SECOND BANCORP INCORPORATED 04-17-2003
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report: April 17, 2003

Second Bancorp Incorporated
(Exact name of registrant as specified in its charter)
         
Ohio   0-15624   34-1547453
 
 
(State of incorporation)   (Commission File Number)   (IRS Employer Identification No.)
     
108 Main Avenue S.W., Warren, Ohio   44482-1311
 
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: 330-841-0123

Item 5. Other Events

On April 17, 2003, the Company issued the following press release:

SECOND BANCORP
REPORTS STRONG FIRST QUARTER

Warren, Ohio, April 17, 2003—SECOND BANCORP INCORPORATED (Nasdaq “SECD”, “SECDP”) reported first quarter 2003 net income of $8,661,000, up 84.9% from the $4,683,000 reported for the same period last year. On a diluted basis, earnings per share for the quarter were $.89 or nearly 90% above the $.47 reported a year ago. Earnings for the quarter were positively impacted by banking subsidiary Second National Bank’s sale of two banking centers in Jefferson County, Ohio including $88 million in deposits. That transaction, completed February 7, 2003, produced a $5.62 million pre-tax gain. Excluding that non-recurring event, earnings for the quarter were $5,009,000 or $.52 per diluted share compared to a market consensus estimate of $.49 per share.

While significantly improved on a GAAP basis, key operating performance ratios for the quarter were mixed in comparison with the same period in 2002. The Company’s return on average assets (ROAA) for the quarter was 1.85% (or 1.07% on an operating basis) compared to 1.11% last year and return on average equity (ROAE) climbed to 25.61% (or 14.81% on an operating basis) from 14.39% a year ago. The Company’s efficiency ratio on an operating basis was marginally improved at 58.98% compared to 59.40% for first quarter 2002 while its net interest margin for the quarter was compressed by persistent and historically low interest rates to 3.33% from 3.72% a year ago.

Excluding the gain on the Jefferson County branch sale, non-interest income for the quarter was $8.6 million, a strong 67% ahead of results for the same period last year. That improvement was led by a nearly tripling of the Company’s gains on sale of loans primarily reflecting aggressive secondary market activity in mortgages, and service charges on deposit accounts which were

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TABLE OF CONTENTS

Financial Highlights
Quarterly Data
Financial Highlights
Year-to-Date Data
Consolidated Statements of Income
Quarterly Data
Consolidated Statements of Income
Year-to-Date Data
Consolidated Balance Sheets
Consolidated Average Balance Sheets
For the Quarter Ended
Consolidated Average Balance Sheets
For the Year-to-date period ended:
Financial Highlights — Non-GAAP Operating Results
Quarterly Data
Financial Highlights — Non-GAAP Operating Results
Year-to-Date Data
SIGNATURES

Table of Contents

15.7% higher than a year ago. Earnings attributed to the Company’s mortgage lending line of business were also positively effected by continuing growth in the Company’s $1.5 billion mortgage servicing portfolio and a recognized net gain of $700,000 for the quarter on derivative investments economically hedging fluctuations in the value of mortgage servicing rights due to interest rates.

Non-interest expenses for the quarter grew 16% over the same period last year to $13.67 million led by increased salary and benefit costs associated largely with the Company’s 2002 acquisition of Stouffer-Herzog Insurance Agency, Inc. and increased staffing in our expanding mortgage lending business. That rate of increase in non-interest expenses mirrors the Company’s 13% growth in assets over the same period and is significantly less than the 67% growth in non-interest income.

Credit quality remains a focal point for Second Bancorp. Though non-performing loans continue at elevated levels, they have generally stabilized over the last three quarters in the $19 to $20 million range or a quarter-end 1.62% of total loans. Net charge-offs for the quarter fell by $186,000 to $2,012,000 but quarter-end “90 day past due and accruing” loans were 16.4% higher than at the end of fourth quarter 2002. The Company’s allowance for loan losses as a percentage of period-end loans was stable at 1.46% compared to 1.51% at year-end 2002.

Commenting on Second Bancorp’s prospects for the remainder of the year, Treasurer David L. Kellerman indicated “We expect the local and national economies to remain sluggish and interest rates to remain at historically low levels into the second half of the year. That kind of environment makes double-digit earnings per share growth goals difficult to achieve. We continue to manage our core businesses with an eye toward minimizing risks associated with slowing economic activity and believe our core wealth management and commercial lending businesses are positioned to become strong contributors to our financial success as the economy returns to a more traditional growth pattern. We currently believe that net income for the calendar year on an operating basis will fall within the range of from $2.08 to $2.13 per diluted share compared to the $1.94 we reported last year.”

Second Bancorp previously announced a 5.6% increase in its quarterly dividend to $.19 per share (an annualized $.76) payable April 30, 2003 to shareholders of record April 15, 2003. That action maintains Second Bancorp’s record of having increased its dividend in each of the seventeen years since its incorporation.

This announcement contains forward-looking statements that involve risk and uncertainties, including changes in general economic and financial market conditions and the Company’s ability to execute its business plans. Although management believes the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially.

Second Bancorp is a $1.9 billion financial holding company providing a full range of commercial and consumer banking, wealth management, insurance and investment products and services to communities in an eight county area of Northeastern Ohio through subsidiaries Second National Bank and Stouffer-Herzog Insurance Agency, Inc. Additional information about Second Bancorp can be found on the Web at www.secondbancorp.com.

