<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------------
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------- ------------
Commission file number 0-21939
Pennwood Bancorp, Inc.
- -------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Pennsylvania 25-1783648
- -------------------------------------------------- ------------------------
(State or Other Jurisdiction of Incorporation (I.R.S. Employer
or Organization) Identification No.)
683 Lincoln Avenue
Pittsburgh, Pennsylvania 15202
- -------------------------------------------------- ------------------------
(Address of Principal Executive Offices) (Zip Code)
(412) 761-1234
--------------------------------------------------------
(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
--- ---
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: 550,641
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
<PAGE> 2
PENNWOOD BANCORP, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
- ------- ---------------------
ITEM 1. FINANCIAL STATEMENTS. 3
Consolidated Balance Sheets (As of December 31, 1997
(unaudited) and June 30, 1997) 3
Consolidated Statements of Income (For the three months ended
December 31, 1997 and 1996 (unaudited) and for the
six months December 31, 1997 and 1996 (unaudited)) 4
Consolidated Statements of Cash Flows (For the six months
ended December 31, 1997 and 1996 (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
- -------- -----------------
ITEM 1. LEGAL PROCEEDINGS. 15
ITEM 2. CHANGES IN SECURITIES. 15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS. 15
ITEM 5. OTHER INFORMATION. 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 15
SIGNATURES
</TABLE>
2
<PAGE> 3
PENNWOOD BANCORP, INC.
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
(Unaudited)
Dec 31 June 30,
Assets 1997 1997
------ ---------- --------
<S> <C> <C>
Cash and amounts due from depository institutions $1,021 $936
Money market investments at cost which approximates
market value 2,394 868
Investment and mortgage-backed securities:
Available-for-sale (Amortized cost of $9,905 and $18,227) 10,019 18,224
Held-to-maturity (Market value of $1,513 and $720) 1,507 712
Loans receivable, net 30,305 26,980
Real estate owned, net 25 37
Federal Home Loan Bank stock 190 345
Premises and equipment, net 1,080 1,089
Accrued interest receivable 369 534
Prepaid expenses and other assets 301 256
------- -------
Total assets $47,211 $49,981
Liabilities and Shareholders' Equity
------------------------------------
Liabilities:
Savings deposits $36,267 $35,819
Advances from borrowers for taxes and insurance 299 320
Accrued interest payable on savings deposits 517 410
Borrowed funds 1,448 4,464
Accrued expenses and other liabilities 190 242
------- -------
Total liabilities $38,721 $41,255
Shareholders' Equity:
Common Stock, $.01 par value; 4,000,000 shares authorized;
610,128 issued at December 31, 1997. $ 6 $ 6
Additional paid-in capital 5,620 5,603
Retained earnings, substantially restricted 4,488 4,355
Treasury stock, at cost: 59,487 and 30,506 shares at December 31, 1997
and June 30, 1997, respectively. (981) (458)
Unearned Employee Stock Ownership Plan shares (415) (439)
Unearned common stock - Recognition and Retention Plan (303) (339)
Unrealized gain (loss) on securities available-for-sale 75 (2)
------- -------
Total shareholders' equity $8,490 $8,726
------- -------
Total liabilities and shareholders' equity $47,211 $49,981
======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements
3
<PAGE> 4
PENNWOOD BANCORP, INC.
Consolidated Statements of Income
(Unaudited)
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Loans $688 $540 $1,332 $1,061
Investment securities 169 297 428 530
Mortgage backed securities 33 36 67 85
Federal funds sold & other investments 11 7 20 14
Money market investments 47 50 68 147
-- -- -- ---
Total interest income 948 930 1,915 1,837
Interest expense:
Interest on savings deposits 423 386 845 790
Interest on borrowed funds 25 26 68 30
-- -- -- --
Total interest expense 448 412 913 820
--- --- --- ---
Net interest income 500 518 1002 1017
Provision for loan losses 12 0 27 8
-- - -- -
Net interest income after provision
for loan losses 488 518 975 1009
Other income:
Service charges 32 10 48 19
Other 42 17 63 35
-- -- -- --
Total other income 74 27 111 54
Other expenses:
Compensation and employee benefits 186 150 362 291
Premises and occupancy costs 56 52 115 105
Federal insurance premiums 5 3 11 27
SAIF assessment 0 0 0 247
Data processing expense 20 19 40 38
Net loss on real estate owned 7 25 7 37
Other operating expenses 102 118 188 196
--- --- --- ---
Total other expenses 376 367 723 941
---- ---- ---- ----
Income before income taxes 186 178 363 122
Provision for income taxes 74 51 123 12
---- ---- ---- ----
Net income $112 $127 $240 $110
==== ==== ==== ====
Basic earnings per share $.22 $.23 $.46 $.20
Diluted earnings per share $.21 N/A* $.45 N/A*
Dividend declared per share $.09 $.07 $.17 $.07
</TABLE>
* Not applicable as there were no common stock equivalents outstanding at
December 31, 1996.
