using an incremental tax rate of 35%. The average balance, related
interest income or expense and resulting tax equivalent yield or cost are
presented for each major category of earning asset or interest bearing
liability. Investment securities' average balances are recorded at carrying
value.
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
--------------------------------------------------------------------------------------------
Average Average Average Average Average Average
(Amounts in thousands) Balance Interest Rate(%) Balance Interest Rate(%) Balance Interest Rate(%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Loans:
Industrial revenue and
tax-exempt financing $ 4,770 $ 449 9.41% $ 6,183 $ 542 8.77% $ 10,545 $ 938 8.90%
All other loans 487,596 43,202 8.86 483,984 43,471 8.98 467,692 41,788 8.93
-------------------------------------------------------------------------------------------
Total 492,366 43,651 8.87 490,167 44,013 8.98 478,237 42,726 8.93
Investment securities:
Taxable 226,954 13,557 6.04 211,738 12,820 6.05 204,816 12,490 6.09
Tax-exempt 26,737 1,795 6.76 24,076 1,638 6.83 20,226 1,375 6.82
-------------------------------------------------------------------------------------------
Total 253,691 15,352 6.12 235,814 14,458 6.13 225,042 13,865 6.15
Federal funds sold 9,410 514 5.39 7,655 422 5.51 5,590 300 5.37
-------------------------------------------------------------------------------------------
Total earning assets 755,467 59,517 7.91 733,636 58,893 8.03 708,869 56,891 8.02
Allowance for loan losses (7,734) (7,890) (7,519)
Cash and due from banks 25,996 26,015 26,567
Premises and equipment 8,638 8,845 9,321
Other assets 14,413 14,241 12,573
-------------------------------------------------------------------------------------------
Total assets $796,780 $774,847 $749,811
======== ======== ========
Liabilities and stockholders' equity
Interest bearing deposits:
Savings deposits $178,658 4,002 2.24% $183,365 4,564 2.49% $192,562 4,782 2.48%
Interest checking and money market 93,523 1,518 1.62 93,934 1,797 1.91 99,227 2,095 2.11
Time deposits 197,774 10,162 5.14 198,310 10,526 5.31 207,573 11,203 5.40
--------------------------------------------------------------------------------------------
Total interest bearing deposits 469,955 15,682 3.34 475,609 16,887 3.55 499,362 18,080 3.62
Federal funds purchased 2,664 149 5.52 4,069 232 5.70 2,158 119 5.51
Repurchase agreements 132,524 5,914 4.46 128,843 6,051 4.70 93,810 4,260 4.54
Short term borrowings 7,587 391 5.08 7,426 394 5.30 5,916 303 5.12
Long term borrowings 11,709 607 5.18 3,644 197 5.43 4,079 220 5.39
--------------------------------------------------------------------------------------------
Total interest bearing liabilities 624,439 22,743 3.64 619,591 23,761 3.84 605,325 22,982 3.80
Demand deposits 74,287 67,726 65,857
Other liabilities 6,349 5,728 5,301
Stockholders' equity 91,705 81,802 73,328
--------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $796,780 $774,847 $749,811
======== ======== ========
Net interest income $36,774 $35,132 $ 33,909
======= ======= ========
Interest spread 4.27% 4.19% 4.22%
Interest margin 4.89% 4.79% 4.78%
</TABLE>
asset balances and reduced funding costs accounted for the increase in net
interest income in 1998.
Net interest income was $35.990 million for 1998, an increase of 5% over 1997
net interest income of $34.369 million. In 1998, the most significant factors
for the increase in net interest income were reduced funding costs and volume
increases in the investment portfolio. The Company's investment portfolio
average balance, which increased by $17.877 million in 1998, contributed an
additional $905 thousand in tax adjusted interest income in 1998. With average
loan balances increasing only $2.199 million in 1998 over 1997, the impact of
the lower loan portfolio yield, a $551 thousand reduction of tax adjusted net
interest income, more than offset volume related increases of $189 thousand. The
increase in the Company's tax adjusted net interest income as a result of
changes in volume amounted to $812 thousand compared to $872 thousand in 1997.
The increase in tax adjusted net interest income due to rate was $830 thousand
in 1998 compared to $351 thousand in 1997. The reduction in interest expense due
to rate totaled $1.399 million in 1998 compared to $205 thousand in 1997.
The tax equivalent yield of the loan portfolio for 1998 decreased to 8.87% from
8.98% in 1997, a result of the decrease in the prime lending rate of 75 basis
points in the fourth quarter of 1998, a reduction in loan fees and competitive
market pressures. These issues will continue to impact loan growth and portfolio
yield throughout 1999. The loan to deposit ratio at December 31, 1998 and 1997
was 88.36% and 90.35%, respectively.
Average interest bearing liabilities grew slightly in 1998 to $624.439 million
from $619.591 million in 1997. The cost of interest bearing liabilities
decreased to 3.64% in 1998 from 3.84% in 1997. This reduction in funding costs
is primarily due to the Company reducing its average savings, interest bearing
checking and time deposit rates by 25, 29 and 17 basis points, respectively in
1998. The reduction in deposit rates, which reduced interest expense by $1.060
million in 1998, was partially offset by a $419 thousand increase in interest
expense due to volume increases in long term borrowings. This lower cost of
funds should continue to positively impact net interest income in 1999 as many
of the rate reductions were implemented in the fourth quarter of 1998 in
response to the Federal Reserve rate reductions.
24
<PAGE> 27
Management's Discussion & Analysis
<TABLE>
<CAPTION>
Change in Net Interest Income Due to Volume and Rate
The following table represents an analysis of the chages in tax-equivalent net interest income for the prior two year
period. These changes to net interest income were the result of changes in the volume and mix of earning assets and
interest bearing liabilities, and the changes in market interest rates. The amount of change that was not directly
attributable to volume or rate has been allocated to each variance proportionately.
From 1997 to 1998 From 1996 to 1997
Change due to Total Change due to Total
(Amounts in thousands) Volume Rate Change Volume Rate Change
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income
Loans:
Industrial revenue and tax-exempt financing $ (131) $ 38 $ (93) $ (383) $ (13) $ (396)
All other loans 320 (589) (269) 1,450 233 1,683
----------------------------------------------------------------
Total 189 (551) (362) 1,067 220 1,287
Investment securities:
Taxable 761 (24) 737 414 (84) 330
Tax-exempt 144 13 157 261 2 263
----------------------------------------------------------------
Total 905 (11) 894 675 (82) 593
Federal funds sold 99 (7) 92 114 8 122
----------------------------------------------------------------
Total interest income 1,193 (569) 624 1,856 146 2,002
Interest expense
Interest bearing deposits:
Savings and interest bearing checking (117) (724) (841) (323) (193) (516)
Time deposits (28) (336) (364) (493) (184) (677)
----------------------------------------------------------------
Total interest bearing deposits (145) (1,060) (1,205) (816) (377) (1,193)
Federal funds purchased (76) (7) (83) 109 4 113
Repurchase agreements 173 (310) (137) 1,636 155 1,791
Short term borrowings 10 (13) (3) 80 11 91
Long term borrowings 419 (9) 410 (25) 2 (23)
----------------------------------------------------------------
Total interest expense 381 (1,399) (1,018) 984 (205) 779
----------------------------------------------------------------
Change in net interest income $ 812 $ 830 $ 1,642 $ 872 $ 351 $ 1,223
======= ======= ======== ======= ====== =======
</TABLE>
Other Operating Revenue
Other operating revenue of $8.731 million, exclusive of security transactions,
increased $580 thousand, or 7.1%, over 1997. The largest component of other
operating revenue in 1998 was service charges on deposit accounts which
increased $113 thousand, or 2.7%, over 1997. Other operating revenue, exclusive
of security transactions, as a percent of average assets was 1.10% in 1998
compared to 1.05% in 1997. The Company annually reviews all of its fee-based
products and services for marketability and profitability. Increases realized in
1998 were the result of growth in the number of retail checking accounts over
the past fifteen months which coincided with the introduction of two new
checking account products. The Company expects service charges on deposit
accounts to increase due to planned fee increases in 1999. Service charges on
deposit accounts as a percent of average deposits increased to .79% in 1998 from
.77% in 1997.
