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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-21939
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Pennwood Bancorp, Inc.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Pennsylvania 25-1783648
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(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer
Identification No.)
683 Lincoln Avenue
Pittsburgh, Pennsylvania 15202
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(Address of Principal Executive Offices) (Zip Code)
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(412) 761-1234
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(Registrant's Telephone Number, Including Area Code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes x No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 610,128
Transitional Small Business Disclosure Format (check one):
Yes No X
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PENNWOOD BANCORP, INC.
TABLE OF CONTENTS
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PAGE
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PART I. FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS. 3
Consolidated Balance Sheets as of March 31, 1998
(unaudited) and June 30, 1997 3
Consolidated Statements of Income for the three months
ended March 31, 1998 and 1997 (unaudited) and for the
nine months ended March 31, 1998 and 1997 (unaudited) 4
Consolidated Statements of Cash Flows for the nine months
ended March 31, 1998 and 1997 (unaudited) 5
Notes to Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. 10
PART II. OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS. 16
ITEM 2. CHANGES IN SECURITIES. 16
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS. 16
ITEM 5. OTHER INFORMATION. 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 16
SIGNATURES
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PENNWOOD BANCORP, INC.
Consolidated Balance Sheets
(Dollars in thousands)
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<CAPTION>
(Unaudited)
March 31, June 30,
Assets 1998 1997
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Cash and amounts due from depository institutions $906 $936
Money market investments at cost which approximates
market value 5,705 868
Investment and mortgage-backed securities:
Available-for-sale (Amortized cost of $7,392 and $18,227) 7,502 18,224
Held-to-maturity (Market value of $217 and $720) 211 712
Loans receivable, net 30,215 26,980
Real estate owned, net 11 37
Federal Home Loan Bank stock 190 345
Premises and equipment, net 1,058 1,089
Accrued interest receivable 326 534
Prepaid expenses and other assets 274 256
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Total assets $46,398 $49,981
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Liabilities and Shareholders' Equity
Liabilities:
Savings deposits $35,592 $35,819
Advances from borrowers for taxes and insurance 276 320
Accrued interest payable on savings deposits 422 410
Borrowed funds 1,440 4,464
Accrued expenses and other liabilities 160 242
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Total liabilities $37,890 $41,255
Shareholders' Equity:
Common Stock, $.01 par value; 4,000,000 shares authorized;
610,128 issued at March 31, 1998. $6 $6
Additional paid-in capital 5,632 5,603
Retained earnings, substantially restricted 4,467 4,355
Treasury stock, at cost: 59,487 and 30,506 shares at March 31, 1998
and June 30, 1997, respectively. (981) (458)
Unearned Employee Stock Ownership Plan shares (403) (439)
Unearned common stock - Recognition and Retention Plan (285) (339)
Unrealized gain (loss) on securities available-for-sale 72 (2)
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Total shareholders' equity $8,508 $8,726
Total liabilities and shareholders' equity $46,398 $49,981
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See accompanying notes to unaudited consolidated financial statements
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PENNWOOD BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands except per share amounts)
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THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
1998 1997 1998 1997
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Interest income:
Loans $676 $522 $2,006 $1,583
Investment securities 128 319 556 849
Mortgage backed securities 33 36 100 121
Federal funds sold & other investments 8 4 28 18
Money market investments 65 33 133 180
-- -- --- ---
Total interest income 910 914 2,823 2,751
Interest expense:
Interest on savings deposits 416 393 1,261 1,183
Interest on borrowed funds 15 24 84 54
-- -- -- --
Total interest expense 431 417 1,345 1,237
Net interest income 479 497 1,478 1,514
Provision for loan losses 115 15 142 23
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Net interest income after provision
for loan losses 364 482 1,336 1,491
Other income:
Service charges 21 9 69 28
Other 27 18 90 53
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Total other income 48 27 159 81
Other expenses:
Compensation and employee benefits 185 148 547 439
Premises and occupancy costs 38 57 153 162
Federal insurance premiums 6 6 17 33
SAIF assessment 0 0 0 247
Data processing expense 22 21 62 59
Net loss on real estate owned 1 3 8 40
Other operating expenses 87 99 273 295
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Total other expenses 339 334 1,060 1,275
Income before income taxes 73 175 435 297
Provision for income taxes 44 54 167 66
Net income $29 $121 $268 $231
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Basic earnings per share $0.06 $0.22 $0.52 $0.41
Diluted earnings per share $0.06 $0.22 $0.50 $0.41
Dividend declared per share $0.09 $0.07 $0.26 $0.14
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See accompanying notes to unaudited consolidated financial statements
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PENNWOOD BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
