THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING SUBMITTED PURSUANT TO
RULE 901(d) OF REGULATION S-T
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1996
-------------------
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
---------------- -------------------
Commission File Number: 0-21076
-----------
FIRST SHENANGO BANCORP, INC.
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1698967
- - --------------------------------------------------------------------------------
(State of other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
(412) 654-6606
- - --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
NA
- - --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 day|X| Yes |_| No
The number of shares outstanding of each of the issuer's classes of common
stock as of July 31, 1996:
Outstanding
Class -----------
-----
$.10 par value common stock 2,271,250 Shares
<PAGE>
FIRST SHENANGO BANCORP, INC.
INDEX
<TABLE>
<CAPTION>
Page Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Consolidated Statements of Financial Position as of June 30, 1996 and December 31, 1995 1
Consolidated Statements of Income for the Three Months Ended June 30, 1996 and 1995 and Six
Months Ended June 30, 1996 and 1995 2
Consolidated Statements of Changes in Shareholders' Equity for the Year Ended December 31,
1995 and the Six Months Ended June 30, 1996 3
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1996 and 1995 4 - 5
Notes to Consolidated Financial Statements 6 - 11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 - 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION/Item 1. - Financial Statements
FIRST SHENANGO BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1996 1995
----------------- -----------------
Cash and Cash Equivalents:
<S> <C> <C>
Cash and amounts due from depository institutions $1,956,918 $2,393,990
Interest bearing deposits in financial institutions 4,090,643 13,436,570
----------------- -----------------
6,047,561 15,830,560
Investment securities available for sale,
carried at estimated fair value (amortized cost of
$110,625,771 and $78,773,914) 109,885,939 80,586,601
Loans receivable, net 245,103,353 228,277,551
Accrued interest receivable 2,291,813 1,945,776
REO and other repossessed assets, net 1,085,484 943,087
Premises and equipment, net 4,038,149 4,229,021
Prepaid expenses, sundry assets and deferred taxes 826,529 308,805
----------------- -----------------
TOTAL ASSETS $369,278,828 $332,121,401
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits (including non-interest bearing deposits of
$4,508,193 and $3,647,765) $261,875,233 $254,405,745
Advances from Federal Home Loan Bank and other borrowings 54,941,653 26,665,654
Advance payments by borrowers for taxes and insurance 2,516,411 1,178,402
Accrued expenses, deferred taxes and other liabilities 3,109,861 2,249,014
----------------- -----------------
TOTAL LIABILITIES 322,443,158 284,498,815
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, no stated value, 10,000,000 shares authorized,
none issued
Common stock, $.10 par value, 15,000,000 shares authorized,
(2,343,098 issued) 234,310 234,310
Additional paid-in capital 22,377,679 22,339,850
Treasury stock at cost, (61,848 and 33,790 shares) (1,121,946) (532,464)
Less stock acquired by MSBPs and ESOP (761,323) (850,822)
Net unrealized (losses) gains on securities available for sale,
net of tax (487,831) 1,196,686
Retained earnings (substantially restricted) 26,594,781 25,235,026
----------------- -----------------
TOTAL SHAREHOLDERS' EQUITY 46,835,670 47,622,586
----------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $369,278,828 $332,121,401
================= =================
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
FIRST SHENANGO BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
Interest income: 1996 1995 1996 1995
------------ ------------ ----------- ------------
Interest and fees on:
<S> <C> <C> <C> <C>
First mortgage residential loans $2,564,893 $2,427,190 $5,051,855 $4,850,210
Commercial and other real estate loans 967,421 672,228 1,856,871 1,280,892
Consumer loans 1,262,306 1,356,513 2,538,300 2,618,046
Interest and dividends on investments and FHLB stock 1,769,761 1,350,907 3,404,006 2,599,576
Other interest income 147,064 43,444 307,808 114,655
------------ ------------ ----------- ------------
TOTAL INTEREST INCOME 6,711,445 5,850,282 13,158,840 11,463,379
------------ ------------ ----------- ------------
Interest expense:
Interest on deposits 2,891,795 2,947,000 5,821,000 5,730,163
Interest on borrowed funds 677,877 175,077 1,232,970 386,489
------------ ------------ ----------- ------------
TOTAL INTEREST EXPENSE 3,569,672 3,122,077 7,053,970 6,116,652
------------ ------------ ----------- ------------
NET INTEREST INCOME 3,141,773 2,728,205 6,104,870 5,346,727
Provision for loan losses 224,201 234,694 448,994 472,989
------------ ------------ ----------- ------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 2,917,572 2,493,511 5,655,876 4,873,738
Non-interest income:
Service charges and other fees 191,806 213,565 383,060 418,249
Gain on sale of investments and loans, net (44,033) (11,047) 162,342 2,839
Other 1,165 2,447 2,482 7,327