CONTACT: Christopher Stanitz, Executive Vice President and Secretary, at 330.841.0234 (phone), 330.841.0489 (fax), or cstanitz@secondnationalbank.com.

# # # # #

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Second Bancorp Incorporated and Subsidiaries
Financial Highlights
Quarterly Data
(Dollars in thousands, except per share data)

                                           
      March 2003   Dec. 2002   Sept. 2002   June 2002   March 2002
     
 
 
 
 
Earnings:
                                        
 
Net interest income
   $ 14,083     $ 13,946     $ 13,954     $ 14,403     $ 14,157  
 
Provision for loan losses
     2,173       2,350       1,573       1,303       933  
 
Non-interest income
     14,211       7,314       6,329       4,053       5,157  
 
Security gains (losses)
     51       (67 )     832       0       (173 )
 
Trading account losses
     0       0       0       0       (20 )
 
Non-interest expense
     13,673       14,575       11,841       11,283       11,797  
 
Federal income taxes
     3,838       840       2,165       1,517       1,708  
 
    
     
     
     
     
 
 
Net income
   $ 8,661     $ 3,428     $ 5,536     $ 4,353     $ 4,683  
 
    
     
     
     
     
 
Per share:
                                        
 
Basic earnings
     0.90       0.35       0.56       0.44       0.47  
 
Diluted earnings
     0.89       0.34       0.55       0.43       0.47  
 
Common dividends
     0.19       0.18       0.18       0.18       0.18  
 
Book value
     14.36       13.91       14.14       13.71       12.96  
 
Tangible book value
     11.95       11.69       11.99       11.85       11.11  
 
Market value
     22.15       26.50       26.73       27.30       24.25  
Weighted average shares outstanding:
                                        
 
Basic
     9,621,709       9,835,995       9,876,844       9,958,928       9,944,671  
 
Diluted
     9,715,561       9,967,373       9,993,241       10,087,003       10,054,758  
Period end balance sheet:
                                        
 
Assets
   $ 1,909,027     $ 1,894,775     $ 1,825,235     $ 1,719,744     $ 1,684,848  
 
Securities
     539,309       523,669       535,174       448,736       411,897  
 
Total loans
     1,215,481       1,167,791       1,153,581       1,092,398       1,114,314  
 
Allowance for loan losses
     17,756       17,595       17,443       16,810       16,884  
 
Deposits
     1,121,866       1,195,112       1,181,281       1,146,451       1,131,199  
 
Total shareholders’ equity
     136,369       135,780       139,682       136,293       128,853  
 
Tier I capital
     137,595       138,000       139,983       141,011       139,474  
 
Tier I ratio
     10.5 %     10.8 %     10.7 %     11.9 %     11.3 %
 
Total capital
     154,010       153,925       156,401       155,799       154,854  
 
Total capital ratio
     11.7 %     12.1 %     11.9 %     13.2 %     12.6 %
 
Total risk-adjusted assets
     1,311,849       1,272,335       1,312,414       1,181,029       1,228,918  
 
Tier I leverage ratio
     7.5 %     7.7 %     8.4 %     8.4 %     8.3 %
Average balance sheet:
                                        
 
Assets
   $ 1,869,524     $ 1,825,714     $ 1,770,928     $ 1,727,642     $ 1,691,123  
 
Earning assets
     1,750,900       1,712,604       1,657,438       1,618,286       1,581,704  
 
Loans
     1,177,617       1,171,162       1,108,133       1,097,302       1,109,990  
 
Deposits
     1,135,681       1,180,609       1,173,188       1,153,065       1,129,829  
 
Shareholders’ equity
     135,254       137,229       136,494       132,734       130,152  
Key ratios: (%)
                                        
 
Return on average assets (ROA)
     1.85       0.75       1.25       1.01       1.11  
 
Return on average shareholders’ equity (ROE)
     25.61       9.99       16.22       13.12       14.39  
 
Net interest margin
     3.33       3.38       3.49       3.69       3.72  
 
Net overhead
     (0.12 )     1.70       1.33       1.79       1.68  
 
Efficiency ratio
     47.48       66.94       56.94       59.49       59.40  
Credit quality:
                                        
 
Non-accrual loans
   $ 12,709     $ 13,123     $ 12,756     $ 6,287     $ 5,313  
 
Restructured loans
     374       378       259       197       0  
 
90 day past due and accruing
     6,623       5,692       6,995       6,011       6,257  
 
    
     
     
     
     
 
 
Non-performing loans
     19,706       19,193       20,010       12,495       11,570  
 
Other real estate owned
     1,270       1,371       1,593       1,644       1,423  
 
    
     
     
     
     
 
 
Non-performing assets
   $ 20,976     $ 20,564     $ 21,603     $ 14,139     $ 12,993  
 
    
     
     
     
     
 
 
Charge-offs
   $ 2,213     $ 2,558     $ 1,116     $ 1,625     $ 1,285  
 
Recoveries
     201       360       176       248       541  
 
    
     
     
     
     
 
 
Net charge-offs
   $ 2,012     $ 2,198     $ 940     $ 1,377     $ 744  
 
    
     
     
     
     
 
 
Allowance for loan losses as a percent of period-end loans (%)
     1.46       1.51       1.51       1.54       1.52  
 
Net charge-offs (annualized) as a percent of average loans (%)
     0.68       0.75       0.34       0.50       0.27  
 
Non-performing loans as a percent of loans
     1.62       1.64       1.73       1.14       1.04  
 
