SECURITIES AND EXCHANGE COMMISSION
<PAGE>
WASHINGTON, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE EXCHANGE ACT
For the transition period from to
Commission file Number: 2-85306
Lake Ariel Bancorp, Inc.
(Exact name of small business issuer as specified in its charter)
Pennsylvania
(State or other jurisdiction of incorporation or organization)
23-2244948
(I.R.S. Employer Identification No.)
Post Office Box 67
Lake Ariel, Pennsylvania 18436
(Address of principal executive offices)
(Zip Code)
(717) 698-5695
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the 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
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 3,734,800 shares of common
stock, par value $.42 per share, as of November 10, 1997.
<PAGE>
LAKE ARIEL BANCORP, INC.
FORM 10-Q
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
INDEX
Page Number
Part I - Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996...................................3
Consolidated Statement of Income for the three and
nine months ended September 30, 1997 and 1996...........4
Earnings Per Share for the three and nine month
periods ended September 30, 1997 and 1996...............4
Consolidated Statement of Cash Flows for the nine
months ended September 30, 1997 and 1996................5
Notes to Consolidated Financial Statements...............6-7
Item 2. Management's Discussion and Analysis or
Plan of Operations...................................8-24
Part II - Other Information
Item 1. Legal Proceedings.........................................N/A
Item 2. Changes in Securities.....................................N/A
Item 3. Defaults Upon Senior Securities..........................N/A
Item 4. Submission of Matters to a Vote of Security
Holders..............................................N/A
Item 5. Other Information..........................................24
Item 6. Exhibits and Reports on Form 8-K...........................24
Signatures.................................................25
<PAGE>
<TABLE>
LAKE ARIEL BANCORP, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
(in thousand (in thousands)
<S> ......................................................................... <C> <C>
ASSETS
Cash and cash equivalents ................................................... $ 13,739 $ 15,971
Available-for-sale securities ............................................... 63,911 60,399
Held-to-maturity securities (fair value of $58,360
and $26,564, respectively) .................................................. 57,870 26,601
Loans and leases ............................................................ 205,712 186,494
Mortgage loans held for resale .............................................. 3,996 315
Less unearned income and loan fees ....................................... (7,334) (8,989)
Less allowance for possible credit losses ................................ (2,153) (1,830)
Net Loans .......................................................... 200,221 175,990
Premises and equipment, net ................................................. 12,214 10,005
Accrued interest receivable ................................................. 3,095 2,349
Foreclosed assets held for sale ............................................. 561 841
Other assets ................................................................ 12,010 5,750
TOTAL ASSETS ....................................................... $ 363,621 $ 297,906
LIABILITIES
Deposits:
Noninterest-bearing ...................................................... $ 36,875 $ 32,539
Interest-bearing:
Demand ............................................................. 32,183 27,070
Savings ............................................................ 39,685 37,713
Time ............................................................... 128,511 115,634
Time $100,000 and over ............................................. 40,883 40,240
Total Deposits ..................................................... 278,137 253,196
Accrued interest payable .................................................... 3,144 2,416
Federal Funds Purchased ..................................................... 4,800 --
Securities sold under agreements to repurchase .............................. 200 300
Short-term borrowings ....................................................... 4,500 --
Long-term debt .............................................................. 48,328 20,023
Other liabilities ........................................................... 1,329 799
Total Liabilities .................................................. 340,438 276,734
<PAGE>
STOCKHOLDERS' EQUITY
Preferred stock: Authorized 1,000,000 shares of ............................. -- --
$1.25 par value each; no outstanding shares
Common stock: Authorized, 5,000,000 shares of
$.42 par value each; issued and outstanding
1,778,937 shares in 1997 and 1,761,776 in 1996 ............................ 747 740
Capital surplus ............................................................. 11,408 11,099
Retained earnings ........................................................... 11,049 9,572
Net unrealized securities gains (losses) on
available-for-sale securities ............................................. (21 (239)
Total Stockholders' Equity ......................................... 23,183 21,172
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ............................................. $ 363,621 $ 297,906
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
LAKE ARIEL BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
(in thousands, except per share data)
<S> .......................................................... <C> <C> <C> <C>
INTEREST INCOME:
Loans and leases ............................................. $12,427 $10,713 $ 4,388 $ 3,697
Investment Securities
Taxable .................................................. 4,340 3,250 1,477 1,157
Exempt from federal income taxes ......................... 1,168 796 390 287
Dividends ................................................ 114 68 51 27
Total Investment Securities
Income ............................................. 5,622 4,114 1,918 1,471
Deposits in banks ............................................ 7 4 2 1
Federal funds sold ........................................... 196 93 75 8
TOTAL INTEREST INCOME ................................. 18,252 14,924 6,383 5,177
INTEREST EXPENSE:
Deposits ..................................................... 7,572 6,534 2,686 2,270
Long-term debt ............................................... 2,262 740 755 252
Federal funds purchased ...................................... 20 22 10 18
Short-term borrowings ........................................ 45 113 31 20
Securities sold under agreements to
repurchase .............................................. 11 13 4 3
TOTAL INTEREST EXPENSE ................................. 9,910 7,422 3,506 2,563
NET INTEREST INCOME .......................................... 8,342 7,502 2,877 2,614
PROVISION FOR POSSIBLE
CREDIT LOSSES .............................................. 730 425 350 175
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE CREDIT LOSSES ................................. 7,612 7,077 2,527 2,439
OTHER OPERATING INCOME:
Loan origination fees ........................................ 168 160 19 13
Customer service charges and fees ............................ 905 909 304 303
Mortgage servicing fees ...................................... 258 247 90 80
Gain (loss) on available-
for-sale securities ..................................... 80 43 89 90
Gain (loss) on sale of loans, net ............................ 185 61 63 2
<PAGE>
Other income ................................................. 728 469 332 162
TOTAL OTHER OPERATING INCOME .......................... 2,324 1,889 897 650
OTHER OPERATING EXPENSES:
Salaries and benefits ........................................ 3,112 2,661 1,062 900
Occupancy expense ............................................ 986 799 315 259
Equipment expense ............................................ 657 623 214 209
Advertising .................................................. 177 186 49 39
Other expenses ............................................... 1,842 1,584 673 585
TOTAL OTHER OPERATING EXPENSES ........................ 6,774 5,853 2,313 1,992
INCOME BEFORE PROVISION FOR
INCOME TAXES ................................................ 3,162 3,113 1,111 1,097
PROVISION FOR INCOME TAXES ................................... 765 835 250 320
NET INCOME ................................................... $ 2,397 $ 2,278 $ 861 $ 777
Earnings per share*: ......................................... $ 0.63 $ 0.62 $ 0.22 $ 0.21
Dividends per share: ......................................... $ .25 $ 0.22 $ 0.09 $ 0.08
Weighted average no. of
shares outstanding*: .................................... 3,839 3,698 3,839 3,698
</TABLE>
*Reflects adjustment for 5% stock dividends issued on October 1, 1997 and 1996,
and a two-for-one stock split effective November 10, 1997. The accompanying
notes are an integral part of the consolidated financial statements.