------------ ------------ ----------- ------------
TOTAL NON-INTEREST INCOME 148,938 204,965 547,884 428,415
Non-interest expense:
Salaries and employee benefits 757,874 682,399 1,497,007 1,388,509
Occupancy and equipment, net 262,715 272,150 530,381 536,470
Deposit insurance premiums 146,347 145,791 292,887 288,377
Professional services 64,180 84,298 122,055 140,893
REO operations 37,506 (3,031) 115,829 17,051
Other 332,717 335,913 662,922 666,016
------------ ------------ ----------- ------------
TOTAL NON-INTEREST EXPENSE 1,601,339 1,517,520 3,221,081 3,037,316
------------ ------------ ----------- ------------
INCOME BEFORE INCOME TAXES 1,465,171 1,180,956 2,982,679 2,264,837
Income tax expense:
Federal 473,925 368,350 941,625 694,000
State 92,575 74,925 193,800 136,025
------------ ------------ ----------- ------------
TOTAL INCOME TAX EXPENSE 566,500 443,275 1,135,425 830,025
------------ ------------ ----------- ------------
NET INCOME $898,671 $737,681 $1,847,254 $1,434,812
============ ============ =========== ============
Earnings per share $0.39 $0.32 $0.80 $0.63
Dividends declared per share $0.12 $0.09 $0.22 $0.18
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
FIRST SHENANGO BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unallocated Unallocated Retained
Additional Common Common Unrealized Earnings, Consolidated
Common Paid-In Treasury Stock Held Stock Held (Loss) Gain Substantially Shareholders'
Stock Capital Stock by ESOP by MSBPs on Securities Restricted Equity
--------- ----------- ------------ ---------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1994 $234,310 $22,252,610 $(157,000) $(892,551) $(158,123) $(401,406) $23,002,750 $43,880,590
Deferred and unearned
compensation amortization of
ESOP and MSBPs shares 100,800 114,568 85,284 300,652
Stock options exercised (13,560) 43,560 30,000
Net income 3,079,186 3,079,186
Cash dividends declared on
common stock at $.38 per
share (846,910) (846,910)
Purchase of 25,790 shares of
treasury stock (419,024) (419,024)
Change in unrealized gain on
investment securities available
for sale, net 1,598,092 1,598,092
--------- ----------- ------------ ---------- ----------- ----------- ----------- -----------
December 31, 1995 234,310 22,339,850 (532,464) (777,983) (72,839) 1,196,686 25,235,026 47,622,586
Deferred and unearned
compensation amortization of
ESOP and MSBPs shares 60,000 58,077 30,575 148,652
MSBP shares forfeited (847) 847
Net income 1,847,254 1,847,254
Cash dividends declared on
common stock at $.22 per
share (487,499) (487,499)
Purchase of 30,905 shares of
treasury stock (639,276) (639,276)
Exercise of stock options (21,324) 49,794 28,470
Change in unrealized gain
(loss) on investment securities
available for sale, net (1,684,517) (1,684,517)
--------- ----------- ------------ ---------- ----------- ----------- ----------- ------------
June 30, 1996 $234,310 $22,377,679 $(1,121,946) $(719,906) $(41,417) $(487,831)$26,594,781 $46,835,670
========= =========== ============ ========== =========== =========== =========== ============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
FIRST SHENANGO BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended June 30,
1996 1995
------------- --------------
OPERATING ACTIVITIES
<S> <C> <C>
Net Income $1,847,254 $1,434,812
Adjustments to reconcile net income to net cash provided by
operating activities:
Net gain on sale of investments and loans (162,342) (2,839)
Provision for losses on loans 448,994 472,989
Provisions for net losses on REO, repossessed and other assets 64,322 (17,774)
Provisions for depreciation and amortization 220,987 245,949
Amortization of MSBPs and ESOP unearned and deferred
compensation 148,652 131,004
Deferred federal income taxes (82,000) 60,000
Increase in accrued interest receivable, prepaid
expenses and sundry assets (529,761) (38,326)
Increase (decrease) in accrued expenses and other liabilities 1,343,305 (241,515)
Increase in interest payable 1,670,332 1,718,297
------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,969,743 3,762,597
INVESTING ACTIVITIES
Proceeds from maturities of investments available for sale 8,000,000 4,000,000
Proceeds from maturities of investments held to maturity and time deposits 4,819,000
Proceeds from sales of investment securities available for sale 17,096,481 17,823,810
Proceeds from sales of mortgage-backed securities available for sale 11,787,371 1,984,274
Proceeds from sales of education loans 481,584 558,652
Purchases of investments available for sale (33,771,065) (11,920,268)
Purchases of investments held to maturity and time deposits (6,501,287)
Purchases of mortgage-backed securities and CMOs available for sale (37,787,591) (10,365,962)
Principal reduction on mortgage-backed securities and CMOs 4,252,854 1,111,978
Proceeds from sales of foreclosed real estate, repossessed and other assets 241,563 465,205
First mortgage loan originations (20,686,239) (7,719,360)
Commercial and other real estate loan originations (10,851,361) (11,147,225)
Consumer loan originations (14,603,397) (17,081,421)
Principal reduction on loans 27,943,672 25,836,235
Purchase of Federal Home Loan Bank stock (1,274,900) (32,600)
Additions to premises and equipment (30,115) (60,205)
------------- --------------