Non-performing assets as a percent of assets
     1.10       1.09       1.18       0.82       0.77  

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Second Bancorp Incorporated and Subsidiaries
Financial Highlights
Year-to-Date Data
(Dollars in thousands, except per share data)

                                               
          March 2003   Dec. 2002   Sept. 2002   June 2002   March 2002
         
 
 
 
 
Earnings:
                                        
 
Net interest income
   $ 14,083     $ 56,460     $ 42,514     $ 28,560     $ 14,157  
 
Provision for loan losses
     2,173       6,159       3,809       2,236       933  
 
Non-interest income
     14,211       22,853       15,539       9,210       5,157  
 
Security gains (losses)
     51       592       659       (173 )     (173 )
 
Trading account losses
     0       (20 )     (20 )     (20 )     (20 )
 
Non-interest expense
     13,673       49,496       34,921       23,080       11,797  
 
Federal income taxes
     3,838       6,230       5,390       3,225       1,708  
 
    
     
     
     
     
 
     
Net income
   $ 8,661     $ 18,000     $ 14,572     $ 9,036     $ 4,683  
 
    
     
     
     
     
 
Per share:
                                        
 
Basic earnings
     0.90       1.82       1.47       0.91       0.47  
 
Diluted earnings
     0.89       1.79       1.45       0.90       0.47  
 
Common dividends
     0.19       0.72       0.54       0.36       0.18  
 
Book value
     14.36       13.91       14.14       13.71       12.96  
 
Tangible book value
     11.95       11.69       11.99       11.85       11.11  
 
Market value
     22.15       26.50       26.73       27.30       24.25  
Weighted average shares outstanding:
                                        
 
Basic
     9,621,709       9,905,832       9,929,276       9,948,346       9,944,671  
 
Diluted
     9,715,561       10,040,001       10,051,077       10,071,366       10,054,758  
Period end balance sheet:
                                        
 
Assets
   $ 1,909,027     $ 1,894,775     $ 1,825,235     $ 1,719,744     $ 1,684,848  
 
Securities
     539,309       523,669       535,174       448,736       411,897  
 
Total loans
     1,215,481       1,167,791       1,153,581       1,092,398       1,114,314  
 
Allowance for loan losses
     17,756       17,595       17,443       16,810       16,884  
 
Deposits
     1,121,866       1,195,112       1,181,281       1,146,451       1,131,199  
 
Total shareholders’ equity
     136,369       135,780       139,682       136,293       128,853  
 
Tier I capital
     137,595       138,000       139,983       141,011       139,474  
 
Tier I ratio
     10.5 %     10.8 %     10.7 %     11.9 %     11.3 %
 
Total capital
     154,010       153,925       156,401       155,799       154,854  
 
Total capital ratio
     11.7 %     12.1 %     11.9 %     13.2 %     12.6 %
 
Total risk-adjusted assets
     1,311,849       1,272,335       1,312,414       1,181,029       1,228,918  
 
Tier I leverage ratio
     7.5 %     7.7 %     8.4 %     8.4 %     8.3 %
Average balance sheet:
                                        
 
Assets
   $ 1,869,524     $ 1,754,156     $ 1,730,190     $ 1,709,483     $ 1,691,123  
 
Earning assets
     1,750,900       1,642,907       1,619,420       1,600,096       1,581,704  
 
Loans
     1,177,617       1,121,777       1,105,135       1,103,611       1,109,990  
 
Deposits
     1,135,681       1,159,350       1,152,186       1,141,511       1,129,829  
 
Shareholders’ equity
     135,254       134,178       133,150       131,450       130,152  
Key ratios: (%)
                                        
 
Return on average assets (ROA)
     1.85       1.03       0.84       0.53       0.28  
 
Return on average shareholders’ equity (ROE)
     25.61       13.42       10.94       6.87       3.60  
 
Net interest margin
     3.33       3.56       3.63       3.70       3.72  
 
Net overhead
     (0.12 )     1.62       1.60       1.73       1.68  
 
Efficiency ratio
     47.48       60.81       58.57       59.44       59.40  
Credit quality:
                                        
 
Non-accrual loans
   $ 12,709     $ 13,123     $ 12,756     $ 6,287     $ 5,313  
 
Restructured loans
     374       378       259       197       0  
 
90 day past due and accruing
     6,623       5,692       6,995       6,011       6,257  
 
    
     
     
     
     
 
 
Non-performing loans
     19,706       19,193       20,010       12,495       11,570  
 
Other real estate owned
     1,270       1,371       1,593       1,644       1,423  
 
    
     
     
     
     
 
 
Non-performing assets
   $ 20,976     $ 20,564     $ 21,603     $ 14,139     $ 12,993  
 
    
     
     
     
     
 
   
Charge-offs
   $ 2,213     $ 6,584     $ 4,026     $ 2,910     $ 1,285  
   
Recoveries
     201       1,325       965       789       541  
 
    
     
     
     
     
 
   
Net charge-offs
   $ 2,012     $ 5,259     $ 3,061     $ 2,121     $ 744  
 
    
     
     
     
     
 
 
Allowance for loan losses as a percent of period-end loans (%)
     1.46       1.51       1.51       1.54       1.52  
 
Net charge-offs (annualized) as a percent of average loans (%)
     0.68       0.47       0.37       0.38       0.27  
 
Non-performing loans as a percent of loans
     1.62       1.64       1.73       1.14       1.04  
 