<TABLE>
LAKE ARIEL BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1997 1996
(in thousands)
<S> .................................................................................................. <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ......................................................................................... $ 2,397 $ 2,278
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Provision for possible credit losses ............................................................ 730 425
Depreciation, amortization and accretion ........................................................ 647 540
(Increase) decrease in mortgage loans held for resale ........................................... (3,681) 812
Investment security (gains) losses, net ......................................................... (80) (43)
Loss on sale of foreclosed assets ............................................................... 100 40
(Gain) loss on sale of equipment ................................................................ (5) --
(Increase) decrease in accrued interest receivable .............................................. (746) (255)
Increase (decrease) in accrued interest payable ................................................. 728 673
(Increase) decrease in other assets ............................................................. (6,373) (342)
Increase (decrease) in other liabilities ........................................................ 530 (266)
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES .............................................................................. (5,753) 3,862
CASH FLOWS FROM INVESTING ACTIVITIES
Held-to-maturity securities:
Proceeds from maturities ......................................................................... 2,911 392
Purchases ........................................................................................ (34,180) (4,457)
<PAGE>
Available-for-sale securities:
Proceeds from maturities ......................................................................... 3,133 7,369
Proceeds from sales .............................................................................. 10,737 22,186
Purchases ........................................................................................ (16,966) (40,553)
Net (increase) decrease in loans and leases ........................................................ (21,545) (21,167)
Purchases of premises and equipment ................................................................ (2,860) (194)
Proceeds from sale of equipment .................................................................... 5 --
Proceeds from sale of foreclosed assets ............................................................ 445 69
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES ............................................................................ (58,320) (36,355)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits ........................................................................... 24,941 30,963
Increase (decrease) in Federal funds purchased ..................................................... 4,800 --
Increase (decrease) in short-term borrowings ....................................................... 4,500 (5,000)
Increase (decrease) in securities sold under
agreements to repurchase ......................................................................... (100) (100)
Proceeds from long-term debt ....................................................................... 30,000 --
Principal payments on long-term debt ............................................................... (1,695) (31)
Proceeds from issuance of common stock ............................................................. 316 241
Cash dividends ..................................................................................... (921)
(800)
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES .............................................................................. 61,841 30,473
INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS ....................................................... (2,232) (2,020)
CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD ...................................................... 15,971 12,519
CASH & CASH EQUIVALENTS AT END OF PERIOD ............................................................ $ 13,739 $ 10,499
CASH PAID DURING THE PERIOD FOR:
Interest .......................................................................................... $ 9,182 $ 6,749
Income taxes ...................................................................................... $ 552 $ 775
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
LAKE ARIEL BANCORP,INC.
FORM 10-Q
Part I - Financial Information (Cont'd)
Item 1. Financial Statements (Cont'd)
Notes to Consolidated Financial Statements
The financial information as of December 31, 1996 is audited and for the interim
periods ended September 30, 1997 and 1996 included herein is unaudited; however,
such information reflects all adjustments consisting of only normal recurring
adjustments, which are, in the opinion of management, necessary to a fair
presentation of the results for the interim periods.
1. REPORTING AND ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accounting and financial reporting policies of Lake Ariel Bancorp,
Inc. and its subsidiary conform to generally accepted accounting principles and
to general practice within the banking industry. The consolidated statements
include the accounts of Lake Ariel Bancorp, Inc. and its wholly owned
subsidiary, LA Bank, N.A. (Bank) including its subsidiary, LA Lease, Inc.
(collectively, Company). All material intercompany accounts and transactions
have been eliminated in consolidation. The accompanying interim financial
statements are unaudited. In management's opinion, the consolidated financial
statements reflect a fair presentation of the consolidated financial position of
Lake Ariel Bancorp, Inc. and subsidiary, and the results of its operations and
its cash flows for the interim periods presented, in conformity with generally
accepted accounting principles.
2. CASH FLOWS
The Company considers amounts due from banks and federal funds sold as
cash equivalents. Generally, federal funds are sold for one-day periods.
From time to time, the Company swaps its residential mortgage loans for
participation certificates of a similar amount issued by the Federal Home Loan
Mortgage Corporation. These certificates do not involve the transfer of cash for
cash flow purposes. No mortgage loans were swapped for participation
certificates during the first nine months of 1997 or 1996.
3. INVESTMENT SECURITIES
SFAS No. 115 requires the classification of securities as
held-to-maturity, available-for-sale or trading. Securities, other than
securities classified as available-for-sale, are carried at amortized cost
if management has the ability and intent to hold these securities to maturity.
Securities expected to be held
<PAGE>
for an indefinite period of time and not held until maturity are classified as
available-for-sale and are carried at estimated fair value. Decisions to sell
these securities are determined by the Company's financial position, including
but not limited to, liquidity, interest rate risk, asset liability management
strategies, regulatory requirements, tax considerations or capital adequacy.
Gains or losses on investment securities are computed using the specific
identification method.
The Company has no derivative financial instruments requiring
disclosure under SFAS No. 119.
4. RECLASSIFICATIONS
Certain prior years' amounts have been reclassified to conform to the
1997 reporting format.
5. SHORT-TERM BORROWINGS AND LONG-TERM DEBT
There were no short-term borrowings at September 30, 1997.
Long-term debt at September 30, 1997 consisted of the following:
Unsecured notes, payable in the amount
of $31,200 semiannually, maturing
April 22,1998...........................................$ 62,000
Borrowings with The Federal Home Loan Bank...... 48,266,000
Total....................................... $48,328,000
Annual maturities of the long-term debt are as follows: $699,600 in
1997; $12,818,200 in 1998; $2,971,900 in 1999; $8,169,100 in 2000; $8,281,700 in
2001; $10,387,500 in 2002; $5,000,000 in 2005.
The borrowings with the Federal Home Loan Bank of Pittsburgh (FHLB)
require the Company to maintain collateral with a fair value in an amount which
approximates the total outstanding debt. In addition, the Company must maintain
its membership with the FHLB.
<PAGE>
LAKE ARIEL BANCORP, INC.
FORM 10-Q
Part I - Financial Information (Cont'd)
Item 2. Management's Discussion and Analysis or Plan of
Operations:
The consolidated financial review of the Company is intended to compare
the performance of the Company for the periods ended September 30, 1997 and
1996. The review of the information presented should be read in conjunction with
the consolidated financial statements and the accompanying notes.
