UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1996
__________________
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
_____________ ___________________________________
Commission file number 0-17455
_____________
COMM BANCORP, INC.
________________________________________________________________________________
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-2242292
______________________________________ _____________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
521 MAIN STREET, FOREST CITY, PA 18421
________________________________________ _____________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (717) 785-3181
______________________________
________________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 2,200,080 AT NOVEMBER 6, 1996,
reflecting a 3 for 1 stock split effective April 1, 1996.
Page 1 of 33
COMM BANCORP, INC.
FORM 10-Q
SEPTEMBER 30, 1996
INDEX
CONTENTS PAGE NO.
PART I. FINANCIAL INFORMATION:
ITEM 1:
Consolidated Statements of Income - For the Three Months and
Nine Months Ended September 30, 1996 and 1995............... 3
Consolidated Balance Sheets - September 30, 1996, and
December 31, 1995........................................... 4
Consolidated Statement of Changes in Stockholders' Equity
For the Nine Months Ended September 30, 1996................ 5
Consolidated Statements of Cash Flows For the Nine Months
Ended September 30, 1996 and 1995........................... 6
Notes to Consolidated Financial Statements................... 7
ITEM 2:
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 8
PART II. OTHER INFORMATION:
ITEMS 1-6:
Other Information............................................ 32
Signature Page............................................... 33
COMM BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME_______________________________________________
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
___________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans:
Taxable.......................................................... $ 4,564 $ 4,320 $13,826 $12,715
Tax-exempt....................................................... 102 59 209 188
Interest on investment securities held to maturity:
Taxable.......................................................... 1,244 3,830
Tax-exempt....................................................... 296 895
Interest and dividends on investment securities available for sale:
Taxable.......................................................... 983 384 3,046 1,876
Tax-exempt....................................................... 501 1,474
Dividends........................................................ 26 54 79 91
Interest on deposits with banks.................................... 1 4 6 10
Interest on federal funds sold..................................... 54 292 251 323
_______ _______ _______ _______
Total interest income.......................................... 6,231 6,653 18,891 19,928
_______ _______ _______ _______
INTEREST EXPENSE:
Interest on deposits............................................... 3,322 3,695 10,048 10,444
Interest on short-term borrowings.................................. 1 1 677
Interest on long-term debt......................................... 26 62 92 185
_______ _______ _______ _______
Total interest expense......................................... 3,349 3,757 10,141 11,306
_______ _______ _______ _______
Net interest income............................................ 2,882 2,896 8,750 8,622
Provision for loan losses.......................................... 75 75 225 360
_______ _______ _______ _______
Net interest income after provision for loan losses............ 2,807 2,821 8,525 8,262
_______ _______ _______ _______
NONINTEREST INCOME:
Service charges, fees and commissions.............................. 389 271 1,097 885
Net investment securities losses................................... (31) (2,508) (58) (4,393)
_______ _______ _______ _______
Total noninterest income (loss)................................ 358 (2,237) 1,039 (3,508)
_______ _______ _______ _______
NONINTEREST EXPENSE:
Salaries and employee benefits expense............................. 826 998 2,769 3,219
Net occupancy and equipment expense................................ 285 304 926 912
Other expenses..................................................... 579 682 1,840 2,303
_______ _______ _______ _______
Total noninterest expense...................................... 1,690 1,984 5,535 6,434
_______ _______ _______ _______
Income (loss) before income taxes.................................. 1,475 (1,400) 4,029 (1,680)
Provision for income tax expense (benefit)......................... 326 (889) 878 (911)
_______ _______ _______ _______
Net income (loss).............................................. $ 1,149 $ (511) $ 3,151 $ (769)
======= ======= ======= =======
PER SHARE DATA:
Net income (loss).................................................. $ 0.52 $ (0.23) $ 1.43 $ (0.35)
Cash dividends declared............................................ $ 0.06 $ 0.08 $ 0.17 $ 0.08
Average common shares.............................................. 2,200,080 2,200,080 2,200,080 2,200,080
</TABLE>
See notes to consolidated financial statements.
COMM BANCORP, INC.
CONSOLIDATED BALANCE SHEETS_____________________________________________________
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
_____________ ____________
<S> <C> <C>
ASSETS:
Cash and due from banks............................................................ $ 8,918 $ 6,864
Interest-bearing deposits with banks............................................... 8 116
Federal funds sold................................................................. 15,100
Investment securities available for sale........................................... 106,336 108,706
Loans, net of unearned income...................................................... 226,556 213,835
Less: allowance for loan losses.................................................. 4,048 3,903
________ ________
Net loans.......................................................................... 222,508 209,932
Premises and equipment, net........................................................ 3,107 3,070
Accrued interest receivable........................................................ 2,558 2,872
Other assets....................................................................... 4,318 4,288
________ ________
Total assets................................................................... $347,753 $350,948
======== ========
LIABILITIES:
Deposits:
Noninterest-bearing.............................................................. $ 26,763 $ 25,423
Interest-bearing................................................................. 288,001 291,676
________ ________
Total deposits................................................................. 314,764 317,099
Long-term debt..................................................................... 46 3,048
Accrued interest payable........................................................... 1,788 1,761
Other liabilities.................................................................. 1,106 1,145
________ ________
Total liabilities.............................................................. 317,704 323,053
________ ________
STOCKHOLDERS' EQUITY:
Common stock, par value $0.33 authorized 12,000,000 shares, issued and outstanding
2,200,080 shares.................................................................. 726 733
Capital surplus.................................................................... 6,317 6,310
Retained earnings.................................................................. 22,842 20,072
Net unrealized holding gain on available for sale securities....................... 164 780
________ ________
Total stockholders' equity..................................................... 30,049 27,895
________ ________
Total liabilities and stockholders' equity..................................... $347,753 $350,948
======== ========
</TABLE>
See notes to consolidated financial statements.
COMM BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY_______________________
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NET UNREALIZED TOTAL
COMMON CAPITAL RETAINED GAIN (LOSS) ON STOCKHOLDERS'
STOCK SURPLUS EARNINGS SECURITIES EQUITY
______________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995.......................... $733 $6,310 $20,072 $ 780 $27,895
Net income.......................................... 3,151 3,151
Dividends declared: $0.17 per share................. (381) (381)
Net change in unrealized adjustment on securities... (616) (616)
Three-for-one stock split........................... (7) 7
____ ______ _______ _____ _______
BALANCE, SEPTEMBER 30, 1996......................... $726 $6,317 $22,842 $ 164 $30,049
==== ====== ======= ===== =======
</TABLE>
See notes to consolidated financial statements.
COMM BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS___________________________________________
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30 1996 1995
____________________________________________________________________________________________________________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................................................ $ 3,151 $ (769)
Adjustments:
Provision for loan losses.............................................................. 225 360
Depreciation and amortization.......................................................... 536 477
Amortization of loan fees.............................................................. (163) (133)
Deferred income tax (benefit).......................................................... (599) 1,904
Losses on sale of investment securities available for sale............................. 58 4,393
Gains on sale of other real estate..................................................... (2)
Changes in:
Interest receivable.................................................................. 314 234
Other assets......................................................................... 699 (3,231)
Interest payable..................................................................... 27 336
Other liabilities.................................................................... 123 428
________ ________
Net cash provided by operating activities.......................................... 4,369 3,999
________ ________
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of available for sale securities..................................... 1,463 27,621
Proceeds from repayments of investment securities:
Held to maturity....................................................................... 2,970
Available for sale..................................................................... 19,411 3,003
Purchases of investment securities:
Held to maturity....................................................................... (179)
Available for sale..................................................................... (19,385) (10,885)
Net receipts (disbursements) from lending activities..................................... (12,888) 1,276
Proceeds from sale of other real estate.................................................. 273 357
Purchases of premises and equipment...................................................... (409) (495)
________ ________
Net cash provided by (used in) investing activities................................ (11,535) 23,668
________ ________
CASH FLOWS FROM FINANCING ACTIVITIES:
Net changes in:
Money market, NOW, savings and noninterest-bearing accounts............................ 2,154 (10,900)
Time deposits.......................................................................... (4,489) 18,911
Short-term borrowings.................................................................. (15,956)
Payments on long-term debt............................................................. (3,002) (2)
Cash dividends paid.................................................................... (543) (456)
________ ________
Net cash used in financing activities.............................................. (5,880) (8,403)
________ ________
Net increase (decrease) in cash and cash equivalents............................... (13,046) 19,264
Cash and cash equivalents at beginning of year..................................... 21,964 6,783
________ ________
Cash and cash equivalents at end of period......................................... $ 8,918 $ 26,047
======== ========
SUPPLEMENTAL DISCLOSURE:
Cash paid during the period for:
Interest............................................................................... $ 10,114 $ 10,970
Income taxes........................................................................... 1,034 114
Noncash items:
Transfer of loans to other real estate................................................. 250 224
Transfer of investments to investments available for sale.............................. 105,799
Change in net unrealized loss (gain) on available for sale securities.................. 616 (4,824)
Cash dividends declared................................................................ $ 381 $ 169
</TABLE>
See notes to consolidated financial statements.
COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS______________________________________
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements of Comm Bancorp,
Inc. and subsidiary, Community Bank and Trust Company (collectively, the
"Company") have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10-01 of Regulation S-X. In the opinion of management, all
normal recurring adjustments necessary for a fair presentation of the financial
position and results of operations for the periods have been included.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affected the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reported periods.
Actual results could differ from those estimates. For additional information
and disclosures required under generally accepted accounting principles,
reference is made to the Company's Annual Report on Form 10-K for the period
ended December 31, 1995.
2. PER SHARE DATA:
Per share data has been adjusted to reflect a three-for-one stock split
effective April 1, 1996.
3. EMPLOYEE BENEFIT PLAN:
The Company discontinued its deferred compensation plan for certain senior
management employees during the third quarter of 1996, which resulted in a
reduction in noninterest expense of $159. Income taxes were increased by $54 as
a result of this transaction.
FACTORS THAT MAY AFFECT FUTURE RESULTS:
Certain statements in this Form 10-Q are forward-looking statements that involve
a number of risks and uncertainties. The following factors may cause actual
results to differ materially from projected results:
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 may adversely
affect the future results of operations of the Company. Management does not
expect any one particular factor to affect the Company'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 Company's ability to
maintain or increase profitability. Therefore, there is no assurance that the
Company will be able to continue their current rates of income and growth.
The Company's earnings depend upon, to a large extent, 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 fluctuation and is affected by regulatory, economic and competitive
factors that 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.
In originating loans, there is a likelihood that some credit losses will occur.
This risk of loss varies with, among other things, general economic conditions,
the type of loan being made, the creditworthiness 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 loan 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 loan
losses is adequate, but that there can be no assurance that nonperforming loans
will not increase in the future.
The success of the Company is dependent, to a certain extent, upon the general
economic conditions in the geographic market served by the Company. 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 Company serves would likely impair the Company'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.
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.
OPERATING ENVIRONMENT:
During the third quarter of 1996, the Federal Reserve Board ("FRB") maintained
its monetary policy of the second quarter of 1996 by voting to leave the target
rate for federal funds unchanged. The FRB lowered its target for the federal
funds interest rate, the rate at which banks lend to each other overnight, by
three-quarters of a percentage point between July 1995 and February 1996.
Despite strong second quarter 1996 economic growth of 4.7 percent, the FRB kept
the overnight rate at 5.25 percent. Such action appeared prudent given the
Commerce Department's report that the growth in the gross domestic product, or
the total value of goods and services produced in the United States, slowed to a
2.2 percent annualized pace during the third quarter of 1996. The nation
experiencing the weakest consumer spending rate in over five years of 0.4
percent in the third quarter of 1996 was primarily responsible for the reduced
level of economic activity. The reported economic slowdown was recently
reinforced by a downturn in consumer confidence. Inflation, as measured by the
price index for gross domestic purchases, grew 1.8 percent in the third quarter
of 1996, down from the previous quarter's rate of 2.1 percent. The combination
of economic weakness and low inflation should have a favorable effect on
interest rates and fund costs for United States commercial banks. However, bank
earnings may not reflect such benefit if the economy continues to spiral
downward causing greater unemployment, which will result in lower loan demand
and higher levels of asset quality deterioration.
In contrast to the nationwide slowdown in economic activity during the third
quarter of 1996, the economy in the quad-county market area served by the
Company improved as evidenced by an improvement in employment conditions. The
average unemployment rate in the Company's market area declined from 7.5 percent
to 6.6 percent in the second and third quarters of 1996, respectively. Such
improvement increased the demand for credit and is expected to have a positive
effect on the level of nonperforming assets in the near term. Management
anticipates that the local economy will continue to improve despite the apparent
nationwide slowdown based on knowledge of the historical lagging characteristic
of the local economy.
REVIEW OF FINANCIAL POSITION:
Total assets declined $2.3 million during the third quarter of 1996 from $350.1
million at June 30, 1996, to $347.8 million at September 30, 1996. Such
reduction was directly attributable to the Company's repayment of a $3.0 million
fixed-rate Federal Home Loan Bank ("FHLB") advance through a reduction in
investment securities. The Company's deposit base decreased slightly from
$315.5 million to $314.8 million at the end of the second and third quarters of
1996, respectively. Loan demand during the third quarter of 1996 was
exceptionally strong, as loans grew $13.6 million, adjusted for short-term
credit extensions to other financial institutions. Loan growth was partially
funded by repayments on the investment portfolio. Investments declined from
$114.9 million at June 30, 1996, to $106.3 million at September 30, 1996.
Despite the marked increase in loan volume, asset quality improved compared to
year-end 1995 as represented by a reduction in the ratios of nonperforming loans
and nonperforming assets as a percentage of loans, net of unearned income.
Record levels of net income bolstered the Company's capital position improving
the Leverage ratio from 7.8 percent at June 30, 1996, to 8.1 percent at
September 30, 1996.
In addition to the Company achieving financial success in the third quarter of
1996, the Board of Directors and executive officers reinforced their commitment
to progress in customer service by making the Company the first financial
institution in its market area to introduce an imaging system. This technology
will not only enhance the effectiveness and efficiency in serving customers but
will also reduce operating costs thus improving profitability. Plans have
already been formulated to expand utilization of imaging technology into other
customer service areas beginning in the first quarter of 1997.
INVESTMENT PORTFOLIO:
The amount of the Company's resources allocated to the investment portfolio
declined during the third quarter of 1996 as repayments were employed to
satisfy strong loan demand. The carrying values of the investment portfolio
were $114.9 million and $106.3 million at the end of the second and third
quarters of 1996, respectively. Repayments on U.S. Treasury and U.S.
Government agency securities, partially offset by acquisitions of U.S.
Government agency mortgage-backed securities and general obligations of states
and municipalities, were the major cause of such decline. Approximately $13.5
million of cash flows were provided by repayments on U.S. Treasury and U.S.
Government agency securities. These cash flows were the initial portion of the
short-term liquidity ladder established with the proceeds from the investment
portfolio reconstitution in the third quarter of 1995. This short-term ladder
was established to fund future loan demand not satisfied through deposit growth.
The Company has investment securities with carrying values of $23.7 million,
$28.8 million and $12.0 million maturing in the next three years ended September
30, 1997, 1998 and 1999, respectively. Management replaced a portion of the
ladder that matured during the third quarter of 1996 by purchasing $2.9 million
of pass-through, balloon mortgage-backed bonds. Such bonds were purchased as a
substitute for short-term U.S. Treasury securities to fund future loan demand.
These purchases were within the guidelines of the investment policy and were
subsequent to management's completion of a comprehensive analysis of various
risk elements as compared over a two-year time horizon to U.S. Treasury
securities with similar durations. Specifically, management considered credit,
interest rate, extension, prepayment, and liquidity risks in arriving at its
decision to purchase such investments. Furthermore, the mortgage-backed
securities will outperform the comparable U.S. Treasury securities on a total
return basis given a 200 basis point increase or decrease in interest rates over
the stated time horizon. In addition to the acquisition of these mortgage-
backed bonds, management purchased $1.7 million of medium-term, tax-exempt
municipal obligations during the third quarter of 1996 in an attempt to minimize
the Company's tax liability. Management expects to continue following such a
"barbell" investment strategy through employing excess funds not utilized in
lending to invest in short-term U.S. Government securities and medium-term, tax-
exempt obligations. The tax-equivalent yield on the investment portfolio during
the third quarter of 1996 improved to 6.5 percent as compared to 6.4 percent
during the second quarter of 1996.