Mahoning National Bank's Trust and Investments Department generated $3.019
million in other operating revenue in 1998, a $155 thousand or 5.4% increase
over the $2.864 million earned in 1997. Trust Department assets totaled $477.406
million in book value with a market value of $729.166 million at December 31,
1998 compared to $438.456 million in book value with a market value of $641.560
million at December 31, 1997. This increase in assets was the result of growth
in personal trust, custody and investment accounts. The $155 thousand increase
in trust fees can be attributed to several factors: department growth, an
increase in asset market values on which the fees are based, an improved mix of
higher fee paying accounts and increased executorship fees.
In 1998, the Company became more active in the origination and sale of
residential mortgages in the secondary market. These sales generated $326
thousand in gains compared to $19 thousand in 1997. The Company expects to
continue secondary market sales in 1999.
In 1998, the Company realized a $229 thousand gain on sale of investment
securities available for sale compared to a $182 thousand gain in 1997.
Other Operating Expense
Other operating expense of $21.417 million increased $791 thousand, or 3.8%,
during 1998. This followed a $129 thousand, or 0.6%, increase in 1997. As a
percentage of average assets, other operating expense was 2.69% in 1998 compared
to 2.66% in 1997. The Company's efficiency ratio, which measures noninterest
expense as a percent of noninterest income plus net interest income on a fully
tax equivalent basis, improved by 32 basis points from 47.71% in 1997 to 47.39%
in 1998. This efficiency ratio places the Company near the top of its peer
group.
In 1998, total salaries and employee benefit expense decreased $53 thousand,
from 1997. In 1998, salary expense alone increased $215 thousand, or 2.3%,
compared to an increase of $211 thousand, or 2.3%, in 1997. This increase can be
attributed to annual merit salary adjustments which took effect January 1, 1998.
Health care expenses for 1998 and 1997 were $756 thousand and $755 thousand,
respectively. The number of full-time equivalent employees decreased from 388 at
December 31, 1997 to 375 at December 31, 1998. Additional employee benefit
savings of $181 thousand were realized as a result of reduced pension and
Workmen's Compensation costs in 1998.
Net occupancy expense, which represents various facility management expenses,
increased $14 thousand in 1998 to $1.476 million from $1.462 million in 1997. In
December 1998, the Company opened a new free-standing branch in Austintown to
replace the previous plaza location. In January 1999, two additional branches
will be consolidated into this location. Expenses to close the existing offices
into the new facility were not material and the consolidation is expected to
begin reducing overhead expenses in 1999.
Other expenses increased $814 thousand in 1998 to $6.499 million from $5.685
million in 1997, a 14.3% increase. This increase was the result of increased
expenses associated with the disposal of other real estate
25
<PAGE> 28
Management's Discussion & Analysis
owned, increased amortization and support of software purchased in 1998 and
1997, branch consolidations and corporate donations along with increased
business activity and general inflationary increases.
Year 2000
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, with a senior officer appointed
as the project manager. It is the project manager's responsibility to provide
the Board of Directors with quarterly status reports, detailing the Company's
internal Year 2000 corrective efforts and the ability of the Company's major
vendors to provide Year 2000 ready products and services. The reports include,
at a minimum, the overall progress of the Year 2000 compliance effort, including
new efforts initiated since the last report, the Company's progress as compared
to its overall Year 2000 project plan and critical benchmarks, status reports
regarding vendors, business partners, major loan customers, results of internal
and external testing and contingency planning.
The Year 2000 Committee identified information technology and noninformation
technology applications and systems that could be impacted by the Year 2000 date
change and identified any third-party vendors that impact the daily operation of
the Company. Those applications, systems and vendors that the Company identified
as mission critical were prioritized based on their potential impact to the
ongoing operation of the Company. An application, system or vendor is considered
mission critical if it is vital to the successful continuance of core business
activity or is an application that interfaces with a mission critical system.
A project plan has been developed based on the five (5) phases outlined by the
Federal Financial Institutions Examination Council (FFIEC): Awareness,
Assessment, Renovation, Validation and Implementation. The Awareness Phase
encompasses establishing a budget and project plan for dealing with the Year
2000 issue. The Assessment Phase is the actual process of identifying and
preparing an inventory of all its systems and individual components of those
systems. During this phase, all system components were reviewed for Year 2000
compliance, and through a risk analysis process were identified as to whether
they were mission critical. The Renovation Phase is when changes are made to
systems. This phase deals primarily with the technical issues of converting
existing systems, or switching to compliant systems. During this phase,
decisions are made on how to make the systems or processes Year 2000 compliant,
and the required system changes are made. The Validation Phase is when a
determination is made that no errors were introduced during the conversion
process and that the renovation was successful. The development of test data and
test scripts, the running of test scripts and the review of test results are
crucial for this phase of the conversion process to be successful. If testing
results show anomalies, the testing area is corrected and retested. The
Implementation Phase is when a tested Year 2000 compliant system is ready for
use. At the end of September 1998, the Awareness and Assessment phases had been
completed and documentation supporting the comprehensive Year 2000 project plan
was completed. The Company is currently at various stages of the Renovation,
Validation and Implementation phases on those applications or systems identified
as mission critical to the Company. The Company has renovated all of its mission
critical applications and systems except for three which are expected to be
completed by March 31, 1999. The Company expects to complete the Validation and
Implementation phases on the remaining applications and systems identified as
mission critical by March 31, 1999.
During the first quarter of 1998, the Company initiated a vendor management
process that ascertains the Year 2000 readiness of third- party relationships.
The Company has established monitoring procedures to verify the service provider
and/or software vendor is taking appropriate action to achieve Year 2000
readiness. In addition, the Company has established a process for testing
remediated services and products in the Company's own environment whenever
possible. At this point in time, the greatest concern the Company has with
third-parties is with the possible interruption of electrical power, which is
certainly a concern that all businesses face due to the interdependencies within
the nation's power grid. The Company has evaluated alternatives and has
developed procedures to operate in the event there are interruptions to the
electrical power supply.
Remediation contingency plans have been developed and alternative vendors
identified for each issue listed as mission critical. These plans include
various dates, which if certain requirements have not been met by current
vendors to validate their Year 2000 readiness, will require a switch to an
alternative vendor identified as Year 2000 compliant. The Company has developed
a Business Resumption Contingency Plan for the Year 2000 in order to mitigate
the risks associated with; (1) The failure to successfully complete renovation,
validation, or implementation of the Company's Remediation Contingency Plan, and
(2) Failure of systems at critical dates. In Business Resumption Contingency
Planning, risks associated with the failure of core business processes are
evaluated. These are groups of related tasks that must be performed in a
cohesive manner to ensure that the Company remains viable. Evaluation of these
risks compare costs, time and resources needed to implement the contingency
alternatives. The Business Resumption Contingency Plan is not static in nature,
and will evolve as the Company progresses into 1999.