NET CASH USED BY INVESTING ACTIVITIES (49,201,143) (8,229,174)
</TABLE>
4
<PAGE>
FIRST SHENANGO BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
FINANCING ACTIVITIES 1996 1995
------------- --------------
<S> <C> <C>
Net increase (decrease) in money market and N.O.W. accounts 3,465,385 (2,925,444)
Net decrease in savings deposits (695,735) (6,097,823)
Net increase in certificate deposits 3,121,720 11,506,888
Proceeds of FHLB borrowings 28,125,000
Repayment of FHLB borrowings (4,500,000)
Net increase in other borrowings 150,999 126,861
Net increase in advance payments by borrowers 1,338,009 1,356,214
Net proceeds from stock options exercised 28,470 30,000
Payment of cash dividend on common stock (446,171) (358,132)
Purchase of treasury stock (639,276) (316,524)
------------- --------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 34,448,401 (1,177,960)
NET DECREASE IN CASH AND CASH EQUIVALENTS (9,782,999) (5,644,537)
Cash and cash equivalents at beginning of period 15,830,560 10,026,006
------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $6,047,561 $4,381,469
============= ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $5,393,787 $4,383,675
Income taxes $1,189,492 $714,300
Non-cash investing activities:
Transfer from loans to real estate owned $271,731 $225,482
Transfer from loans to other repossessed assets $438,106 $329,039
Non-cash financing activities:
Dividends declared but not paid $264,437 $200,274
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
FIRST SHENANGO BANCORP, INC.
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
First Shenango Bancorp, Inc.
Notes to Consolidated Financial Statements
- - --------------------------------------------------------------------------------
NOTE 1. BASIS OF PRESENTATION
The unaudited consolidated financial statements include the accounts of First
Shenango Bancorp, Inc. (the "Company"), First Federal Savings Bank of New Castle
(the "Savings Bank") and Tri-State Service Corporation. All significant
intercompany balances and transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements were
prepared in accordance with generally accepted accounting principles for interim
financial information and with instructions for Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all information and disclosures
required by generally accepted accounting principles for complete financial
statements. However, all normal recurring adjustments have been made which, in
the opinion of management, are necessary to the fair presentation of the
financial statements.
The results of operations for the six months ended June 30, 1996 are not
necessarily indicative of the results which may be expected for the year ending
December 31, 1996.
The Consolidated Statement of Financial Position at December 31, 1995, was
audited by Ernst & Young LLP. Their unqualified opinion thereon is included in
the Company's 1995 Annual Report to Shareholders.
The presentation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from these estimates. Most significantly, the Company uses estimates in
determining the allowance for loan losses.
Certain items previously reported have been reclassified to conform with the
current period's reporting format.
NOTE 2. EARNINGS PER SHARE
Earnings per share for the six months ended June 30, 1996 and 1995 have been
computed based on 2,295,515 and 2,283,017 weighted average shares and common
stock equivalents outstanding, respectively. Earnings per share for the three
months ended June 30, 1996 and 1995 have been based on 2,287,641 and 2,284,228
weighted average shares and common stock equivalents outstanding, respectively.
The Company accounts for shares acquired by its Employee Stock Ownership Plan
("ESOP") in accordance with Statement of Position 93-6; shares controlled by the
ESOP are not considered in the weighted average shares outstanding until the
shares are committed for allocation to an employee's individual account.
6
<PAGE>
NOTE 3. INVESTMENT SECURITIES
A summary of investment securities is as follows:
<TABLE>
<CAPTION>
June 30, 1996 Available for sale
-----------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
U.S. Government and agency securities $15,597,684 $35,300 $(93,513) $15,539,471
Collateralized mortgage obligations 36,269,269 293,118 (406,487) 36,155,900
Municipal obligations 16,378,872 194,255 (43,430) 16,529,697
Other debt securities 250,000 10,937 260,937
Mortgage-backed securities 29,425,444 253,709 (935,046) 28,744,107
FHLMC preferred stock 500,000 10,000 510,000
FNMA preferred stock 2,000,000 (10,000) 1,990,000
FHLB stock 2,717,100 2,717,100
Adjustable rate mortgage-backed security mutual funds 7,487,402 (48,675) 7,438,727
---------------- ------------ ------------- --------------
$110,625,771 $797,319 $(1,537,151) $109,885,939
================ ============ ============= ==============
</TABLE>
The amortized cost and estimated fair value of investment securities at June 30,
1996 by contractual maturity are as follows. Actual maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties. Mortgage-backed
securities and CMOs are not due at a single maturity date; periodic payments are
received on the securities based on the payment patterns of the underlying
collateral.
