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 MARCH 31, 1997
------------------------------------------------
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from
---------------------- to ----------------------
Commission File Number: 0-21076
--------------------------------------------------------
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 April 21, 1997:
Class Outstanding
----- -----------
$.10 par value common stock 2,062,860 Shares
<PAGE>
FIRST SHENANGO BANCORP, INC.
INDEX
<TABLE>
<CAPTION>
Page Number
PART I - FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Consolidated Statements of Financial Position as of March 31, 1997 and
December 31, 1996 1
Consolidated Statements of Income for the Three Months Ended March 31,
1997 and 1996 2
Consolidated Statements of Changes in Shareholders' Equity for the Year
Ended December 31, 1996 and the Three Months Ended March 31, 1997 3
Consolidated Statements of Cash Flows for the Three Months Ended March 31,
1997 and 1996 4 - 5
Notes to Consolidated Financial Statements 6 - 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10 - 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION/Item 1. - Financial Statements
FIRST SHENANGO BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1997 1996
--------------------------------
Cash and Cash Equivalents:
<S> <C> <C>
Cash and amounts due from depository institutions $ 1,468,277 $ 1,817,504
Interest bearing deposits in financial institutions 9,573,970 14,916,979
--------------------------------
11,042,247 16,734,483
Investment securities available for sale, carried at fair value 127,372,214 125,288,762
Loans receivable, net of allowance for loan losses of $2,927,508 and $2,867,270 253,822,746 255,769,702
Accrued interest receivable 2,523,070 2,331,437
REO and other repossessed assets, net 737,842 736,852
Premises and equipment, net 4,325,242 4,300,527
Prepaid expenses, sundry assets and deferred taxes 1,091,977 622,961
--------------------------------
TOTAL ASSETS $ 400,915,338 $ 405,784,724
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits (including non-interest bearing deposits of $4,223,908 and $4,647,926) $ 269,301,696 $ 267,619,176
Advances from Federal Home Loan Bank and other borrowings 83,944,709 86,455,211
Advance payments by borrowers for taxes and insurance 2,334,718 1,600,202
Accrued expenses, deferred taxes and other liabilities 2,434,371 7,055,808
--------------------------------
TOTAL LIABILITIES 358,015,494 362,730,397
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 shares issued 234,310 234,310
Additional paid-in capital 22,353,174 22,422,843
Treasury stock at cost (280,088 and 283,188 shares) (6,412,475) (6,374,001)
Less stock acquired by MSBPs and ESOP (635,597) (674,997)
Net unrealized (losses) gains on securities available for sale, net of tax (792,773) 190,743
Retained earnings (substantially restricted) 28,153,205 27,255,429
--------------------------------
TOTAL SHAREHOLDERS' EQUITY 42,899,844 43,054,327
--------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 400,915,338 $ 405,784,724
================================
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
FIRST SHENANGO BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
March 31,
Interest income: 1997 1996
-------------------------
Interest and fees on:
<S> <C> <C>
First mortgage residential loans $2,966,997 $2,486,962
Commercial and other real estate loans 1,120,754 889,450
Consumer loans 1,092,185 1,275,994
Interest and dividends on investments available for sale:
Taxable 1,470,457 1,172,798
Tax-exempt 419,360 172,470
Dividends 228,086 288,977
Other interest income 134,923 160,744
------------------------
TOTAL INTEREST INCOME 7,432,762 6,447,395
------------------------
Interest expense:
Interest on deposits 3,048,900 2,929,205
Interest on borrowed funds 1,195,737 555,093
------------------------
TOTAL INTEREST EXPENSE 4,244,637 3,484,298
------------------------
NET INTEREST INCOME 3,188,125 2,963,097
Provision for loan losses 184,634 224,793
------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,003,491 2,738,304
Non-interest income:
Service charges and other fees 202,459 191,254
Gain on sale of investments and loans, net 435 206,375
Other 1,177 1,317
------------------------
TOTAL NON-INTEREST INCOME 204,071 398,946
Non-interest expense:
Salaries and employee benefits 765,368 739,133
Occupancy and equipment, net 257,948 267,666
Deposit insurance premiums 42,459 146,540
Professional services 50,364 57,875
REO operations 33,901 78,323
Other 312,953 330,205
------------------------
TOTAL NON-INTEREST EXPENSE 1,462,993 1,619,742
------------------------
INCOME BEFORE INCOME TAXES 1,744,569 1,517,508
Income tax expense:
Federal 489,425 467,700
State 117,700 101,225
------------------------
TOTAL INCOME TAX EXPENSE 607,125 568,925
------------------------
NET INCOME $1,137,444 $ 948,583
========================
Earnings per share $ 0.55 $ 0.41