Non-performing assets as a percent of assets
     1.10       1.09       1.18       0.82       0.77  

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Table of Contents

Second Bancorp Incorporated and Subsidiaries
Consolidated Statements of Income
Quarterly Data
(Dollars in thousands, except per share data)

                                               
          March 2003   Dec. 2002   Sept. 2002   June 2002   March 2002
         
 
 
 
 
INTEREST INCOME
                                        
 
Loans (including fees):
                                        
   
Taxable
   $ 18,605     $ 19,637     $ 19,598     $ 19,965     $ 20,471  
   
Exempt from federal income taxes
     211       219       227       233       243  
 
Securities:
                                        
   
Taxable
     6,234       5,566       5,963       5,797       5,322  
   
Exempt from federal income taxes
     728       735       722       715       774  
 
Federal funds sold and other temp. investments
     123       154       324       394       213  
     
Total interest income
     25,901       26,311       26,834       27,104       27,023  
INTEREST EXPENSE
                                        
 
Deposits
     5,779       6,771       7,526       7,429       7,674  
 
Federal funds purchased and securities sold under agreements to repurchase
     581       700       597       636       566  
 
Note Payable
     63       28       10       0       0  
 
Other borrowed funds
     3       14       10       2       16  
 
Federal Home Loan Bank advances
     4,659       4,119       4,003       3,901       3,877  
 
Corporation-obligated mandatorily redeemable capital securities of subsidiary trust
     733       733       734       733       733  
 
    
     
     
     
     
 
     
Total interest expense
     11,818       12,365       12,880       12,701       12,866  
 
    
     
     
     
     
 
     
Net interest income
     14,083       13,946       13,954       14,403       14,157  
 
Provision for loan losses
     2,173       2,350       1,573       1,303       933  
 
    
     
     
     
     
 
     
Net interest income after provision for loan losses
     11,910       11,596       12,381       13,100       13,224  
NON-INTEREST INCOME
                                        
 
Service charges on deposit accounts
     1,527       1,587       1,505       1,411       1,320  
 
Trust fees
     609       637       596       696       786  
 
Gain on sale of loans
     4,342       5,462       2,421       1,709       1,544  
 
Trading account losses
     0       0       0       0       (20 )
 
Security gains (losses)
     51       (67 )     832       0       (173 )
 
Gain on sale of banking centers
     5,619       0       0       0       0  
 
Other operating income
     2,114       (372 )     1,807       237       1,507  
     
Total non-interest income
     14,262       7,247       7,161       4,053       4,964  
 
    
     
     
     
     
 
NON-INTEREST EXPENSE
                                        
 
Salaries and employee benefits
     7,604       7,217       6,494       6,325       6,309  
 
Net occupancy
     1,199       1,099       1,119       1,125       1,137  
 
Equipment
     1,039       742       931       1,023       1,202  
 
Professional services
     767       648       563       443       485  
 
Assessment on deposits and other taxes
     392       354       384       330       329  
 
Amortization of intangible assets
     118       144       110       111       110  
 
Merger costs
     0       10       124       0       0  
 
Banking center reconfiguration
     0       2,096       0       0       0  
 
Other operating expenses
     2,554       2,265       2,116       1,926       2,225  
 
    
     
     
     
     
 
     
Total non-interest expense
     13,673       14,575       11,841       11,283       11,797  
 
    
     
     
     
     
 
Income before federal income taxes
     12,499       4,268       7,701       5,870       6,391  
Income tax expense
     3,838       840       2,165       1,517       1,708  
 
    
     
     
     
     
 
Income before accounting change
   $ 8,661     $ 3,428     $ 5,536     $ 4,353     $ 4,683  
 
    
     
     
     
     
 
NET INCOME PER COMMON SHARE:
                                        
     
Basic
   $ 0.90     $ 0.35     $ 0.56     $ 0.44     $ 0.47  
     
Diluted
   $ 0.89     $ 0.34     $ 0.55     $ 0.43     $ 0.47  
Weighted average common shares outstanding:
                                        
     
Basic
     9,621,709       9,835,995       9,876,844       9,958,928       9,944,671  
     
Diluted
     9,715,561       9,967,373       9,993,241       10,087,003       10,054,758  
Note: Fully taxable equivalent adjustment
   $ 506     $ 514     $ 511     $ 510     $ 548  

Page 5 of 12

Table of Contents

Second Bancorp Incorporated and Subsidiaries
Consolidated Statements of Income
Year-to-Date Data (Dollars in thousands, except per share data)

                                               
          March 2003   Dec. 2002   Sept. 2002   June 2002   March 2002
         
 
 
 
 
INTEREST INCOME
                                        
 
Loans (including fees):
                                        
   
Taxable
   $ 18,605     $ 79,671     $ 60,034     $ 40,436     $ 20,471  
   
Exempt from federal income taxes
     211       922       703       476       243  
 
Securities:
                                        
   
Taxable
     6,234       22,648       17,082       11,119       5,322  
   
Exempt from federal income taxes
     728       2,946       2,211       1,489       774  
 
Federal funds sold and other temp. investments
     123       1,085       931       607       213  
 
    
     
     
     
     
 
     
Total interest income
     25,901       107,272       80,961       54,127       27,023  
INTEREST EXPENSE
                                        
 
Deposits
     5,779       29,400       22,629       15,103       7,674  
 
Federal funds purchased and securities sold under agreements to repurchase
     581       2,499       1,799       1,202       566  
 
