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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, 2000
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 (I.R.S. Employer Identification
Incorporation or Organization) 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
--- ---
Pennwood Bancorp, Inc. had 555,539 shares of common stock outstanding
as of April 30, 2000.
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, 2000
and June 30, 1999 3
Consolidated Statements of Income for the three months
and nine months ended March 31, 2000 and 1999 4
Consolidated Statements of Cash Flows for the nine months
ended March 31, 2000 and 1999 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. 16
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. 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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PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
PENNWOOD BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in Thousands Except Per Share Data)
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<CAPTION>
MARCH 31, JUNE 30,
ASSETS 2000 1999
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<S> <C> <C>
Cash and amounts due from depository institutions $ 1,600 $ 1,054
Money market investments at cost which approximates
market value 1,231 1,667
Investment and mortgage-backed securities:
Available-for-sale (Amortized cost of $3,844 and $3,514) 3,716 3,515
Held-to-maturity (Market value of $207 and $210) 204 207
Loans receivable, net 46,697 42,715
Real estate owned, net 69 86
Federal Home Loan Bank stock 800 400
Premises and equipment, net 2,593 1,340
Accrued interest receivable 330 299
Prepaid expenses and other assets 537 413
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Total assets $ 57,777 $ 51,696
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Savings deposits 33,992 35,529
Advances from borrowers for taxes and insurance 396 463
Accrued interest payable on savings deposits 364 461
Borrowed funds 16,364 8,394
Accrued expenses and other liabilities 300 242
-------- --------
Total liabilities 51,416 45,089
Shareholders' Equity:
Common stock, $.01 par value; 4,000,000 shares authorized;
813,419 issued at March 31, 2000 8 8
Additional paid-in capital 5,676 5,665
Retained earnings, substantially restricted 4,290 4,516
Treasury stock, at cost: 257,880 and 252,780 shares at March 31, 2000
and June 30, 1999, respectively (3,090) (3,045)
Unearned Employee Stock Ownership Plan shares (305) (342)
Unearned common stock - Recognition and Retention Plan (143) (196)
Accumulated other comprehensive income (75) 1
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Total shareholders' equity 6,361 6,607
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Total liabilities and shareholders' equity $ 57,777 $ 51,696
======== ========
</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)
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<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Interest income:
Loans $ 928 $ 904 $ 2,736 $ 2,592
Investment securities 52 31 171 204
Mortgage backed securities 21 24 60 81
Federal funds sold and other investments 12 5 32 15
Money market investments 21 22 60 71
------- ------- ------- -------
Total interest income 1,034 986 3,059 2,963
Interest expense:
Interest on savings deposits 363 398 1,126 1,210
Interest on borrowed funds 229 79 543 219
------- ------- ------- -------
Total interest expense 592 477 1,669 1,429
------- ------- ------- -------
Net interest income 442 509 1,390 1,534
Provision for loan losses 53 20 197 40
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Net interest income after provision
for loan losses 389 489 1,193 1,494
Other income:
Service charges 19 23 52 72
Other 18 12 73 61
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Total other income 37 35 125 133
Other expenses:
Compensation and employee benefits 207 211 643 626
Premises and occupancy costs 64 64 203 182
Federal insurance premiums 2 5 12 16
Data processing expense 32 28 96 76
Net loss on real estate owned 3 1 22 1
Professional fees 126 13 175 41
Other operating expenses 100 105 284 279
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Total other expenses 534 427 1,435 1,221
Income (loss) before income taxes (108) 97 (117) 406
Provision for (benefit from) income taxes (13) 39 (19) 153
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Net income (loss) ($ 95) $ 58 ($ 98) $ 253
------- ------- ------- -------
Basic earnings per share ($ 0.19) $ .10 ($ 0.19) $ .43
Diluted earnings per share ($ 0.19) $ .10 ($ 0.19) $ .43
Dividends declared per share $ .075 $ .075 $ .225 $ .225
</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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<S> <C> <C>
OPERATING ACTIVITIES: 2000 1999
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Net Income (loss) ($ 98) $ 253
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation expense 29 33
Provision for loan losses 197 40
(Increase) decrease in accrued interest receivable (31) 25
Increase in prepaid expenses and other assets (124) (133)
Decrease in accrued interest payable on deposits (97) (5)
Other, net (45) 51
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Total adjustments (71) 11
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Net cash (used in) provided by operating activities (169) 264
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INVESTING ACTIVITIES:
Purchases of premises and equipment (1,224) (243)
Purchases of investment and mortgage-backed securities
available-for-sale (1,214) (1,210)
Purchases of investment and mortgage-backed securities
held-to-maturity 0 (750)
Proceeds from maturities and principal repayments of
investment and mortgage-backed securities held-to-maturity 3 753
Proceeds from maturities and principal repayments of