Dividends declared per share $ 0.12 $ 0.10
</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 Gain (Loss) Substantially Shareholders'
Stock Capital Stock by ESOP by MSBPs on Securities Restricted Equity
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 126,364 114,283 60,695 301,342
Stock options exercised (42,524) 95,994 53,470
MSBP shares forfeited (847) 847
Net income 3,009,997 3,009,997
Cash dividends declared on
common stock at $.46 per
share (989,594) (989,594)
Purchase of 254,745 shares
of treasury stock (5,937,531) (5,937,531)
Change in unrealized gain
on investment securities
available for sale, net (1,005,943) (1,005,943)
--------------------------------------------------------------------------------------------------------
December 31, 1996 234,310 22,422,843 (6,374,001) (663,700) (11,297) 190,743 27,255,429 43,054,327
Deferred and unearned
compensation amortization
of ESOP and MSBP shares 36,000 28,103 11,297 75,400
Stock options exercised (105,669) 259,019 153,350
Net income 1,137,444 1,137,444
Cash dividend declared on
common stock at $.12 per
share (239,668) (239,668)
Purchase of 12,235 shares
of treasury stock (297,493) (297,493)
Change in unrealized gain
on investment securities
available for sale, net (983,516) (983,516)
--------------------------------------------------------------------------------------------------------
March 31, 1997 $234,310 $22,353,174 $(6,412,475) $(635,597) $ 0 $ (792,773) $28,153,205 $42,899,844
========================================================================================================
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
FIRST SHENANGO BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
----------------------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 1,137,444 $ 948,583
Adjustments to reconcile net income to net cash provided by
operating activities:
Net gain on sale of investments and loans (435) (206,375)
Provision for estimated losses on loans 184,634 224,793
Provisions for net losses on REO, repossessed and other assets 7,039 58,754
Provisions for depreciation and amortization 106,077 117,576
Amortization of MSBPs and ESOP unearned and deferred
compensation 75,400 75,307
Deferred federal income taxes (15,000) (42,000)
Increase in accrued interest receivable, prepaid
expenses and sundry assets (236,649) (364,432)
Increase in accrued expenses and other liabilities 460,902 673,353
Increase in interest payable 824,286 932,759
----------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,543,698 2,418,318
INVESTING ACTIVITIES
Proceeds from maturities of investments 1,505,583 6,000,000
Proceeds from sales of investments 17,809,593
Proceeds from sales of education loans 260,153 197,423
Purchases of investments (7,901,101) (54,093,695)
Principal repayment on mortgage-backed securities and CMOs 2,706,450 2,453,978
Proceeds from sales of foreclosed real estate, repossessed and other assets 112,429 117,638
Loan originations, net of loans in process (11,872,173) (14,356,058)
Principal reduction on loans 13,254,319 14,996,054
Redemption (purchase) of Federal Home Loan Bank stock 115,100 (1,068,700)
Additions to premises and equipment (130,792) (3,400)
----------------------------------
NET CASH USED BY INVESTING ACTIVITIES (1,950,032) (27,947,167)
</TABLE>
4
<PAGE>
FIRST SHENANGO BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
FINANCING ACTIVITIES 1997 1996
---------------------------------
<S> <C> <C>
Net increase in money market and NOW deposits 1,278,512 1,815,858
Net increase in savings deposits 46,503 664,165
Net (decrease) increase in certificates of deposit (454,936) 88,978
Proceeds of FHLB borrowings 15,700,000 20,000,000
Repayment of FHLB borrowings (18,002,250)
Net decrease in other borrowings (208,252) (124,686)
Net increase in advance payments by borrowers 734,516 686,492
Net decrease in other liabilities for unsettled investment security purchases (4,996,627)
Net proceeds from exercise of stock options 153,350
Payment of cash dividend on common stock (239,225) (223,151)
Purchase of treasury stock (297,493) (31,635)
---------------------------------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (6,285,902) 22,876,021
NET DECREASE IN CASH AND CASH EQUIVALENTS (5,692,236) (2,652,828)
Cash and cash equivalents at beginning of period 16,734,483 15,830,560
---------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $11,042,247 $13,177,732
=================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $ 3,420,350 $ 2,551,539
Income taxes $ 107,500 $ 69,600
Non-cash investing activities:
Transfer from loans to real estate owned $ 270,046
Transfer from loans to other repossessed assets $ 214,444 $ 247,473
Non-cash financing activities:
Dividends declared but not paid $ 239,668 $ 223,019
</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 three months ended March 31, 1997 are not
necessarily indicative of the results which may be expected for the year ending
December 31, 1997.