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NINE MONTHS ENDED
MARCH 31,
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OPERATING ACTIVITIES: 1998 1997
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Net Income $ 268 $ 231
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation expense 49 40
Provision for loan and real estate owned losses 140 63
Decrease (Increase) in accrued interest receivable 208 (128)
(Increase) Decrease in prepaid expenses and other assets (18) 229
Increase (Decrease) in accrued interest payable on deposits 12 (37)
Decrease in deposits on stock subscription rights - (4,659)
Other, net 62 (62)
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Total adjustments 453 (4,554)
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Net cash (used) provided by operating activities 721 (4,323)
INVESTING ACTIVITIES:
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Purchases of premises and equipment (8) (4)
Purchases of investment and mortgage-backed securities
available-for-sale (1,750) (10,941)
Purchases of investment and mortgage-backed securities
held-to-maturity (999) -
Proceeds from maturities of investment and mortgage-backed
securities held-to-maturity 1,500 1,500
Proceeds from maturities and principal repayments of
investment and mortgage-backed securities available-
for-sale 12,500 2,900
Proceeds of sale of real estate owned 18 55
Net (increase) in loans receivable (3,377) (890)
Net decrease in FHLB Stock 155 (10)
Other, net 37 20
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Net cash provided (used) by investing activities 8,076 (7,370)
FINANCING ACTIVITIES:
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Net decrease in passbook, club, money market and
NOW accounts (880) (371)
Net increase (decrease) in certificates of deposit accounts 653 (550)
Net decrease in advances from borrowers for
taxes and insurance (44) (103)
Proceeds from ESOP loan - 488
Repayment of ESOP loan (36) (16)
Release of ESOP shares (17) -
Purchase of Treasury Stock (523) -
(Decrease) Increase of FHLB Advances (3,000) 1,000
Issuance of common stock, net - 5,804
Stock acquired for employee stock ownership plan - (476)
Dividends paid (147) (43)
Other 4 -
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Net cash (used) provided by financing activities (3,990) 5,733
Net increase (decrease) in cash and cash equivalents 4,807 (5,960)
Cash and cash equivalents, beginning of period 1,804 10,106
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Cash and cash equivalents, end of period $ 6,611 $ 4,146
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See accompanying notes to unaudited consolidated financial statements
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PENNWOOD BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(Unaudited)
(Dollars in Thousands)
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NINE MONTHS ENDED
MARCH 31,
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1998 1997
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Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest on savings deposits $1,301 $1,138
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Income taxes 148 50
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Sale of real estate owned (Cash proceeds received in subsequent period) 0 0
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See accompanying notes to unaudited consolidated financial statements
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PENNWOOD BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with instructions to Form 10-Q. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complex financial statements. However, such information
presented reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of results for the interim periods.
The results of operations for the three months and nine months ended March 31,
1998 are not necessarily indicative of the results to be expected for the year
ending June 30, 1998. The unaudited consolidated financial statements and
notes thereto should be read in conjunction with the audited financial
statements and notes thereto for the year ended June 30, 1997.
Note 2 - Principles of Consolidation
The accompanying unaudited financial statements of Pennwood Bancorp, Inc. ("the
Company") include the accounts of the Company and its wholly-owned subsidiary,
Pennwood Savings Bank. All significant inter-company transactions have been
eliminated in consolidation.
Note 3 - Conversion to Stock Form of Ownership
On February 20, 1996, as amended on April 6, 1996, the Board of Trustees
adopted a plan of conversion whereby the Company would be converted from a
Pennsylvania mutual savings bank to a Pennsylvania stock savings bank. The
conversion was completed on July 12, 1996, and the Company issued 610,128
shares of common stock resulting in $6,101,280 in gross proceeds to the
Company. Costs of the common stock offering of approximately $477,000 were
deducted from the offering proceeds.
At the completion of the conversion to stock form, the Company established a
liquidation account in the amount of retained earnings set forth in the
offering circular utilized in the conversion. The liquidation account will be
maintained for the benefit of eligible savings account holders who maintain
deposit accounts in the Company after conversion. In the event of a complete
liquidation (and only in such event), each eligible savings account holder will
be entitled to receive a liquidation distribution from the liquidation account
in the amount of the then current adjusted balance of deposit accounts held,
before any liquidation distribution may be made with respect to the common
shares. Except for the
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repurchase of stock and payment of dividends by the Company, the existence of
the liquidation account will not restrict the use or further application of
such retained earnings.