investment and mortgage-backed securities available-
for-sale 900 6,307
Proceesd of sale of real estate owned 16 16
Net (increase) in loans receivable (3,982) (8,738)
(Increase) in FHLB Stock (400) (16)
Other, net 43 20
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Net cash used in investing activities (5,858) (3,861)
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FINANCING ACTIVITIES:
Net (decrease) increase in passbook, club, money market and
NOW accounts 437 (53)
Net (decrease) increase in certificates of deposit accounts (1,974) 586
Net decrease in advances from borrowers for
taxes and insurance (67) (39)
Repayment of ESOP loan (30) (27)
Purchase of Treasury Stock (45) (1,175)
Increase of FHLB Advances 8,000 5,000
Dividends paid (126) (141)
Other (58) 37
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Net cash provided by financing activities 6,137 4,188
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Net increase in cash and cash equivalents 110 591
Cash and cash equivalents, beginning of period 2,721 2,553
-------- --------
Cash and cash equivalents, end of period $ 2,831 $ 3,144
======== ========
</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)
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<CAPTION>
Nine Months Ended
March 31,
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2000 1999
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Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest 1650 1214
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Income taxes 45 152
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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
presentation of the financial statements.
The results of operations for the three months and nine months ended
March 31, 2000 are not necessarily indicative of the results to be expected for
the year ending June 30, 2000. 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, 1999.
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
The Savings Bank converted from a Pennsylvania mutual savings bank to a
Pennsylvania stock savings bank on July 12, 1996. In connection with the
conversion, the Savings Bank issued 610,128 shares of common stock. On January
27, 1997, the Savings Bank completed its reorganization into the holding company
form of ownership. Each issued and outstanding share of common stock of the
Savings Bank was exchanged on a share for share basis for shares of Company
common stock. The resulting holding company is Pennwood Bancorp, Inc., a
Pennsylvania corporation.
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Note 4 - EARNINGS PER SHARE
The following weighted average shares and share equivalents are used to
calculate basic and diluted earnings per share ("EPS") for the three months and
nine months ended March 31, 2000 and 1999:
<TABLE>
<CAPTION>
Three months ended Nine Months ended
March 31, March 31,
------------------ -----------------
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Weighted average number of 513,237 557,422 512,968 582,581
shares outstanding used to
calculate Basic EPS
Dilutive securities -- 1,415 -- 3,053
------- ------- ------- -------
Weighted average number of
shares and share equivalents
outstanding used to calculate
Diluted EPS 513,237 558,837 512,968 585,634
</TABLE>
Options to purchase 69,148 shares of common stock at $10.59 per share
were outstanding during the three and nine month periods presented for fiscal
year 2000 but were not included in the computation of diluted EPS because to do
so would have been anti-dilutive. Additionally, Recognition and Retention Plan
awards with respect to 18,879 shares were outstanding during the three and nine
months periods presented for fiscal year 2000 but were not included in the
computation of diluted EPS because to do so would have been anti-dilutive.
Note 5 - PAYMENT OF DIVIDENDS
On March 15, 2000, the Company declared a quarterly dividend of $.075
per share, payable on April 17, 2000, to shareholders of record of March 31,
2000.
Note 6 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standard Board (FASB) issued
Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Liabilities." This statement requires that
all derivatives be recognized as either assets or liabilities in the balance
sheet and that those instruments be measured at fair value. The accounting for
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changes in the fair value of a derivative (that is, gains or losses) depends on
the intended use of the derivative and resulting designation. This statement was
effective for fiscal years beginning after June 15, 1999, although earlier
adoption is permitted. In June 1999, the FASB issued SFAS No. 137 "Accounting
for Derivative Instruments and Hedging Activities - Deferral of the Effective
date of FASB Statement No. 133 - and Amendment of FASB Statement No. 133,"which
delays the adoption of SFAS No. 133 until June 15, 2000. SFAS No. 133 is
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000. Management does not anticipate that there will be any material impact to
the Company's financial statements.
Note 7 - AGREEMENT AND PLAN OF MERGER
On February 18, 2000, the Company announced entering into the Agreement
and Plan of Merger (the "Agreement") with Fidelity Bancorp, Inc. ("Fidelity")
pursuant to which each share of common stock of the Company issued and
outstanding at the closing of the transaction will be acquired for cash
consideration equal to $13.10 per share (the "Merger Consideration"). In
addition, the holders of options to acquire Company stock will either, at their
election, receive cash in an amount equal to the Merger Consideration less the
applicable exercise price per share or convert their options to options to
acquire shares of Fidelity common stock under similar terms and conditions.