<TABLE>
<CAPTION>
Available for Sale
-----------------------------
Amortized Estimated
Cost Fair Value
-------------- --------------
Debt securities:
<S> <C> <C>
Due in one year or less $1,249,910 $1,255,799
Due after one year through five years 11,249,164 11,237,156
Due after five through ten years 3,181,036 3,160,154
Due after 10 through 20 years 9,530,189 9,594,076
Due after 20 years 7,016,257 7,082,920
-------------- --------------
Total 32,226,556 32,330,105
Mortgage-backed securities and CMOs maturing at various dates
through 2026 65,694,713 64,900,007
Equity securities, including FHLB stock 12,704,502 12,655,827
-------------- --------------
Total investment securities $110,625,771 $109,885,939
============== ==============
</TABLE>
7
<PAGE>
NOTE 4. FIRST MORTGAGE LOANS
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------------- --------------------
Conventional:
<S> <C> <C>
1 - 4 family residential $142,634,218 $125,782,247
Construction loans to builders 1,566,462 1,291,600
Partially guaranteed by the Veterans Administration 1,540,144 1,720,688
Insured by the Federal Housing Administration 1,228,360 1,302,768
------------------- --------------------
146,969,184 130,097,303
Less loans in process 3,534,937 1,178,284
------------------- --------------------
143,434,247 128,919,019
Unearned discounts (8,705) (11,042)
Net deferred loan fees and expenses (756,887) (642,473)
Allowance for loan losses (332,000) (332,000)
------------------- --------------------
$142,336,655 $127,933,504
=================== ====================
</TABLE>
Activity in the allowance for loan losses for first mortgage loans is summarized
as follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
--------------- ---------------
<S> <C> <C>
Balance at beginning of period $332,000 $331,744
Provisions charged to income 256
--------------- ---------------
Balance at end of period $332,000 $332,000
=============== ===============
</TABLE>
Mortgage loans in arrears three months or more or in process of foreclosure were
as follows:
<TABLE>
<CAPTION>
Percentage of
Period Number of Loans Amount First Mortgage Loans
- - ------------------------------------------ ----------------------- ------------ --------------------------------
<S> <C> <C> <C>
June 30, 1996 17 $385,934 0.27
December 31, 1995 11 $201,572 0.16
</TABLE>
The foregone interest on these loans for the periods ended June 30, 1996 and
December 31, 1995 was $19,003 and $9,695, respectively.
8
<PAGE>
NOTE 5. COMMERCIAL AND OTHER REAL ESTATE LOANS
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1996
------------------ -------------------
<S> <C> <C>
Commercial and other real estate loans $23,760,839 $23,140,948
Commercial business loans 18,503,503 13,531,196
Commercial land development loans 2,805,464 3,069,209
Land loans 198,756 194,764
------------------ -------------------
45,268,562 39,936,117
Less loans in process 2,178,440 601,876
------------------ -------------------
43,090,122 39,334,241
Unearned discounts (88,310) (88,310)
Net deferred fees and expenses (245,920) (212,728)
Allowance for loan loss (943,800) (853,800)
------------------ -------------------
$41,812,092 $38,179,403
================== ===================
</TABLE>
Activity in the allowance for loan losses for commercial and other real estate
loans is summarized as follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
------------- --------------
<S> <C> <C>
Balance at beginning of period $853,800 $1,125,434
Provisions charged to income 150,000 300,000
Charge-offs (60,000) (36,634)
------------- --------------
Balance and end of period $943,800 $1,388,800
============= ==============
</TABLE>
Commercial and other real estate loans in arrears three months or more, other
non-performing loans or loans in process of foreclosure were as follows:
<TABLE>
<CAPTION>
Percentage of Commercial and Other
Period Number of Loans Amount Real Estate Loans
- - -------------------------------------- --------------------- -------------- -----------------------------------
<S> <C> <C> <C>
June 30, 1996 2 $3,388 0.01
December 31, 1995 1 $294,798 0.77
</TABLE>
The foregone interest on these loans for the periods ended June 30, 1996 and
December 31, 1995 was $1,451 and $18,643, respectively.
At June 30, 1996, the Company held one loan with a balance of $1.76 million
considered impaired under FAS 114. Because the market value of the collateral
securing this loan exceeds the loan's recorded balance, no specific reserve is
deemed necessary, however, the loan has been included in management's assessment
of the adequacy of general valuation allowances. Approximately $71,000 in
interest income was recorded on this loan during the six months ended June 30,
1996. This loan has not been placed on non-accrual status, nor does management
expect it to be in the foreseeable future. There were no other loans considered
impaired during the six months ended June 30, 1996.