The Company may not declare or pay a cash dividend on, or repurchase any of its
common shares if the effect thereof would cause the Company's stockholders'
equity to be reduced below either the amount required for the liquidation
account or the regulatory capital requirements for insured institutions.
On January 27, 1997, the reorganization of the Savings Bank was completed. The
resulting company is Pennwood Bancorp, Inc.
Note 4 - Adoption of New Accounting Principles
In February 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings per
Share. SFAS No. 128 supersedes APB Opinion No. 15, Earnings per Share
("Opinion No 15") and requires the calculation and dual presentation of Basic
and Diluted earnings per share ("EPS"), replacing the measures of primary and
fully-diluted EPS as reported under Opinion No. 15. SFAS No. 128 is effective
for financial statements issued for periods ending December 31, 1997. Prior
year EPS data has been restated to conform with the requirements of SFAS No.
128.
The following weighted average shares and share equivalents are used to
calculate Basic and Diluted EPS for the three months and nine months ended
March 31, 1998 and 1997:
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Three months ended Nine months ended
March 31, 1998 March 31, 1997 March 31, 1998 March 31, 1997
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Weighted average number 509,164 563,772 519,827 562,608
of shares outstanding
used to calculate Basic EPS
Dilutive securities:
Stock Options 16,035 16 11,928 0
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Weighted average number of
shares and share equivalents
outstanding used to calculate
Diluted EPS 525,199 563,788 531,755 562,608
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In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure." SFAS No. 129 summarizes previously issued disclosure
guidance contained within APB Opinions No. 10 and 15 as well as SFAS No. 47.
There will be no changes to the Company's disclosures pursuant to the adoption
of SFAS No. 129. This statement is effective for financial statements issued
for periods ending after December 15, 1997. Adoption of SFAS No. 129 had no
impact on the Company's financial statements.
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Note 5 - Payment of Dividends
On March 18, 1998, the Company declared a quarterly dividend of $.09 per
share, payable on April 15, 1998, to shareholders of record of March 31,
1998.
Note 6 - Special Deposit Insurance Assessment
On September 30, 1996, congressional legislation was enacted which is designed
to recapitalize the Savings Association Insurance Fund ("SAIF") and to
eliminate the substantial deposit premium disparity between Bank Insurance Fund
and SAIF-insured institutions. This legislation imposes a one-time assessment
on all SAIF-insured deposits as of March 31, 1995. This assessment totals
$247,000 and is reflected in the other expenses section of the consolidated
statement of income for the nine months ended March 31, 1997.
Note 7 - Employee Stock Ownership Plan ("ESOP")
In connection with the conversion to stock form of ownership, the Company
formed an ESOP. The ESOP covers employees who have completed at least 1000
hours of service during a twelve month period and have attained the age of 21.
The ESOP borrowed $488,000 from an independent third party lender to fund the
purchase of 48,810 shares or 8% of the shares issued in the conversion. The
loan to the ESOP will be repaid from scheduled discretionary cash contributions
from the Company sufficient to service the debt over a ten year period. Shares
are released and allocated to the participants on the basis of a compensation
formula. Compensation expense for the three months and nine ended March 31,
1998, was approximately $24,000 and $66,000, respectively.
Note 8 - Recent Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which establishes standards for reporting and display of comprehensive income
and its components in a full set of general-purpose financial statements.
Comprehensive income is defined as 'the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. It includes all changes in equity during a period
except those resulting from investment by owners and distributions to owners.'
Only the impact of unrealized gains or losses on securities available for sale
is expected to be disclosed as an additional component of the Company's income
under the requirements of SFAS No. 130. This statement is effective for fiscal
years beginning after December 15, 1997.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and related Information." SFAS No. 131 establishes standards for
the way public business enterprises are to report information about operating
segments in annual financial statements and requires those enterprises to
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards
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for the related disclosures about products and services, geographic areas, and
major customers. SFAS No. 131 supersedes FASB Statement No. 14, "Financial
Reporting for Segments of a Business Enterprise," but retains the requirement
to report information about major customers. It amends FASB Statement No. 94,
"Consolidation of All Majority-Owned Subsidiaries," to remove the special
disclosure requirements for previously unconsolidated subsidiaries. Management
does not expect SFAS No. 131 to have significant impact on the consolidated
financial statements of the Company. This Statement is effective for financial
statements for periods beginning after December 15, 1997.