The Consolidated Statement of Financial Position at December 31, 1996, was
audited by Ernst & Young LLP. Their unqualified opinion thereon is included in
the Company's 1996 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 three months ended March 31, 1997 and 1996 have been
computed based on 2,063,449 and 2,303,370 weighted average shares and common
stock equivalents outstanding, respectively. The Company accounts for shares
acquired by its Employee Stock Ownership Plan ("ESOP") and Management Stock
Bonus Plans ("MSBPs") in accordance with Statement of Position 93-6; shares
controlled by the ESOP and MSBPs are not considered in the weighted average
shares outstanding until the shares are committed for allocation to an
employee's individual account or are granted to an individual.
During February 1997, the Financial Accounting Standards Board adopted Statement
No. 128, "Earnings per Share," ("FAS 128") which is effective for periods ending
after December 15, 1997. FAS 128 supersedes Accounting Principles Board Opinion
15 and supersedes or amends various other accounting pronouncements. FAS 128
simplifies the standards for computing earnings per share ("EPS") and makes them
comparable to international standards. It replaces the presentation of primary
EPS with a presentation of basic EPS. It also requires dual presentation of
basic and diluted EPS on the face of the income statement for all entities with
complex capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. Early adoption of FAS 128 is not permitted, however,
restatement of all prior period EPS data presented will be required upon
adoption.
Based on management's calculations, there would be no change to reported EPS for
the three months ended March 31, 1997 or 1996 if FAS 128 had been in effect for
these periods.
6
<PAGE>
NOTE 3. INVESTMENT SECURITIES
A summary of investment securities available for sale is as follows:
March 31, 1997
<TABLE>
<CAPTION>
--------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government and agency securities $ 14,492,544 $ 11,243 $ (120,605) $ 14,383,182
Collateralized mortgage obligations 44,917,927 340,984 (489,658) 44,769,253
Municipal obligations 28,359,213 168,498 (354,624) 28,173,087
Other debt securities 250,000 10,313 260,313
Mortgage-backed securities 26,190,314 191,426 (995,603) 25,386,137
FHLB stock 4,174,700 4,174,700
Other marketable equity securities 10,189,289 62,500 (26,247) 10,225,542
--------------------------------------------------------------
$ 128,573,987 $ 784,964 $ (1,986,737) $ 127,372,214
==============================================================
</TABLE>
The amortized cost and estimated fair value of investment securities at March
31, 1997 by contractual maturity are shown in the following table. 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. For purposes of the maturity table, mortgage-backed securities and
CMOs, which are not due at a single maturity date, have been allocated over
maturity groupings based on the weighted-average contractual maturities of
underlying collateral. The mortgage-backed securities and CMOs may mature
earlier than their weighted-average contractual maturities because of principal
prepayments.