See accompanying notes to unaudited consolidated financial statements
4
<PAGE> 5
PENNWOOD BANCORP, INC.
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
-------------------------------
OPERATING ACTIVITIES: 1997 1996
---- ----
<S> <C> <C>
Net Income $240 $110
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation expense 27 28
Provision for loan and real estate owned losses 39 45
Decrease (Increase) in accrued interest receivable 166 (132)
Decrease (Increase) in prepaid expenses and other assets (47) 324
Increase in accrued interest payable on deposits 107 66
Decrease in deposits on stock subscription rights 0 (4,659)
Other, net (2) 0
-- -
Total adjustments 290 (4,328)
--- ------
Net cash (used) provided by operating activities 530 (4,218)
INVESTING ACTIVITIES:
Purchases of premises and equipment (18) 0
Purchases of investment and mortgage-backed securities
available-for-sale (1,750) (7,744)
Purchases of investment and mortgage-backed securities
held-to-maturity (995) 0
Proceeds from maturities of investment and mortgage-backed
securities held-to-maturity 200 750
Proceeds from maturities and principal repayments of
investment and mortgage-backed securities available-
for-sale 10,050 1,950
Net (increase) in loans receivable (3,352) (50)
Net decrease in FHLB Stock 155 0
Other, net (7) 23
-- --
Net cash provided (used) by investing activities 4,283 (5,071)
FINANCING ACTIVITIES:
Net decrease in passbook, club, money market and
NOW accounts (599) (1,738)
Net increase (decrease) in certificates of deposit accounts 1,047 (584)
Net decrease in advances from borrowers for
taxes and insurance (21) (61)
Proceeds from ESOP loan 488
Repayment of ESOP loan (25) (8)
Release of ESOP shares 12 0
Purchase of Treasury Stock (523) 0
(Decrease) Increase of FHLB Advances (3,000) 1,000
Issuance of common stock, net 0 5,804
Stock acquired for employee stock ownership plan 0 (476)
Dividends paid (97) 0
Other 4 17
- --
Net cash (used) provided by financing activities (3,202) 4,442
------- ------
Net increase (decrease) in cash and cash equivalents 1,611 (4,847)
Cash and cash equivalents, beginning of period 1,804 10,106
----- ------
Cash and cash equivalents, end of period $3,415 $5,259
====== ======
</TABLE>
See accompanying notes to unaudited consolidated financial statements
(continued)
5
<PAGE> 6
PENNWOOD BANCORP, INC.
Consolidated Statements of Cash Flows, Continued
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
6 MONTHS ENDED
DECEMBER 31,
---------------------------
1997 1996
---- ----
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest on savings deposits $792 $727
==== ====
Income taxes 125 0
=== =
</TABLE>
See accompanying notes to unaudited consolidated financial statements
6
<PAGE> 7
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 the 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 six months ended December
31, 1997 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 intercompany 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
7
<PAGE> 8
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 six months ended
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, 1997 December 31, 1996 December 31, 1997 December 31, 1996
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Weighted average number 518,518 561,318 525,101 561,318
of shares outstanding
used to calculate Basic EPS
Dilutive securities:
Stock Options 14,429 N/A 11,429 N/A
Weighted average number of
shares and share equivalents
outstanding used to calculate
Diluted EPS 532,947 N/A 536,530 N/A
</TABLE>
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.
8
<PAGE> 9
Note 5 - Payment of Dividends
On December 17, 1997, the Company declared a quarterly dividend of $.09 per
share, payable on January 15, 1998, to shareholders of record on December 31,
1997.
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 six months ended December 31, 1996.
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 six months ended
December 31, 1997, was approximately $24,000 and $41,000, 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 nonowner sources. It includes all changes in equity during a period except
those resulting from investment by owners and distributions to owners.' The
comprehensive income and related cumulative equity impact of comprehensive
income items will be required to be disclosed prominently as part of the notes
to the financial statements. 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
9
<PAGE> 10
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 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 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.