Note 9 - Year 2000 Issue
The Company is aware of the issues associated with the programming code in
existing computer systems as the millennium, "Year 2000," approaches. A team
has been designated to conduct a comprehensive review of the Company's computer
systems to identify the systems that could be affected by the Year 2000 issues
and is developing an implementation plan to address the issues. The Company
relies on external processing vendors for its data processing requirements. To
date, confirmations have been received from these vendors that plans are being
developed to address processing of transactions in the year 2000. The team has
not uncovered as of the date hereof, any issue that is not being addressed that
would have a material impact on the operations of the Company. However, if
these modifications and conversions are not completed on a timely basis, it is
understood that the year 2000 problem could have a material impact on the
operations of the Company.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
GENERAL
Pennwood Bancorp, Inc. (the "Company") is the holding company for the
Pennwood Savings Bank (the "Savings Bank"). The operating results of the
Company depend upon the operating results of the Savings Bank. The operating
results of the Savings Bank depend primarily upon its net interest income,
which is determined by the difference between interest income on
interest-earning assets, which consist principally of loans, investment
securities and other investments, and interest expense on interest-bearing
liabilities, which consist principally of deposits and borrowed money. The
Savings Bank's net income also is affected by its provision for loan losses, as
well as the level of its other income, including loan fees and service charges
and miscellaneous items, and its other expenses, including compensation and
other employee benefits, premises and occupancy costs, federal deposit
insurance premiums, data processing expense, net loss on real estate owned and
other miscellaneous expenses, and income taxes.
On July 12, 1996, the Savings Bank completed its conversion from the
mutual to the stock form (the "Conversion"). In the Conversion, the Savings
Bank issued 610,128 shares
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of common stock, which resulted in net proceeds to the Savings Bank of
approximately $5.7 million. On January 27, 1997, the Savings Bank completed
its reorganization into the holding company form of ownership whereby each
outstanding share of common stock of the Savings Bank was converted into common
stock of the Company and the Company acquired all the capital stock of the
Savings Bank.
CHANGES IN FINANCIAL CONDITION
The Company's total assets decreased by $3.6 million or 7.2% from $49.9
million at June 30, 1997 to $46.3 million at March 31, 1998. During the nine
months ended March 31, 1998, the Company's investment and mortgage-backed
securities (classified as available for sale) decreased by $10.7 million or
58.8% from $18.2 million at June 30, 1997 to $7.5 million at March 31, 1998,
investment and mortgage-backed securities (classified as held-to-maturity)
decreased by $501,000, and cash and amounts due from depository institutions
decreased by $30,000, while money market investments (consisting of
interest-bearing deposits, including certificates of deposit, with other
financial institutions) increased by $4.8 million. This was primarily due to
maturities and calls of investment securities and declining market interest
rates. The Company's net loans receivable increased $3.2 million or 12.0%
during the nine month period. This was due to the increase in loans on single
family homes, funded by the proceeds from maturing and called investment
securities. During the nine month period, the Company's total liabilities
decreased by $3.4 million or 8.2% at March 31, 1998. Borrowed money decreased
by $3.0 million or 67.7%, due to matured FHLB advances, and deposit liabilities
decreased by $227,000. Shareholders equity decreased by $218,000 during the
nine months ended March 31, 1998 as a result of the purchase of Treasury Stock
of $523,000, which was partially offset by the market value adjustment on
investments classified as available for sale of $74,000 and the year to date
net income of $268,000.
RESULTS OF OPERATIONS
NET INCOME. The Company reported net income of $29,000 and 268,000 for
the three and nine months ended March 31, 1998, respectively, compared to
$121,000 and $231,000, during the three and nine months ended March 31, 1997,
respectively. The $92,000 decrease in net income for the three month period
ended March 31, 1998 was primarily due to a decrease in net interest income of
$18,000, a $5,000 increase in other expenses and a $100,000 increase in loan
loss provisions, which was partially offset by a $21,000 increase in other
income and a $10,000 decrease in income taxes. The $37,000 increase in net
income for the nine month period over the prior year was due to an increase in
other income of $78,000, and a $215,000 decrease in other expenses (which
included a special assessment of $247,000 to recapitalize the Savings
Association Insurance Fund ("SAIF") during the nine months ended March 31,
1997), which were offset by a $36,000 decrease in net interest income, a
$119,000 increase in loan loss provisions and a $101,000 increase in income
taxes.
