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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, 1999
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.
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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 (I.R.S. Employer
Organization) Identification No.)
683 Lincoln Avenue
Pittsburgh, Pennsylvania 15202
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(Address of Principal Executive Offices) (Zip Code)
(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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Pennwood Bancorp, Inc. had 598,567 shares of common stock outstanding as
of May 10, 1999.
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, 1999
and June 30, 1998 (unaudited) 3
Consolidated Statements of Income for the three months
and nine months ended March 31, 1999 and 1998 (unaudited) 4
Consolidated Statements of Cash Flows for the nine months
ended March 31, 1999 and 1998 (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. 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
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PENNWOOD BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in Thousands Except Share Data)
<TABLE>
<CAPTION>
MAR. 31 JUNE 30,
ASSETS 1999 1998
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Cash and amounts due from depository institutions $811 $527
Money market investments at cost which approximates
market value 2,333 2,026
Investment and mortgage-backed securities:
Available-for-sale (Amortized cost of $2,601 and $7,652) 2,662 7,752
Held-to-maturity (Market value of $212 and $216) 208 210
Loans receivable, net 42,323 33,625
Real estate owned, net 50 11
Federal Home Loan Bank stock 300 284
Premises and equipment, net 1,254 1,044
Accrued interest receivable 306 331
Prepaid expenses and other assets 404 270
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Total assets $50,651 $46,080
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Liabilities:
Savings deposits $36,287 $35,754
Advances from borrowers for taxes and insurance 353 392
Accrued interest payable on savings deposits 418 423
Borrowed funds 6,405 1,432
Accrued expenses and other liabilities 206 118
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Total liabilities 43,669 38,119
Shareholders' Equity:
Common Stock, $.01 par value; 4,000,000 shares authorized;
813,419 and 610,128 issued at March 31, 1999 and
June 30, 1998, respectively 8 8
Additional paid-in capital 5,663 5,644
Retained earnings, substantially restricted 4,540 4,427
Treasury stock, at cost: 214,852 and 116,025 shares at March 31, 1999
and June 30, 1998, respectively. (2,701) (1,526)
Unearned Employee Stock Ownership Plan shares (354) (391)
Unearned common stock - Recognition and Retention Plan (214) (267)
Accumulated other comprehensive income 40 66
-- --
Total shareholders' equity 6,982 7,961
Total liabilities and shareholders' equity $50,651 $46,080
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</TABLE>
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 Data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Interest income:
Loans $904 $676 $2,592 $2,006
Investment securities 31 128 204 556
Mortgage backed securities 24 33 81 100
Federal funds sold & other investments 5 3 15 15
Money market investments 22 70 71 146
-- -- -- ---
Total interest income 986 910 2,963 2,823
Interest expense:
Interest on savings deposits 398 416 1,210 1,261
Interest on borrowed funds 79 15 219 84
-- -- --- --
Total interest expense 477 431 1,429 1,345
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Net interest income 509 479 1,534 1,478
Provision for loan losses 20 115 40 142
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Net interest income after provision
for loan losses 489 364 1,494 1,336
Other income:
Service charges 23 21 72 69
Other 12 27 61 90
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Total other income 35 48 133 159
Other expenses:
Compensation and employee benefits 211 185 626 547
Premises and occupancy costs 64 38 182 153
Federal insurance premiums 5 6 16 17
Data processing expense 28 22 76 62
Net loss on real estate owned 1 1 1 8
Other operating expenses 118 67 320 273
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Total other expenses 427 339 1,221 1,060
Income before income taxes 97 73 406 435
Provision for income taxes 39 44 153 167
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Net income $58 $29 $253 $268
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Basic earnings per share $.10 $.05 $.43 $.40
Diluted earnings per share $.10 $.05 $.43 $.39
Dividend declared per share $.075 $.068 $.22 $.20
</TABLE>
See accompanying notes to unaudited consolidated financial statements
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PENNWOOD BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
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OPERATING ACTIVITIES: 1999 1998
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<S> <C> <C>
Net Income $253 $268
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation expense 33 49
Provision for loan and real estate owned losses 40 142
Decrease in accrued interest receivable 25 208
(Increase) in prepaid expenses and other assets (133) (18)
(Decrease) increase in accrued interest payable on deposits (5) 12
Other, net 51 60
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Total adjustments 11 453
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Net cash (used) provided by operating activities 264 721
INVESTING ACTIVITIES:
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Purchases of premises and equipment (243) (8)
Purchases of investment and mortgage-backed securities
available-for-sale (1,210) (1,750)
Purchases of investment and mortgage-backed securities
held-to-maturity (750) (999)
Proceeds from maturities and principal repayments of
investment and mortgage-backed securities held-to-maturity 753 1,500
Proceeds from maturities and principal repayments of
investment and mortgage-backed securities available-
for-sale 6,307 12,500
Proceeds of sale of real estate owned 16 18
Net (increase) in loans receivable (8,738) (3,377)
Net (increase) decrease in FHLB Stock (16) 155
Other, net 20 37
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Net cash provided (used) by investing activities (3,861) 8,076
FINANCING ACTIVITIES:
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Net (decrease) in passbook, club, money market and
NOW accounts (53) (880)
Net increase in certificates of deposit accounts 586 653
Net (decrease) in advances from borrowers for
taxes and insurance (39) (44)
Purchase of Treasury Stock (1,175) (523)
Increase (decrease) of FHLB Advances 5,000 (3,000)
Dividends paid (141) (147)
Other 10 (49)
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Net cash (used) provided by financing activities 4,188 (3,990)
Net increase in cash and cash equivalents 591 4,807
Cash and cash equivalents, beginning of period 2,553 1,804
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Cash and cash equivalents, end of period $3,144 $6,611
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</TABLE>
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)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
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1999 1998
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Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest on savings deposits $1,214 $1,301
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Income taxes 152 148
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Transfer of funds to real estate owned 49 0
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</TABLE>
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-QSB. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete 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,
1999 are not necessarily indicative of the results to be expected for the year
ending June 30, 1999. The unaudited consolidated financial statements and notes
thereto should be read in conjunction with the audited financial statements and
notes thereto contained in Pennwood Bancorp, Inc.'s Form 10-KSB for the year
ended June 30, 1998.
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 (the "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 Savings Bank 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 Savings Bank issued 610,128
shares of common stock resulting in $6,101,280 in gross proceeds to the Savings
Bank. 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 Savings Bank 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 Savings Bank after the 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 repurchase of stock and
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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 Savings Bank completed its reorganization into the
holding company form of ownership. The resulting holding 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, 1999 and 1998:
<TABLE>
<CAPTION>
Three months ended Nine months ended
Mar. 31, 1999 Mar. 31, 1998 Mar 31, 1999 Mar 31, 1998
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<S> <C> <C> <C> <C>
Weighted average number of 557,422 651,534 582,581 667,973
shares outstanding used to
calculate Basic EPS
Dilutive securities 1,415 21,445 3,053 15,866
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Weighted average number of
shares and share equivalents
outstanding used to calculate
Diluted EPS 558,837 672,979 585,634 683,839
</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 were no changes to the Company's disclosures pursuant to the adoption of
SFAS No. 129.
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
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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. The components of
comprehensive income are net income and the impact of unrealized gains or
(losses) on securities available for sale. The comprehensive income for the
three and nine month periods ended March 31, 1999 and March 31, 1998,
respectively is $51,000, $227,000 and $26,000, $342,000, respectively.
Note 5 - Payment of Dividends
On March 17, 1999, the Company declared a quarterly dividend of $.075 per share,
payable on April 15, 1999, to shareholders of record on March 31, 1999. All per
share amounts have been restated to reflect the four-for-three stock split
effective May 1998.
Note 6 - 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. ESOP
compensation expense for the three months and nine months ended March 31, 1999,
was approximately $18,000 and $55,000 respectively.
Note 7 - Recent Accounting Pronouncements
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 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. Adoption of SFAS No. 131 had no impact
on the Company's financial statements as it has only one operating segment,
retail banking.
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In February 1998, the FASB issued SFAS No. 132, "Employers Disclosures about
Pensions and Other Post-Retirement Benefits". This statement standardized the
disclosure requirements for pensions and other post-retirement benefits and is
effective for fiscal years beginning after December 15, 1997. Management does
not expect SFAS No. 132 to have a significant impact on the consolidated
financial statements of the Company.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. If certain
conditions are met, a derivative may be specifically designated as a (1) fair
value hedge, (2) a cash flow hedge, or (3) a foreign currency hedge. The
accounting for changes in the fair value of a derivative (gains and losses)
depends on the intended use of the derivative and the resulting designation.
SFAS No. 133 is effective for all fiscal years beginning after June 15, 1999.
Management does not expect SFAS No. 133 to have a significant impact on the
consolidated financial statements of the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
This Form 10-QSB contains certain forward-looking statements and
information relating to the Company that are based on the beliefs of management
as well as assumptions made by and information currently available to
management. The words "anticipate," "believe," "estimate," "expect," "intend,"
"should," and similar expressions, or the negative thereof, as they relate to
the Company or the Company's management, are intended to identify
forward-looking statements. Such statements reflect the current views of the
Company with respect to future events and are subject to certain risks,
uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize or should underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated, expected or intended. The Company does not intend to update
these forward-looking statements.