NET INCOME
Net income for the first nine months of 1997 increased 4.3% compared to
the same period in 1996. Net income was positively influenced by a 7.6% growth
in net interest income after provision for possible credit losses and a 23.0%
growth in other operating income. However, overhead costs increased by 15.3%,
greatly impacted by the opening of our three newest branch offices in the fourth
quarter of 1996.
Profit performance for financial institutions is measured by the return
on average assets (ROA) and the return on average equity (ROE). On an annualized
basis, the ROA was .94% in 1997 compared to 1.12% in 1996. The ROE was 14.67%
for the first nine months of 1997 compared to 15.14% in 1996.
NET INTEREST INCOME
Net interest income is the difference between interest income and fees
on earning assets and interest expense on deposits and borrowed funds. The
principal components of earning assets are loans and investment securities. The
primary sources used to fund these assets were deposits, borrowed funds and
capital. For purposes of this review, income that is exempt from federal income
taxes has been adjusted to a tax equivalent basis using the statutory rate of
34% for each period presented.
In the first nine months of 1997, net interest income (tax equivalent
basis) increased 13.0% over the same period in 1996 primarily due to the
increased volume of earning assets. Total average earning assets were $66.9
million greater at September 30, 1997 compared to the same period in 1996.
Average loans and leases grew by 16.6% or $26.9 million in the first nine months
of 1997. Average commercial loans increased by 30.2%, real estate mortgage loans
by 14.1% and consumer loans and lease financing increased by 3.9%. The increase
in volume of loans resulted in a 16.0% growth in loan interest income.
Commercial loan income increased by 31.3%, mortgage loan income grew by 13.6%
and consumer loan income increased by 1.5%.
<PAGE>
Investment securities income increased 37.6% and is directly
attributable to higher volume levels and increased yields during the first nine
months of 1997. Tax exempt state and municipal securities income increased 46.8%
due to higher volumes in tax-exempt securities. From a Federal income tax
standpoint, a mid- 1996 strategy which continued into 1997 of increased
investments in tax-exempt securities provided more favorable returns than were
available in taxable securities. U.S. government agencies income increased by
33.5% because of higher volume levels and increased yields. During the last half
of 1996 and the first half of 1997 the Company purchased approximately $35
million of securities with funds borrowed from the FHLB. The strategy that was
employed provided a yield pickup between the invested and borrowed funds. Gross
unrealized gains on held-to-maturity securities were approximately $721 thousand
while gross unrealized losses amounted to $231 thousand.
Total interest expense increased 33.5% or $2.5 million in the first
nine months of 1997 due to the higher levels of average interest-bearing
liabilities. Average time (certificates of deposit) deposits and long-term
borrowings significantly contributed to the growth. In aggregate, average
savings and interest-bearing demand deposits currently represent 30.0% of
interest-bearing deposits compared to 32.2% in September, 1996. Total interest
expense associated with these types of deposits decreased $514 thousand during
the third quarter of 1997. Total average certificates of deposit increased
18.6%; due to the repricing frequency of these deposits and rate changes,
interest expense increased by 31.2%. The effect of higher average rates resulted
in a basis point increase in the cost of interest-bearing deposits, from 4.38%
at September, 1996 to 4.42% at September, 1997.
Average total borrowings were $49.0 million in the third quarter of
1997 compared to $19.6 million in the third quarter of 1996. At September 30,
1997, both short-term and long-term borrowings were used to fund earning asset
growth.
During the first nine months of 1997, the average yield on earning
assets decreased by 4 basis points and cost of interest-bearing liabilities
increased by 33 basis points. The net effect was a 37 basis point decrease in
the net interest margin from 4.24% in 1996 to 3.87% in 1997.
The following tables provide an analysis of changes in net interest
income with regard to volume, rate and yields of interest-bearing assets and
liabilities based on daily average balances for each period. Components of
interest income and expense are presented on a tax equivalent basis using the
federal income tax rate of 34% for each period.
<PAGE>
<TABLE>
Distribution of Assets, Liabilities and Stockholders' Equity
Interest Rates and Interest Differential
<CAPTION>
For nine months ended September 30,
1997 1996
Interest Interest
Average Yield/ Income/ Average Yield/ Income/
Balance (1) Rate Expense Balance Rate Expense
(dollars in thousands)
<S> ....................................................... <C> <C> <C> <C> <C> <C>
Assets
Federal funds sold ...................................... $ 4,611 5.68% $ 196 $ 2,336 5.32% $ 93
Deposits in Federal Home Loan Bank ...................... 224 4.18% 7 126 4.24% 4
Investment Securities:
U.S. government agencies .............................. 82,274 7.05% 4,340 64,050 6.78% 3,250
State and municipal (2) ............................... 29,394 8.05% 1,770 19,420 8.30% 1,206
Other securities ...................................... 2,806 5.43% 114 1,427 6.37% 68
Total Securities .................................... 114,474 7.27% 6,224 $ 84,897 7.12% 4,524
Loans and Leases:
Commercial, financial and industrial .................. 61,811 9.28% 4,292 47,483 9.21% 3,270
Real estate-construction and mortgage ................. 90,116 8.05% 5,426 78,997 8.08% 4,775
Installment loans to individuals (3) .................. 34,590 9.63% 2,491 33,752 10.05% 2,538
Lease financing (3) ................................... 2,584 11.28% 218 2,011 8.64% 130
Total Loans and Leases .............................. 189,101 8.79% 12,427 162,243 8.83% 10,713
Total earning assets .................................... 308,410 8.17% 18,854 249,602 8.21% 15,334
Cash and due from banks ................................. 10,131 -- -- 10,083 -- --
Premises and equipment .................................. 10,261 -- -- 7,626 -- --
Other, less allowance for credit losses
and loan fees ......................................... 9,436 -- -- 4,010 -- --
Total Assets ............................................ $338,238 7.45% $ 18,854 $271,321 7.56% $ 15,334
Liabilities and Stockholders' Equity
Interest-Bearing Deposits:
Demand ................................................ $ 30,026 2.05% $ 460 $ 25,404 2.06% $ 391
Savings ............................................... 38,677 2.02% 585 38,825 4.02% 1,168
Time .................................................. 120,441 5.33% 4,804 103,740 5.03% 3,902
Time over $100,000 .................................... 40,064 5.75% 1,723 31,640 4.53% 1,073
Total Interest-Bearing Deposits ..................... 229,208 4.42% 7,572 $199,609 4.38% 6,534
Federal Funds Purchased ................................. 530 5.80% 23 547 5.38% 22
Short-term borrowings ................................... 591 5.88% 26 3,000 5.04% 113
Long-term debt .......................................... 47,593 6.40% 2,278 15,657 6.32% 740
Securities sold under agreements to repurchase .......... 279 5.27% 11 350 4.97% 13
Total Interest-Bearing Liabilities .................. 278,201 4.76% 9,910 219,163 4.53% 7.422
Demand - noninterest - bearing .......................... 34,768 -- -- 28,846 -- --
Other liabilities ....................................... 3,490 -- -- 3,253 -- --
Total Liabilities ....................................... 316,459 4.19% 9,910 251,262 3.95% 7,422
Stockholders' equity .................................... 21,779 -- -- 20,059 -- --
Total Liabilities and Stockholders' Equity .............. $338,238 3.92% $ 9,910 $271,321 3.66% $ 7,422
Margin Analysis
Interest income/earning assets ....................... -- -- 8.17% $ 18,854 8.21% $ 15,334
Interest expense/earning assets ...................... -- -- 4.30% 9,910 3.97% 7,422
Net interest income/earning assets ................... -- -- 3.87% $ 8,944 4.24% $ 7,912
<PAGE>
</TABLE>
(1) Average balances have been computed using daily balances. Nonaccrual loans
are included in loan balances.