The following table sets forth the carrying values of the major classifications
of securities as they relate to the total investment portfolio at September 30,
1996, and December 31, 1995:
<TABLE>
<CAPTION>
DISTRIBUTION OF INVESTMENT SECURITIES AVAILABLE FOR SALE
SEPTEMBER 30, DECEMBER 31,
1996 1995
_____________ ______________
AMOUNT % AMOUNT %
_________________________________________________________________________________________
<S> <C> <C> <C> <C>
U.S. Treasury securities............................ $ 39,635 37.27% $ 43,751 40.25%
U.S. Government agencies............................ 19,713 18.54 26,213 24.11
State and municipals................................ 37,222 35.01 30,512 28.07
Mortgage-backed securities.......................... 7,414 6.97 6,154 5.66
Other securities.................................... 2,352 2.21 2,076 1.91
________ ______ ________ ______
Total............................................. $106,336 100.00% $108,706 100.00%
======== ====== ======== ======
</TABLE>
The following table sets forth the maturity distribution of the book and market
values and weighted average tax-equivalent yields of the available for sale
portfolio at September 30, 1996. The weighted average yield has been computed
on a tax-equivalent basis using the statutory tax rate of 34.0 percent. The
distributions are based on contractual maturity with the exception of mortgage-
backed securities and collateralized mortgage obligations that have been
presented based upon estimated cash flows, assuming no change in the current
interest rate environment. Expected maturities will differ from contracted
maturities because borrowers have the right to call or prepay obligations with
or without call or prepayment penalties:
<TABLE>
<CAPTION>
MATURITY DISTRIBUTION OF AVAILABLE FOR SALE PORTFOLIO
AFTER ONE AFTER FIVE
WITHIN BUT WITHIN BUT WITHIN AFTER
ONE YEAR FIVE YEARS TEN YEARS TEN YEARS TOTAL
______________________________________________________________________________
SEPTEMBER 30, 1996 AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
_____________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Amortized cost:
U.S. Treasury securities..... $17,044 5.59% $22,699 5.69% $ 39,743 5.65%
U.S. Government agencies..... 5,892 4.67 14,139 4.77 20,031 4.74
State and municipals......... 765 5.37 4,217 6.37 $5,939 8.36% $26,066 7.90% 36,987 7.75
Mortgage-backed securities... 1,063 6.55 6,377 6.10 6 5.80 7,446 6.16
Other securities............. 1,879 5.78 1,879 5.78
_______ _______ ______ _______ ________
Total...................... $24,764 5.41% $47,432 5.53% $5,945 8.36% $27,945 7.76% $106,086 6.25%
======= ======= ====== ======= ========
Fair value:
U.S. Treasury securities..... $17,047 $22,588 $ 39,635
U.S. Government agencies..... 5,855 13,858 19,713
State and municipals......... 764 4,216 $6,130 $26,112 37,222
Mortgage-backed securities... 1,056 6,352 6 7,414
Other securities............. 2,352 2,352
_______ _______ ______ _______ ________
Total...................... $24,722 $47,014 $6,136 $28,464 $106,336
======= ======= ====== ======= ========
</TABLE>
LOAN PORTFOLIO:
During the third quarter of 1996, the loan portfolio, net of unearned income and
adjusted for $2.0 million in short-term credit extensions to other financial
institutions, increased $13.6 million, a 25.7 percent annualized rate. Such
growth, the greatest in the Company's history, exceeded the $11.8 million in
credit extensions generated during the second quarter of 1996. Management's
aggressive product pricing through its "Loan Sale" marketing efforts initiated
the favorable loan demand. These successful marketing efforts were de-
emphasized in early October of 1996 as management took a less aggressive posture
in pricing loans. The Company continually monitors loan demand by utilizing a
pipeline analysis that alerts management to funds applied for by borrowers but
not yet approved and distributed. Based on preliminary indications from this
analysis, management expects loan demand to remain strong throughout the final
quarter of 1996. The results of the September 30, 1996, asset/ liability
simulation model indicate the Company will have sufficient cash flows from loan
and investment repayments and core deposit increases to adequately meet such
demand.
Loan growth in the third quarter of 1996 was primarily a function of demand for
credits secured by real estate, which amounted to $7.1 million. The other major
component of the third quarter growth was commercial loans, adjusted for short-
term credit extensions to other financial institutions, which grew $4.1 million.
Approximately $3.8 million of such increase is attributable to credit extensions
to local school districts.
For the nine months ended September 30, 1996, loans, net of unearned income
increased $29.7 million, a 20.4 percent annualized rate. Such increase was
adjusted for $17.0 million in repayments on short-term credit extensions made to
other financial institutions. The loan categories primarily responsible for the
year-to-date growth were the same as those aforementioned for the third quarter
of 1996. Loans secured by real estate accounted for approximately two-thirds of
such growth, with the majority of these being extensions to finance one-to-four
family residential properties. The average loan volume, adjusted for extensions
to other financial institutions, totaled $207.1 million for the nine months
ended September 30, 1996, as compared to $197.0 million for the same period of
1995. The tax-equivalent yield on the loan portfolio of 8.9 percent in 1996
exceeded the yield of 8.8 percent generated last year. The loan portfolio's
yield during the third quarter of 1996 was constant as compared to the first
half of 1996. Management expects yields to rise in future periods as a result
of taking a less aggressive posture in product pricing in light of the
improvements in loan demand.
The following table sets forth the major categories of the loan portfolio at
September 30, 1996, and December 31, 1995:
<TABLE>
<CAPTION>
DISTRIBUTION OF LOAN PORTFOLIO
SEPTEMBER 30, DECEMBER 31,
1996 1995
_____________________ ____________________
AMOUNT % AMOUNT %
________________________________________________________________________________________
<S> <C> <C> <C> <C>
Commercial, financial and others.......... $ 29,542 13.04% $ 41,593 19.45%
Real estate:
Construction............................ 3,621 1.60 1,014 0.47
Mortgage................................ 172,206 76.01 151,926 71.05
Consumer, net............................. 21,187 9.35 19,302 9.03
________ ______ ________ ______
Loans, net of unearned income........... 226,556 100.00% 213,835 100.00%
Less: allowance for loan losses........... 4,048 ====== 3,903 ======
________ ________
Net loans............................. $222,508 $209,932
======== ========
</TABLE>
Management continually examines the maturity distribution and interest rate
sensitivity of the loan portfolio to limit interest rate risk and manage
liquidity. At September 30, 1996, the volume of loans repricing within the next
twelve months, adjusted for temporary extensions to other financial
institutions, remained constant at 33.9 percent as compared to June 30, 1996.
However, such percentage represents an improvement over the comparable 32.5
percent at March 31, 1996. Variable rate loans decreased slightly during the
third quarter from $44.4 million at June 30, 1996, to $43.5 million at September
30, 1996.
The following table sets forth the maturity and repricing schedule of the loan
portfolio at September 30, 1996:
MATURITY DISTRIBUTION AND INTEREST SENSITIVITY OF LOAN PORTFOLIO
<TABLE>
<CAPTION>
AFTER ONE
WITHIN BUT WITHIN AFTER
SEPTEMBER 30, 1996 ONE YEAR FIVE YEARS FIVE YEARS TOTAL
_______________________________________________________________________________________
<S> <C> <C> <C> <C>
Maturity schedule:
Commercial, financial and others..... $11,487 $ 9,721 $ 8,334 $ 29,542
Real estate:
Construction....................... 3,621 3,621
Mortgage........................... 4,917 20,144 147,145 172,206
Consumer, net........................ 3,017 11,369 6,801 21,187
_______ _______ ________ ________
Total............................ $23,042 $41,234 $162,280 $226,556
======= ======= ======== ========
Repricing schedule:
Predetermined interest rates......... $35,137 $62,322 $ 85,575 $183,034
Floating or adjustable interest rates 43,522 43,522
_______ _______ ________ ________
Total............................ $78,659 $62,322 $ 85,575 $226,556
======= ======= ======== ========
</TABLE>
ASSET QUALITY:
During the third quarter of 1996, national unemployment rates declined to 5.2
percent from 5.3 percent at June 30, 1996. Unemployment rates in Pennsylvania
also declined compared to the June 30, 1996, figure as they fell from 5.7
percent to 5.0 percent at September 30, 1996. In the four county area served by
the Company and consisting of Lackawanna, Susquehanna, Wayne and Wyoming
counties, average unemployment rates for the third quarter were lower than those
of the second quarter in all but Wyoming county. Third quarter average
unemployment rates for these counties were 7.0 percent, 6.2 percent, 6.0
percent, and 7.3 percent, respectively as compared to 7.1 percent, 7.3 percent,
8.4 percent, and 7.1 percent, respectively, reported for the second quarter.