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The Company's net interest margin decreased by 9 basis points and 16
basis points to 4.33% and 4.40%, for the three and nine month periods ending
March 31, 1998 respectively, from 4.42% and 4.56% for the three and nine month
periods ended March 31, 1997, respectively. The average yield earned on the
Company's interest-earning assets increased by 10 basis points and 11 basis
points, respectively, for the three and nine month periods ended March 31,
1998, over the same periods ended March 31, 1997, which were offset by a 15
basis point and a 22 basis point increase in the average rate paid on the
Company's interest-bearing liabilities, for the same periods ended March 31,
1998, and March 31, 1997, respectively.
NET INTEREST INCOME. Net interest income decreased by $18,000 or 3.6%
and $36,000 or 2.3% during the three months and nine months ended March 31,
1998, respectively, as compared to the same periods ended March 31, 1997. The
decrease for the three months ended March 31, 1998 over the three months ended
March 31, 1997 was primarily due to a $722,000 or 1.6% decrease in the average
balance of interest-earning assets which was partially offset by a $44,000 or
0.1% decrease in the average balance of interest-bearing liabilities and a 15
basis point increase in the average paid thereon. The decrease for the nine
months ended March 31, 1998 over the nine months ended March 31, 1997 was
primarily due to a $1.4 million or 3.7% increase in the average balance of
interest-bearing liabilities which was partially offset by a $584,000 or 1.3%
increase in the average balance of interest-bearing assets and an 11 basis
point increase in the average rate earned thereon.
During the three months ended March 31, 1998, total interest income
decreased by $4,000 or 0.4%, as compared to the same period in 1997. The
decrease was primarily due to a $194,000 or 54.6% decrease in interest earned
on investment securities which was primarily offset by an increase in interest
earned on loans of $154,000 or 29.5% and a $37,000 or 112.1% increase in
interest earned on money market investments. During the nine months ended March
31, 1998, total interest income increased by $72,000 or 2.6% over the nine
months ended March 31, 1997. The increase was primarily due to a $423,000 or
26.7% increase in interest earned on loans and a $10,000 or 55.6% increase in
interest earned on federal funds and other investments, which were offset by a
$314,000 or 32.4% decrease in interest earned on investment securities, and a
$47,000 or 26.1% decrease in interest earned on money market investments. The
increase in interest earned on loans was due primarily to a $8.5 million or
39.4% and $8.0 or 37.1% increase in the average balance of loans outstanding,
during the three and nine months ending March 31, 1998 as compared to the same
1997 periods, which was partially offset by a 68 basis point and 75 basis point
decrease in the average yield earned thereon. The decrease in interest earned
on investment securities was due primarily to a $10.8 million or 55.9% and
$6.2 million or 34.8% decrease in the average balance of investment securities.
During the three and nine months ended March 31, 1998, total interest
expense increased by $14,000 or 3.4% and $108,000 or 8.7%, respectively, as
compared to the same periods in 1997, due to an increase of $1.4 million or
6.2% and $1.4 million or 6.2%, respectively, in the average balance of
certificates of deposit and a 22 basis point and 23
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basis point increase on the average rate paid thereon. During the three months
ended March 31, 1998 as compared to the three months ended March 31, 1997, the
average balance of borrowed money decreased by $3,000 or 0.2% while for the
nine months ending March 31, 1998, there was a $743,000 or 75.4% increase in
the average balance of borrowed money, as compared to the same 1997 period, due
to an increase in advances from the FHLB.
PROVISION FOR LOAN LOSSES. The Company establishes provisions for
losses on loans, which are charged to operations, in order to maintain the
allowance for loan losses at a level which is deemed to be appropriate based
upon an assessment of prior loss experience, the volume and type of lending
presently being conducted by the Company, industry standards, past due loans,
economic conditions in the Company's market area generally and other factors
related to the collectibility of the Company's loan portfolio. During the
three and nine months ended March 31, 1998, the Company established provisions
for loan losses of $115,000 and $142,000, respectively, compared to $15,000 and
$23,000 in the same 1997 periods. The increase in loan loss allowances resulted
from an increase in loans outstanding and an increase in non-performing loans.
OTHER INCOME. Total other income increased by $21,000 or 77.8% and
$78,000 or 96.3% during the three and nine months ended March 31, 1998,
respectively, as compared to the same 1997 periods. For the three months ended
March 31, 1998, as compared to the same 1997 period, the increase was due to a
$9,000 adjustment in real estate taxes previously paid and a $12,000 increase
in service charges. During the nine months ended March 31, 1998 as compared to
the same 1997 period, the increase was primarily due to a recovery, as a result
of a subsequent court ruling, of $45,000 of a $65,000 provision, established
June 30, 1997, for potential expenses related to a regulatory determination of
possible violations of Regulation Z (Truth in Lending), and an increase of
income from other miscellaneous income (which consists primarily of rental
income earned on real estate owned, late charges, service charges and other
miscellaneous fees).