Under the terms of the Agreement, Pennwood will merge with and into Fidelity
while the Savings Bank will merge with and into Fidelity Savings Bank,
Fidelity's wholly owned subsidiary. The acquisition, which will be accounted for
as a purchase and is expected to close at the end of the second quarter or in
the third quarter of 2000, is subject to various customary closing conditions
including the receipt of all required shareholder and regulatory approvals. The
Company filed a Current Report on Form 8-K on February 24, 2000 reporting the
execution of the Agreement, which Form 8-K included as an exhibit thereto the
Agreement.
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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
Pennwood Savings Bank (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, legal and consulting fees and other miscellaneous expenses,
and income taxes.
FORWARD LOOKING STATEMENTS
This Form 10-QSB contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, and may be
identified by the use of such words as "believe," "expect," "anticipate,"
"should," "planned," "estimated" and "potential." Examples of forward-looking
statements include, but are not limited to, estimates with respect to the
financial condition, results of operations and business of the Company that are
subject to various factors which could cause actual results to differ materially
from these estimates. These factors include, but are not limited to, general
economic conditions, changes in interest rates, deposit flows, loan demand, real
estate values, and competition; changes in accounting principles, policies, or
guidelines; changes in legislation or regulation; and other economic,
competitive, governmental, regulatory, and technological factors affecting the
Company's operations, pricing, products and services.
CHANGES IN FINANCIAL CONDITION
The Company's total assets increased by $6.1 million or 11.8% from
$51.7 million at June 30, 1999 to $57.8 million at March 31, 2000. During the
nine months ended March 31, 2000, the Company's investment and mortgage-backed
securities (classified as available for sale) increased by $201,000 or 5.7% from
$3.5 million at June 30, 1999 to $3.7 million at March 31, 2000. During such
period, cash and amounts due from depository institutions increased by $546,000
or 51.8% to $1.6 million at March 31, 2000. However, money market investments
(consisting of interest-bearing deposits with other financial institutions)
decreased by $436,000 or 26.1% while investment and mortgage-backed securities
(classified as held-to-maturity) decreased by $3,000 or 1.4% to $204,000 at
March 31, 2000. The Company's net loans receivable increased $4.0 million or
9.3% from $42.7 million at June 30, 1999 to $46.7 million at March 31, 2000.
This was due to an increase in single-family residential mortgage loans funded
in large part by the proceeds of FHLB advances.
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During the nine month period, the Company's premises and equipment increased by
$1.3 million or 93.5% to $2.6 million as a result of the expansion of the
Company's main office, which is scheduled for completion by the end of fiscal
2000.
Between June 30, 1999 and March 31, 2000, the Company's total
liabilities increased by $6.3 million or 14.0% from $45.1 million at June 30,
1999 to $51.4 million at March 31, 2000. Borrowed funds, consisting of FHLB
advances, increased by $8.0 million or 94.9% to $16.4 million at March 31, 2000,
which was partially offset by a decrease in deposit liabilities of $1.5 million
or 4.2%. Shareholders' equity decreased by $246,000 or 3.7% during the nine
months ended March 31, 2000, as a result of the repurchase of shares of Company
common stock for a total coast of $45,000, a $76,000 market value adjustment on
investments classified as available for sale, the year to date net loss of
$98,000 and dividends declared of $126,000 which were partially offset by
$99,000 in employee benefit plan shares earned and allocated.
RESULTS OF OPERATIONS
NET INCOME (LOSS). The Company reported a net loss of $95,000 and
$98,000 for the three months and nine months ended March 31, 2000, respectively,
compared to net income of $58,000 and $253,000 during the three months and nine
months ended March 31, 1999. The $153,000 decrease in net income during the
three month period ended March 31, 2000 compared to the same period in the prior
year was the result of a $67,000 decrease in net interest income combined with a
$107,000 increase in non-interest expenses and a $33,000 increase in the loan
loss provisions which were partially offset by a $2,000 increase in non-interest
income and a $52,000 decrease in income taxes. The $351,000 decrease in net
income during the nine month period in fiscal 2000 compared to the same period
in the prior year was the result of a $144,000 decrease in net interest income,
a $214,000 increase in non-interest expenses, a $8,000 decrease in non-interest
income, and a $172,000 increase in loan loss provisions which were offset by a
$159,000 decrease in income taxes.