The improvements in the local unemployment rates can be attributed to increases
in service industry jobs. Despite the overall decline, such unemployment rates
remained above national levels. This persistence of local unemployment levels
above national levels has led to the Company's slight deterioration in asset
quality for the third quarter of 1996. Nonperforming assets increased to $3,980
or 1.76 percent of loans, net, at September 30, 1996, compared to $3,568 or 1.69
percent of loans, net, at June 30, 1996. The $412 increase is primarily a
result of an increase in the volume of loans past due ninety days or more to
$2,111 at September 30, 1996, from $1,671 at June 30, 1996. Of this increase,
$168 can be attributed to one real estate loan and $235 can be attributed to one
commercial loan. Both such credits were brought current in October through
normal collection efforts.
Although the Company's nonperforming assets level increased for the third
quarter of 1996, such level has declined slightly in comparison to December 31,
1995. Since that time the Company's nonperforming assets have declined $204
from $4,184 or 1.96 percent of loans, net.
The following table sets forth information concerning impaired and nonperforming
loans and nonperforming assets at September 30, 1996, and December 31, 1995. The
table includes all credits classified for regulatory purposes. Also included
are all material credits that cause management to have serious doubts as to the
borrowers' ability to comply with present loan repayment terms:
<TABLE>
<CAPTION>
DISTRIBUTION OF NONPERFORMING ASSETS
SEPTEMBER 30, DECEMBER 31,
1996 1995
______________________________________________________________________________________
<S> <C> <C>
Impaired loans:
Nonaccrual loans:
Commercial, financial and others............................... $ 160 $ 167
Real estate:
Construction.................................................
Mortgage..................................................... 1,024 1,164
Consumer, net.................................................. 25
______ ______
Total nonaccrual loans..................................... 1,209 1,331
______ ______
Restructured loans............................................. 239 262
______ ______
Total impaired loans....................................... 1,448 1,593
______ ______
Loans past due 90 days or more:
Commercial, financial and others............................... 496 181
Real estate:
Construction.................................................
Mortgage..................................................... 1,298 1,633
Consumer, net.................................................. 317 336
______ ______
Total loans past due 90 days or more....................... 2,111 2,150
______ ______
Total nonperforming loans.................................. 3,559 3,743
______ ______
Other real estate.............................................. 421 441
______ ______
Total nonperforming assets................................. $3,980 $4,184
====== ======
Ratios:
Impaired loans as a percentage of loans, net................... 0.64% 0.74%
Nonperforming loans as a percentage of loans, net.............. 1.57 1.75
Nonperforming assets as a percentage of loans, net............. 1.76% 1.96%
</TABLE>
The Company's recorded investment in impaired loans, consisting of nonaccrual
and restructured loans, was $1,448 at September 30, 1996, $1,373 at June 30,
1996, and $1,593 at December 31, 1995. The average recorded investments in
impaired loans for the three and nine month periods ended September 30, 1996,
were $1,816 and $1,797, respectively. The averages for the comparable periods
of 1995 were $1,660 and $1,617, respectively. Included in impaired loans at
September 30, 1996, was a $239 restructured loan to one commercial customer.
Such credit continued to perform in accordance with its modified terms during
the third quarter of 1996. Had such loans been current and the terms not
modified, interest income on impaired loans would have been $27 and $69 for the
quarter and nine months ended September 30, 1996, respectively, and $54 and $106
for the comparable periods of last year, respectively. Interest recognized on
impaired loans totaled $26 for the first nine months of 1996 and $83 for the
same period last year. For the quarter ended September 30, 1996, interest
recognized on impaired loans was $3 and was $61 for the comparable period last
year. Cash received on impaired loans and applied as a reduction of principal
aggregated $269 and $400 for the nine months ended September 30, 1996 and 1995,
respectively. For the quarters ended September 30, 1996 and 1995, cash receipts
on impaired loans amounted to $26 and $276, respectively. There were no
commitments to extend additional funds to such parties at September 30, 1996.
The allowance for loan losses account was established through charges to
earnings in the form of a provision for loan losses. Loans, or portions of
loans, determined to be uncollectible were charged against the allowance account
with subsequent recoveries, if any, being credited to the account. The
allowance was maintained at a level believed adequate by management to absorb
estimated potential credit losses. While historical loss experience provided a
reasonable starting point in assessing the adequacy of the allowance account,
management also considered several relevant factors likely to cause estimated
credit losses associated with the Company's current portfolio to differ from
historical loss experience. Such factors included changes in lending policies
and procedures, economic conditions, nature and volume of the loan portfolio,
loan review system, volumes of past due and classified loans, concentrations,
borrowers' financial status, collateral value, and other factors deemed relevant
by management. See "Factors That May Affect Future Results." In addition to
management's assessment, various regulatory agencies, as an integral part of
their routine annual examination process, review the Company's allowance for
loan losses. Such agencies could require the Company to recognize additions to
the allowance based on their judgements concerning information available to them
at the time of their examination.
In general, the allowance for loan losses account was available to absorb losses
throughout the loan portfolio, although in some instances allocation is made for
specific loans or groups of loans. Accordingly, the following table attempts to
allocate this reserve among the major categories. However, it should not be
interpreted as an indication that charge-offs in future periods will occur in
these amounts or proportions, or that the allocation indicates future charge-off
trends:
<TABLE>
<CAPTION>
DISTRIBUTION OF ALLOWANCE FOR LOAN LOSSES
SEPTEMBER 30, DECEMBER 31,
1996 1995
_______________ _______________
CATEGORY CATEGORY
AS A AS A
% OF % OF
AMOUNT LOANS AMOUNT LOANS
_______________________________________________________________________________________
<S> <C> <C> <C> <C>
Commercial, financial and others................... $1,510 13.04% $1,358 19.45% Real
estate:
Construction..................................... 1.60 0.47
Mortgage......................................... 1,280 76.01 1,333 71.05
Consumer, net...................................... 1,258 9.35 1,212 9.03
______ ______ ______ ______
Total.......................................... $4,048 100.00% $3,903 100.00%
====== ====== ====== ======
</TABLE>
The following table sets forth a reconciliation of the allowance for loan losses
account and illustrates the charge-offs and recoveries by major loan category
for the nine months ended September 30, 1996:
<TABLE>
<CAPTION>
RECONCILIATION OF ALLOWANCE FOR LOAN LOSSES
SEPTEMBER 30,
1996
______________________________________________________________________________________
<S> <C>
Allowance for loan losses at beginning of period............................... $3,903
Loans charged-off:
Commercial, financial and others............................................... 201
Real estate:
Construction.................................................................
Mortgage..................................................................... 55
Consumer, net.................................................................. 63
______
Total...................................................................... 319
______
Loans recovered:
Commercial, financial and others............................................... 117
Real estate:
Construction.................................................................
Mortgage..................................................................... 84
Consumer, net.................................................................. 38
______
Total...................................................................... 239
______
Net loans charged-off.......................................................... 80
______
Provision charged to operating expense......................................... 225
______
Allowance for loan losses at end of period..................................... $4,048
======
Ratios:
Net loans charged-off as a percentage of average loans outstanding............ 0.04%
Allowance for loan losses as a percentage of period end loans................. 1.79%
</TABLE>
Quarterly, the Company analyzed the adequacy of its allowance for loan losses
account in conjunction with its internal loan review and criticized asset
identification system. Management analyzed the reasonableness of its allowance
for loan losses account through utilizing the federal banking agency's
analytical tool and compares such account against the sum of specified
percentages, based on industry averages, applied to certain loan
classifications. Based on the results of this regulatory calculation at
September 30, 1996, management considered its allowance for loan losses account
to be adequate to absorb potential losses.
The allowance for loan losses account was $4,048 at September 30, 1996, as
compared to $3,903 at December 31, 1995. As a percentage of nonperforming
loans, the allowance account covered 113.7 percent at September 30, 1996, and
104.3 percent at December 31, 1995. Relative to all nonperforming assets, the
allowance account covered 101.7 percent at September 30, 1996, and 93.3 percent
at December 31, 1995. The volume increase in the allowance for loan losses
account was attributable to the Company's improved success in its loan
collection efforts coupled with a continuation of monthly additions to such
allowance through provisions charged to operations. The Company's allowance for
loan losses account as a percentage of period-end loans was 1.79 percent at
September 30, 1996. Such ratio has declined from the 1.92 percent recorded at
June 30, 1996, as a result of the strong loan demand.