Note Payable
     63       38       10       0       0  
 
Other borrowed funds
     3       42       28       18       16  
 
Federal Home Loan Bank advances
     4,659       15,900       11,781       7,778       3,877  
 
Corporation-obligated mandatorily redeemable capital securities of subsidiary trust
     733       2,933       2,200       1,466       733  
 
    
     
     
     
     
 
     
Total interest expense
     11,818       50,812       38,447       25,567       12,866  
 
    
     
     
     
     
 
     
Net interest income
     14,083       56,460       42,514       28,560       14,157  
 
Provision for loan losses
     2,173       6,159       3,809       2,236       933  
 
    
     
     
     
     
 
     
Net interest income after provision for loan losses
     11,910       50,301       38,705       26,324       13,224  
NON-INTEREST INCOME
                                        
 
Service charges on deposit accounts
     1,527       5,823       4,236       2,731       1,320  
 
Trust fees
     609       2,715       2,078       1,482       786  
 
Gain on sale of loans
     4,342       11,136       5,674       3,253       1,544  
 
Trading account losses
     0       (20 )     (20 )     (20 )     (20 )
 
Security gains (losses)
     51       592       659       (173 )     (173 )
 
Gain on sale of banking centers
     5,619       0       0       0       0  
 
Other operating income
     2,114       3,179       3,551       1,744       1,507  
 
    
     
     
     
     
 
     
Total non-interest income
     14,262       23,425       16,178       9,017       4,964  
NON-INTEREST EXPENSE
                                        
 
Salaries and employee benefits
     7,604       26,345       19,128       12,634       6,309  
 
Net occupancy
     1,199       4,480       3,381       2,262       1,137  
 
Equipment
     1,039       3,898       3,156       2,225       1,202  
 
Professional services
     767       2,139       1,491       928       485  
 
Assessment on deposits and other taxes
     392       1,397       1,043       659       329  
 
Amortization of intangible assets
     118       475       331       221       110  
 
Merger costs
     0       134       124       0       0  
 
Banking center reconfiguration
     0       2,096       0       0       0  
 
Other operating expenses
     2,554       8,532       6,267       4,151       2,225  
 
    
     
     
     
     
 
     
Total non-interest expense
     13,673       49,496       34,921       23,080       11,797  
 
    
     
     
     
     
 
Income before federal income taxes
     12,499       24,230       19,962       12,261       6,391  
Income tax expense
     3,838       6,230       5,390       3,225       1,708  
 
    
     
     
     
     
 
Net income
   $ 8,661     $ 18,000     $ 14,572     $ 9,036     $ 4,683  
 
    
     
     
     
     
 
NET INCOME PER COMMON SHARE:
                                        
     
Basic
   $ 0.90     $ 1.82     $ 1.47     $ 0.91     $ 0.47  
     
Diluted
   $ 0.89     $ 1.79     $ 1.45     $ 0.90     $ 0.47  
Weighted average common shares outstanding:
                                        
     
Basic
     9,621,709       9,905,832       9,929,276       9,948,346       9,944,671  
     
Diluted
     9,715,561       10,040,001       10,051,077       10,071,366       10,054,758  
Note: Fully taxable equivalent adjustment
   $ 506     $ 2,083     $ 1,569     $ 1,058     $ 548  

Page 6 of 12

Table of Contents

Second Bancorp Incorporated and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)

                                                 
            March 31   December 31   Sept. 30   June 30   March 31
           
 
 
 
 
            2003   2002   2002   2002   2002
           
 
 
 
 
ASSETS
                                        
Cash and due from banks
   $ 43,334     $ 60,822     $ 40,815     $ 36,230     $ 36,397  
Federal funds sold and other temp. investments
     29,523       61,449       15,033       64,194       42,631  
Securities available-for-sale (at market value)
     539,309       523,669       535,174       448,736       411,897  
Loans:
                                        
 
Commercial
     558,499       542,693       520,175       485,652       500,604  
 
Consumer
     325,819       322,840       325,088       333,178       317,858  
 
Real estate
     331,163       302,258       308,318       273,568       295,852  
 
    
     
     
     
     
 
     
Total loans
     1,215,481       1,167,791       1,153,581       1,092,398       1,114,314  
Less allowance for loan losses
     17,756       17,595       17,443       16,810       16,884  
 
    
     
     
     
     
 
 
Net loans
     1,197,725       1,150,196       1,136,138       1,075,588       1,097,430  
Premises and equipment
     16,125       16,632       16,333       16,592       16,737  
Accrued interest receivable
     9,414       8,762       9,582       8,724       9,596  
Goodwill and intangible assets
     20,343       20,422       20,224       17,636       17,746  
Servicing assets
     13,743       12,403       10,961       10,779       10,441  
Other assets
     39,511       40,420       40,975       41,265       41,973  
 
    
     
     
     
     
 
       
Total assets
   $ 1,909,027     $ 1,894,775     $ 1,825,235     $ 1,719,744     $ 1,684,848  
 
    
     
     
     
     
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
                                        
Deposits:
                                        
 
Demand — non-interest bearing
   $ 155,892     $ 179,714     $ 153,341     $ 145,006     $ 138,107  
 
Demand — interest bearing
     147,747       103,583       98,359       98,893       99,284  
 
Savings
     363,443       405,437       410,322       394,907       335,460  
 
Time deposits
     454,784       506,378       519,259       507,645       558,348  
 
    
     
     
     
     
 