10
<PAGE> 11
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 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 $2.7 million or 5.5% from
$49.9 million at June 30, 1997 to $47.2 million at December 31, 1997. During
the six months ended December 31, 1997 the Company's investment and
mortgage-backed securities (classified as available for sale) decreased by $8.2
million or 45.0% from $18.2 million at June 30, 1997 to $10.0 million at
December 31, 1997, while investment and mortgage-backed securities (classified
as held-to-maturity) increased by $795,000, cash and amounts due from
depository institutions increased by $85,000 and money market investments
(consisting of interest-bearing deposits, including certificates of deposit,
with other financial institutions) increased by $1.5 million. The Company's net
loans receivable increased $3.3 million or 12.3% during the six-month period.
During the six-month period, the Company's total liabilities decreased by $2.5
million or 6.1% at December 31, 1997. Borrowed money decreased by $3.0 million
or 67.5%, which was offset by an increase in deposit liabilities of $448,000.
Shareholders equity decreased by $236,000 during the six months ended December
31, 1997 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 $77,000 and the year to date net income of $240,000.
RESULTS OF OPERATIONS
NET INCOME. The Company reported net income of $112,000 and $240,000
for the three and six months ended December 31, 1997, respectively, compared to
$127,000 and $110,000, during the three and six months ended December 31, 1996.
The $15,000 decrease in net income for the three-month period ended December
31, 1997 was primarily due to a decrease in net interest income of $18,000, a
$12,000 increase loan loss provisions, a $9,000 increase in other expenses and
a $23,000 increase in income taxes, which were partially offset by a $47,000
increase in other income. The $130,000 increase in net income for the six-month
period over the prior year was due to an increase in other income of $57,000
and a $218,000 decrease in other expenses (which included a special assessment
of $247,000 to recapitalize the Savings Association Insurance Fund during the
six months ended December 31, 1996), which were offset by a $15,000 decrease in
net interest income, a $19,000 increase in loan loss provisions and a $111,000
increase in income taxes.
The Company's net interest margin decreased by 24 basis points and 20
basis points to 4.46% and 4.44% for the three- and six-month periods ending
December 31, 1997,
11
<PAGE> 12
respectively, from 4.70% and 4.64% for the three- and six-month periods ended
December 31, 1996, respectively. The average yield earned on the Company's
interest-earning assets increased by 2 basis points and 12 basis points,
respectively, for the three- and six-month periods ended December 31, 1997, over
the same periods ended December 31, 1996, which were offset by a 22 basis point
and a 24 basis point increased in the average rate paid on the Company's
interest-bearing liabilities, for the same periods ended December 31, 1997 and
December 31, 1996, respectively.
NET INTEREST INCOME. Net interest income decreased by $18,000 of 3.5%
and $15,000 or 1.5% during the three months and six months ended December 31,
1997, respectively, as compared to the same periods ended December 31, 1996.
The decrease was primarily due to a $1.3 million or 3.4% and $2.0 million or
5.7% increase in the average balance of interest-earning liabilities for the
three and six months ended December 31, 1997, respectively, over the
corresponding prior periods in 1996, which was partially offset by a $723,000
or 1.6% and $1.2 million or 2.8% increase in the average balance of
interest-bearing assets and a 2 basis point and 12 basis point increase in the
average rate paid thereon, for the same periods.
During the three and six months ended December 31, 1997, total
interest income increased by $18,000 or 1.9% and $78,000 or 4.2%, respectively,
as compared to the same periods in 1996. The increases were primarily due to an
increase in interest earned on loans of $148,000 or 27.4% and $271,000 or
25.5%, which were partially offset by a $128,000 or 43.1% and $102,000 or 19.2%
decrease in interest earned on investment securities, and a $3,000 or 8.3% and
$18,000 or 21.2% decrease in interest earned on mortgage-backed securities. The
increase in interest earned on loans was due primarily to an $8.5 million or
40.3% and $7.7 million or 36.0% increase in the average balance of loans
outstanding, during the three and six months ended December 31, 1997 as
compared to the same periods in 1996, which was partially offset by a 93 basis
point and 76 basis point decrease in the average yield earned thereon. The
decrease in interest earned on investment securities was due primarily to a
$7.5 million or 40.2% and $3.8 million or 22.8% decrease in the average balance
of investment securities. The increase in the average balance of loans
outstanding reflected the Company's reinvestment of a portion of its maturing
investment securities in loans.