----------------------------
Amortized Estimated
Cost Fair Value
----------------------------
Debt and mortgage-related securities:
Due in one year or less $ 1,473,921 $ 1,485,168
Due after one year through five years 8,772,983 8,714,268
Due after five years through ten years 3,648,817 3,617,639
Due after 10 through 20 years 20,507,978 20,494,305
Due after 20 years 79,806,299 78,660,592
----------------------------
Total 114,209,998 112,971,972
Marketable equity securities and FHLB stock 14,363,989 14,400,242
----------------------------
Total investment securities $128,573,987 $127,372,214
============================
7
<PAGE>
NOTE 4. LOANS
March 31, 1997 December 31, 1996
---------------------------------
First mortgage residential:
One-to-four family residential $159,914,746 $158,817,080
Construction 1,073,444 1,287,007
---------------------------------
160,988,190 160,104,087
Commercial and other real estate 24,027,497 24,753,320
Commercial business 21,219,088 20,944,114
Commercial land and land development 3,378,763 3,488,337
Automobile 28,622,759 32,239,765
Home equity 15,152,004 15,327,772
Other consumer 3,669,690 3,796,998
---------------------------------
Gross loans held for investment 257,057,991 260,654,393
Less:
Loans in process 3,556,843 5,114,248
Unearned discounts 88,364 100,115
Net deferred fees 373,677 261,344
Allowance for losses 2,927,508 2,867,270
---------------------------------
Net loans held for investment 250,111,599 252,311,416
Education loans held for sale 3,711,147 3,458,286
---------------------------------
$253,822,746 $255,769,702
=================================
Activity in the allowance for loan losses is summarized as follows:
Three Months Ended March 31,
1997 1996
---------------------------------
Balance at beginning of year $2,867,270 $2,471,658
Provision charged to income - mortgage 30,000
Provision charged to income - commercial 49,997 75,000
Provision charged to income - consumer 104,637 149,793
Charge-offs - commercial (60,000)
Charge-offs - consumer (132,140) (110,743)
Recoveries - consumer 7,744 5,416
---------------------------------
Balance at end of period $2,927,508 $2,531,124
=================================
The allowance for loan losses at March 31 consisted of:
Mortgage $362,000 $332,000
Commercial 1,143,797 868,800
Consumer 1,421,711 1,330,324
---------------------------------
$2,927,508 $2,531,124
=================================
8
<PAGE>
The estimated fair value of education loans held for sale approximates book
value at March 31, 1997 and December 31, 1996.
The Company held one loan with a balance of $1.73 million and $1.76 million at
March 31, 1997 and December 31, 1996, respectively, which was considered
impaired. Because the market value of the collateral securing this loan exceeds
the loan's recorded balance, no specific loss reserve is deemed necessary;
however, the loan has been included in management's assessment of the adequacy
of general valuation allowances. This loan has not been placed on non-accrual
status, nor does management expect it to be in the forseeable future. There were
no other loans considered impaired during the three months ended March 31, 1997.
Loans which the Company considers non-performing due to being placed on
non-accrual status as a result of being in arrears three months or more are as
follows:
<TABLE>
<CAPTION>
Period Number of Loans Balance Percent of loans held for investment
- -------------------- -------------------- -------------------- ------------------------------------
<S> <C> <C> <C>
March 31, 1997 69 $1,283,920 0.51%
December 31, 1996 92 $1,013,103 0.40%
</TABLE>
The foregone interest on non-performing loans for the periods ended March 31,
1997 and December 31, 1996 was $25,087 and $41,709, respectively.
At March 31, 1997 the Company was committed under various agreements to purchase
first mortgage loans of $33,750; originate first mortgage loans of $2,012,150;
originate commercial loans of $7,817,765; originate consumer loans of
$1,736,999; and had $3,172,717 in unused commercial lines of credit; $2,555,887
in commercial letters of credit issued; $6,146,539 in unused home equity lines
of credit; $2,042,616 in unused personal unsecured lines of credit; and $504,117
in unused credit card lines. There were no commitments to lend additional funds
to debtors whose loans with the Company were non-performing as of March 31,
1997.
9
<PAGE>
FIRST SHENANGO BANCORP, INC.
PART I - FINANCIAL INFORMATION
Item 2. - Management's Discussion and Analysis of
Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
At or For the Three Months
Ended March 31,
Statistical Data: 1997 (1) 1996 (1)
----------------------------
Return on average assets 1.15% 1.10%
Return on average equity 10.68% 7.99%
Average equity to average assets 10.72% 13.80%
Average interest rate spread (FTE) 2.98% 3.00%
Net yield on average interest-earning assets (FTE) 3.50% 3.64%
Non-interest expense to average assets 1.47% 1.88%
Efficiency ratio 43.15% 51.35%
Nonperforming assets to total assets 0.51% 0.50%
Allowance for loan losses to gross loans receivable 1.14% 1.13%
Book value per share, net of treasury shares $20.79 $20.40
(1) Applicable income and expense figures have been annualized in calculating
these ratios.
(FTE) Fully taxable-equivalent basis.