9
<PAGE>
NOTE 6. CONSUMER LOANS
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
-------------------- ----------------------
<S> <C> <C>
Education loans held for sale $3,756,862 $3,587,283
Loans secured by deposit accounts 1,314,996 1,230,422
FHA Title I improvement loans, net of unearned
interest of $2 and $197 352,577 523,912
Mobile home loans, net of unearned
interest of $1,846 and $3,736 55,563 88,254
Automobile loans 38,970,434 42,845,656
Consumer loans 2,160,834 2,287,067
Home equity loans 14,494,701 11,465,463
-------------------- ----------------------
61,105,967 62,028,057
Net deferred loan fees and expenses 1,256,943 1,422,445
Allowance for loan losses (1,408,304) (1,285,858)
-------------------- ----------------------
$60,954,606 $62,164,644
==================== ======================
</TABLE>
The fair value of education loans held for sale approximates book value at June
30, 1996 and December 31, 1995.
Activity in the allowance for loan losses for consumer loans is summarized as
follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
------------- -------------
<S> <C> <C>
Balance at beginning of period $1,285,858 $1,242,454
Provisions charged to income 298,994 172,733
Charge-offs (202,859) (166,439)
Recoveries 26,311 24,336
------------- -------------
Balance at end of period $1,408,304 $1,273,084
============= =============
</TABLE>
Consumer loans in arrears three months or more were as follows:
<TABLE>
<CAPTION>
Period Number of Loans Amount Percentage of Consumer Loans*
- - ------------------------------------------- ------------------- ------------- ---------------------------------
<S> <C> <C> <C>
June 30, 1996 86 $240,844 0.42
December 31, 1995 38 $215,933 0.37
</TABLE>
*Excluding education loans held for sale.
The foregone interest on these loans for the periods ended June 30, 1996, and
December 31, 1995, was $12,674 and $6,595, respectively.
10
<PAGE>
NOTE 7. COMMITMENTS
Commitments for financial instruments with off-balance sheet risk are as follows
at June 30, 1996:
<TABLE>
<CAPTION>
<S> <C>
Commitments to purchase first mortgage loans $960,790
Commitments to originate first mortgage loans 4,799,802
Commitments to originate commercial and other real estate loans 2,020,458
Commitments to originate consumer loans 2,250,366
Commercial lines of credit available 3,016,246
Commercial letters of credit 1,622,458
Home equity lines of credit available 5,931,866
Personal unsecured lines of credit available 2,309,925
Commitments to purchase investments 1,000,000
-------------
$23,911,911
=============
</TABLE>
The Company, which includes the Savings Bank, from time to time is a party to
routine litigation, which arises in the normal course of business, such as
claims to enforce liens, condemnation proceedings on properties in which the
Company or Savings Bank holds security interests, claims involving the making
and servicing of real property loans and other issues incident to the business
of the Company or Savings Bank. In the opinion of management, the resolution of
these lawsuits would not have a material adverse effect on the financial
position or results of operations of the Company or Savings Bank.
FIRST SHENANGO BANCORP, INC.
PART I - FINANCIAL INFORMATION
Item 2. - Management's Discussion and Analysis of
Financial Condition and Results of Operations
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
At or For the Six At or For the Three
Months Ended June 30, Months Ended June 30,
Statistical Data: 1996 (1) 1995 (1) 1996 (1) 1995 (1)
------------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
Return on average assets 1.05% 0.92% 1.01% 0.94%
Return on average equity 7.82% 6.43% 7.67% 6.56%
Average equity to average assets 13.46% 14.32% 13.10% 14.29%
Average interest rate spread (FTE) 3.05% 3.01% 3.10% 3.02%
Net yield on average interest-earning assets (FTE) 3.68% 3.63% 3.71% 3.67%
Non-interest expense to average assets 1.84% 1.95% 1.79% 1.93%
Efficiency ratio 49.65% 52.69% 48.03% 51.59%
Nonperforming assets to total assets 0.48% 0.69% 0.48% 0.69%
Allowance for loan losses to gross loans receivable 1.08% 1.32% 1.08% 1.32%
Book value per share, net of treasury shares $20.53 $19.70 $20.53 $19.70
</TABLE>
(1) Applicable income and expense figures have been annualized in calculating
these ratios.
(FTE) Fully taxable-equivalent basis.
11
<PAGE>
Management's Discussion and Analysis of Results of Operations for the Three
Months Ended June 30, 1996 and 1995.
During the three months ended June 30, 1996, the Company continued to experience
balance sheet growth as increases in deposits and FHLB advances and other
borrowings of $4.06 million and $8.40 million, respectively, were used along
with available funds to fund growth of $14.86 million in mortgage loans and
$3.50 million in commercial and other real estate loans since March 31. The
average interest rate spread and net yield on average interest-earning assets,
both calculated on a fully taxable-equivalent basis, experienced eight basis
point and four basis point increases, respectively, from the three months ended
June 30, 1995 to the same period in 1996. A series of leveraging transactions
has increased the average investment portfolio $22.45 million, while the average
mortgage loan portfolio increased $5.68 million and the average commercial and
other real estate loan portfolio increased $11.20 million. These increases,
partially offset by a $4.25 million decrease in the average consumer loan
portfolio, have increased net interest income and in return net income. Demand
has been strong throughout most of 1996 for first mortgage and commercial and
other real estate loans, while management has elected to reduce its exposure
somewhat to indirect automobile lending.