The Company's allowance account at September 30, 1996, June 30, 1996, and
December 31, 1995, included amounts for impaired loans of $1,209, $1,130 and
$1,331. The related allowance for these periods was $686, $623 and $614,
respectively. The related investment for which there was no related allowance
for loan losses totaled $239 at September 30, 1996, $243 at June 30, 1996, and
$262 at December 31, 1995.
Past due loans that have not been satisfied through repossession, foreclosure,
or related actions were evaluated individually to determine if all or part of
the outstanding balance should be charged against the allowance for loan losses
account. Subsequent recoveries, if any, were credited to the allowance account.
Net charge-offs equaled $80 compared to $122 for the nine months ended September
30, 1996 and 1995, respectively.
DEPOSITS:
Total deposits declined $2.3 million from $317.1 million at December 31, 1995,
to $314.8 million at September 30, 1996. Average deposits totaled $312.7
million for the nine months ended September 30, 1996, compared to $316.6 million
for the same period of 1995. For the quarter ended September 30, 1996, the
Company experienced a slight decrease in deposits to $314.8 million from $315.5
million at June 30, 1996. Such reduction could be attributed to a
disintermediation of local school district funds from savings and demand
deposits to commercial time deposits. School administrators, attempting to
enhance interest earned on public funds, requested competitive bids on interest
rate offerings from local financial institutions. The Company was successful in
retaining a majority of such deposits through competitive product pricing.
Aggregate public funds deposited with the Company amounted to $29.4 million at
September 30, 1996.
The cost of interest-bearing deposits declined to 4.62 percent for the third
quarter of 1996, compared to 4.69 percent for the second quarter. Such
improvement came as a result of maturities of high priced deposit accounts.
Although general market interest rates have declined subsequent to the September
25, 1996, decision by the Federal Reserve to keep interest rates at their
current levels, management increased rates on certain deposit products in
response to competitive pressure. Consequently, management expects the
Company's cost of funds to stabilize or rise slightly during the final quarter
of 1996, as it attempts to meet funding requirements, based on preliminary loan
demand estimates. However, interest rates could change in an unexpected manner.
See "Factors That May Affect Future Results."
The following table sets forth the average amount of and the rate paid on the
major classifications of deposits for the nine months ended September 30, 1996,
and September 30, 1995:
<TABLE>
<CAPTION>
DEPOSIT DISTRIBUTION
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
_________________ _________________
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE
______________________________________________________________________________________
<S> <C> <C> <C> <C>
Interest-bearing:
Money market accounts....................... $ 18,425 2.83% $ 22,342 3.52%
NOW accounts................................ 16,190 1.98 15,445 1.97
Savings accounts............................ 67,290 2.98 72,617 3.27
Time less than $100......................... 157,626 5.68 152,745 5.70
Time $100 or more........................... 26,927 5.99 29,785 5.99
________ ________
Total interest-bearing.................... 286,458 4.68% 292,934 4.75%
Noninterest-bearing......................... 26,218 23,666
________ ________
Total deposits............................ $312,676 $316,600
======== ========
</TABLE>
Average volumes of noninterest-bearing deposits increased $2.5 million from
$23.7 million for the nine months ended September 30, 1995, to $26.2 million for
the same period of 1996. Such volumes as a percentage of average assets totaled
7.6 percent for the nine months ended September 30, 1996, and 6.5 percent for
the nine months ended September 30, 1995. Despite the improvement, such ratio
remained below the local peer group average of 12.7 percent thus effectively
increasing the Company's cost of funds.
Volatile liabilities, time deposits in denominations of $100 or more, increased
$3.9 million from $23.3 million at June 30, 1996, to $27.2 million at September
30, 1996. As aforementioned, the reason for such increase was the transfer of
school district funds from transaction accounts to commercial time deposits.
The Company's average cost of such deposits remained level at 6.0 percent as
compared to June 30, 1996, and was slightly below the 6.1 percent recorded
December 31, 1995. The following table sets forth maturities of time deposits
of $100 or more for September 30, 1996, and December 31, 1995:
<TABLE>
<CAPTION>
MATURITY DISTRIBUTION OF TIME DEPOSITS OF $100 OR MORE
SEPTEMBER 30, DECEMBER 31,
1996 1995
_______________________________________________________________________________________
<S> <C> <C>
Within three months......................................... $12,064 $ 6,466
After three months but within six months.................... 3,500 6,646
After six months but within twelve months................... 5,499 8,590
After twelve months......................................... 6,133 7,982
_______ _______
Total..................................................... $27,196 $29,684
======= =======
</TABLE>
INTEREST RATE SENSITIVITY:
Interest rate sensitivity management attempted to limit, and to the extent
possible, control the effects interest rate fluctuations have on net interest
income. The responsibility of such management has been delegated to the Asset
Liability Management Committee ("ALCO"). Specifically, ALCO utilizes a number
of computerized modeling techniques to monitor and attempt to control influences
that market changes have on the Company's rate sensitive assets and liabilities.
One such technique utilized a static gap report, which attempted to measure the
Company's interest rate exposure by calculating the net amount of rate sensitive
assets ("RSA") and rate sensitive liabilities ("RSL") that reprice within
specific time intervals. A positive gap, indicated by an RSA/RSL ratio greater
than 1.0, means that earnings will be impacted favorably if interest rates rise
and adversely if interest rates fall during the period. A negative gap tends to
indicate that earnings will be affected inversely to interest rate changes.
The following table sets forth the Company's interest rate sensitivity gap
position. The distributions in the table are based on a combination of
maturities, repricing frequencies, and prepayment patterns. Variable rate assets
and liabilities are distributed based on the repricing frequency of the
instrument. Mortgage instruments are distributed in accordance with estimated
cash flows, assuming there is no change in the current interest rate
environment:
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY
DUE AFTER DUE AFTER
THREE MONTHS ONE YEAR
DUE WITHIN BUT WITHIN BUT WITHIN DUE AFTER
SEPTEMBER 30, 1996 THREE MONTHS TWELVE MONTHS FIVE YEARS FIVE YEARS TOTAL
_____________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Rate sensitive assets:
Investment securities............... $17,849 $ 14,306 $ 40,291 $ 33,890 $106,336
Loans, net of unearned income....... 48,673 29,986 62,322 85,575 226,556
Interest-bearing deposits........... 8 8
Federal funds sold..................
_______ ________ ________ _________ ________
Total............................. $66,530 $ 44,292 $102,613 $ 119,465 $332,900
======= ======== ======== ========= ========
Rate sensitive liabilities:
Money market accounts............... $ 20,168 $ 20,168
NOW accounts........................ 16,725 16,725
Savings accounts.................... $ 66,884 66,884
Time deposits less than $100........ $44,266 46,431 66,295 $ 36 157,028
Time deposits $100 or more.......... 11,713 8,866 6,617 27,196
Other borrowings.................... 1 1 44 46
_______ ________ ________ _________ ________
Total............................. $55,980 $ 92,191 $139,840 $ 36 $288,047
======= ======== ======== ========= ========
Rate sensitivity gap:
Period............................ $10,550 $(47,899) $(37,227) $ 119,429
Cumulative........................ $10,550 $(37,349) $(74,576) $ 44,853 $ 44,853
RSA/RSL ratio:
Period............................ 1.19 0.48 0.73 3,318.47
Cumulative........................ 1.19 0.75 0.74 1.16 1.16
</TABLE>
At September 30, 1996, the Company's ratio of cumulative one-year rate sensitive
assets to rate sensitive liabilities declined to 0.75 from 0.83 at June 30,
1996. Based upon the guidelines set forth in the Company's asset/liability
management policy, this ratio fell within the 0.7 and 1.3 deemed by management
to be acceptable. Such decline resulted from a combination of the repayments of
$13.5 million in securities during the third quarter of 1996 and the
reinvestment of maturing, short-term federal funds into residential mortgages.
Of the $13.5 million in repayments, $3.0 million was used to retire short-term
borrowings of the bank. The Company also used $5.1 million of the funds from
these maturities to purchase $2.9 million in mortgage-backed securities, $1.7
million in state and municipal securities, and $500 in U.S. Treasury securities.
The remaining funds were used to fund loan demand. The Company also experienced
a sharp decline in its three-month ratio. Such ratio fell to 1.19 at September
30, 1996, as compared to 2.00 at June 30, 1996. This decline can be explained
by the same reasons given for the reduction in the cumulative one-year ratio.
The Company was liability rate sensitive for the cumulative one-year period
based on the results of the September 30, 1996, static gap report. This means
that an increase in general market rates should have an adverse impact on net
interest income. Conversely, a decline in market rates should have a favorable
impact on net interest income. However, these forward looking statements are
qualified by the "Factors That May Affect Future Results."