       
Total deposits
     1,121,866       1,195,112       1,181,281       1,146,451       1,131,199  
Federal funds purchased and securities sold under agreements to repurchase
     206,069       138,796       166,532       119,867       108,951  
Note payable
     14,000       7,000       3,000       0       0  
Other borrowed funds
     155       3,863       3,788       4,249       724  
Accrued expenses and other liabilities
     20,089       17,885       14,583       10,486       12,661  
Federal Home Loan Bank advances
     379,971       365,844       285,887       271,930       272,005  
Corporation-obligated mandatorily redeemable capital securities of subsidiary trust
     30,508       30,495       30,482       30,468       30,455  
 
    
     
     
     
     
 
       
Total liabilities
     1,772,658       1,758,995       1,685,553       1,583,451       1,555,995  
Shareholders’ equity:
                                        
 
Common stock, no par value; 30,000,000 shares authorized;
     41,745       41,209       40,994       38,822       37,722  
 
Treasury stock
     (33,740 )     (27,180 )     (23,631 )     (19,462 )     (17,397 )
 
Other comprehensive income
     6,410       6,656       8,894       7,265       1,424  
 
Retained earnings
     121,954       115,095       113,425       109,668       107,104  
 
    
     
     
     
     
 
       
Total shareholders’ equity
     136,369       135,780       139,682       136,293       128,853  
 
    
     
     
     
     
 
       
Total liabilities and shareholders’ equity
   $ 1,909,027     $ 1,894,775     $ 1,825,235     $ 1,719,744     $ 1,684,848  
 
    
     
     
     
     
 
Miscellaneous data:
                                        
 
Common shares issued
     11,041,083       11,041,263       11,024,693       10,932,360       10,856,360  
 
Treasury shares
     1,542,784       1,279,009       1,147,849       991,589       911,689  
 
Bank owned life insurance (in other assets)
   $ 33,489     $ 33,086     $ 32,677     $ 32,268     $ 31,858  
 
Loans serviced for others
   $ 1,463,926     $ 1,320,316     $ 1,121,372     $ 1,047,988     $ 936,559  
 
Goodwill
   $ 16,647     $ 16,708     $ 17,344     $ 14,645     $ 14,645  
 
Other intangibles
     3,696       3,714       2,880       2,991       3,101  
 
    
     
     
     
     
 
   
Total goodwill and intangible assets
   $ 20,343     $ 20,422     $ 20,224     $ 17,636     $ 17,746  
 
    
     
     
     
     
 
 
Mortgage servicing rights (net of allowance)
   $ 13,299     $ 11,967     $ 10,516     $ 10,323     $ 10,006  
 
Other servicing assets
     444       436       445       456       435  
 
    
     
     
     
     
 
 
   $ 13,743     $ 12,403     $ 10,961     $ 10,779     $ 10,441  
 
    
     
     
     
     
 
Valuation allowance for mortgage servicing rights included above
   $ (4,783 )   $ (3,794 )   $ (3,087 )   $ (2,285 )   $ (910 )
 
    
     
     
     
     
 

Page 7 of 12

Table of Contents

Second Bancorp Incorporated and Subsidiaries
Consolidated Average Balance Sheets
For the Quarter Ended
(Dollars in Thousands)

                                                 
            March 2003   Dec. 2002   Sept. 2002   June 2002   March 2002
           
 
 
 
 
ASSETS
                                        
Cash and demand balances due from banks
   $ 38,392     $ 35,454     $ 35,266     $ 32,510     $ 35,183  
Federal funds sold and other temp. investments
     44,849       47,197       80,102       94,687       51,953  
Securities:
                                        
   
Trading
     0       0       0       0       123  
   
Available-for-sale
     528,434       494,245       469,203       426,297       419,638  
 
    
     
     
     
     
 
       
Total securities
     528,434       494,245       469,203       426,297       419,761  
Loans:
                                        
 
Commercial
     551,882       533,996       507,412       510,444       516,807  
 
Consumer
     324,729       323,939       319,482       308,804       302,517  
 
Real estate
     301,006       313,227       281,239       278,054       290,666  
 
    
     
     
     
     
 
     
Total loans
     1,177,617       1,171,162       1,108,133       1,097,302       1,109,990  
     
Allowance for loan losses
     17,566       17,345       16,904       16,830       16,884  
 
    
     
     
     
     
 
     
Net loans
     1,160,051       1,153,817       1,091,229       1,080,472       1,093,106  
Premises and equipment
     16,508       16,611       16,497       16,849       16,449  
Goodwill and intangible assets
     20,461       19,676       19,400       18,435       18,544  
Servicing assets
     13,310       11,832       10,184       10,672       9,369  
Other
     47,519       46,882       48,609       47,720       37,158  
 
    
     
     
     
     
 
     
Total assets
   $ 1,869,524     $ 1,825,714     $ 1,770,490     $ 1,727,642     $ 1,681,523  
 
    
     
     
     
     
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
                                        
Liabilities:
                                        
 
Demand deposits (non-interest bearing)
   $ 153,223     $ 156,607     $ 145,177     $ 145,418     $ 139,013  
 
Demand deposits (interest bearing)
     117,469       100,240       105,903       98,924       99,765  
 
Savings
     382,673       411,109       405,813       370,748       308,104  
 
Time deposits
     482,316       512,653       516,295       537,975       582,947  
 
    
     
     
     
     
 