The estimated cost for the Company's Year 2000 Remediation project is
approximately $765 thousand. These costs include various hardware and software
purchases and modification, employee training, professional services and
additional employee man hours. Through December 31, 1998, approximately $238
thousand has been expensed on Year 2000 Remediation with the remaining expense
expected to occur over the next 15 months.
An additional area under review by the Company is the Year 2000 risk arising
from relationships with three broad categories of customers: fund takers
(borrowers), fund providers (depositors), and capital market/asset management
counterparties (brokers). The potential risks associated with these customers
and counterparties include increased credit, liquidity or counterparty trading
risk when a customer encounters Year 2000 related problems. The Company has
implemented a due diligence process that has identified, assessed and
established controls for Year 2000 risk by customers. This process was completed
by September 30, 1998, with appropriate risk controls in place to manage and
mitigate Year 2000 customer risk. The Company will continue this due diligence
process throughout 1999.
Income Taxes
Income tax expense for 1998 was $6.766 million compared to $6.160 million in
1997. The Company's effective tax rates were 32.8% and 32.2% for 1998 and 1997,
respectively, compared to the statutory federal income tax rate of 35%. Tax
exempt investment and loan income is the primary reason the Company's effective
tax rate is less than the statutory tax rate.
The components of the Company's deferred income tax asset and reconciliation of
the effective tax rate can be found on page 10 of this report. (Note I - Income
Taxes)
26
<PAGE> 29
Management's Discussion & Analysis
Earnings Review for the Years Ended
December 31, 1997 and 1996
Net Income:
-----------
Net income for 1997 was $12.941 million or $2.05 per share, an increase of
$1.330 million or 11% over 1996 earnings of $11.611 million or $1.84 per share.
The Company's return on assets (ROA) for 1997 increased to 1.67% from 1.55% in
1996. The return on average stockholders' equity (ROE) for 1997 was 15.82%,
compared to 15.83% in 1996. The Company was able to maintain its return on
equity while increasing its stockholders' equity to asset ratio to 10.86% in
1997 from 10.02% in 1996. The primary component of the Company's earnings growth
in 1997 was net interest income, and the significant growth in the loan
portfolio was the primary reason for that earnings increase.
Net Interest Income:
--------------------
Net interest income was $34.369 million for 1997, an increase of 4% over 1996
net interest income of $33.099 million. In 1997, the most significant factor for
the increase in net interest income was loan volume. This accounted for
additional tax adjusted interest income of $1.067 million, as average balances
grew by $11.930 million during 1997. The Company's investment portfolio average
balance, which increased by $10.772 million in 1997, contributed to a $675
thousand increase in tax adjusted interest income compared to an increase of
$244 thousand in 1996. The increase in the Company's tax adjusted net interest
income as a result of changes in volume amounted to $871 thousand compared to
$1.759 million in 1996. The decline in the volume related impact to net interest
income is the result of average loan balances increasing only $11.930 million in
1997 over 1996, compared to a $32.643 million increase in average loan balances
in 1996 over 1995. Average interest earning assets for 1997 were $733.636
million, or 3.5% greater than the $708.869 million of earning assets in 1996.
The increase in tax adjusted net interest income due to rate was $351 thousand
in 1997, compared to $442 thousand in 1996.
The tax equivalent yield on the loan portfolio for 1997 increased to 8.98%
compared to 8.93% in 1996, a result of the prime lending rate increasing by 25
basis points in March 1997, changes in the portfolio mix and increases in loan
fees. The loan to deposit ratio at December 31, 1997 and 1996 was 90.35% and
86.71%, respectively.
Average interest bearing liabilities for 1997 were $619.591 million, or 2.4%
greater than the $605.325 million of average interest bearing liabilities in
1996. The cost of interest bearing liabilities increased slightly to 3.84% in
1997 from 3.80% in 1996. While actual December 31, 1997 deposit balances
declined only $5.887 million from December 31, 1996 balances, average balances
declined $23.753 million in 1997 from 1996 average balances. This loss in
deposits was more than offset by an increase in the volume of securities sold
under agreements to repurchase as more corporate and political subdivisions
placed their funds into overnight "sweep" repurchase agreements. The average
balance of these interest bearing liabilities increased $35.033 million in 1997
and the cost of these funds increased by 16 basis points from 1996. Actual
year-end balances for 1997 were up $23.778 million over 1996 year-end balances.
The prime interest rate, which declined from 8.50% to 8.25% in February 1996,
increased 25 basis points in March 1997, back to 8.50% where it remained
throughout the year. With interest rates stable over 1997 and 1996, the
Company's net interest margin was also stable at 4.79% and 4.78% for 1997 and
1996, respectively. The growth in earning assets in 1997 helped offset increased
funding costs.
Other Operating Revenue:
------------------------
Other operating revenue of $8.151 million, exclusive of security transactions,
increased $658 thousand, or 8.8%, over 1996. The largest component of other
operating revenue in 1997 was service charges on deposit accounts which
increased $538 thousand, or 14.8%, over 1996. Other operating revenue, exclusive
of security transactions, as a percent of average assets was 1.05% in 1997
compared to 1.00% in 1996. Adjustments to fees for the Company's products and
services and the strengthening of controls for the collection of such fees were
the reasons for the significant increase. In 1997, service charges on deposit
accounts as a percentage of average deposits increased to .77% from .64% in
1996.
Mahoning National Bank's Trust and Investments Department generated $2.864
million in other operating revenue in 1997, approximately the same amount as the
$2.837 million earned in 1996. Trust Department assets totaled $438.456 million
with a market value of $641.560 million at December 31, 1997, compared to
$575.712 million with a market value of $775.688 million at December 31, 1996.
This decrease was the result of a corporate customer consolidating employee
benefit and custody trust accounts with a financial institution outside of our
market area in the second quarter of 1997. The $27 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
1996.
In 1997, the Company realized $182 thousand in gains when $20.075 million of
U.S. government securities coming due in 1997 and $2.167 million of nontaxable
municipals were sold from the available for sale portfolio and reinvested in
longer term U.S. Treasury securities and nontaxable municipals. This compared to
a loss of $319 thousand in 1996, when $24.658 million of U.S. government
securities were sold from the available for sale portfolio and reinvested into
longer term U.S. Treasury securities.
Other Operating Expense:
------------------------
Other operating expense of $20.626 million increased $129 thousand, or 0.6%,
during 1997. This followed a $117 thousand, or 0.6%, increase in 1996. As a
percentage of average assets, other operating expense was 2.66% in 1997 compared
to 2.73% in 1996. The Company's efficiency ratio which measures noninterest
expense as a percent of noninterest income plus net interest income on a fully
tax equivalent basis declined 191 basis points from 49.62% in 1996 to 47.71% in
1997. This efficiency ratio placed the Company near the top of its peer group.
In 1997, total salaries and employee benefit expense increased $330 thousand, or
3.1%, from 1996. Salary expense for 1997 alone increased $211 thousand, or 2.3%,
compared to an increase of $699 thousand, or 8.4%, in 1996. This increase was
attributed to annual merit salary adjustments which took effect January 1, 1997,
and increases in various employee incentive programs. In 1996, as a result of
departmental restructuring and selective staff reductions, a one-time charge of
approximately $342 thousand was charged to salary expense. This charge increased
1996 salary expense but provided for long term salary cost savings. Health care
expenses for 1997 were $755 thousand compared to $585 thousand for the same
period in 1996, an increase of $170 thousand or 29%. This increase was due in
part to increased health care claims in 1997 and increased premium rates on the
Company's health care plans. The number of full-time equivalent employees
decreased from 391 at December 31, 1996 to 388 at December 31, 1997.