(2) Interest and yield are presented on a tax equivalent basis using 34% for
each period.
(3) Installment loans and leases are presented net of unearned interest.
<TABLE>
Rate/Volume Variance Analysis Calculation
for nine months ended September 30, 1997
1997 Compared to 1996 (4)
<CAPTION>
Total .. Caused by
Variance Rate Volume
(in thousands)
<S> .............................................................................. <C> <C> <C>
Interest Income:
Federal funds sold ............................................................... $ 103 $ 7 $ 96
Deposits in Federal Home Loan Bank ............................................... 3 0 3
Investment Securities:
U.S. government agencies ....................................................... 1,090 133 957
State and municipal ............................................................ 564 (38) 602
Other securities ............................................................... 46 (11) 57
Total Investment Securities .................................................. 1,700 84 1,616
Loans and Leases:
Commercial, financial and industrial ........................................... 1,022 27 995
Real estate-construction and mortgage .......................................... 651 (19) 670
Installment loans to individuals ............................................... (47) 73 (120)
Lease financing ................................................................ 88 46 42
Total Loans and Leases ....................................................... 1,714 127 1,587
Total Earning Assets ............................................................. 3,520 218 3,302
Interest Expense:
Interest-bearing deposits:
Demand ......................................................................... 69 (2) 71
Savings ........................................................................ (583) (578) (5)
Time ........................................................................... 902 246 656
Time over $100,000 ............................................................. 650 327 323
Total Interest-Bearing Deposits .............................................. 1,038 (7) 1,045
Federal Funds Purchased .......................................................... 1 2 (1)
Short-term borrowings ............................................................ (87) 22 (109)
Long-term debt ................................................................... 1,538 9 1,529
Securities sold under agreements to repurchase ................................... (2) 1 (3)
Total Interest-Bearing Liabilities ............................................... 2,488 27 2,461
Net Interest Income Variances .................................................... $ 1,032 $ 191 $ 841
</TABLE>
<PAGE>
(4) The proportion of the total change attributable to volume and rate changes
during the period has been allocated to the volume and rate components based
upon the absolute dollar amount of the change in each component prior to the
allocation.
PROVISION FOR POSSIBLE CREDIT LOSSES
The provision for possible credit losses is based on management's
evaluation of the allowance for possible credit losses in relation to the credit
risk inherent in the loan portfolio. In establishing the amount of provision
required, management considers a variety of factors, including but not limited
to, general economic factors, volume of specific types of loans, collateral
adequacy and potential losses from significant borrowers. The Company has
strengthened its internal loan review process by implementing stringent
analytical standards in the review procedure. At quarterly meetings, the loan
review committee analyzes information relative to both specific credits and the
total portfolio in general. The information is used to determine the amount to
be charged to the provision which thereby increases the allowance for possible
credit losses.
At September 30, 1997 the amount charged to operating expense for the
provision for possible credit losses was $730 thousand compared to $425 thousand
at September 30, 1996. In addition to the overall increase in the loan
portfolio, this increased provision is mainly attributed to specific reserves
being established for three commercial credits where collateral reevaluations
have taken place due to the companies suffering financial setbacks. The
provision represents management's assessment of the risks inherent in the loan
and lease portfolio while providing amounts necessary to cover charge-offs. The
allowance for possible credit losses was 1.06% at September 30, 1997 compared to
1.02% at September 30, 1996.
<TABLE>
Changes in the allowance for possible credit losses for the nine months ended
September 30, 1997, 1996 and 1995 were as follows:
<CAPTION>
1997 1996 1995
(in thousands)
<S> ............................................................................... <C> <C> <C>
Balance at beginning of period .................................................... $1,830 $1,657 $1,496
Charge-offs:
Real estate-construction ..................................................... -0- -0- -0-
Real estate-mortgage ......................................................... 104 143 200
Commercial and industrial .................................................... 96 46 209
Consumer installment & credit card ........................................... 280 208 103
Lease financing .............................................................. 2
Total ................................................................... 482 397 512
Recoveries:
Real estate-construction ..................................................... 0 0 0
Real estate-mortgage ......................................................... 0 0 0
Commercial and industrial .................................................... 40 33 6
Consumer installment & credit card ........................................... 35 49 38
Lease financing
Total ................................................................... 75 82 44
Net charge-offs ................................................................... 407 315 468
Provision for possible credit losses .............................................. 730 425 500
Balance at end of period .......................................................... $2,153 $1,767 $1,528
Ratio of net charge-offs during period to
average loans outstanding during period ......................................... .22% .19% .31%
</TABLE>
OTHER OPERATING INCOME
Other operating income, during the first nine months of 1997, increased
23.0% from the same period in 1996. Loan origination fees increased $8 thousand,
because of the volume of residential mortgage loans sold for cash. Mortgage
servicing fee income increased by $11 thousand when compared to the first nine
months of 1996. These fees are directly influenced by the volume of loans that
are sold in the secondary market. Gains or losses on sales of mortgage loans
occur when the coupon rates on mortgage loans exceed or fall short of the yields
required by the purchasers. The net gain on sales of mortgage loans recorded in
1997 and in 1996 is indicative of the changing market conditions during the
periods in which the sales occurred.
Customer service charges and fees, which include fees on demand deposit
accounts, item processing and return items, decreased $4 thousand in the first
nine months of 1997. The decrease is directly related to both the mix of
consumer and business demand deposits and the servicing fees associated with
each type of account.