For the three months and nine months ended March 31, 2000, the
Company's net interest margin decreased by 96 basis points and 75 basis points,
respectively, to 3.34% and 3.60%, from 4.30% and 4.35% for the three months and
nine months ended March 31, 2000 reflecting the combined effects of declines in
the average yield on interest-earning assets due to declines in general market
rates of interest with less rapid declines on the rates paid on deposits and the
increased use of higher costing borrowings. The average yield earned on the
Company's interest-earning assets decreased by 52 basis points and 48 basis
points, respectively, for the three and nine month periods ended March 31, 2000
over the same periods ended March 31, 1999 while the average rate paid on the
Company's interest-bearing liabilities increased by 16 basis points and 5 basis
points, respectively, for the same periods ended March 31, 2000 and March 31,
1999, respectively, due primarily to the increased use of borrowings to fund its
asset growth.
NET INTEREST INCOME. Net interest income decreased by $67,000 or 13.2%
and $144,000 or 9.4% during the three months and nine months ended March 31,
2000, respectively, as compared to
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the same periods ended March 31, 1999. These decreases were primarily
attributable to 52 basis point and 48 basis point decreases in the average yield
earned on interest-earning assets for the three months and nine months ended
March 31, 2000, respectively, compared to the same periods in 1999 while the
average rate paid on interest-bearing liabilities increased by 16 basis points
and 5 basis points for the same periods ended March 31, 2000 and March 31, 1999,
respectively, due to the increased use of borrowings. The decline in the yields
earned reflected declines in general market interest rates experienced during
the first half of fiscal 2000.
During the three months and nine months ended March 31, 2000, total
interest income increased by $48,000 or 4.9% and $96,000 or 3.2%, respectively,
as compared to the same periods in 1999. The increase for the three months ended
March 31, 2000 as compared to the corresponding 1999 period was primarily due to
a $24,000 or 2.7% increase in interest earned on loans, a $7,000 or 140.0%
increase in interest earned on federal funds and other investments and a $21,000
or 67.7% increase in interest earned on investment securities which were
partially offset by a $3,000 or 12.5% decrease in interest earned on
mortgage-backed securities and a $1,000 or 4.5% decrease in interest earned on
money market investments. The increase for the nine months ended March 31, 2000
as compared to the same period in 1999 was primarily due to a $144,000 or 5.6%
increase in interest earned on loans and a $17,000 or 113.3% increase in
interest earned on federal funds and other investments which were partially
offset by a $33,000 or 16.2% decrease in interest earned on investment
securities, a $21,000 or 25.9% decrease in interest earned on mortgage-backed
securities and an $11,000 or 15.5% decrease in interest earned on money market
investments.
During the three months ended March 31, 2000, as compared to the three
months ended March 31, 1999, the increase in interest earned on loans was due
primarily to a $4.8 million or 11.5% increase in the average balance of loans
outstanding, which was partially offset by a 69 basis point decrease in the
average yield earned thereon. The increase in interest earned on investment
securities was due primarily to a $894,000 or 29.5% increase in the average
balance of investment securities and a 18 basis point increase in the average
yield earned thereon, respectively, as compared to the same period in 1999. The
increase in interest earned on federal funds sold and other investments was
primarily due to a $483,000 or 161.0% increase in the average balance of federal
funds and other investments over the same period in the prior year. The decrease
in interest earned on money market investments during the three ended March 31,
2000 was primarily due to a $648,000 or 30.5% decrease in the average balance of
money market investments, respectively, as compared to the same period in 1999
as the Company emphasized the origination of loans.
During the nine months ended March 31, 2000, as compared to the same
period in 1999, the increase in interest earned on loans was due primarily to a
$5.5 million or 13.8% increase in the average balance of loans outstanding,
which was partially offset by a 63 basis point decrease in the average yield
earned thereon. The increase in interest earned on federal funds sold and other
investments was primarily due to a $376,000 or 127.0% increase in the average
balance of federal funds and other investments over the comparable period in
1999. The decrease in interest earned on money market investments during the
nine months ended March 31, 2000 was primarily due to a $803,000 or 36.7%
decrease in the average balance of money market investments, as compared to
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the same period in 1999 in the prior year, as the Company emphasized growth of
the loan portfolio. The decrease in interest earned on investment securities was
due primarily to a $664,000 or 13.8% decrease in the average balance of
investment securities and a 48 basis point decrease in the average yield earned
thereon, respectively, as compared to the same 1999 period. The decrease in the
average yield earned on the Company's investment securities resulted from calls
and maturities of higher yielding U.S. Government and agency obligations, with
the proceeds being reinvested at the lower current yields available.