Static gap analytics does not fully illustrate the impact of interest rate
changes on future earnings. First, market rate changes will not equally or
simultaneously affect all categories of assets and liabilities. Second, assets
and liabilities that can contractually reprice within the same period may not do
so at the same time or to the same magnitude. Third, the table presents a one-
day position; variations occur daily as the Company adjusts its rate sensitivity
throughout the year. Finally, assumptions must be made in constructing such a
table. For example, the conservative nature of the Company's asset/liability
management policy assigns money market and NOW accounts to the due after three
but within twelve months repricing interval. In reality, these items may
reprice less frequently and in different magnitudes than changes in general
interest rate levels.
As a result of the static gap report's failure to address the dynamic changes in
the balance sheet composition or prevailing interest rates, the Company enhances
its asset/liability management by using a simulation model. Such model creates
pro forma net interest income scenarios under various interest rate assumptions
("shocks"). Model results from September 30, 1996, indicated similar results to
those indicated by the static gap model. A decline in net interest income of
4.7 percent is expected if interest rates rise 100 basis points. Conversely, a
100 basis point decline in market rates would cause a 4.7 percent increase in
net interest income.
Inflation impacts financial institutions differently than it does commercial and
industrial companies that have significant investments in fixed assets and
inventories. Most of the Company's assets are monetary in nature and change
correspondingly with variations in the inflation rate. It is difficult to
precisely measure the impact of inflation on the Company, however management
believes that its exposure to inflation can be ameliorated through
asset/liability management.
LIQUIDITY:
Liquidity is defined as a company's ability to generate cash at a reasonable
cost in order to satisfy commitments to borrowers as well as to meet the demands
of depositors and debtholders. Principal sources of liquidity are found in core
deposits and loan and investment payments and prepayments. Management considers
the Company's available for sale portfolio as a secondary source of liquidity.
As a final source of liquidity, the Company has the ability to exercise existing
credit arrangements. As specified in the Company's asset/liability management
policy, such borrowings will only be used on a contingency basis. The reliance
on these borrowings to fund temporary deficiencies is limited to a maximum of
five consecutive business days before management is required to take appropriate
action to remedy the shortfall through normal operations.
The Company's liquidity position remains adequate although it has become
slightly less favorable compared to last year. Two primary examples of such
decline are the ratio of temporary investments to volatile liabilities and the
ratio of volatile liabilities less temporary investments to total assets less
temporary investments. At September 30, 1995, such ratios were 93.8 percent and
0.52 percent, respectively. Both ratios showed a slight regression at September
30, 1996, equaling 70.3 percent and 2.5 percent, respectively.
The consolidated statements of cash flows present the change in cash and cash
equivalents from operating, investing and financing activities. Cash and cash
equivalents, consisting of cash and due from banks and federal funds sold,
decreased $13.0 million for the first three quarters of 1996. Net cash provided
by operating activities totaled $4.4 million due primarily to the Company's net
income of $3.2 million.
The major component of the Company's net decrease in cash and cash equivalents
was net cash used in investing activities. Such activities accounted for an
$11.5 million cash outflow for the first nine months of 1996. The decrease was
primarily a result of the Company's increased loan demand as $29.9 million in
net loan disbursements occurred in the first three quarters of 1996. This was
partially offset by $17.0 million in net repayments on term federal funds
extended to other banking institutions.
Net cash used in financing activities aggregated $5.9 million for the nine
months ended September 30, 1996. The primary component of such outflow was the
repayment on September 9, 1996, of the $3.0 million fixed-rate advance with the
FHLB. This three-year loan bore interest at 4.3 percent. Another cause of the
net outflow of cash from financing activities stemmed from the net deposit
reduction of $2.3 million over the nine months ended September 30, 1996.
Management chose to be less aggressive in deposit product pricing for the
majority of the past nine months in light of the Company's improved liquidity
posture.
CAPITAL ADEQUACY:
The Company's stockholders' equity improved $2,154 from $27,895 at December 31,
1995, to $30,049 at September 30, 1996. Such improvement was attributable to
the Company generating net income of $3,151 partially offset by dividends of
$381 and a change in the net unrealized holding adjustment of $616. The
Company's recorded net unrealized holding gain of $780 at December 31, 1995,
declined to $164 at September 30, 1996. However, the $164 unrealized gain
represents an improvement over the $135 unrealized loss recorded at June 30,
1996. The third quarter dividend of $132 or $0.06 per share was the same amount
distributed to shareholders for the second quarter of 1996. For the nine months
ended September 30, 1996, the aggregate dividends declared amounted to $381 or
$0.17 per share as compared to $170 or $0.08 per share for the same period last
year. Cash dividends declared as a percentage of net income were 12.1 percent
for the three quarters ended September 30, 1996. Presently, the Board of
Directors expects the Company to pay dividends in the future. However, these
decisions are based on operating results, financial and economic decisions,
capital needs, growth objectives, appropriate dividend restrictions related to
the Company and other relevant factors. See "Factors That May Affect Future
Results."
The following table sets forth the risk-adjusted core and total capital
calculations at September 30, 1996, and December 31, 1995:
<TABLE>
<CAPTION>
RISK-ADJUSTED CAPITAL
SEPTEMBER 30, DECEMBER 31,
1996 1995
____________________________________________________________________________________________________________
<S> <C> <C>
Tier I capital....................................................................... $ 27,817 $ 24,845
Tier II capital...................................................................... 2,255 2,203
________ ________
Total capital...................................................................... $ 30,072 $ 27,048
======== ========
Risk-adjusted assets................................................................. $173,093 $170,089
Risk-adjusted off-balance sheet items................................................ 5,497 4,489
Adjusted average assets for Leverage ratio........................................... $345,052 $357,410
Tier I capital as a percentage of risk-adjusted assets and off-balance sheet items... 15.6% 14.2%
Total of Tier I and Tier II capital as a percentage of risk-adjusted assets and off-
balance sheet items................................................................. 16.8 15.5
Tier I capital as a percentage of total average assets less goodwill................. 8.1% 7.0%
</TABLE>
The Company exceeded all relevant regulatory capital measurements at September
30, 1996, and was considered "well capitalized." Regulatory agencies define
institutions not under a written directive to maintain certain capital levels as
"well capitalized" if they exceed the following: Tier I risk-based ratio of 6.0
percent, Total risk-based ratio of 10.0 percent and Leverage ratio, defined as
Tier I capital to total average assets less goodwill, of 5.0 percent. The
Company continued to show improvement in its capital level as evidenced by the
increase in the Leverage ratio. Such ratio was 7.0 percent, 7.8 percent and 8.1
percent at December 31, 1995, June 30, 1996, and September 30, 1996,
respectively.
The significance of maintaining a "well capitalized" regulatory classification
became increasingly important as a result of the deregulation provisions in the
Bank Insurance Fund ("BIF")/Savings Association Insurance Fund ("SAIF")
legislation enacted September 30, 1996. The FRB's adoption of regulations under
such legislation made it easier for bank holding companies having such
classification to engage in certain non-banking activities. Under the new rules
bank holding companies are: (I) allowed to begin offering securities sales,
trust services, leasing, loan servicing, management consulting, data processing,
and futures commission merchant activities without prior FRB approval; (II) no
longer subject to application requirements to acquire businesses that already
offer the aforementioned services; and (III) able to enter an activity other
than those services listed above. The only requirement set forth in the rule is
that the bank holding company notify the FRB of its intent within a certain time
frame.
REVIEW OF FINANCIAL PERFORMANCE:
Net income for the nine months ended September 30, 1996, totaled $3,151 or $1.43
per share and was the highest earnings from normal operations ever achieved by
the Company. The returns on average total assets and stockholders' equity were
1.21 percent and 14.94 percent, respectively. For the third quarter of 1996,
net income amounted to $1,149 or $0.52 per share. The favorable earnings were
primarily a result of reductions in noninterest expenses along with improvements
in net interest and noninterest income. For the three and nine months ended
September 30, 1995, the Company reported net losses of $511 and $769,
respectively. Such losses resulted from the realization of net losses of $2,508
and $4,393, for the corresponding periods of 1995, on the sale of available for
sale securities.