Provisions for loan losses decreased $11,000 to $224,000 for the three months
ended June 30, 1996 from $235,000 for same period in 1995. The provision was
established as a result of management's monitoring of non-performing loans and
assets and other potential problem credits. Non-accrual loans and loans more
than 90 days past due totalled $630,000, and other non- performing assets,
namely REO and other repossessed assets, were $1.14 million at June 30, 1996,
for a total of $1.77 million in non-performing assets. Interest received in cash
of $7,811 on non-accrual loans is included in net income for the 1996 quarter.
Total allowance for losses as a percentage of gross loans receivable, REO and
other repossessed assets was 1.10% at June 30, 1996. Total non-performing assets
as a percentage of total assets was 0.48% at June 30, 1996.
Total non-interest income decreased $56,000, or 27.33%, in 1996 primarily due to
a $33,000 decrease in the gain on sale of investments and loans. The 1996 losses
were due to the sale of a portion of the Company's investment in an adjustable
rate mortgage-backed security mutual fund, while the 1995 losses were due to
sales of selected debt and mortgage-backed securities. Service charges and other
fees decreased $22,000 from year to year, and other non-interest income declined
by $1,000.
Total non-interest expense increased $84,000, or 5.52%. Salaries and employee
benefits increased $75,000, or 11.06% between the 1995 and 1996 quarters,
primarily as a result of normal annual merit increases in salaries as well as
increased amortization expense relating to the ESOP due to the Company's higher
average stock price in 1996. REO operation expense increased $41,000 in 1996 due
to expenses associated with the former BFH office building which was acquired in
the fourth quarter of 1995. Negotiations regarding the potential sale of this
building are ongoing. Also, the 1995 quarter included a gain on the sale of a
former REO property which resulted in net income from REO operations of $3,000
for that quarter. Occupancy and equipment costs decreased $9,000 or 3.47% from
the 1995 to the 1996 quarter, and professional service fees declined $20,000 or
23.87%. Other expense categories experienced nominal dollar variances.
The Company's efficiency ratio improved from 51.59% for the three months ending
June 30, 1995 to 48.03% for the three months ending June 30, 1996, while the
ratio of non-interest expenses to average assets improved from 1.93% to 1.79%.
The improvement in both of these key ratios is evidence of management's
continuing dedication to cost control. The improvement in the efficiency ratio
is also due to the increase in net interest income.
Management's Discussion and Analysis of Results of Operations for the Six Months
Ended June 30, 1996 and 1995.
During the six months ended June 30, 1996, the Company continued to implement
its strategy of increasing earnings through leveraging the balance sheet. The
Savings Bank borrowed $28,125,000 from the Federal Home Loan Bank of Pittsburgh
(FHLB) during the six months which was used primarily to fund purchases of high
quality collateralized mortgage obligations with a short average life. In
addition, an increase of $7.47 million in deposits was used along with available
funds to fund growth of $14.40 million in mortgage loans and $3.63 million in
commercial and other real estate loans since December 31. The average interest
rate spread and net yield on average interest-earning assets, both calculated on
a fully taxable-equivalent basis, experienced four basis point and five basis
point increases, respectively, from the six months ended June 30, 1995 to the
same period in 1996. A series of leveraging transactions has increased the
average investment portfolio $20.03 million, while the average mortgage loan
portfolio increased $3.24 million and the average commercial and other real
estate loan portfolio increased $10.99 million. These increases, partially
offset by a $3.11 million decrease in the average consumer loan portfolio, have
increased net interest income and in return net income. Demand has been strong
throughout most of 1996 for first mortgage and commercial and other real estate
loans, while management has elected to reduce its exposure somewhat to indirect
automobile lending.
Provisions for loan losses decreased $24,000 to $449,000 for the six months
ended June 30, 1996 from $473,000 for same period in 1995. The provision was
established as a result of management's monitoring of non-performing loans and
assets and other
12
<PAGE>
potential problem credits. Non-accrual loans and loans more than 90 days past
due totalled $630,000, and other non-performing assets, namely REO and other
repossessed assets, were $1.14 million at June 30, 1996, for a total of $1.77
million in non- performing assets. Interest received in cash of $16,514 on
non-accrual loans is included in net income for the 1996 quarter. Total
allowance for losses as a percentage of gross loans receivable, REO and other
repossessed assets was 1.10% at June 30, 1996. Total non-performing assets as a
percentage of total assets was 0.48% at June 30 ,1996.
Total non-interest income increased $119,000, or 27.89%, in 1996 due to a
$160,000 increase in the gain on sale of investments and loans. These gains were
primarily due to the sale of GNMA mortgage-backed securities in the first
quarter of 1996, partially offset by a $49,000 loss on the sale of an adjustable
rate mortgage-backed security mutual fund in the second quarter. Service charges
and other fees decreased $35,000 from year to year, and other non-interest
income declined by $5,000.