Net occupancy expense, which represents various facility management expenses,
decreased $23 thousand in 1997 to $1.462 million from $1.485 million in 1996.
These decreases were the result of reduced building maintenance and utility
expenses.
27
<PAGE> 30
Management's Discussion & Analysis
Equipment rental, depreciation and maintenance of $1.432 million decreased $295
thousand, or 17.1% from 1996. This decrease was the result of the termination of
various computer equipment leases and their related service contracts. The
equipment that was covered by these leases was either purchased at a discount or
disposed.
Other expenses increased $149 thousand in 1997, to $5.615 million from $5.466
million in 1996, a 2.7% increase. This increase was the result of amortization
and support on software purchased in 1996 and 1997, increased marketing expenses
related to the promotion of loan and deposit products, increased business
activity and general inflationary increases.
Income Taxes:
-------------
Income tax expense for 1997 was $6.160 million compared with $5.540 million in
1996. The Company's effective tax rates were 32.2% and 32.3% for 1997 and 1996,
respectively, in comparison to the statutory federal income tax rate of 35%. Tax
exempt investment and loan income is the primary reason the Company's effective
tax rate is less than the statutory tax rate.
Liquidity
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,
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 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 December 31, 1998 and 1997, $3.275 million
and $298 thousand of residential mortgage loans were designated as held for
sale. At December 31, 1998, $241.037 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
remaining available borrowing of $38.793 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 $17.191 million outstanding in FHLB
borrowings at December 31, 1998, compared to $3.151 million outstanding at
December 31, 1997.
Mahoning National has been serving the Mahoning Valley for 130 years and has
developed a solid core deposit base. Of the $555.407 million in deposits on
December 31, 1998, only $33.891 million represent time deposits in excess of
$100 thousand. Even though these deposits which exceed $100 thousand are not
considered core deposits due to their volatile nature, the Company's core
deposit to total asset ratio is still strong at 63%. With the Company's strong
core deposit base, growth in corporate investment accounts and access to
funding, the liquidity position of the Company is such that there is still an
unused capacity to fund loans. At December 31, 1998, and throughout the past
twelve months, key liquidity ratios were within established Company and
regulatory guidelines.
The maturity distribution of the Company's total time deposits in amounts of
$100 thousand or greater as of December 31, 1998, is summarized below:
<TABLE>
<CAPTION>
(Amounts in thousands)
- ---------------------------------------------------------
<S> <C>
Within three months $ 11,740
After three months but within six months 8,566
After six months but within twelve months 11,158
After twelve months 2,427
----------
$ 33,891
==========
</TABLE>
Impact of Inflation and Changing Prices
The financial statements and related data presented herein have been prepared in
accordance with generally accepted accounting principles, which require the
measurement of financial position and results of operations primarily in terms
of historical dollars without considering changes in the relative purchasing
power of money over time due to inflation. Unlike most industrial companies,
virtually all of the assets and liabilities of the Company are monetary in
nature. Therefore, interest rates have a more significant impact on a financial
institution's performance than the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the prices of goods and services. The liquidity, maturity structure
and quality of the Company's assets and liabilities are critical to the
maintenance of acceptable performance levels.
Quantitative and Qualitative Disclosures about Market Risk
The primary objective of the Company's asset/liability management process is to
maximize profits through management of the pricing and mix of assets and
liabilities, while achieving acceptable levels of interest rate risk and
liquidity risk and providing for adequate capitalization. Since assets and
liabilities of a financial institution are monetary in nature, changes in
interest rates and monetary or fiscal policy affect its financial condition and
have potentially the greatest impact on the net income of the Company. The
Company's asset/liability management program is designed to minimize the impact
of sudden and sustained changes in interest rates on the net present value (NPV)
of equity and net interest income.
The Company's primary market risk exposure is interest rate risk and, to a
lesser extent, liquidity risk. All of the Company's transactions are denominated
in U.S. dollars with no specific foreign exchange exposure. The Company has
minimal agricultural loan assets and therefore would not have a specific
exposure to changes in commodity prices. The Company has no market risk
sensitive instruments held for trading purposes.
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 December 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 1999, 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 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
28
<PAGE> 31
Management's Discussion and Analysis
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 December 31, 1998. All market risk sensitive
instruments presented in this table are held to maturity or available for sale.
The Company has no trading securities.
<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 $ 19,166 19.90% 13.64%
-100 9,569 9.94 12.67
0 (100) (0.10) 11.66
+100 (9,826) (10.20) 10.62
+200 (19,597) (20.35) 9.55
</TABLE>
The above table indicates that at December 31, 1998, in the event of a sudden
and sustained increase in prevailing market interest rates, the Company's NPV
would be expected to decrease, and in the event of a sudden and sustained
decrease in prevailing market interest rates, the Company's NPV would be
expected to increase. At December 31, 1998, the Company's estimated changes in
NPV were within the targets established by the Board of Directors, with the
exception of the 200 basis point increase in interest rates which was marginally
above the 20% limit.
As with any method of measuring interest rate risk, certain shortcomings are
inherent in the NPV approach. For example, although certain assets and
liabilities may have similar maturities or periods of repricing, they may react
in different degrees to changes in market interest rates. Also, as a result of
competition, the interest rates on certain assets and liabilities may fluctuate
in advance of changes in market interest rates, while interest rates on other
types of assets and liabilities may lag behind changes in market rates. In the
event of a change in interest rates, expected rates of repayment on assets and
early withdrawal levels from certificates of deposit would likely deviate from
those scheduled. In addition, the proportion of adjustable rate loans in the
Bank's portfolio could decrease in future periods if market interest rates
remain at or decrease below current levels due to refinance activity. Further,
in the event of a change in interest rates, prepayment and early withdrawal
levels would likely deviate from those assumed in the table. Finally, the
ability of many borrowers to repay their adjustable rate debt may decrease in
the event of an increase in interest rates.
In order to minimize the potential for adverse effects of material and prolonged
increases in interest rates on the Company's results of operations, management
has implemented and continues to monitor asset and liability management
strategies to better match the maturities and repricing terms of the Company's
interest earning assets and interest bearing liabilities. These strategies
include: (1) Emphasizing the origination of adjustable rate mortgage loans
("ARMs"); and (2) Selling a portion of its fixed rate residential mortgage loan
origination's with servicing retained.
Deposits, which are the Company's primary funding source, are priced based upon
competitive factors and the availability of prudent lending and investment
opportunities. Pursuant to this strategy, the Company has generally not offered
the highest rates available in its deposit market except on specific occasions
and for specific products in order to control deposit flow or when market
conditions have created opportunities to attract longer term deposits at
favorable rates. In addition, the Company does not pursue an aggressive growth
strategy which would force the Company to focus exclusively on competitors'
rates rather than deposit affordability. This policy has assisted the Company in
controlling its cost of funds. The Company has also adopted a strategy of
emphasizing transaction deposit account growth as these products are less
susceptible to repricing in a rising interest rate environment.
Derivative financial instruments include futures, forwards, interest rate swaps,
option contracts and other financial instruments with similar characteristics.
The Company has not purchased derivative financial instruments in the past and
does not presently intend to purchase such instruments in the near future.
However, the Company is party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit and
standby letters of credit. These instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized in
the consolidated balance sheets. The commitments to extend credit generally have
fixed expiration dates or other termination clauses and may require payment of a
fee. Since some of these commitments may not be utilized, or utilized in amounts
less than the total committed, the total commitment amounts do not necessarily
represent future cash requirements. The majority of the unfunded commitments at
December 31, 1998 ($152 million) are variable rate commitments, with
approximately 10% or $17 million having fixed rates. Standby letters of credit
are conditional commitments issued by the Company to guarantee the performance
of a customer to a third party up to a stipulated amount and with specified
terms and conditions.