NET INTEREST INCOME:
The Company derives its largest source of operating income from net interest
income. Net interest income is defined as the amount by which interest and fees
on loans and other investments exceeds interest expense incurred on deposits and
other funding sources used to support such assets. Net interest margin is the
percentage of net interest income on a tax- equivalent basis to average earning
assets. Changes in volumes and rates of earning assets and liabilities, in
response to changes in general market rates, are the primary factors affecting
net interest income. Additional factors influencing the level of net interest
income include the composition of earning assets and interest-bearing
liabilities and the level of nonperforming assets. See "Factors That May Affect
Future Results."
The Company experienced a 4.8 percent increase in tax equivalent net interest
income from $9,180 for the nine months ended September 30, 1995, to $9,617 for
the same period of 1996. Such increase was almost exclusively attributed to the
Company's improved net interest margin. The year-to-date net interest margin in
1996 was 3.85 percent. In comparison, the net interest margin for the same
period of 1995 was 3.47 percent. A combination of an improved earning assets
yield and a reduced cost of funds explains the enhanced net interest margin.
For the nine months ended September 30, 1996, earning assets yield rose to 7.91
percent from 7.75 percent for the same period of 1995. The cost of funds for
the three quarters ended September 30, 1996, fell to 4.68 percent in comparison
to 4.86 percent for the comparable period of 1995. These changes accounted for
the $428 rate variance recorded in the nine month comparison of 1996 versus
1995. The majority of the favorable rate variance is attributable to the
Company's lower funds costs as management became less aggressive in its product
pricing in light of the improved liquidity position. Improved loan yields also
aided in the favorable rate variance to a lesser extent. For the quarter ended
September 30, 1996, tax-equivalent net interest income increased $115 compared
to the same period of 1995. This increase was primarily attributable to the
decline in average interest-bearing liability volumes being larger than the
decline in average earning assets volumes. Average earning assets declined
$14,625 from $348,911 for the quarter ended September 30, 1995, to $334,286 for
the comparable period of 1996. Average interest-bearing liabilities declined
$15,797 from $304,555 for the third quarter of 1995 to $288,758 for the same
period of 1996. Reduced investment volumes accounted for the majority of the
lower average earning assets volumes while the Company's de-emphasis on
aggressive deposit pricing led to the reduced interest-bearing liability
volumes.
The Company experienced a slight tightening in its net interest margin, as such
margin of 3.80 percent for the third quarter of 1996 declined compared to the
3.87 percent reported for the first half of 1996. Such margin may continue
tightening in the fourth quarter of 1996 as the Company may experience higher
costs in attracting funds to support loan demand.
Management analyzes interest income and interest expense by segregating volume
and rate components of earning assets and interest-bearing liabilities. The
following table demonstrates the impact changes in the interest rates earned on
assets and paid on liabilities, along with changes in the volume of earning
assets and interest-bearing liabilities, have on net interest income. Earning
assets averages include nonaccrual loans. Investment averages include available
for sale securities at amortized cost. Investment securities and loans are
adjusted to a tax- equivalent basis using a 34.0 percent statutory tax rate.
The net change attributable to the combined impact of rate and volume is
allocated proportionately to the change due to rate and the change due to
volume:
<TABLE>
<CAPTION>
NET INTEREST INCOME CHANGES DUE TO RATE AND VOLUME
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 VS. 1995 1996 VS. 1995
INCREASE (DECREASE) INCREASE (DECREASE)
ATTRIBUTABLE TO ATTRIBUTABLE TO
_____________________ _______________________
TOTAL TOTAL
CHANGE RATE VOLUME CHANGE RATE VOLUME
______ ____ ______ ______ ____ ______
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans:
Taxable............................. $ 244 $ (91) $ 335 $ 1,111 $ (7) $ 1,118
Tax-exempt.......................... 66 (8) 74 32 81 (49)
Investments:
Taxable............................. (673) (54) (619) (2,672) (25) (2,647)
Tax-exempt.......................... 311 (31) 342 877 (34) 911
Interest-bearing deposits with banks.. (3) 2 (5) (4) 1 (5)
Federal funds sold.................... (238) (18) (220) (72) (14) (58)
_____ _____ _____ _______ _____ _______
Total interest income............. (293) (200) (93) (728) 2 (730)
_____ _____ _____ _______ _____ _______
Interest expense:
Money market accounts................. (52) (26) (26) (198) (104) (94)
NOW accounts.......................... 5 (3) 8 13 2 11
Savings accounts...................... (77) (53) (24) (274) (150) (124)
Time deposits less than $100.......... (173) (107) (66) 191 (37) 228
Time deposits $100 or more............ (76) (19) (57) (128) (128)
Short-term borrowings................. 1 1 (676) (119) (557)
Long-term debt........................ (36) (6) (30) (93) (18) (75)
_____ _____ _____ _______ _____ _______
Total interest expense............ (408) (214) (194) (1,165) (426) (739)
_____ _____ _____ _______ _____ ________
Net interest income............... $ 115 $ 14 $ 101 $ 437 $ 428 $ 9
===== ===== ===== ======= ===== ========
</TABLE>
The following table sets forth a summary of net interest income for major
categories of earning assets and interest-bearing liabilities:
<TABLE>
<CAPTION>
SUMMARY OF NET INTEREST INCOME
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
___________________________ ___________________________
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ INTEREST AVERAGE INCOME/ INTEREST
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
_______ ________ ________ _______ ________ ________
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Earning assets:
Loans:
Taxable..................................... $210,018 $13,826 8.79% $191,920 $12,715 8.86%
Tax-exempt.................................. 4,980 317 8.49 5,100 285 7.47
Investments:
Taxable..................................... 76,897 3,125 5.43 127,884 5,797 6.06
Tax-exempt.................................. 35,539 2,233 8.39 20,539 1,356 8.83
Interest-bearing deposits with banks.......... 94 6 8.53 175 10 7.64
Federal funds sold............................ 6,192 251 5.41 7,601 323 5.68
________ _______ ________ _______
Total earning assets...................... 333,720 19,758 7.91% 353,219 20,486 7.75%
Less: allowance for loan losses.............. 4,012 3,798
Other assets.................................. 16,912 12,669
________ ________
Total assets.............................. $346,620 $362,090
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Money market accounts......................... $ 18,425 391 2.83% $ 22,342 589 3.52%
NOW accounts.................................. 16,190 240 1.98 15,445 227 1.97
Savings accounts.............................. 67,290 1,503 2.98 72,617 1,777 3.27
Time deposits less than $100.................. 157,626 6,707 5.68 152,745 6,516 5.70
Time deposits $100 or more.................... 26,927 1,207 5.99 29,785 1,335 5.99
Short-term borrowings......................... 25 1 5.34 13,340 677 6.79
Long-term debt................................ 2,815 92 4.37 5,049 185 4.90
________ _______ ________ _______
Total interest-bearing liabilities........ 289,298 10,141 4.68% 311,323 11,306 4.86%
Noninterest-bearing deposits.................. 26,218 23,666
Other liabilities............................. 2,925 723
Stockholders' equity.......................... 28,179 26,378
________ _______ ________ _______
Total liabilities and stockholders' equity $346,620 10,141 $362,090 11,306
======== _______ ======== _______
Net interest/income spread................ $ 9,617 3.23% $ 9,180 2.89%
======= =======
Net interest margin....................... 3.85% 3.47%
Tax equivalent adjustments:
Loans......................................... $ 108 $ 97
Investments................................... 759 461
_______ _______
Total adjustments......................... $ 867 $ 558
======= =======
</TABLE>
Note: Average balance was calculated using average daily balances and
includes nonaccrual loans. Available for sale securities, included in
investment securities, are stated at amortized cost with the related
average unrealized holding gain of $259 at September 30, 1996, and an
average unrealized holding loss of $1,733 at September 30, 1995,
included in other assets. Tax-equivalent adjustment was calculated
using the prevailing statutory rate of 34.0 percent.
PROVISION FOR LOAN LOSSES:
For the nine months ended September 30, 1996, the Company's provision for loan
losses was $225, a $135 decrease from the same period of 1995. The reduction
resulted from management's assessment of the adequacy of the Company's allowance
for loan losses account. For the third quarters of 1996 and 1995, the Company's
provision remained constant at $75. Management believes that maintaining a
standard monthly charge to operations in the form of a provision is warranted,
despite maintaining an adequate allowance account, in light of the higher level
of nonperforming assets and loan demand. Should loan demand moderate and the
nonperforming assets level improve, management will consider adjusting the
amount of the monthly provision.