10
<PAGE>
Management's Discussion and Analysis of Results of Operations for the Three
Months Ended March 31, 1997 and 1996.
During the three months ended March 31, 1997, the Company benefited from the
growth in the mortgage and commercial loan portfolios and the leveraging of the
investment portfolio during 1996. While the average interest rate spread and net
yield on average interest-earning assets, both calculated on a fully
taxable-equivalent basis, declined from the three months ended March 31, 1996 to
the same period in 1997, net interest income increased as average
interest-earning assets increased by $57.21 million. The effect of this increase
was partially offset by a $59.93 million increase in interest-bearing
liabilities. Management anticipates a continuing tightening of spreads as a
result of the recent move by the Federal Reserve Board to raise short-term
interest rates.
Provisions for loan losses decreased $40,000 to $185,000 for the three months
ended March 31, 1997 from $225,000 for same period in 1996. 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 $1.28 million, and other non-performing assets,
namely REO and other repossessed assets, were $738,000 at March 31, 1997, for a
total of $2.02 million in non-performing assets. Interest received in cash of
$11,602 on non-accrual loans is included in net income for the 1997 first
quarter. Total allowance for losses as a percentage of gross loans receivable,
REO and other repossessed assets was 1.14% at March 31, 1997 and 1.11% at
December 31, 1996. Total non-performing assets as a percentage of total assets
was 0.51% at March 31, 1997 and 0.43% at December 31, 1996.
Total non-interest income decreased $195,000, or 48.85%, in 1997 primarily due
to a $206,000 decrease in the gain on sale of investments and loans. The 1996
gains were due mainly to the sale of GNMA mortgage-backed securities. No
securities were sold during the first quarter of 1997. Service charges and other
fees increased $11,000 from year to year, primarily due to increased late
charges received on loans.
Total non-interest expense decreased $157,000, or 9.68%, primarily due to a
$104,000 decrease in deposit insurance premiums as a result of the SAIF
recapitalization during the third quarter of 1996. Also contributing to the
improvement was a $44,000 decrease in REO operation expense from year to year.
Salaries and employee benefits increased $26,000, or 3.55% between the 1997 and
1996 quarters, primarily as a result of normal annual merit increases in
salaries.
The Company's efficiency ratio improved from 51.35% at March 31, 1996 to 43.15%
at March 31, 1997, while the ratio of non-interest expenses to average assets
improved from 1.88% to 1.47%. The improvement in both of these key ratios is due
to the lower SAIF premiums and 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 5.26% during the three months ended March 31, 1997. 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 and 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 and borrowings from the FHLB of Pittsburgh.
Principal repayments on loans and mortgage-backed securities, and matured or
called investment securities also provide cash inflows.
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 OTS regulations.
11
<PAGE>
The Savings Bank anticipates that it will have sufficient funds available to
meet its current loan commitments and normal savings withdrawals. At March 31,
1997, the Savings Bank had outstanding commitments to fund off balance sheet
items of $26.02 million. In addition, it had certificates of deposit scheduled
to mature within six months of $60.74 million, substantially most of which
management believes will remain with the Savings Bank. In the event that loan
demand and deposit outflows exceed available funds, the Savings Bank may borrow
from the FHLB or sell securities from its available for sale portfolio.
The Company, which includes the Savings Bank, from time to time is a party to
ordinary 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 affect on the financial
position or results of operations of the Company or Savings Bank.
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.
To be categorized as well capitalized, the Savings Bank must maintain minimum
ratios as set forth in the table. As of March 31, 1997, the most recent
notification from the Office of Thrift Supervision categorized the Savings Bank
as well capitalized under the regulatory framework for prompt corrective action.
There are no conditions or events since that notification that management
believes have changed the institution's category.
