<PAGE>
[ARTICLE] 9
[CIK] 723878
[NAME] LAKE ARIEL BANCORP, INC.
<TABLE>
<S> <C>
[PERIOD-TYPE] 3 MONTHS
[FISCAL-YEAR-END] DEC-31-97
[PERIOD-START] JULY-1-97
[PERIOD-END] SEPTEMBER-30-97
[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
[PREFERRED-MANDATORY] 0
<REFERRED> 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>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[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.
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
LAKE ARIEL BANCORP, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1997 1996
(in thousands) (in thousands)
ASSETS
Cash and cash
equivalents....... $13,739 $15,971
Available-for-sale
securities...... 63,911 60,399
Held-to-maturity securities
(fair value of $58,360and
$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
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
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 61 418 2
Other income........... 728 469 332 162
TOTAL OTHER OPERATING INCOME.. 2,324 1,889 1,252 650
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 1,466 1,097
PROVISION FOR INCOME TAXES.. 765 835 375 320
NET INCOME........................$ 2,397 $ 2,278 $ 1,091 $ 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
<FN>
*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.
</FN>
</TABLE>
<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)
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.
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 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.
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%.
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
<FN>
(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.
</FN>
</TABLE>
<TABLE>
Rate/Volume Variance Analysis Calculation
for nine months ended September 30, 1997
<CAPTION>
1997 Compared to 1996 (4)
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
<FN>
(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.
</FN>
</TABLE>
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
re-evaluations 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.
Changes in the allowance for possible credit losses for the nine
months ended September 30, 1997, 1996 and 1995 were as follows:
1997 1996 1995
(in thousands)
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%
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.
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.
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.
September 30, December 31,
1997 1996
(Dollars in thousands)
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%
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 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.
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.
The following table sets forth the Bank's interest
sensitivity gap position as of September 30, 1997.
<TABLE>
<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%
<FN>
(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.
</FN>
</TABLE>
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.
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.
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.
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
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.
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 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.