During the three and nine months ended March 31, 2000, total interest
expense increased by $115,000 or 24.1% and $240,000 or 16.8%, respectively, as
compared to the same periods in 1999 due to a $10.3 million or 180.7% and a $7.6
million or 138.2% increase in the average balance of borrowed money which was
offset by a $2.0 million or 5.5% and a $1.1 million or 3.1% decrease for the
three and nine months ended March 31, 2000, respectively, in the average balance
of savings deposits as compared to the same periods in 1999.
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 the Company's 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 and other factors related to the
collectibility of the Company's loan portfolio. During the three and nine months
ended March 31, 2000, the Company established provisions for loan losses of
$53,000 and $197,000, respectively, compared to $20,000 and $40,000 for the same
1999 periods in the prior year. Provisions made during the nine months ended
March 31, 2000 primarily reflect charge-offs and delinquency trends of the
consumer loan portfolio.
OTHER INCOME. Total other income increased by $2,000 or 5.7% and
decreased by $8,000 or 6.0% during the three and nine months ended March 31,
2000, respectively, as compared to the three and nine months ended March 31,
1999. These shifts in other income were primarily due to changes in 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 $107,000 or 25.1% and
$214,000 or 17.5% during the three and nine months ended March 31, 2000,
respectively, over the comparable periods in 1999. During the three months ended
March 31, 2000 as compared to the three months ending March 31, 1999, there was
a $4,000 or 14.3% increase in data processing expenses, a $113,000 increase in
professional fees which primarily pertain to the Agreement and related
regulatory matters and a $2,000 or 200.0% increase in loss on sale of real
estate which were partially offset by a $4,000 or 1.9% decrease in compensation
and employee benefits, a $5,000 or 4.8% decrease in other miscellaneous expenses
and a $3,000 or 60.0% decrease in federal insurance premiums. During the nine
months ended March 31, 2000 as compared to the same period in the prior year,
there was a $17,000 or 2.7% increase in compensation and employee benefits, a
$5,000 or 1.8% increase in other miscellaneous expenses, a $20,000 or 26.3%
increase in data processing
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expenses, a $21,000 increase in loss on real estate, a $21,000 or 11.5% increase
in office occupancy expenses resulting from the expansion of the Company's main
office and a $134,000 increase in professional fees for the reasons set forth
above.
PROVISION FOR INCOME TAXES. The Company experienced a decrease of
$52,000 and $172,000 in income tax expense for the three and nine months ended
March 31, 2000, as compared to the same periods in 1999, due primarily to the
losses before income taxes incurred for the three and nine months ended March
31, 2000.
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, 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,
2000, the Company had $16.0 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 obligation. 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, 2000, the total commitments
outstanding (excluding undisbursed portions of loans in process) amounted to
$708,000 in mortgage loans and $504,000 in unused lines of credit. At the same
date, the unadvanced portion of loans in process approximated $1.7 million.
Certificates of deposit scheduled to mature in three months or less at March 31,
2000, totaled $3.7 million. Management of the Company believes that the Company
has adequate resources, including principal payments and prepayments 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, 2000, the Company had regulatory capital in excess of
required amounts.
14
<PAGE>
YEAR 2000 COMPLIANCE
As of the date of this filing, the Company has neither experienced any
significant year 2000 problems relating to its internal or third party computer
systems nor has it experienced any problems regarding the ability of commercial
customers to meet their debt service obligations as a result of year 2000
issues. The Company will continue to monitor systems for problems; however, the
costs related to that process are not expected to be significant.
15
<PAGE>
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
On February 18, 2000, the Company and Fidelity Bancorp, Inc.
("Fidelity") entered into an Agreement and Plan of Merger (the "Agreement")
pursuant to which the Company will be acquired by Fidelity. For more
information, reference is made to Note 7 of Notes to Unaudited Consolidated
Financial Statements contained herein.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
27 Financial Data Schedule
b) REPORTS ON FORM 8-K
Form 8-K filed on February 24, 2000 containing the Agreement
and describing the terms thereof.
16
<PAGE>
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 12, 2000 By: /s/ Paul S. Pieffer
-------------------
Paul S. Pieffer, President and
Chief Executive Officer
Date: May 12, 2000 By: /s/ James W. Kihm
-----------------
James W. Kihm, Vice President and
Secretary
<TABLE> <S> <C>
<PAGE>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,600
<INT-BEARING-DEPOSITS> 1,231
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,716
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<LOANS> 46,697
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<SHORT-TERM> 13,000
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<INCOME-PRETAX> (117)
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<EPS-BASIC> (0.19)
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