Total non-interest expense increased $184,000, or 6.05%, primarily as a result
of a $99,000 increase in REO operation expense. Reserves for losses totalling
$55,000 were recorded on two REO properties in March 1996. The remainder of the
increase is primarily due to expenses associated with the former BFH office
building acquired in the fourth quarter of 1995. Negotiations regarding the
potential sale of this building are ongoing. Salaries and employee benefits
increased $108,000, or 7.81% between the 1995 and 1996 quarters, primarily as a
result of normal annual merit increases in salaries and increased ESOP
amortization expenses due to the higher average stock price. Other expense
categories experienced nominal dollar variances.
The Company's efficiency ratio improved from 52.69% at June 30, 1995 to 49.65%
at June 30, 1996, while the ratio of non- interest expenses to average assets
improved from 1.95% to 1.84%. The improvement in both of these key ratios is
evidence of management's continuing dedication to cost control. The improvement
in the efficiency ratio is also due to the increase in net interest income.
Liquidity and Capital Resources
The Savings Bank is required to maintain minimum levels of liquid assets as
defined by Office of Thrift Supervision ("OTS") regulations. This requirement,
which may be varied from time to time depending upon economic conditions and
deposit flows, is based upon a percentage of deposits and short-term borrowings.
The required minimum ratio is currently 5%. The Savings Bank's regulatory
liquidity ratio averaged 5.65% during the three months ended June 30, 1996. The
Savings Bank manages its liquidity ratio to meet its funding needs, including
deposit outflows, disbursements of payments collected from borrowers for taxes
and insurance, and loan principal disbursements. The Savings Bank also manages
its liquidity ratio to meet its asset and liability management objectives.
In addition to funds provided from operations, the Saving Bank's primary sources
of funds are savings deposits, principal repayments on loans and mortgage-backed
securities, and matured or called investment securities. The Savings Bank also
has the ability to borrow funds from the Federal Home Loan Bank of Pittsburgh.
Scheduled loan repayments and maturing investment securities are relatively
predictable sources of funds. However, savings deposit flows and prepayments on
loans and mortgage-backed securities are significantly influenced by changes in
market interest rates, economic conditions, and competition. The Savings Bank
strives to manage the pricing of its deposits to maintain a balanced stream of
cash flows commensurate with its loan commitments and other predictable funding
needs.
The Savings Bank invests its excess funds in an overnight deposit account with
the Federal Home Loan Bank of Pittsburgh. This provides sufficient liquidity to
meet immediate loan commitment and savings withdrawal funding requirements. When
applicable, cash in excess of immediate funding needs is invested into
longer-term investments and mortgage-backed securities which typically earn a
higher yield than overnight deposits. These types of investments may qualify as
liquid investments under the OTS regulations. The Company's entire investment
portfolio is classified as available for sale to provide greater flexibility for
a source of funds.
The Savings Bank anticipates that it will have sufficient funds available to
meet its current loan commitments and normal savings withdrawals. At June 30,
1996, the Savings Bank had outstanding commitments to fund off balance sheet
items of $23.91 million. In addition, it had certificates of deposit scheduled
to mature within six months of $66.78 million, substantially most of which
management believes will remain with the Savings Bank.
With the exception of the ongoing federal deposit insurance premium disparity
between banks and thrifts and the uncertainty as to when, how and at what cost
this issue will be resolved, management is not aware of any trends, events,
uncertainties or recommendations by any regulatory authority that will have, or
that are reasonably likely to have, material effects on liquidity, capital
resources or operations.
13
<PAGE>
As required by the Financial Institutions Reform Recovery and Enforcement Act of
1989 ("FIRREA"), the OTS prescribed three separate standards of capital
adequacy. The regulations require financial institutions to have minimum
regulatory capital equal to 1.50% of tangible assets, minimum core capital equal
to 3.00% of adjusted tangible assets, and risk-based capital equal to 8.00% of
risk adjusted assets. Set forth below is the table showing the regulatory
capital calculation.
The Savings Bank's capital requirements and actual capital under the OTS
regulations are as follows at June 30, 1996:
<TABLE>
<CAPTION>
Percent of Regulatory
(Dollar Amounts in Thousands) Amount Tangible Assets
---------------------- ---------------------
Tangible Capital:
<S> <C> <C>
Actual $37,550,000 10.31
Required 5,463,000 1.50
---------------------- ---------------------
Excess $32,087,000 8.81
====================== =====================
Core Capital:
Actual $37,550,000 10.31
Required 10,926,000 3.00
---------------------- ---------------------
Excess $26,624,000 7.31
====================== =====================
</TABLE>
<TABLE>
<CAPTION>
Percent of Risk
Amount Adjusted Assets
---------------------- ---------------------
Risk-Based Capital:
<S> <C> <C>
Actual $40,068,000 19.90
Required 16,110,000 8.00
---------------------- ---------------------
Excess $23,958,000 11.90
====================== =====================
Regulatory assets $364,207,000
======================
Risk-adjusted assets for regulatory purposes $201,381,000
======================
</TABLE>
14
<PAGE>
FIRST SHENANGO BANCORP, INC.