OTHER EXPENSES. Total other expenses increased by $5,000 or 1.5% and
decreased by $215,000 or 16.9% during the three and nine months ended March 31,
1998, respectively, as compared to the same 1997 periods. During the three
months ended March 31, 1998, as compared to the same period ending March 31,
1997, there was an increase in compensation and employee benefits of $37,000
or 25.0%, and an increase in data processing expense of $1,000 of 0.5% which
were offset by a decrease in office occupancy expenses of $19,000 or 33.3%, a
$2,000 or 66.7% decrease in real estate owned expenses and a $12,000 or 12.1%
decrease in other miscellaneous expenses. During the nine months ended March
31, 1998, as compared to the same period ending March 31, 1997, there was a
$108,000 or 24.6% increase in compensation and employee benefits, related to
the adoption of new employee benefit plans and a $3,000 or 5.1% increase in
data processing expense which were offset by a $9,000 or 5.6% decrease in
office occupancy expenses, a $16,000 or 48.5% decrease in federal insurance
premiums, a $32,000 or 80.0% decrease in real estate owned expenses, a $22,000
or 7.5% decrease in other miscellaneous expenses, and a $247,000 or 100.0%
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decrease in the special one-time SAIF assessment, which was assessed in the
quarter ending September 30, 1996.
PROVISION FOR INCOME TAXES. The Company incurred an decrease of $10,000
or 18.5% and an increase of $101,000 or 153.0% in income tax expense for the
three and nine months ended March 31, 1998, as compared to the same 1997
periods. The nine month increase as of March 31, 1998, as compared to March
31, 1997, was partially due to a tax credit of $112,000 on the SAIF assessment,
for the quarter ended September 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are deposits, repayments,
prepayments and maturities of outstanding loans, maturities of investment
securities and other short-term investments, and funds provided from
operations. While scheduled loan repayments and maturing investment securities
and short-term investments are relatively predictable sources of funds, deposit
flows and loan prepayments are greatly influenced by the movement of interest
rates in general, economic conditions and competition. The Company manages the
pricing of its deposits to maintain a deposit balance deemed appropriate and
desirable. In addition, the Company invests in short-term investment
securities and other interest-earning assets, which provide liquidity to meet
lending requirements. Although the Company has been able to generate enough
cash through the retail deposit market, its traditional funding source, the
Company may, to the extent deemed necessary, utilize other borrowing sources,
consisting primarily of advances from the Federal Home Loan Bank ("FHLB") of
Pittsburgh. At March 31, 1998, the Company had $1.0 million of outstanding
advances from the FHLB of Pittsburgh.
Liquidity management is both a daily and long-term function. Excess
liquidity is generally invested in short-term investments such as cash and cash
equivalents, including money market investments and federal funds sold, and
U.S. Government and agency obligations. On a longer-term basis, the Company
invests in various lending products and investment securities. The Company
uses its sources of funds primarily to meet its ongoing commitments to pay
maturing savings certificates and savings withdrawals, fund loan commitments
and maintain an investment securities portfolio. At March 31, 1998, the total
commitments outstanding (excluding undisbursed portions of loans in process)
amounted to $4.4 million in mortgage loans, $689,000 in unused lines of credit
and $300,000 in investment securities. At the same date, the unadvanced portion
of loans in process approximated $1.8 million. Certificates of deposit
scheduled to mature in three months or less at March 31, 1998, totaled $3.4
million. Management of the Company believes that the Company has adequate
resources, including principal payments and repayments of loans on maturing
investments, to fund all of its commitments to the extent required. Based upon
its historical run-off experience, management believes that a significant
portion of maturing deposits will remain with the Company.
14
<PAGE> 15
As of March 31, 1998, the Company had regulatory capital which was in
excess of required amounts.
15
<PAGE> 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security-Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits
27 Financial Data Schedule
b) Reports on Form 8-K
None
16
<PAGE> 17
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PENNWOOD BANCORP, INC.
Date: May 14, 1998 By: /s/ Paul S. Pieffer
---------------------------------------
Paul S. Pieffer, President and
Chief Executive Officer
Date: May 14, 1998 By: /s/ James W. Kihm
---------------------------------------
James W. Kihm, Vice President and
Secretary (principal financial officer)
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