Other income increased 55.2% in the first nine months of 1997 compared
to the same period in 1996. Included in other income are earnings on directors'
and officers' life insurance policies, credit card annual fees and merchant
discounts, safe deposit box rentals, rental income on excess office space in two
of the Company's branch offices, automated teller machine surcharge income,
commissions on check orders and other general service fees. Automated teller
machine income, which did not exist in the same period in 1996, represented
$145,000 of the increase. Earnings on directors' and officers' life insurance
policies represented $95,000 of the remaining increase.
<PAGE>
There was no trading account activity during the first nine months of
1997 and 1996.
OTHER OPERATING EXPENSES
For the first nine months of 1997, total other operating expenses
increased 15.7% over the same period in 1996. Salaries and benefits, which
represent one of the most significant portions of operating expenses, increased
by 16.9% in the first three quarters of 1997 compared to 1996. The increase is
due to the additional number of employees in the newest branch offices which
opened in the fourth quarter of 1996, merit increases and the added costs
associated with health care insurance and other benefits which are provided by
the Company. Occupancy expense increased by 23.4% in 1997 compared to the same
period in 1996. Equipment expense increased by 5.5% in 1997 compared to the
third quarter of 1996. Besides the increased cost of computer equipment and
related software costs, the increase in both of these expenses is directly
related to the overall increases in overhead expenses at all branch offices plus
the costs associated with opening and operating the three newest branch offices.
Other expenses increased by 16.3% over the same period in 1996 and include such
costs as legal fees, professional and audit fees and other general operating
expenses.
INCOME TAXES
The provision for income taxes for the nine months ended September 1997
and 1996 was $765 thousand and $835 thousand, respectively. The effective tax
rate for the first nine months of 1997 was 24.1% as compared to 26.8% in the
same period in 1996.
FINANCIAL CONDITION
At September 30, 1997, the Company's total assets were $363.6 million,
representing an increase of $65.7 million or 22.1% from the December 31, 1996
balance of $297.9 million. The increase in assets is primarily attributable to a
$34.8 million growth in securities and a $24.2 million growth in net loans and
leases. In addition, other assets increased by $6.3 million principally due to
the purchase of life insurance contracts on key employees to fund simplified
employee retirement plans and officers' life insurance policies.
Investment securities increased 40.0% from $87.0 million at December
31, 1996, to $121.8 million at September 30, 1997. The net increase of $34.8
million was attributable to an investment strategy implemented in January, 1997
whereby the Company borrowed $25 million from the FHLB and invested in a
combination of various fixed and variable rate investments.
<PAGE>
Total net loans increased by $24.2 million from $176.0 million at
year-end 1996, to $200.2 million at September 30, 1997. Residential mortgage
loans increased $7.3 million or 8.3% from December 31, 1996 to September 30,
1997. The increase is attributable to the increased mortgage loan activity
during the period, particularly during the second and third quarters of 1997,
net of mortgage loans sold during the first nine months of 1997 of approximately
$20.7 million. Consumer loans, net of unearned discounts, remained relatively
constant with year-end 1996 amounts. Commercial loans increased $13.7 million or
26.5% at September 30, 1997. Commercial loans consist of loans made to small
businesses within the Company's market area and are generally secured by real
estate and other assets of the borrowers.
Total deposits increased $24.9 million or 9.8% from $253.2 million at
year-end 1996 to $278.1 million at September 30, 1997. Noninterest-bearing
demand deposits increased $4.3 million during the first nine months of 1997. In
aggregate, savings accounts and interest-bearing demand deposits increased by
$7.1 million or 10.9% during the period. As a percentage of total deposits,
savings and interest-bearing demand deposits represented 25.7% at both September
30, 1997 and 1996. These deposits continue to be very attractive to consumers
because of their liquidity feature and their competitiveness with respect to
rates offered on other short-term deposit products. Time deposits, which include
certificates of deposit in denominations of $100 thousand or more, increased
$13.5 million or 8.7% during the period. There were no brokered deposits within
the Company's deposit base at September 30, 1997.
The Company considers its current deposit base to be stable and
generally consumer in nature. The deposit mix is, in general, equally
distributed among all products without any significant concentrations.
NONPERFORMING ASSETS
Nonperforming assets include nonperforming loans and foreclosed real
estate held for sale. Nonperforming loans consist of loans where the principal,
interest, or both is 90 or more days past due and loans that have been placed on
nonaccrual. When loans are placed on nonaccrual, income from the current period
is reversed from current earnings and interest from prior periods is charged to
the allowance for possible credit losses. Consumer loans are charged off when
principal or interest is 120 or more days delinquent, or are placed on
nonaccrual if the collateral is sufficient to recover the principal. The
following table represents nonperforming assets of the Company at September 30,
1997 and December 31, 1996.
<PAGE>
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
(Dollars in thousands)
<S> ............................................................................................ <C> <C>
Loans past due 90 days or more ................................................................. $1,495 $1,593
Impaired loans on nonaccrual status ............................................................ 451 542
Other Nonaccrual loans ......................................................................... 124 73
Total nonperforming loans .................................................................... 2,070 2,208
Foreclosed assets held for sale ................................................................ 561 841
Total nonperforming assets ................................................................... $2,631 $3,049
Nonperforming loans as a percent
of loans ..................................................................................... 1.03% 1.24%
Nonperforming assets as a percent
assets ....................................................................................... .72% 1.02%
</TABLE>
Nonperforming assets at September 30, 1997 decreased $448 thousand or
14.7% compared to December 31, 1996. Nonaccrual loans decreased $40 thousand at
September 30, 1997 compared to the December 31, 1996. Real estate loans
represent $122 thousand of nonaccrual loans while loans to commercial borrowers
represent the remaining $453 thousand balance. Generally, commercial loans are
secured by real estate and other assets of the borrowers. No material losses are
expected from legal proceedings on nonaccrual loans.
Loans past due 90 days or more decreased $98 thousand from 1996 levels.
Of the delinquent loans, 25.8% are residential mortgages, 46.2% are consumer
installment and 28.0% are real estate secured loans to commercial borrowers. At
quarterly loan review meetings, management reviews the status of these loans
with regard to legal proceedings and collection efforts.
Foreclosed assets held for sale decreased $280 thousand compared to
December 31, 1996. The Company expects the sales of the properties to be
completed by the end of 1997.
POTENTIAL PROBLEM LOANS
At September 30, 1997, the Company had approximately $1.7 million of
potential problem loans not included in the nonperforming loan classification.
Known information about possible credit problems related to these borrowers
caused management to have serious doubts as to the ability of such borrowers to
comply with present loan repayment terms and may result in future classification
of such loans as nonperforming. These potential problem loans were taken into
<PAGE>
consideration by management when determining the adequacy of the allowance for
possible credit losses at September 30, 1997.