     
Total deposits
     1,135,681       1,180,609       1,173,188       1,153,065       1,129,829  
 
Federal funds purchased and securities sold under agreements to repurchase
     164,329       165,504       135,611       128,361       114,128  
 
Note payable
     9,733       4,107       1,190       0       0  
 
Borrowed funds
     455       1,281       1,757       773       3,112  
 
Accrued expenses and other liabilities
     17,863       14,306       13,211       10,269       10,157  
 
Federal Home Loan Bank advances
     375,710       291,957       278,568       271,968       273,299  
 
Corporation-obligated mandatorily redeemable capital securities of subsidiary trust
     30,499       30,721       30,471       30,472       30,446  
 
    
     
     
     
     
 
     
Total liabilities
     1,734,270       1,688,485       1,633,996       1,594,908       1,560,971  
Shareholders’ equity:
                                        
 
Common stock
     41,757       41,153       39,522       38,421       37,568  
 
Treasury shares
     (30,666 )     (25,050 )     (21,641 )     (18,291 )     (17,281 )
 
Other comprehensive income
     6,778       7,032       7,951       4,503       4,449  
 
Retained earnings
     117,385       114,094       110,662       108,101       105,416  
 
    
     
     
     
     
 
     
Total shareholders’ equity
     135,254       137,229       136,494       132,734       130,152  
 
    
     
     
     
     
 
       
Total liabilities and shareholders’ equity
   $ 1,869,524     $ 1,825,714     $ 1,770,490     $ 1,727,642     $ 1,691,123  
 
    
     
     
     
     
 

Page 8 of 12

Table of Contents

Second Bancorp Incorporated and Subsidiaries
Consolidated Average Balance Sheets
For the Year-to-date period ended:
(Dollars in Thousands)

                                                 
            March 2003   Dec. 2002   Sept. 2002   June 2002   March 2002
           
 
 
 
 
ASSETS
                                        
Cash and demand balances due from banks
   $ 38,392     $ 34,606     $ 34,320     $ 33,839     $ 35,183  
Federal funds sold
     44,849       68,503       75,683       73,438       51,953  
Securities:
                                        
   
Trading
     0       40       41       61       123  
   
Available-for-sale
     528,434       452,587       438,561       422,986       419,638  
 
    
     
     
     
     
 
       
Total securities
     528,434       452,627       438,602       423,047       419,761  
Loans:
                                        
 
Commercial
     551,882       517,185       511,520       513,608       516,807  
 
Consumer
     324,729       313,760       310,330       305,678       302,517  
 
Real estate
     301,006       290,832       283,285       284,325       290,666  
 
    
     
     
     
     
 
     
Total loans
     1,177,617       1,121,777       1,105,135       1,103,611       1,109,990  
     
Allowance for loan losses
     17,566       16,992       16,873       16,857       16,884  
 
    
     
     
     
     
 
     
Net loans
     1,160,051       1,104,785       1,088,262       1,086,754       1,093,106  
Premises and equipment
     16,508       16,602       16,598       16,650       16,449  
Goodwill and intangible assets
     20,461       19,018       18,797       18,489       18,544  
Servicing assets
     13,310       10,520       10,078       10,024       9,369  
Other
     47,519       47,495       47,702       47,242       46,758  
 
    
     
     
     
     
 
     
Total assets
   $ 1,869,524     $ 1,754,156     $ 1,730,042     $ 1,709,483     $ 1,691,123  
 
    
     
     
     
     
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
                                        
Liabilities:
                                        
 
Demand deposits (non-interest bearing)
   $ 153,223     $ 146,598     $ 143,225     $ 142,233     $ 139,013  
 
Demand deposits (interest bearing)
     117,469       101,222       101,553       99,342       99,765  
 
Savings
     382,673       374,313       361,913       339,599       308,104  
 
Time deposits
     482,316       537,217       545,495       560,337       582,947  
 
    
     
     
     
     
 
     
Total deposits
     1,135,681       1,159,350       1,152,186       1,141,511       1,129,829  
 
Federal funds purchased and securities sold under agreements to repurchase
     164,329       136,041       126,112       121,284       114,128  
 
Note payable
     9,733       1,335       401       0       0  
 
Borrowed funds
     455       1,726       1,876       1,936       3,112  
 
Accrued expenses and other liabilities
     17,863       12,000       11,223       10,213       10,157  
 
Federal Home Loan Bank advances
     375,710       278,998       274,631       272,630       273,299  
 
Corporation-obligated mandatorily redeemable capital securities of subsidiary trust
     30,499       30,528       30,463       30,459       30,446  
 
    
     
     
     
     
 
     
Total liabilities
     1,734,270       1,619,978       1,596,892       1,578,033       1,560,971  
Shareholders’ equity:
                                        
 
Common stock
     41,757       39,177       38,511       37,997       37,568  
 
Treasury shares
     (30,666 )     (20,590 )     (19,087 )     (17,789 )     (17,281 )
 
Net unrealized holding gains
     6,778       5,996       5,647       4,476       4,449  
 
Retained earnings
     117,385       109,595       108,079       106,766       105,416  
 
    
     
     
     
     
 
     
Total shareholders’ equity
     135,254       134,178       133,150       131,450       130,152  
 
    
     
     
     
     
 
       
Total liabilities and shareholders’ equity
   $ 1,869,524     $ 1,754,156     $ 1,730,042     $ 1,709,483     $ 1,691,123  
 
    
     
     
     
     
 