The Company's exposure to interest rate risk is reviewed on a quarterly basis by
the Board of Directors and the ALCO. If estimated changes to NPV and net
interest income are not within the limits established by the Board, the Board
may direct management to adjust its asset and liability mix to bring interest
rate risk within board approved limits.
Impact of New Accounting Standards
Recent pronouncements by the Financial Accounting Standards Board ("FASB") will
have an impact on financial statements issued in current or subsequent periods.
Set forth below are summaries of such pronouncements.
In February 1998, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 132 "Employers' Disclosures about Pensions and Other Postretirement
Benefits". SFAS No. 132 increased and revised pension plan disclosures for
public companies. The Company revised its disclosures included in the financial
statements based on the new standard.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 addresses the accounting for
derivative instruments and certain derivative instruments embedded in other
contracts, and hedging activities. The statement standardizes the accounting for
derivative instruments by requiring that an entity recognize those items as
assets or liabilities in the statement of financial position and measure them at
fair value. This statement is effective for all fiscal years beginning after
June 15, 1999.
In October 1998, the FASB issued SFAS No. 134 "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise". SFAS No. 134 will, in 1999, allow mortgage loans
that are securitized to be classified as trading, available for sale, or in
certain circumstances held to maturity. Currently these must be classified as
trading.
These statements are not expected to have a material effect on the Company's
consolidated financial position or results of operation.
29
<PAGE> 1
MAHONING NATIONAL BANCORP, INC.
FORM 10-K
EXHIBIT 21
Subsidiaries of the Registrant
The following is the sole subsidiary of Mahoning National
Bancorp, Inc.:
The Mahoning National Bank of Youngstown
23 Federal Plaza
Youngstown, Ohio 44501-0479
(Incorporated in Ohio)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANICAL INFORMATION EXTRACTED FROM THE MAHONING
NATIONAL BANCORP, INC., CONSOLIDATED STATEMENT OF FINANCIAL CONDITION AT
DECEMBER 31, 1998 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED
DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 30,556
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 23,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 241,037
<INVESTMENTS-CARRYING> 23,910
<INVESTMENTS-MARKET> 24,036
<LOANS> 490,743
<ALLOWANCE> 7,789
<TOTAL-ASSETS> 824,644
<DEPOSITS> 555,407
<SHORT-TERM> 150,587
<LIABILITIES-OTHER> 5,160
<LONG-TERM> 17,191
0
0
<COMMON> 6,300
<OTHER-SE> 89,999
<TOTAL-LIABILITIES-AND-EQUITY> 824,644
<INTEREST-LOAN> 43,495
<INTEREST-INVEST> 14,724
<INTEREST-OTHER> 514
<INTEREST-TOTAL> 58,733
<INTEREST-DEPOSIT> 15,682
<INTEREST-EXPENSE> 22,743
<INTEREST-INCOME-NET> 35,990
<LOAN-LOSSES> 2,904
<SECURITIES-GAINS> 229
<EXPENSE-OTHER> 21,417
<INCOME-PRETAX> 20,629
<INCOME-PRE-EXTRAORDINARY> 13,863
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,863
<EPS-PRIMARY> 2.20
<EPS-DILUTED> 2.20
<YIELD-ACTUAL> 7.91
<LOANS-NON> 1,075
<LOANS-PAST> 618
<LOANS-TROUBLED> 51
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,524
<CHARGE-OFFS> 3,473
<RECOVERIES> 834
<ALLOWANCE-CLOSE> 7,789
<ALLOWANCE-DOMESTIC> 7,789
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 927
</TABLE>
<PAGE> 1
MAHONING NATIONAL BANCORP, INC.
FORM 10-K
EXHIBIT 99(a)
Registrant's Notice of Annual Meeting
and Proxy Statement dated March 16, 1999.
<PAGE> 2
================================================================================
MAHONING NATIONAL BANCORP, INC.
NOTICE OF ANNUAL MEETING
AND
PROXY STATEMENT
ANNUAL SHAREHOLDERS MEETING
MARCH 16, 1999
================================================================================
<PAGE> 3
MAHONING NATIONAL BANCORP, INC.
23 Federal Plaza
P.O. Box 479
Youngstown, OH 44501
NOTICE OF ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD
March 16, 1999
TO THE HOLDERS OF SHARES OF COMMON STOCK:
Notice is hereby given that the Annual Meeting of the Shareholders of
Mahoning National Bancorp, Inc. (the "Corporation") will be held at The Mahoning
National Bank, 23 Federal Plaza, Youngstown, Ohio 44501 on Tuesday, March 16,
1999, at 11:00 a.m. (local time), for the purpose of considering and voting upon
the following matters:
1. The election of three (3) Directors to be elected 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.
2. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING
OR ANY ADJOURNMENT THEREOF. THE BOARD OF DIRECTORS AT PRESENT KNOWS OF
NO OTHER BUSINESS TO BE PRESENTED BY OR ON BEHALF OF THE CORPORATION.
Shareholders of record at the close of business on January 29, 1999 are
the only shareholders entitled to notice of and to vote at the Annual
Shareholders Meeting.
By order of the Board of Directors
Gregory L. Ridler, Chairman of the Board,
President and Chief Executive Officer
February 12, 1999
IMPORTANT
WHETHER YOU EXPECT TO ATTEND THE MEETING OR NOT, PLEASE MARK, SIGN,
DATE, AND RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED SELF-ADDRESSED
ENVELOPE AS PROMPTLY AS POSSIBLE. NO POSTAGE IS REQUIRED.
<PAGE> 4
MAHONING NATIONAL BANCORP, INC.
YOUNGSTOWN, OHIO
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of Mahoning National Bancorp, Inc. (the "Corporation")
of proxies to be voted at the Annual Meeting of shareholders to be held on
Tuesday, March 16, 1999, in accordance with the foregoing notice.
The Corporation is a one-bank holding company of which The Mahoning
National Bank of Youngstown (hereinafter "Mahoning National Bank") is a wholly
owned subsidiary.
The solicitation of proxies on the enclosed form is made on behalf of
the Board of Directors of the Corporation. All cost associated with the
solicitation will be borne by the Corporation. The Corporation does not intend
to solicit proxies other than by use of the mails, but certain officers and
regular employees of the Corporation or its subsidiaries, without additional
compensation, may use their personal efforts, by telephone or otherwise, to
obtain proxies. The proxy materials are first being mailed to shareholders on
February 12, 1999.
Any shareholder executing a proxy has the right to revoke it by the
execution of a subsequently dated proxy, by written notice delivered to the
Secretary of the Corporation prior to the exercise of the proxy or in person by
voting at the meeting. The shares will be voted in accordance with the direction
of the shareholder as specified on the proxy. In the absence of instructions,
the proxy will be voted "FOR" the election of the three (3) persons listed in
this Proxy Statement.
VOTING SECURITIES
Only shareholders of record at the close of business on January 29,
1999, will be eligible to vote at the Annual Meeting or any adjournment thereof.
As of January 29, 1999, the Corporation had outstanding 6,300,000 shares of
Common Stock, no par value. Shareholders are entitled to one (1) vote for each
share of common stock owned as of the record date, and shall have the right to
cumulate votes in the election of directors, in accordance with Ohio law.
Cumulative voting permits a shareholder to multiply the number of shares held by
the number of directors to be elected, and cast those votes for one candidate or
spread those votes among several candidates as he or she deems appropriate.