GENERAL
Pennwood Bancorp, Inc. (the "Company") is the holding company for
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
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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.
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 increased by $4.6 million or 10.0% from $46.1
million at June 30, 1998 to $50.7 million at March 31, 1999. During the nine
months ended March 31, 1999, the Company's investment and mortgage-backed
securities (classified as available for sale) decreased by $5.0 million or 64.9%
from $7.7 million at June 30, 1998 to $2.7 million at March 31, 1999, and
investment and mortgage-backed securities (classified as held-to-maturity)
decreased by $2,000 while cash and amounts due from depository institutions
increased by $284,000, and money market investments (consisting of
interest-bearing deposits, including certificates of deposit, with other
financial institutions) increased by $307,000. The Company's net loans
receivable increased $8.7 million or 25.9% during the nine month period as part
of an ongoing strategy to increase loan balances. During the nine month period,
the Company's total liabilities increased by $5.5 million or 14.4% at March 31,
1999. Borrowed money increased by $5.0 million or 347.3% and deposit liabilities
increased by $533,000 or 1.5%. Shareholders equity decreased by $1.0 million
during the nine months ended March 31, 1999 as a result of the purchase of
Treasury Stock of $1.2 million and by the market value adjustment on investments
classified as available for sale of $26,000 which was partially offset by
$135,000 in employee benefit shares earned and the year to date net income of
$253,000 less dividends paid of $141,000.
RESULTS OF OPERATIONS
NET INCOME. The Company reported net income of $58,000 and $253,000 for
the three and nine months ended March 31, 1999, respectively, compared to
$29,000 and $268,000, during the three and nine months ended March 31, 1998. The
$29,000 increase in net income during the three month period ended March 31,
1999, was primarily due to a $30,000 increase in net interest income, a $95,000
decrease in loan loss provisions and a $5,000 decrease in income taxes which
were partially offset by an $88,000 increase in other expenses and a $13,000
decrease in other income. The $15,000 decrease in net income for the nine month
period over the prior year was due to a $161,000 increase in other expenses and
a $26,000 decrease in other income which were partially offset by a $56,000
increase in net interest income, a $102,000 decrease in loan loss provisions and
a $14,000 decrease in income taxes.
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The Company's net interest margin decreased by 3 basis points and 5 basis
points to 4.30% and 4.35%, for the three and nine month periods ending March 31,
1999, respectively, from 4.33% and 4.40% for the three and nine month periods
ended March 31, 1998 respectively. The average yield earned on the Company's
interest-earning assets increased by 11 basis points and 1 basis points,
respectively, for the three and nine month periods ended March 31, 1999 over the
same periods ended March 31, 1998. There was also a 7 basis point and a 14 basis
point decrease in the average rate paid on the Company's interest-bearing
liabilities, for the same periods ended March 31, 1999 and March 31, 1998
respectively.
NET INTEREST INCOME. Net interest income increased by $30,000 or 6.3% and
$56,000 or 3.8% during the three months and nine months ended March 31, 1999,
respectively, as compared to the same periods ended March 31, 1998. The increase
was primarily due to a $3.0 million or 6.9% and $2.2 million or 4.9% increase in
the average balance of interest-earning assets for the three and nine months
ended March 31, 1999, respectively, over the corresponding prior periods in 1998
which was partially offset by a $4.7 million or 12.6% and $3.5 million or 9.2%
increase in the average balance of interest-bearing liabilities. There was an 11
basis point and a 1 basis point increase in the average rate earned on
interest-earning assets and a 7 basis point and a 14 basis point decrease in the
average rate paid thereon on interest-bearing liabilities, for the same periods.