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Second Bancorp Incorporated and Subsidiaries
Financial Highlights — Non-GAAP Operating Results
Quarterly Data
(Dollars in thousands, except per share data)

                                             
        March 2003   Dec. 2002   Sept. 2002   June 2002   March 2002
       
 
 
 
 
Earnings:
                                        
 
Net interest income
   $ 14,083     $ 13,946     $ 13,954     $ 14,403     $ 14,157  
 
Provision for loan losses
     2,173       2,350       1,573       1,303       933  
 
Non-interest income
     8,592       7,314       6,329       4,053       5,157  
 
Security gains (losses)
     51       (67 )     832       0       (173 )
 
Trading account losses
     0       0       0       0       (20 )
 
Non-interest expense
     13,673       12,469       11,717       11,283       11,797  
 
Federal income taxes
     1,871       1,577       2,208       1,517       1,708  
 
    
     
     
     
     
 
   
Net income
   $ 5,009     $ 4,797     $ 5,617     $ 4,353     $ 4,683  
 
    
     
     
     
     
 
Per share:
                                        
 
Basic earnings
   $ 0.52     $ 0.49     $ 0.57     $ 0.44     $ 0.47  
 
Diluted earnings
     0.52       0.48       0.56       0.43       0.47  
Key ratios: (%)
                                        
 
Return on average assets (ROA)
     1.07       1.05       1.27       1.01       1.11  
 
Return on average shareholders’ equity (ROE)
     14.81       13.98       16.46       13.12       14.39  
 
Net interest margin
     3.33       3.38       3.49       3.69       3.72  
 
Net overhead
     1.16       1.20       1.30       1.79       1.68  
 
Efficiency ratio
     58.98       57.27       56.35       59.49       59.40  

Second Bancorp Incorporated and Subsidiaries
Reconciliation of GAAP vs. Non-GAAP Operating Results
Quarterly Data

                                             
Net income
   $ 8,661     $ 3,428     $ 5,536     $ 4,353     $ 4,683  
Adjustments to GAAP to reflect Non-GAAP Operating Basis:
                                        
   
Add non-recurring costs:
                                        
Sale of banking centers
     (5,619 )     0       0       0       0  
Merger costs
     0       10       124       0       0  
Banking center reconfiguration
     0       2,096       0       0       0  
Total adjustments
     (5,619 )     2,106       124       0       0  
Federal income taxes (benefit)
     (1,967 )     737       43       0       0  
 
    
     
     
     
     
 
 
Net income
   $ 5,009     $ 4,797     $ 5,617     $ 4,353     $ 4,683  
 
    
     
     
     
     
 

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Second Bancorp Incorporated and Subsidiaries Financial Highlights — Non-GAAP Operating Results
(Dollars in thousands, except per share data)
                                                 
            March 2003   Dec. 2002   Sept. 2002   June 2002   March 2002
           
 
 
 
 
Earnings:
                                        
   
Net interest income
   $ 14,083     $ 56,460     $ 42,514     $ 28,560     $ 14,157  
   
Provision for loan losses
     2,173       6,159       3,809       2,236       933  
   
Non-interest income
     8,592       22,853       15,539       9,210       5,157  
   
Security gains (losses)
     51       592       659       (173 )     (173 )
   
Trading account losses
     0       (20 )     (20 )     (20 )     (20 )
   
Non-interest expense
     13,673       47,266       34,797       23,080       11,797  
   
Federal income taxes
     1,871       7,011       5,433       3,225       1,708  
 
    
     
     
     
     
 
     
Net income
   $ 5,009     $ 19,449     $ 14,653     $ 9,036     $ 4,683  
 
    
     
     
     
     
 
Per share:
                                        
   
Basic earnings
   $ 0.52     $ 1.96     $ 1.48     $ 0.91     $ 0.47  
   
Diluted earnings
     0.52       1.94       1.46       0.90       0.47  
Key ratios: (%)
                                        
   
Return on average assets (ROA)
     1.07       1.11       1.13       1.06       1.11  
   
Return on average shareholders’ equity (ROE)
     14.81       14.49       14.67       13.75       14.39  
   
Net interest margin
     3.33       3.56       3.63       3.70       3.72  
   
Net overhead
     1.16       1.49       1.59       1.73       1.68  
   
Efficiency ratio
     58.98       58.07       58.36       59.44       59.40  

Second Bancorp Incorporated and Subsidiaries
Reconciliation of GAAP vs. Non-GAAP Operating Results
Year-to-Date Data

                                                 
 
Net income
   $ 8,661     $ 18,000     $ 14,572     $ 9,036     $ 4,683  
 
Adjustments to GAAP to reflect Non-GAAP Operating Basis:
                                        
       
Add non-recurring costs:
                                        
 
Sale of banking centers
     (5,619 )     0       0       0       0  
 
Merger costs
     0       134       124       0       0  
 
Banking center reconfiguration
     0       2,096       0       0       0  
 
    
     
     
     
     
 
 
Total adjustments
     (5,619 )     2,230       124       0       0  
 
Federal income taxes (benefit)
     (1,967 )     781       43       0       0  
 
    
     
     
     
     
 
     
Net income
   $ 5,009     $ 19,449     $ 14,653     $ 9,036     $ 4,683  
 
    
     
     
     
     
 

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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 hereunto duly authorized.

     
    Second Bancorp Incorporated
 
Date: April 17, 2003   /s/ David L. Kellerman
David L. Kellerman, Treasurer

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