As of January 29, 1999, Mahoning National Bank held 868,993 shares of
the Corporation's outstanding shares in their Trust Department in regular or
nominee accounts. This total represents 13.79 percent of the outstanding
shares, which will be voted in accordance with the instructions contained in
the various trust agreements pursuant to which such shares are held and may,
therefore, in certain circumstances in which discretionary voting is granted to
the trustee, be voted at the direction of The Mahoning National Bank as
Trustee.
1
<PAGE> 5
All directors and Named Executive Officers as a group (comprised of
nine individuals), beneficially held 143,576 shares of the Corporation's common
stock as of January 29, 1999, representing 2.279 percent of the outstanding
common stock of the Corporation.
PROPOSAL #1
ELECTION OF DIRECTORS AND INFORMATION
WITH RESPECT TO DIRECTORS AND OFFICERS
CLASSIFICATION SYSTEM FOR THE ELECTION OF DIRECTORS
The Corporation has a classified system for the election of directors.
Directors are divided into classes as nearly equal in number as possible but
with no fewer than three directors per class. The Corporation has six directors
and, therefore, the directors have been divided into two classes comprised of
three directors. Directors are elected to serve a two-year term.
INFORMATION WITH RESPECT TO NOMINEES
The following information is provided with respect to each nominee for
director and each present continuing director whose term of office extends
beyond the Annual Meeting of the Corporation's Shareholders. Those nominees
receiving the greatest number of votes will be elected as Directors. There is no
minimum number of votes required to elect a Director.
CLASS II
(TERM TO EXPIRE 2001)
<TABLE>
<CAPTION>
Director of
Mahoning Director of
Principal Occupation National Corporation
Bank
Name and Age Past 5 Years Since Since
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Charles J. McCrudden, Jr. (63) President, McCrudden 1986 1995
Heating and Air
Conditioning Supplies
Gregory L. Ridler (52) Chairman of the Board, 1988 1992
President & Chief
Executive Officer,
Mahoning National
Bancorp, Inc. and
President & Chief
Executive Officer,
The Mahoning National
Bank of Youngstown
Daniel B. Roth (69) Attorney At Law, 1972 1995
Chairman, Torent, Inc.
and Vice Chairman,
McDonald Steel Corp.
</TABLE>
2
<PAGE> 6
The following Directors shall continue to serve as Directors until
their respective terms expire and are not standing for reelection at this Annual
Meeting of Shareholders:
INFORMATION WITH RESPECT TO DIRECTORS NOT STANDING FOR REELECTION
CLASS I
(CONTINUING DIRECTORS WITH TERM TO EXPIRE 2000)
<TABLE>
<CAPTION>
Director of
Mahoning Director of
Principal Occupation National Bank Corporation
Name and Age Past 5 Years Since Since
---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
William J. Bresnahan (48) President, Hynes 1990 1998
Industries, Inc.
Frank A. Kramer (67) Retired President, 1981 1994
Brenner Industrial
Sales and Supply
Warren P. Williamson, III President, Skye 1972 1992
(68) Management, Inc;
Chairman, WKBN
Broadcasting Corp.
</TABLE>
The business experience of each of the above-listed nominees and
directors during the past five years was that typical to a person engaged in the
principal occupation listed. Unless otherwise indicated, each of the nominees
and directors has had the same position or another executive position with the
same employer during the past five years.
Shareholders desiring to nominate individuals to serve as directors may
do so by following the procedure outlined in the Corporation's Code of
Regulations requiring advance notice to the Corporation of such nomination and
certain information regarding the proposed nominee.
3
<PAGE> 7
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding beneficial
ownership as of January 29, 1999, of the Corporation's common shares of each
director, each Named Executive Officer and all directors and Named Executive
Officers as a group.
<TABLE>
<CAPTION>
Aggregate Number of Shares Percent of Outstanding Shares
-------------------------- -----------------------------
Name Beneficially Owned*
---- -------------------
<S> <C> <C>
William J. Bresnahan 896 .014
Frank Hierro 3,464 .055
Frank A. Kramer 40,311 .640
Charles J. McCrudden, Jr. 10,334 .164
Parker T. McHenry 1,729 .027
Gregory L. Ridler 24,400 .387
Daniel B. Roth 11,154 .177
David E. Westerburg 2,415 .038
Warren P. Williamson, III 48,873 .776
All Directors and Named Executive
Officers as a Group
(includes nine persons) 143,576 2.279
</TABLE>
*Beneficial Ownership includes those shares over which an individual has sole or
shared voting, or investment power, such as beneficial interests of such
person's spouse, minor children and other relatives living in the home of the
named person, trusts, estates and certain affiliated companies.
COMMITTEES AND COMPENSATION OF THE BOARD OF DIRECTORS
The Corporation's nominating function is performed by the Board of
Directors acting as a committee of the whole. In conducting its nominating
function, the Board of Directors of the Corporation is responsible for making
annual nominations for directors to fill vacancies created by expired terms of
directors and, from time to time, making appointments to fill vacancies created
prior to the expiration of a director's term. During 1998, the Board met once to
consider and act upon the nomination of directors.
During 1997 the Company established an Examining Committee which
performs the functions of an Audit Committee. The Examining Committee's
functions include its obligation to: (a) annually recommend to the Board of
Directors of the Company, and to the Board of Directors of each of the Company's
subsidiaries, for appointment by the respective boards, independent public
accountants as auditor of the books, records and accounts of the Company and
each such subsidiary; (b) review the scope of audits made by the independent
public accountants; and (c) receive and review the audit reports submitted by
the independent public accountants and take such action in respect of such
reports as the Examining Committee may deem appropriate. During 1998 the
Examining Committee of the Bank performed the functions of the Company's
Examining Committee and met four times.
4
<PAGE> 8
The Mahoning National Bank Executive Committee performs the function of
a Compensation Committee. For a complete description of its functions and
members, see "Report of the Executive Committee of The Mahoning National Bank on
Compensation" in this Proxy Statement.
The Board of Directors of the Corporation meets quarterly for its
regular meetings and upon call for special meetings. During 1998, the Board met
four times consisting of four regular meetings. Each of the directors of the
Corporation attended at least 75 percent of all board meetings and committee
meetings they were scheduled to attend.
Directors of the Corporation, other than those persons who serve as
officers of The Mahoning National Bank, receive for their service a quarterly
retainer of $750 and a fee of $400 for each meeting attended.
[THIS SPACE LEFT INTENTIONALLY BLANK]
5
<PAGE> 9
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning
compensation paid or accrued by the Corporation and/or its subsidiaries, to or
on behalf of the Corporation's Chief Executive Officer and each of the other
three most highly compensated officers earning $100,000 or more annually, (the
"Named Executive Officers"):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION All Other
Name and Principal Position Year Salary ($) Bonus ($) Compensation ($)(3)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
GREGORY L. RIDLER, President 1998 238,500 131,152(1) 329
and Chief Executive Officer 1997 225,000 123,726(1) 307
The Mahoning National Bank 1996 210,000 73,487(1) 281
PARKER T. MCHENRY, Executive Vice 1998 117,194 0(2) 0
President, The Mahoning National Bank 1997 120,000 36,000(2) 0
1996 114,000 34,200(2) 0
FRANK HIERRO, Senior Vice President 1998 110,000 32,781(1) 0
Loans, The Mahoning National Bank 1997 92,958 27,283(1) 0
1996 82,000 24,168(1) 0
DAVID E. WESTERBURG, Senior 1998 92,000 27,583(1) 0
Vice President Operations/Retail Banking, 1997 85,000 25,471(1) 0
The Mahoning National Bank
</TABLE>
(1) Represents awards under the Corporation's Executive Phantom Stock Bonus
Plan and cash bonuses. For 1998 the amounts disclosed included $83,452 for
Mr. Ridler, $21,979 for Mr. Hierro and $18,383 for Mr. Westerburg awarded
under Executive Stock Bonus Plan, (See "Executive Deferred Cash and
Executive Phantom Stock Bonus Plans"), and $47,700, $10,802 and $9,200 in
cash bonuses awarded to Messrs. Ridler, Hierro and Westerburg. All awards
under the Executive Phantom Stock Bonus Plan are subject to vesting except
for acceleration in the event of death, permanent disability or a change of
control of the Corporation. Vested awards are payable upon termination of
employment or retirement.