During the three and nine months ended March 31, 1999, total interest
income increased by $76,000 or 8.3% and $140,000 or 5.1%, respectively, as
compared to the same periods in 1998. The increases were primarily due to an
increase in interest earned on loans of $228,000 or 33.7% and $586,000 or 29.2%,
which were partially offset by a $97,000 or 75.8% and $352,000 or 63.3% decrease
in interest earned on investment securities, a $9,000 or 27.3% and $19,000 or
19.0% decrease in interest earned on mortgage backed securities and a $48,000 or
68.6% and a $75,000 or 51.4% decrease in interest earned on money market
investments. The increase in interest earned on loans was due primarily to a
$11.6 million or 38.4% and $10.4 or 35.4% increase in the average balance of
loans outstanding, during the three and nine months ending March 31, 1999 as
compared to the same 1998 periods, which was partially offset by a 31 basis
point and a 41 basis point decrease in the average yield earned thereon. The
decrease in interest earned on investment securities was due primarily to a $5.4
million or 63.7% and $6.7 million or 58.1% 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 nine months ended March 31, 1999, total interest
expense increased by $46,000 or 10.7% and $84,000 or 6.2%, respectively as
compared to the same periods in 1998, due primarily to a $4.3 million or 298.0%
increase and a $3.8 million or 219.8% increase in the average balance of
borrowed money, as compared to the same 1998 periods.
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
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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, 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, 1999, the Company
established provisions for loan losses of $20,000 and $40,000, respectively
compared to $115,000 and $142,000 in the same 1998 periods due to the improved
credit quality of the loan portfolio.
OTHER INCOME. Total other income (which consists primarily of rental
income earned on real estate owned, late charges, service charges and other
miscellaneous fees) decreased by $13,000 or 27.1% and $26,000 or 16.4% during
the three and nine months ended March 31, 1999 as compared to the same 1998
periods. During the three month period ended March 31, 1999 as compared to the
same period ended March 31, 1998, miscellaneous operating income decreased by
$15,000 which was offset by a $2,000 increase in service charges. During the
nine months ended March 31, 1999 as compared to the same 1998 period,
miscellaneous operating income decreased by $29,000 which was offset by a $3,000
increase in service charges earned.
OTHER EXPENSES. Total other expenses increased by $88,000 or 26.0% and by
$161,000 or 15.2% during the three and nine months ended March 31, 1999 as
compared to the same 1998 periods. During the three months ended March 31, 1999,
as compared to the same period ending March 31, 1998, there was an increase in
compensation, employee benefits and staffing of $26,000 or 14.0%, an increase in
office occupancy expenses of $26,000 or 68.4%, an increase in data processing
expense of $6,000 or 27.3% and an increase of $31,000 or 35.6% in other
miscellaneous expenses which were partially offset by an $1,000 or 16.7%
decrease in federal insurance premiums. During the nine months ended March 31,
1999, as compared to the same period ending March 31, 1998, there was a $79,000
or 14.4% increase in compensation, employee benefits and staffing, a $29,000 or
18.9% increase in office occupancy expenses, an $14,000 or 22.6% increase in
data processing expenses and a $47,000 or 17.2% increase in other miscellaneous
expenses which were partially offset by a $7,000 or 87.5% decrease in real
estate owned expenses and a $1,000 or 5.9% decrease in federal insurance
premiums.
PROVISION FOR INCOME TAXES. The Company incurred a decrease of $5,000 or
11.4% and $14,000 or 8.4% in income tax expense for the three and nine months
ended March 31, 1999, as compared to the same 1998 periods due to the reduction
of pre-tax income.
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 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
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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,
1999, the Savings Bank had $6.0 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, 1999, the total commitments
outstanding (excluding undisbursed portions of loans in process) amounted to
$2.9 million in mortgage loans and $613,000 in unused lines of credit. At the
same date, the unadvanced portion of loans in process approximated $1.9 million.
Certificates of deposit scheduled to mature in three months or less at March 31,
1999, totaled $4.9 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 March 31, 1999, the Company has regulatory capital which was in
excess of required amounts.
YEAR 2000 COMPLIANCE
The Company has developed a plan of action to help insure that its
operational and financial systems will not be adversely affected by the year
2000 software/hardware failures due to processing errors arising from
calculations using the year 2000 date. While the Company believes it is doing
everything technologically and operationally possible to assure year 2000
compliance, it is to a large extent dependent upon vendor cooperation. The
Company is requiring its computer systems and software vendors to represent that
the products provided are or will be year 2000 compliant. Any year 2000
compliance failures could result in additional expenses or business disruptions
to the Company which are currently unknown and are believed to be immaterial.
The Company does not itself internally program any major operating system of the
Company; therefore, the Company does not expect to incur material costs for
remediation efforts. Testing of all critical systems is expected to be completed
by the end of the Company's fiscal year. To date, no significant problems have
been encountered.
14
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
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: May 13, 1999 By: /s/ Paul S. Pieffer
------------------------------------------
Paul S. Pieffer, President and
Chief Executive Officer
Date: May 13, 1999 By: /s/ James W. Kihm
------------------------------------------
James W. Kihm, Vice President and
Secretary (principal financial officer)
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<FISCAL-YEAR-END> JUN-30-1999
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