LIQUIDITY AND FUNDS MANAGEMENT
Liquidity management is to ensure that adequate funds will be available
to meet anticipated and unanticipated deposit withdrawals, debt servicing
payments, investment commitments, commercial and consumer loan demand and
ongoing operating expenses. Funding sources include principal repayments on
loans and investments, sales of assets, growth in core deposits, short- and
long-term borrowings and repurchase agreements. Regular loan payments are a
dependable source of funds, while the sale of loans and investment securities,
deposit flows, and loan prepayments are significantly influenced by general
economic conditions and level of interest rates.
At September 30, 1997, the Company maintained $13.7 million in cash and
cash equivalents (including Federal funds sold) in the form of cash and due from
banks (after reserve requirements). In addition, the Company had $4.0 million of
mortgage loans held for resale and $63.9 million in available-for-sale
securities. This combined total of $81.6 million represented 22.4% of total
assets at September 30, 1997. The Company believes that its liquidity is
adequate.
The Company considers its primary source of liquidity to be its core
deposit base. This funding source has grown steadily over the years and consists
of deposits from customers throughout the branch network. The Company will
continue to promote the acquisition of deposits through its branch offices. At
September 30, 1997, approximately 76.5% of the Company's assets were funded by
core deposits acquired within its market area. An additional 6.4% of the assets
were funded by the Company's equity. These two components provide a substantial
and stable source of funds.
Net cash used in operating activities was $5.8 million for the nine
months ended September 30, 1997, as compared to net cash provided by operating
activities of $3.9 million for the comparable period in 1996. This $9.7 million
decrease is primarily related to a net $4.5 million increase in the change in
mortgage loans held for resale and a net $6.0 million increase in the change in
other assets. Net cash used in investing activities increased $21.9 million for
the nine months ended September 30, 1997, from $36.4 million to $58.3 million,
primarily attributable to purchases of investment securities. Net cash provided
by financing activities increased $31.4 million from 1996. A net increase in
FHLB borrowings of $30 million and short-term borrowings of $9.5 million was
used to fund investment purchases. A net decrease in the growth of deposits of
$6.0 million was the other major component impacting funds provided by financing
activities.
<PAGE>
INTEREST RATE SENSITIVITY
Interest rate sensitivity management involves the matching of maturity
and repricing dates of earning assets and interest-bearing liabilities to help
insure the Bank's earnings against extreme fluctuations in interest rates. The
Bank's Asset/Liability Committee ("ALCO"), which is comprised of senior
management and board members, meets monthly to monitor the ratio of interest
sensitive assets to interest sensitive liabilities.
The Bank's principal financial objective is to achieve long-term
profitability while managing its exposure to fluctuations in interest rates.
This is accomplished through the measurement of the relationship between
interest rate sensitive assets and interest rate sensitive liabilities. The goal
of maintaining a reasonable balance between interest sensitive assets and
interest sensitive liabilities is accomplished through the Bank's
asset/liability management program.
To manage the interest sensitivity position, an asset/liability model
called "gap analysis" is used to monitor the difference in the volume of the
Bank's interest sensitive assets and liabilities that mature or reprice within
given periods. A positive gap (asset sensitive) indicates that more assets
reprice during a given period compared to liabilities, while a negative gap
(liability sensitive) has the opposite effect. The use of this model assists the
ALCO to gauge the effects of interest rate changes on interest sensitive assets
and liabilities in order to determine what impact these rate changes will have
upon the net interest spread.
At September 30, 1997, the Bank maintained a one year cumulative GAP of
negative $7.1 million or 2.0% of total assets. The effect of this GAP position
provided a negative mismatch of assets and liabilities which can expose the Bank
to interest rate risk during a period of rising interest rates.
<PAGE>
<TABLE>
The following table sets forth the Bank's interest sensitivity gap
position as of September 30, 1997.
<CAPTION>
3 months 3 through 1 through Over Total
or less 12 months 3 years 3 years
(in thousands)
<S> ....................... <C> <C> <C> <C> <C>
Cash and Cash Equivalents . $ 13,738 $ -- $ -- $ -- $ 13,738
Investment securities(1)(2) 20,239 14,710 31,411 55,451
121,811
Loans(2) .................. 78,087 29,184 34,428 56,178 197,877
Fixed and Other Assets .... -- -- -- 30,375 30,375
Total ................... $112,064 $ 43,894 $ 65,839 $142,004 $363,801
Non Interest-bearing
transaction deposits(3) .. $ 9,228 $ -- $ 9,228 $ 18,457 $ 36,913
Interest-bearing
transaction deposits(3) .. -- 6,263 20,934 44,672 71,869
Time ...................... 28,940 64,490 17,890 17,191 128,511
Time over $100,000 ........ 12,142 19,724 4,598 4,419 40,883
Repurchase agreements ..... 200 -- -- -- 200
Short-term borrowings ..... 9,405 314 838 1,484 12,041
Long-term debt ............ 10,599 1,797 14,793 18,397 45,586
Other Liabilities ......... -- -- -- 4,364 4,364
Total ..................... $ 70,514 $ 92,588 $ 68,281 $108,984 $340,367
Interest Sensitivity Gap .. $ 41,550 $(48,694) $ (2,442) $ 33,020
Cumulative Gap ............ $ 41,550 $ (7,144) $ (9,586) $ 23,434
Cumulative Gap to
Total Assets ............ 11.4% (2.0)% (2.6)% 6.4%
</TABLE>
(1) Gross of unrealized gains/losses on available for sale securities.
(2) Investments and loans are included in the earlier of the period in which
interest rates were next scheduled to adjust or the period in which they are
due. In addition, loans were included in the periods in which they are scheduled
to be repaid based on scheduled amortization. For amortizing loans and
mortgage-backed securities, annual prepayment rates are assumed reflecting
historical experience as well as management's knowledge and experience of its
loan products.
(3) The Bank's demand and savings accounts were generally subject to immediate
withdrawal. However, management considers a certain amount of such accounts to
be core accounts having significantly longer effective maturities based on the
retention experiences of such deposits in changing interest rate environments.
The effective maturities presented are the FDICIA 305 recommended maturity
distribution limits for non-maturing deposits.
<PAGE>
Upon reviewing the current interest sensitivity scenario, decreasing
interest rates could positively affect net income because the Bank is liability
sensitive. In a rising interest rate environment, net income could be negatively
affected because more liabilities than assets will reprice during a given
period. However, this analysis is only a simulation tool used to gauge the
effects of a changing interest rate scenario. Other factors such as product
pricing, customer preference and local market conditions play an important part
of interest rate risk management.