NONINTEREST INCOME:
Noninterest income totaled $1,039 for the nine months ended September 30, 1996,
a $4,547 increase compared to the same period last year. This significant
increase stemmed from the Company incurring $4,393 in losses from the
disposition of available for sale securities in 1995. Such losses resulted from
completing the reconstitution of the investment portfolio during the second and
third quarters of 1995. The net investment securities losses of $58 for the
nine months ended September 30, 1996, resulted from the disposition of four
variable rate collateralized mortgage obligations with a carrying value of
$1,487. Such disposition resulted from a decision made by the investment
committee based on a reassessment of their appropriateness with respect to their
structure, composition and characteristics in line with future investment goals.
Service charges, fees, and commissions increased $212 or 24.0 percent from $885
for the nine months ended September 30, 1995, to $1,097 for the same period of
1996. Such increase was primarily attributable to management's decision,
effective April 1, 1996, to adjust general service charges on deposit accounts.
For the quarter ended September 30, 1996, noninterest income equaled $358 as
compared to a loss of $2,237 for the same period of 1995. Such increase can be
explained by reasons similar to those stated for the year-to-date results.
NONINTEREST EXPENSE:
For the three quarters ended September 30, 1996, noninterest expenses totaled
$5,535, a decrease of $899 or 14.0 percent compared to the same period of 1995.
The Company's net overhead ratio for the nine months ended September 30, 1996,
declined to 1.7 percent in comparison to 2.0 percent for the corresponding
period of 1995. Such ratio is also below the 2.7 percent experienced by the
Company's peer group. A company's productivity is also measured by its
operating efficiency ratio. Such ratio is defined as a company's noninterest
expense, excluding other real estate expense, as a percentage of net interest
income and noninterest income less nonrecurring gains and losses. The Company's
operating efficiency ratio for the nine months ended September 30, 1996,
improved to 55.6 percent compared to 67.3 percent for the same period last year.
The Company's salaries and benefits expense accounted for half of total
noninterest expenses. Such expenses totaled $2,769 for the nine months ended
September 30, 1996, a $450 or 14.0 percent decrease from the comparable period
of 1995. The primary reason for such decline was attributable to the Board of
Directors' decision in the second quarter of 1995 to exercise the termination
option of the President and Chief Executive Officer's employment agreement. The
cost of exercising such option approximated $204. The other major component
causing the marked reduction was the Company's discontinuance of the deferred
compensation plan for certain senior management employees during the third
quarter of 1996. Such action accounted for $159 of the reduction in salaries
and benefits expense.
Occupancy and equipment expense aggregated $926 for the three quarters ended
September 30, 1996, similar to the amount reported for the same period last
year. However, such expenses and certain other noninterest expenses should rise
moderately during the final quarter of 1996 in response to the introduction of
an imaging system. This system will eliminate the requirement of returning
cancelled checks to customers by replacing them with computer-generated
facsimiles. This technology will not only enhance the effectiveness and
efficiency in serving customers, but will also reduce ongoing operating costs in
the future.
For the nine months ended September 30, 1996, other expenses amounted to $1,840,
a $463 or 20.1 percent decrease from the same period of 1995. The major
influence on such decrease was a reduction in Federal Deposit Insurance
Corporation ("FDIC") premiums paid by the Company. Under the new rate structure
approved by the FDIC Board of Directors on November 14, 1995, and put into
effect January 1, 1996, the Company will pay the $2 annual minimum for FDIC
insurance based upon its current risk characteristics. By maintaining such
rating, the Company's FDIC insurance premium decreased $461 from $509 for the
three quarters ended September 30, 1995, to $48 for the same period of 1996.
At the end of the third quarter of 1996, the President signed into law the
Deposit Insurance Funds Act of 1996. Under this new law, beginning January 1,
1997, BIF insured institutions will be responsible for part of the $780 million
annual Financing Corporation ("FICO") interest payments. For the three year
period from January 1, 1997, through December 31, 1999, the BIF assessment rate
for FICO would be one-fifth of the SAIF rate. Currently this would be an
assessment rate of 1.29 cents per one hundred dollars in deposits for BIF
insured institutions. The ratio will be pro-rated across all BIF and SAIF
deposits at an estimated rate of 2.4 cents per one hundred dollars in deposits
beginning January 1, 2000. The Company estimates an increase of $39 in FDIC
insurance premiums for 1997 based on the provisions of this law.
For the quarter ended September 30, 1996, the Company's noninterest expenses
declined $294 as compared to the same period of 1995. The termination of the
deferred compensation plan for certain senior management employees and reduced
cost of FDIC insurance were the primary reasons for such decline.
The following table sets forth the major components of noninterest expenses for
the three months and nine months ended September 30, 1996 and 1995:
<TABLE>
<CAPTION>
NONINTEREST EXPENSES
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
_______________________________________________________________________________________
<S> <C> <C> <C> <C>
Salaries and employee benefits expense:
Salaries and payroll taxes..................... $ 823 $ 803 $2,452 $2,644
Employee benefits.............................. 3 195 317 575
______ ______ ______ ______
Salaries and employee benefits expense....... 826 998 2,769 3,219
______ ______ ______ ______
Net occupancy and equipment expense:
Net occupancy expense.......................... 149 167 470 515
Equipment expense.............................. 136 137 456 397
______ ______ ______ ______
Net occupancy and equipment expense.......... 285 304 926 912
______ ______ ______ ______
Other noninterest expenses:
Marketing expense.............................. 52 90 171 195
Other taxes.................................... 56 50 168 155
Stationery and supplies........................ 91 84 216 203
Contractual services........................... 197 158 658 655
Insurance including FDIC assessment............ 4 154 71 546
Other.......................................... 179 146 556 549
______ ______ ______ ______
Other noninterest expenses................... 579 682 1,840 2,303
______ ______ ______ ______
Total noninterest expense.................. $1,690 $1,984 $5,535 $6,434
====== ====== ====== ======
</TABLE>
INCOME TAXES:
The Company's effective tax rates for the three and nine months ended September
30, 1996, were 22.1 and 21.8, respectively. The third quarter rate represents a
slight increase over that of the second quarter of 1996 as a result of
generating a higher volume of income. Despite such increase, the Company
maintained an advantageous tax position as a result of its tax-exempt revenue
and tax credits earned on a residential housing program for elderly and low-to
moderate-income households. The Company recognized $53 of investment tax
credits for the nine months ended September 30, 1996.
The Company reported tax benefits of $889 and $911 for the three and nine months
ended September 30, 1995. Such benefits were a direct result of realizing
losses on investment dispositions of $4,393 in 1995.
COMM BANCORP, INC.
OTHER INFORMATION
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 2. CHANGES IN SECURITIES
NONE
ITEM 3. DEFAULTS OF SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
NONE
COMM BANCORP, INC.
FORM 10-Q
SIGNATURE PAGE
Pursuant to the requirements of Section 13 or 15(d) 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.
Registrant, Comm Bancorp, Inc.
Date November 12, 1996 /s/ David L. Baker
David L. Baker
Chief Executive Officer
Date November 12, 1996 /s/ Scott A. Seasock
Scott A. Seasock
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS AND CONSOLIDATED BALANCE SHEETS FOUND ON PAGES 3
AND 4 OF THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 8,918
<INT-BEARING-DEPOSITS> 8
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 106,336
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 226,556
<ALLOWANCE> 4,048
<TOTAL-ASSETS> 347,753
<DEPOSITS> 314,764
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,894
<LONG-TERM> 46
0
0
<COMMON> 726
<OTHER-SE> 29,323
<TOTAL-LIABILITIES-AND-EQUITY> 347,753
<INTEREST-LOAN> 14,035
<INTEREST-INVEST> 4,599
<INTEREST-OTHER> 257
<INTEREST-TOTAL> 18,891
<INTEREST-DEPOSIT> 10,048
<INTEREST-EXPENSE> 10,141
<INTEREST-INCOME-NET> 8,750
<LOAN-LOSSES> 225
<SECURITIES-GAINS> (58)
<EXPENSE-OTHER> 5,535
<INCOME-PRETAX> 4,029
<INCOME-PRE-EXTRAORDINARY> 4,029
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,151
<EPS-PRIMARY> 1.43
<EPS-DILUTED> 1.43
<YIELD-ACTUAL> 7.79
<LOANS-NON> 1,209
<LOANS-PAST> 2,111
<LOANS-TROUBLED> 239
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,903
<CHARGE-OFFS> 319
<RECOVERIES> 239
<ALLOWANCE-CLOSE> 4,048
<ALLOWANCE-DOMESTIC> 4,048
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