(2) Mr. McHenry retired on October 31, 1998. He was not eligible to participate
in the Executive Deferred Cash Bonus Plan for 1998. Years 1997 and 1996
represents amount awarded to Mr. McHenry under the terms of the
Corporation's Executive Deferred Cash Bonus Plan adopted November 15, 1993.
The amount awarded annually is determined by return on stockholder equity
performance requirements as set forth in the Deferred Cash Bonus Plan. See
"Executive Deferred Cash and Executive Phantom Stock Bonus Plans". Vested
awards are payable upon termination of employment or retirement.
(3) The amount for Mr. Ridler represents the premium attributable to his
portion of a Split Dollar Life Insurance policy.
6
<PAGE> 10
PENSION PLANS
The following table shows the estimated annual pension benefits payable
to a covered participant at normal retirement age (age 65) under the
Corporation's qualified defined benefit pension plan, based on remuneration that
is covered under the plans and years of service with the Corporation and its
subsidiaries:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
ESTIMATED ANNUAL RETIREMENT BENEFITS
ANNUAL AVERAGE
OF FINAL 60
MONTHS SALARY 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS 40 YEARS
- ------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$60,000 16,405 21,873 27,342 32,810 38,278 43,747
85,000 24,505 32,673 40,842 49,010 57,178 65,347
110,000 32,605 43,473 54,342 65,210 76,078 86,947
135,000 40,705 54,273 67,842 81,410 94,978 108,547
160,000 46,861 62,481 78,102 93,722 109,342 124,963
185,000 46,861 62,481 78,102 93,722 109,342 124,963
</TABLE>
A participant's remuneration covered by the Corporation's pension plan
is his or her average salary (as reported in the Summary Compensation Table) for
the 60 months before normal retirement. Participants are vested in their pension
benefits after five years of service. Mr. McHenry had 9 years of service, Mr.
Ridler had 28 years of service, Mr. Hierro had 13 years of service and Mr.
Westerburg had 5 years of service, respectively, as of December 31, 1998.
Effective on December 11, 1995, the Corporation entered into a
Supplemental Executive Retirement Plan with Mr. Ridler. The purpose of the Plan
is to replace certain retirement benefits which Mr. Ridler lost under the
Corporation's qualified retirement plans due to the eligible compensation
limitations under current tax law. Pursuant to the terms of the Supplemental
Executive Retirement Plan, upon Mr. Ridler's retirement at his Normal Retirement
Age of 65, he will receive payments of $93,000 from the Corporation, annually,
for twenty years. This amount represents an estimate of the value of the lost
benefits resulting from the reduction in eligible compensation under the
Corporation's tax qualified retirement plan. Reduced benefits are provided to
Mr. Ridler under the Supplemental Executive Retirement Plan in the event of
early retirement.
In addition, contemporaneously with the adoption of the Supplemental
Executive Retirement Plan, the Corporation and Mr. Ridler entered into a Split
Dollar Life Insurance Agreement which provides for the payment, to Mr. Ridler's
beneficiaries, of one-third of the net-at-risk insurance portion of an insurance
policy purchased by the Corporation in connection with the establishment of the
Supplemental Executive Retirement Plan. As of December 31, 1998, this Split
Dollar Life Insurance Agreement would have provided a death benefit of $357,107
to Mr. Ridler's beneficiaries. The Corporation purchased life insurance for the
purpose of funding its obligations under the Supplemental Executive Retirement
Plan in the event of Mr. Ridler's death and as an investment vehicle designed to
fund the payments to Mr. Ridler at retirement.
7
<PAGE> 11
REPORT OF THE EXECUTIVE COMMITTEE OF THE MAHONING NATIONAL BANK ON COMPENSATION
Under rules established by the Securities and Exchange Commission (the
"SEC"), the Corporation is required to provide certain data and information in
regard to the compensation and benefits provided to the Corporation's Chairman
of the Board, President and Chief Executive Officer and, if applicable, the four
other most highly compensated executive officers, whose compensation exceeded
$100,000 during the Corporation's fiscal year. The disclosure requirements, as
applied to the Corporation, includes the Corporation's Chairman of the Board,
President and Chief Executive Officer (Mr. Gregory L. Ridler), Executive Vice
President (Mr. Parker T. McHenry), and Senior Vice President, Loans (Mr. Frank
Hierro), and Senior Vice President, Operations/Retail Banking (Mr. David E.
Westerburg) and includes the use of tables and a report explaining the rationale
and considerations that led to fundamental executive compensation decisions
affecting Mr. Ridler, Mr. McHenry, Mr. Hierro and Mr. Westerburg. The
Corporation is a holding company and owns a single subsidiary, The Mahoning
National Bank. The Corporation has no direct employees. All disclosures
contained in this Proxy Statement regarding executive compensation reflect
compensation paid by The Mahoning National Bank. The Executive Committee of The
Mahoning National Bank (the "Committee") has the responsibility of determining
the compensation policy and practices with respect to all Executive Officers. At
the direction of the Board of Directors, the Committee has prepared the
following report for inclusion in this Proxy Statement.
COMPENSATION PHILOSOPHY. This report reflects the Corporation's
compensation philosophy as endorsed by the Committee. The Committee determines
the level of compensation for all other executive officers within the
constraints of the amounts approved by the Board.
Essentially, the executive compensation program of the Corporation has
been designed to:
- - Support a pay-for-performance policy that awards executive officers for
corporate performance.
- - Motivate key senior officers to achieve strategic business goals.
- - Provide compensation opportunities which are comparable to those
offered by other peer group companies, thus allowing the Corporation to
compete for and retain talented executives who are critical to the
Corporation's long-term success.
SALARIES. Effective January 1, 1999, the Committee increased the salary
paid to Mr. Ridler, Mr. Hierro and Mr. Westerburg. The increase reflected
consideration of competitive data reported in compensation surveys and the
Committee's assessment of the performance of such executives over the
intervening year and recognition of the Corporation's performance during 1998.
In addition, the Committee approved compensation increases for all other
executive officers of the Corporation. The Mahoning National Bank Board approved
all of such increases upon recommendation of the Committee. Executive Officer
salary increase determinations are based upon written performance appraisals of
such executives which reviews, among other things, the performance of executives
against goals set in the prior year, extraordinary service and promotions within
the organization.
8
<PAGE> 12
EXECUTIVE DEFERRED CASH AND EXECUTIVE PHANTOM STOCK BONUS PLANS. In
1998, Mr. McHenry was not eligible to participate in the Executive Deferred Cash
Bonus Plan ("Deferred Cash Bonus Plan"). Messrs. Ridler, Hierro and Westerburg
participate in the Executive Phantom Stock Bonus Plan ("Phantom Stock Plan").