CAPITAL
The adequacy of the Company's capital is reviewed on an ongoing basis
with reference to size, composition and quality of the Company's resources. An
adequate capital base is important for continued growth and expansion in
addition to providing an added protection against unexpected losses.
An important indicator in the banking industry is the leverage ratio,
defined as the ratio of common stockholders' equity less intangible assets, to
average quarterly assets less intangible assets. The leverage ratio at September
30, 1997 was 6.69% compared to 7.49% at September 30, 1996. This decrease is the
direct result of the increase in average assets in 1997 caused by the borrowings
from the FHLB which were invested in investment grade securities. For 1997 and
1996, the ratios were well above minimum regulatory guidelines.
As required by the federal banking regulatory authorities, new
guidelines have been adopted to measure capital adequacy. Under the guidelines,
certain minimum ratios are required for core capital and total capital as a
percentage of risk-weighted assets and other off-balance sheet instruments. For
the Company, Tier I capital consists of common stockholders' equity less
intangible assets, and Tier II capital includes the allowable portion of the
allowance for possible loan losses, currently limited to 1.25% of risk-weighted
assets. By regulatory guidelines, neither Tier I nor Tier II capital reflect the
adjustment of FASB 115, which requires adjustment in financial statements
prepared in accordance with generally accepted accounting principles by
including as a separate component of equity, the amount of net unrealized
holding gains or losses on debt and equity securities that are deemed to be
available-for-sale.
Regulatory guidelines require that core capital and total risk-based
capital must be at least 4.00% and 8.00%, respectively. The following table
illustrates the Company's capital ratios as of September 30, 1997 as required
under the guidelines.
<PAGE>
Primary capital .......... $ 23,183
Intangible assets ........ 603
Tier I capital ........... 22,580
Tier II Capital .......... 2,153
Total Risk-Based Capital . $ 24,733
Total Risk-Weighted Assets $215,922
Tier I Ratio ............. 10.46%
Risk-Based Capital Ratio . 11.45%
Tier I Leverage Ratio .... 6.69%
FACTORS THAT MAY AFFECT FUTURE RESULTS
General - Banking is affected, directly and indirectly, by local,
domestic and international economic and political conditions, and by government
monetary and fiscal policies. Conditions such as inflation, recession,
unemployment, volatile interest rates, tight money supply, real estate values,
international conflicts and other factors beyond the control of the Company and
its Bank subsidiary may adversely affect the future results of operations of the
Company and its Bank subsidiary. Management does not expect any one particular
factor to affect the Bank subsidiary's results of operations. A downward trend
in several areas, however, including real estate, construction and consumer
spending, could have an adverse impact on the Bank subsidiary's ability to
maintain or increase profitability. Therefore, there is no assurance that the
Company and its Bank subsidiary will be able to continue their rates of income
and growth. See "Allowance for Possible Credit Losses."
Interest Rates - The Company's earnings depend, to a large extent, upon
net interest income, which is primarily influenced by the relationship between
its cost of funds (deposits and borrowings) and the yield on its
interest-earning assets (loans and investments). This relationship, known as the
net interest spread, is subject to fluctuate and is affected by regulatory,
economic and competitive factors which influence interest rates, the volume,
rate and mix of interest-earning assets and interest-bearing liabilities, and
the level of nonperforming assets. As part of its interest rate risk management
strategy, management seeks to control its exposure to interest rate changes by
managing the maturity and repricing characteristics of interest-earning assets
and interest-bearing liabilities. Through its asset/liability committee, the
Company continually monitors interest rate sensitivity of its earning assets and
interest-bearing liabilities to minimize any adverse effects of future earnings.
<PAGE>
As of September 30, 1997, total interest-earning assets maturing or
repricing within one year were less than total interest-bearing liabilities
maturing or repricing in the same period by $7.1 million, representing a
cumulative one-year interest rate sensitivity gap as a percentage of total
assets of negative 2.0%. This condition suggests that the yield on the Company's
interest-earning assets should adjust to changes in market interest rates at a
slower rate than the cost of the Company's interest-bearing liabilities.
Consequently, the Company's net interest income could decrease during periods of
rising interest rates. See "Interest Rate Sensitivity."
Adequacy of Allowance for Possible Credit Losses - In originating
loans, there is a likelihood that some credit losses will occur. The risk of
loss varies with, among other things, general economic conditions, the type of
loan being made, the credit-worthiness and debt servicing capacity of the
borrower over the term of the loan and, in the case of a collateralized loan,
the value and marketability of the collateral securing the loan. Management
maintains an allowance for possible credit losses based on, among other things,
historical loan loss experience, known inherent risks in the loan portfolio,
adverse situations that may affect the borrower's ability to repay, the
estimated value of any underlying collateral and an evaluation of current
economic conditions. Management currently believes that the allowance for
possible credit losses is adequate, but that there can be no assurance the
nonperforming loans will not increase in the future.
Local Economic Conditions - The success of the Company is dependent, to
a certain extent, upon the general economic conditions in the geographic market
served by the Bank subsidiary. Although the Company expects that economic
conditions will continue to be favorable in this market, no assurance can be
given that these economic conditions will continue. Adverse changes in economic
conditions in the geographic market that the Bank subsidiary serves would likely
impair the Bank subsidiary's ability to collect loans and could otherwise have a
material adverse effect on the consolidated results of operations and financial
condition of the Company.
Competition - The Banking industry is highly competitive, with rapid
changes in product delivery systems and in consolidation of service providers.
Many of the Company's competitors are bigger than the Company in terms of assets
and have substantially greater technical, marketing and financial resources.
Because of their size, many of these competitors can (and do) offer products and
services that the Company does not offer. The Company is constantly striving to
meet the convenience and needs of its customers and to enlarge its customer
base. No assurance can be given that these efforts will be successful in
maintaining and expanding the Company's customer base.
<PAGE>
FUTURE OUTLOOK
In 1995, rates began moving steadily upward as the Federal Reserve
System tightened its monetary policy. In early 1995, rates rose and continued
rising through the middle of the year, with the national prime rate peaking at
9.00%. The national prime rate fell to 8.50% at December 31, 1995, falling again
to 8.25% in February, 1996, where it remained at December 31, 1996. In March,
1997, the national prime rate increased to its current level of 8.50% in an
effort by the Federal Reserve System to steer the U.S. economy away from
inflationary tendencies. Of course, management and the Board of Directors do not
have the ability to determine if another rate increase will occur; however, it
is felt that the Company is very well positioned to meet the challenges and
effects of a rising interest rate environment. The Company's commitment to
remaining a community-based organization is strong and the intention is to
recognize steady growth in its consumer, mortgage and commercial loan portfolios
while obtaining and maintaining a strong core deposit base.
The banking and financial services industries are ever-changing. The
Company is not aware of any pending pronouncements that would have a material
impact on the results of operations.