During the three and six months ended December 31, 1997, total
interest expense increased by $36,000 or 8.7% and $93,000 or 11.3%,
respectively, as compared to the same periods in 1996, due to an increase of
$1.7 million or 7.7% and $1.4 million or 6.3% in the average balance of
certificates of deposit and a 30 basis point and 23 basis point increase on the
average rate paid thereon. Also, during the three and six months ended
December 31, 1997, there was a $31,000 or 2.1% decrease and a $1.1 million or
152.6% increase in the average balance of borrowed money, as compared to the
same periods in 1996.
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
12
<PAGE> 13
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 six months ended December
31, 1997 the Company established provisions for loan losses of $12,000 and
$27,000, respectively, as compared to $0 and $8,000 in the same periods in 1996.
OTHER INCOME. Total other income increased by $47,000 or 174.1% and
$57,000 or 105.6% during the three and six months ended December 31, 1997 as
compared to the same periods in 1996. The increase was primarily due to a
recovery 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 $9,000 or 2.4% and
decreased by $218,000 or 23.2% during the three and six months ended December
31, 1997 as compared to the same periods in 1996. During the three months ended
December 31, 1997, as compared to the corresponding period in 1996, there was
an increase in compensation and employee benefits of $36,000 or 24.0%, an
increase in office occupancy expenses of $4,000 or 7.7%, and an increase in
federal insurance premiums of $2,000 or 66.7%, which were offset by an $18,000
or 94.7% decrease in real estate owned expenses and a $16,000 or 13.6% decrease
in other miscellaneous expenses. During the six months ended December 31, 1997,
as compared to the same period ending December 31, 1996, there was a $71,000 or
24.4% increase in compensation and employee benefits, a $10,000 or 9.5%
increase in office occupancy expenses and a $2,000 or 5.3% increase in data
processing expenses, which were offset by a $16,000 or 59.3% decrease in
federal insurance premiums, a $30,000 or 81.1% decrease in real estate owned
expenses, an $8,000 or 4.1% decrease in other miscellaneous expenses, and a
$247,000 or 100.0% 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 increase of
$23,000 or 45.1% and $111,000 or 925.0% in income tax expense for the three and
six months ended December 31, 1997, as compared to the same periods in 1996.
The six month increase as of December 31, 1997, as compared to December 31,
1996, was 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 source 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
13
<PAGE> 14
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 December 31, 1997, 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 December 31, 1997, the total
commitments outstanding (excluding undisbursed portions of loans in process)
amounted to $1.4 million in mortgage loans and $707,000 in unused lines of
credit. At the same date, the unadvanced portion of loans in process
approximated $760,000. Certificates of deposit scheduled to mature in three
months or less at December 31, 1997 totaled $4.8 million. Management of the
Company believes that the Company has adequate resources, including principal
payments and repayments of loans and 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.
As of December 31, 1997, the Company had regulatory capital which was
in excess of required amounts.
14
<PAGE> 15
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
15
<PAGE> 16
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: February 13, 1998 By: /s/ Paul S. Pieffer
------------------------------------------
Paul S. Pieffer, President and
Chief Executive Officer
Date: February 13, 1998 By: /s/ James W. Kihm
------------------------------------------
James W. Kihm, Vice President and
Secretary (principal financial officer)
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 1,021
<INT-BEARING-DEPOSITS> 2,394
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10,019
<INVESTMENTS-CARRYING> 1,507
<INVESTMENTS-MARKET> 1,513
<LOANS> 30,549
<ALLOWANCE> (244)
<TOTAL-ASSETS> 47,211
<DEPOSITS> 36,267
<SHORT-TERM> 299
<LIABILITIES-OTHER> 707
<LONG-TERM> 1,448
0
0
<COMMON> 6
<OTHER-SE> 8,484
<TOTAL-LIABILITIES-AND-EQUITY> 47,211
<INTEREST-LOAN> 1,332
<INTEREST-INVEST> 495
<INTEREST-OTHER> 88
<INTEREST-TOTAL> 1,915
<INTEREST-DEPOSIT> 845
<INTEREST-EXPENSE> 913
<INTEREST-INCOME-NET> 1,002
<LOAN-LOSSES> 27
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 723
<INCOME-PRETAX> 363
<INCOME-PRE-EXTRAORDINARY> 363
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 240
<EPS-PRIMARY> .46
<EPS-DILUTED> .45
<YIELD-ACTUAL> 8.49
<LOANS-NON> 326
<LOANS-PAST> 353
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 282
<CHARGE-OFFS> 71
<RECOVERIES> 6
<ALLOWANCE-CLOSE> 244
<ALLOWANCE-DOMESTIC> 244
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