PART II - OTHER INFORMATION
- - -------------------------------------------------------------------------------
Item 1 - Legal Proceedings None
Item 2 - Changes in Securities N/A
Item 3 - Defaults Upon Senior Securities N/A
Item 4 - Submission of Matters to a Vote of Security Holders
(a) The 1996 Annual Meeting of Stockholders of First Shenango Bancorp,
Inc. was held on April 23, 1996. Of 2,309,308 shares eligible to vote,
71.88% or 1,660,020 were voted in person or by proxy.
(b) The stockholders voted to approve the re-election of the two
nominees for director, as described in the Proxy Statement for the
Annual Meeting. The results for the re-election of William G. Eckles,
II were 1,598,168 shares in favor and 61,852 withheld. The results for
the re-election of Dale R. Perelman were 1,597,786 shares in favor and
62,234 shares withheld. There were no broker non-votes. In addition to
Messrs. Eckles and Perelman, the directors following the meeting
consisted of Ronald P. Bergey, Robert H. Carlson, Francis A. Bonadio
and Richard E. Rentz, Jr.
(c) The recommendation by the Board of Directors to ratify the
appointment of Ernst & Young LLP as the Company's independent
auditors, as described in the Proxy Statement for the Annual Meeting,
was approved with 1,640,072 shares in favor, 10,517 against and 9,431
abstaining. There were no broker non-votes.
Item 5 - Other Information None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
11. Statement re computation of per share earnings
27. Financial data schedule
(b) Reports on Form 8-K None
FIRST SHENANGO BANCORP, INC.
EXHIBIT 11
Statement Regarding Computation of Primary Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
--------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 2,343,098 2,343,098 2,343,098 2,343,098
Net effect of dilutive stock options 75,947 65,448 77,200 59,070
Average unallocated ESOP shares (74,850) (89,039) (74,940) (89,039)
Average MSBP shares in plan reserve (9,995) (9,012) (9,503) (9,012)
Weighted average treasury shares (46,559) (26,267) (40,340) (21,100)
---------------- ----------- ------------ ------------
Common stock equivalents 2,287,641 2,284,228 2,295,515 2,283,017
================ =========== ============ ============
Net earnings $898,671 $737,681 $1,847,254 $1,434,812
================ =========== ============ ============
Per share amount $0.39 $0.32 $0.80 $0.63
================ =========== ============ ============
</TABLE>
Earnings per share have been computed based on the treasury stock method in
using average market price for the common stock equivalents.
The Company accounts for the shares acquired by the Employee Stock Ownership
Plan ("ESOP") in accordance with Statement of Position 93-6; shares controlled
by the ESOP are not considered in the weighted average shares outstanding until
the shares are committed for allocation.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST SHENANGO BANCORP, INC.
Date: August 1, 1996 By: /S/ Francis A. Bonadio
--------------------- ----------------------
FRANCIS A. BONADIO
President and Chief Executive Officer
Date: August 1, 1996 By: /S/ Lonny D. Robinson
--------------------- ---------------------
LONNY D. ROBINSON
Vice President and Chief Financial Officer
16
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,957
<INT-BEARING-DEPOSITS> 4,091
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 109,886
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 247,787
<ALLOWANCE> 2,684
<TOTAL-ASSETS> 369,279
<DEPOSITS> 261,875
<SHORT-TERM> 24,817
<LIABILITIES-OTHER> 5,626
<LONG-TERM> 30,125
0
0
<COMMON> 234
<OTHER-SE> 46,602
<TOTAL-LIABILITIES-AND-EQUITY> 369,279
<INTEREST-LOAN> 9,447
<INTEREST-INVEST> 3,404
<INTEREST-OTHER> 308
<INTEREST-TOTAL> 13,159
<INTEREST-DEPOSIT> 5,821
<INTEREST-EXPENSE> 7,054
<INTEREST-INCOME-NET> 6,105
<LOAN-LOSSES> 449
<SECURITIES-GAINS> 155
<EXPENSE-OTHER> 3,221
<INCOME-PRETAX> 2,983
<INCOME-PRE-EXTRAORDINARY> 2,983
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,847
<EPS-PRIMARY> 0.80
<EPS-DILUTED> 0.80
<YIELD-ACTUAL> 3.71
<LOANS-NON> 629
<LOANS-PAST> 1
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,764
<ALLOWANCE-OPEN> 2,472
<CHARGE-OFFS> 263
<RECOVERIES> 26
<ALLOWANCE-CLOSE> 2,684
<ALLOWANCE-DOMESTIC> 2,684
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