Beginning September, 1995, bank holding companies are allowed to
acquire banks in other states without regard to state law. In addition, banks
can merge with other banks in another state beginning in September, 1997.
Predictions are that consolidation will occur as the banking industry strives
for greater cost efficiencies and market share. Management believes that such
consolidation may enhance its competitive position as a community bank.
A normal examination of the Bank by the Office of the Comptroller of
the Currency in 1997 resulted in no significant findings and no impact is
anticipated on current or future operations.
The FDIC Board of Directors voted on November 26, 1996, to retain the
existing Bank Insurance Fund (BIF) assessment schedule of 0 to 27 basis points
(annual rates) for the first semiannual period of 1997, and to collect an
assessment against BIF - assessable deposits to be paid to the Financing
Corporation (FICO). In addition, the Board eliminated the $2,000 minimum annual
assessment and authorized the refund of the fourth-quarter minimum assessment of
$500 paid by certain BIF-insured institutions on September 30, 1996. The Bank's
current and future FDIC BIF assessment is expected to be $0; however, the FICO
assessment for 1997 is expected to be approximately $30,000.
Our twelfth branch in Lake Wallenpaupack (Pike County) opened in
November, 1996. In addition, we acquired the real estate and deposit customer
lists of the Milford (Pike County) and Mountainhome (Monroe County) branches of
PNC Bank. These branches opened in December of 1996. The expected amortization
of the customer lists is $100,000 for 1997.
On May 19, 1997, the Office of the Comptroller of the Currency (OCC)
granted approval to establish a new branch in downtown Scranton (Lackawanna
County). The Bank's downtown
<PAGE>
Scranton Branch and its new Financial Center, both located in the historic
Oppenheim Building, opened in October, 1997.
Management is hopeful that the newest additional banking offices will
continue to expand the Company's deposit base by attracting new depositors,
while providing quality service to both new and existing customers. The initial
costs associated with the branch openings, such as salaries and benefits,
advertising, overhead expenses and marketing will have a negative impact on the
Company's earnings until the growth in deposits reaches a level to offset these
expenses.
Management's belief is that a significant impact on earnings depends on
its ability to react to changes in interest rates. Through its Asset/Liability
Committee, the Company continually monitors interest rate sensitivity of its
earning assets and interest-bearing liabilities to minimize any adverse effects
on future earnings.
Item 5. On October 14, 1997, the Board of Directors of the registrant approved a
two-for-one stock split of the common stock. The stock split will be effective
on November 10, 1997 to shareholders of record on October 31, 1997.
Filed herewith at Exhibit A is a copy of the registrant's press release with
respect to the stock split.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by item 601 of Regulation S-K
Exhibit Number Description of Exhibit
2 None
4 None
11 None
15 None
18 None
19 None
20 None
23 None
24 None
25 None
28 None
(b) Reports on Form 8-K
- On May 7, 1997, the Registrant filed Form 8-K reporting the annual
shareholders' meeting approval of the Lake Ariel Bancorp, Inc. 1997 Stock
Option Plan.
- On September 19, 1997, the Registrant filed Form 8-K reporting a
corporate resolution of September 9, 1997 approving a 5% common stock dividend
payable on October 1, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LAKE ARIEL BANCORP, INC.
Date November 6, 1997 By ________________________________
John G. Martines
CHIEF EXECUTIVE OFFICER
--------------------------------
Joseph J. Earyes, CPA
VICE PRESIDENT and
TREASURER
<PAGE>
EXHIBIT "A"
DATE: October 31, 1997
FOR IMMEDIATE RELEASE
FOR FURTHER INFORMATION CONTACT:
Joseph J. Earyes, CPA - (717)343-8200
LAKE ARIEL BANCORP, INC.
DECLARES TWO-FOR-ONE
STOCK SPLIT
Lake Ariel, PA.... Lake Ariel Bancorp, Inc. (NASDAQ-LABN), parent
company of LA Bank, N.A., through its Board of Directors at a meeting held on
October 14, 1997, has approved a two-for-one stock split of the Common Stock.
Articles of Amendment to the Company's Amended Articles of Incorporation are
being filed with the Pennsylvania Department of State to increase the Common
Stock authorized to 10 million shares and reduce the par value from $.42 per
share to $.21 per share.
The stock split will be effective on November 10, 1997 to shareholders
of record on October 31, 1997.
The Company has also revised the net income and earnings per share
projected for the quarter ended September 30, 1997. Net income for the first
three quarters of 1997 was $2,397,000 up $119,000 or 5% from September 30, 1996.
The Company has determined that the expected sale of its credit card portfolio
will not settle until January, 1998 and, therefore, is reportable in that fiscal
period. Earnings per share for the respective periods were $.63 per share
compared to $.62 per share, after adjustment for both the 5% stock dividends
issued on October 1, 1997 and 1996, and the two-for-one stock split declared on
October 14, 1997.
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000723878
<NAME> LAKE ARIEL BANCORP, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-1-1997
<PERIOD-END> SEP-30-1997
<CASH> 13,618
<INT-BEARING-DEPOSITS> 121
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 63,911
<INVESTMENTS-CARRYING> 57,870
<INVESTMENTS-MARKET> 58,360
<LOANS> 202,374
<ALLOWANCE> 2,153
<TOTAL-ASSETS> 363,621
<DEPOSITS> 278,137
<SHORT-TERM> 9,500
<LIABILITIES-OTHER> 4,473
<LONG-TERM> 48,328
0
0
<COMMON> 747
<OTHER-SE> 22,436
<TOTAL-LIABILITIES-AND-EQUITY> 363,621
<INTEREST-LOAN> 12,427
<INTEREST-INVEST> 5,622
<INTEREST-OTHER> 203
<INTEREST-TOTAL> 18,252
<INTEREST-DEPOSIT> 7,572
<INTEREST-EXPENSE> 2,338
<INTEREST-INCOME-NET> 8,342
<LOAN-LOSSES> 730
<SECURITIES-GAINS> 80
<EXPENSE-OTHER> 1,842
<INCOME-PRETAX> 3,162
<INCOME-PRE-EXTRAORDINARY> 3,162
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,397
<EPS-PRIMARY> .63
<EPS-DILUTED> .63
<YIELD-ACTUAL> 0
<LOANS-NON> 575
<LOANS-PAST> 1,495
<LOANS-TROUBLED> 2,070
<LOANS-PROBLEM> 1,700
<ALLOWANCE-OPEN> 1,830
<CHARGE-OFFS> 482
<RECOVERIES> 75
<ALLOWANCE-CLOSE> 2,153
<ALLOWANCE-DOMESTIC> 2,153
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,153
</TABLE>