<TABLE>
<CAPTION>
(Dollar amounts in thousands) Tier I Core Tier I Risk-Based Tier II Risk-Based
Capital Capital Capital
----------------------------------------------------
<S> <C> <C> <C>
Equity capital (1) $ 34,147 $ 34,147 $ 34,147
Non-includable portion of investment in
subsidiary (22) (22) (22)
Unrealized loss on certain securities available
for sale 783 783 783
General valuation allowances (2) 2,639
----------------------------------------------------
Regulatory capital 34,908 34,908 37,547
Minimum capital requirement 15,868 8,446 16,893
----------------------------------------------------
Excess regulatory capital $ 19,040 $ 26,414 $ 20,654
====================================================
Adjusted total assets $ 396,712 $ 211,157 $ 211,157
Regulatory capital as a percentage 8.80% 16.53% 17.78%
Minimum capital requirement as a
percentage 4.00% 4.00% 8.00%
----------------------------------------------------
Excess regulatory capital as a percentage 4.80% 12.53% 9.78%
====================================================
Well capitalized requirement as a percentage 5.00% 6.00% 10.00%
====================================================
</TABLE>
(1) Represents equity capital of the consolidated Savings Bank as reported to
the OTS on Form 1313.
(2) Limited to 1.25% of risk-based assets.
12
<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 1997 Annual Meeting of Shareholders of First Shenango Bancorp,
Inc. was held on April 22, 1997. Of 2,058,610 shares eligible to vote,
1,417,016 or 68.83% were voted in person or by proxy.
(b) The shareholders voted to elect the three nominees for director, as
described in the Proxy Statement for the Annual Meeting. The results for
the re-election of Francis A. Bonadio were 1,404,234 shares in favor and
12,782 shares withheld. The results for the election of R. Joseph Hrach
were 1,401,954 shares in favor and 15,062 shares withheld. The results for
the re-election of Richard E. Rentz, Jr. were 1,402,999 shares in favor
and 14,017 shares withheld. There were no broker non-votes. In addition to
Messrs. Bonadio, Hrach and Rentz, the directors following the meeting
consisted of William G. Eckles, II; Dale R. Perelman; Ronald P. Bergey and
Robert H. Carlson.
(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 1,406,588
shares in favor, 3,529 against and 6,899 abstaining. There were no broker
non-votes.
Item 5 - Other Information None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
11. Computation of per share earnings
27. Financial data schedule
(b) Reports on Form 8-K None
13
<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: April 28, 1997 By: /S/ Francis A. Bonadio
------------------------------ ---------------------------------------
FRANCIS A. BONADIO
President and Chief Executive Officer
Date: April 28, 1997 By: /S/ Lonny D. Robinson
------------------------------ ---------------------------------------
LONNY D. ROBINSON
Vice President and Chief Financial
Officer
14
FIRST SHENANGO BANCORP, INC.
EXHIBIT 11
Statement Regarding Computation of Primary Earnings Per Share
Three Months Ended
March 31,
1997 1996
---------------------------
Weighted average common shares outstanding 2,343,098 2,343,098
Net effect of dilutive stock options 79,960 78,435
Average unallocated ESOP shares (66,370) (75,031)
Average MSBP shares in plan reserve (10,367) (9,012)
Weighted average treasury shares (282,872) (34,120)
---------------------------
Common stock equivalents 2,063,449 2,303,370
===========================
Net earnings $ 1,137,444 $ 948,583
===========================
Per share amount $ 0.55 $ 0.41
===========================
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.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,468
<INT-BEARING-DEPOSITS> 9,574
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 127,372
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 256,751
<ALLOWANCE> 2,928
<TOTAL-ASSETS> 400,915
<DEPOSITS> 269,302
<SHORT-TERM> 62,682
<LIABILITIES-OTHER> 4,769
<LONG-TERM> 21,262
0
0
<COMMON> 234
<OTHER-SE> 42,666
<TOTAL-LIABILITIES-AND-EQUITY> 400,915
<INTEREST-LOAN> 5,180
<INTEREST-INVEST> 2,118
<INTEREST-OTHER> 135
<INTEREST-TOTAL> 7,433
<INTEREST-DEPOSIT> 3,049
<INTEREST-EXPENSE> 1,196
<INTEREST-INCOME-NET> 3,188
<LOAN-LOSSES> 185
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,463
<INCOME-PRETAX> 1,745
<INCOME-PRE-EXTRAORDINARY> 1,745
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,137
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
<YIELD-ACTUAL> 3.50
<LOANS-NON> 1,284
<LOANS-PAST> 1
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,732
<ALLOWANCE-OPEN> 2,867
<CHARGE-OFFS> 132
<RECOVERIES> 8
<ALLOWANCE-CLOSE> 2,928
<ALLOWANCE-DOMESTIC> 2,928
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