Pursuant to the terms of the Deferred Cash Bonus Plan, Mr. McHenry is eligible
for a deferred cash bonus in the years 1996 and 1997 when The Mahoning National
Bank's earnings achieved predetermined corporate levels. Under the terms of the
Phantom Stock Plan, participating executives are eligible for deferred phantom
stock bonuses, according to similar predetermined corporate earnings performance
levels. Under the terms of the plans the participating executives are eligible
to receive a deferred bonus of from 2.5 percent to 50 percent of their
compensation. In the case of the Deferred Cash Bonus Plan, the bonus is credited
to the account of the participating executive and accrues an additional 8
percent per annum in interest. Under the terms of the Phantom Stock Plan the
bonus is credited in the participant's phantom stock account in Phantom Shares,
the value of which is then determined with reference to the value of the
Corporation's common stock, plus additional credits to the account to reflect
dividends paid on the stock. In connection with both plans, the benefits are
payable upon termination of employment or retirement in a lump sum or over a
term at the election of the participant and are subject to a vesting schedule.
The Executive Committee of The Mahoning National Bank's Board of Directors has
complete discretion in the administration and interpretation of the plans.
THIS REPORT ON COMPENSATION IS SUBMITTED BY THE EXECUTIVE COMMITTEE MEMBERS:
Warren P. Williamson, III, Chairman Frank A. Kramer
David A. Bitonte Charles J. McCrudden, Jr.
William J. Bresnahan Gregory L. Ridler
Lee Burdman Daniel B. Roth
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.
Mr. Ridler, the Corporation's Chairman of the Board, President and
Chief Executive Officer, served on the Executive Committee (the "Committee") of
The Mahoning National Bank, which is responsible for compensation matters (see
"Report of the Executive Committee of The Mahoning National Bank on
Compensation" in this Proxy Statement).
Although Mr. Ridler served on the Committee, he did not participate in
any decisions regarding his own compensation as an Executive Officer. Each year,
the Executive Committee determines the amount of the bonus award for the
Chairman, President and Chief Executive Officer (pursuant to the Executive
Phantom Stock Bonus Plan described elsewhere in this Proxy Statement) and salary
for the ensuing year. Mr. Ridler did not participate in discussions or
decision-making relative to his compensation.
PERFORMANCE GRAPH - Five-Year Shareholder Return Comparison
The SEC requires that the Corporation include in this Proxy Statement a
line-graph presentation comparing cumulative, five-year shareholder returns on
an indexed basis with a broad equity market index and either a nationally
recognized industry standard or an index of peer companies selected by the
Corporation. The Corporation has selected the Dow Jones Equity Market Index and
the Dow Jones Regional Bank Index for purposes of this performance
9
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comparison which appears below. The Performance Graph presents a comparison
which assumes $100 invested on December 31, 1993, in the Corporation's common
stock, the Dow Jones Equity Market Index and the Dow Jones Regional Bank Index.
[Graph]
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN* AMONG MAHONING NATIONAL
BANCORP, INC. DOW JONES EQUITY MARKET INDEX & DOW JONES MAJOR REGIONAL
BANK INDEX FOR FISCAL YEAR ENDING DECEMBER 31
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
MAHONING NATIONAL BANCORP, INC. $100.00 $147.23 $213.13 $260.52 $379.98 $357.24
DOW JONES EQUITY MARKET INDEX $100.00 $100.74 $138.69 $170.63 $228.57 $294.05
DOW JONES REGIONAL BANK INDEX $100.00 $105.01 $143.81 $185.10 $231.19 $273.10
</TABLE>
ASSUMES $100 INVESTED ON DECEMBER 31, 1993 *TOTAL RETURN ASSUMES
IN MAHONING NATIONAL BANCORP, INC. COMMON STOCK, REINVESTMENT OF DIVIDENDS
DOW JONES EQUITY MARKET INDEX & DOW JONES MAJOR
REGIONAL BANK INDEX
CHANGE OF CONTROL AGREEMENT
The Corporation has entered into Change of Control Agreements
(the "Agreements") with Messrs. Ridler, Hierro and Westerburg. The Agreements
provide the executives are entitled to monthly periodic payments in the event of
a termination of employment (other than for cause) following a Change of
Control. A Change of Control is defined to include a merger or other acquisition
of the Corporation or the Mahoning National Bank and certain other changes in
the voting control of the Corporation. In the event of a Change of Control and
termination of the executive, the Agreements provide for the payment of monthly
cash payments equal to the highest monthly base salary of such executive prior
to the Change of Control, for 36 months in the case of Mr. Ridler and 24 months
for each of the other named executive officers. The rights of the Corporation to
choose to employ or terminate the executives prior to a Change of Control are
not affected by the Agreements. In the event a Change of Control had occurred on
January 1, 1999, and each of the executive's employment had been involuntarily
terminated on such date (other than for cause), Mr. Ridler would have been
entitled (subject to certain immaterial modifications provided for by the
Agreements which may lower the amount), to receive a monthly sum of $19,875 for
36 months; Messrs. Hierro and Westerburg would have been entitled (subject to
certain immaterial modifications provided for by the Agreements which may lower
the amount), to receive a monthly sum of $9,167, and $7,667, respectively for 24
months.
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TRANSACTIONS WITH MANAGEMENT
Directors of The Mahoning National Bank and the Corporation and their
associates were customers of, and have had transactions with, The Mahoning
National Bank in the ordinary course of business during 1998.
These transactions consisted of extensions of credit by The Mahoning
National Bank in the ordinary course of business and were made on substantially
the same terms as those prevailing at the time for comparable transactions with
other persons. In the opinion of the management of The Mahoning National Bank,
those transactions do not involve more than a normal risk of being collectible
or present other unfavorable features. The Mahoning National Bank expects to
have, in the future, banking transactions in the ordinary course of its business
with directors and their associates on the same terms, including interest rates
and collateral on loans, as those prevailing at the time of comparable
transactions with others.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's officers and directors, and persons who own more than 10 percent
of a registered class of the Corporation's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than 10 percent shareholders are required by SEC
regulation to furnish the Corporation with copies of all Section 16(a) forms
they file.
Based solely on review of the copies of such forms furnished to the
Corporation, or written representations that no Form 5s were required, the
Corporation believes that during 1998, all Section 16(a) filing requirements
applicable to its officers, directors, and greater than 10 percent beneficial
owners were complied with.
SELECTION OF AUDITORS
Crowe, Chizek and Company LLP has been appointed to serve as the
Independent Auditor for the Corporation and its subsidiary for the fiscal year
ended December 31, 1998. It is the intention of the Corporation to appoint
Crowe, Chizek and Company LLP as Independent Auditor for 1999. Representatives
of Crowe, Chizek and Company LLP are expected to be present at the Annual
Meeting to respond to appropriate questions from stockholders and to have the
opportunity to make any statements they consider appropriate.
SHAREHOLDER PROPOSALS
Any proposals to be considered for inclusion in the proxy material to
be provided to shareholders of the Corporation for its next annual meeting, to
be held in 2000, must be made by a qualified shareholder and must be received by
the Corporation no later than October 8, 1999.
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OTHER MATTERS
The Board of Directors of the Corporation is not aware of any other
matters that may come before the meeting. However, the enclosed Proxy will
confer discretionary authority with respect to matters which are not known to
the Board of Directors at the time of printing hereof and which may properly
come before the meeting. A copy of the Corporation's 1998 report filed with the
Securities and Exchange Commission, on Form 10-K, will be available without
charge to shareholders on request April 1, 1999. Address all requests, in
writing, for this document to Norman E. Benden, Jr., Mahoning National Bancorp,
Inc., 23 Federal Plaza, Youngstown, Ohio 44501.
By Order of the Board of Directors
Norman E. Benden, Jr.
Secretary and Treasurer
February 12, 1999
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