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 MARCH 31, 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 April 4, 1996
reflecting a 3 for 1 stock split effective April 1, 1996.
Page 1 of 29
COMM BANCORP, INC.
FORM 10-Q
MARCH 31, 1996
INDEX
CONTENTS PAGE NO.
_________________________________________________________________________
PART I. FINANCIAL INFORMATION:
ITEM 1:
Consolidated Statements of Income - For the Three Months
Ended March 31, 1996 and 1995................................ 3
Consolidated Balance Sheets - March 31, 1996, and December 31,
1995......................................................... 4
Consolidated Statement of Changes in Stockholders' Equity
For the Three Months Ended March 31, 1996.................... 5
Consolidated Statements of Cash Flows For the Three Months
Ended March 31, 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............................................. 28
Signature Page................................................ 29
COMM BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME_______________________________________________
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31 1996 1995
____________________________________________________________________________________________________________
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans:
Taxable................................................................................. $ 4,625 $ 4,121
Tax-exempt.............................................................................. 50 48
Interest on investment securities held to maturity:
Taxable................................................................................. 1,296
Tax-exempt.............................................................................. 301
Interest and dividends on investment securities available for sale:
Taxable................................................................................. 1,026 777
Tax-exempt.............................................................................. 485
Dividends............................................................................... 25 32
Interest on deposits with banks........................................................... 4 3
Interest on federal funds sold............................................................ 122
_______ _______
Total interest income................................................................. 6,337 6,578
_______ _______
INTEREST EXPENSE:
Interest on deposits...................................................................... 3,399 3,266
Interest on short-term borrowings......................................................... 334
Interest on long-term debt................................................................ 33 60
_______ _______
Total interest expense................................................................ 3,432 3,660
_______ _______
Net interest income................................................................... 2,905 2,918
Provision for loan losses................................................................. 75 210
_______ _______
Net interest income after provision for loan losses................................... 2,830 2,708
_______ _______
NONINTEREST INCOME:
Service charges, fees and commissions..................................................... 336 328
_______ _______
Total noninterest income.............................................................. 336 328
_______ _______
NONINTEREST EXPENSE:
Salaries and employee benefits expense.................................................... 962 1,002
Net occupancy and equipment expense....................................................... 327 312
Other expenses............................................................................ 598 723
_______ _______
Total noninterest expense............................................................. 1,887 2,037
_______ _______
Income before income taxes................................................................ 1,279 999
Provision for income taxes................................................................ 278 231
_______ _______
Net income............................................................................ $ 1,001 $ 768
======= =======
PER SHARE DATA:
Net income................................................................................ $ 1.36 $ 1.05
Cash dividends declared................................................................... $ 0.16
Average common shares..................................................................... 733,360 733,360
</TABLE>
See notes to consolidated financial statements.
COMM BANCORP, INC.
CONSOLIDATED BALANCE SHEETS_____________________________________________________
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
_________ ____________
<S> <C> <C>
ASSETS:
Cash and due from banks............................................................. $ 6,706 $ 6,864
Interest-bearing deposits with banks................................................ 104 116
Federal funds sold.................................................................. 3,400 15,100
Investment securities available for sale............................................ 115,028 108,706
Loans, net of unearned income....................................................... 210,119 213,835
Less: allowance for loan losses................................................... 3,960 3,903
________ ________
Net loans........................................................................... 206,159 209,932
Premises and equipment, net......................................................... 2,998 3,070
Accrued interest receivable......................................................... 2,923 2,872
Other assets........................................................................ 4,337 4,288
________ ________
Total assets.................................................................... $341,655 $350,948
======== ========
LIABILITIES:
Deposits:
Noninterest-bearing............................................................... $ 24,848 $ 25,423
Interest-bearing.................................................................. 283,144 291,676
________ ________
Total deposits.................................................................. 307,992 317,099
Long-term debt...................................................................... 3,047 3,048
Accrued interest payable............................................................ 1,840 1,761
Other liabilities................................................................... 694 1,145
________ ________
Total liabilities............................................................... 313,573 323,053
________ ________
STOCKHOLDERS' EQUITY:
Common stock, par value $1, authorized 4,000,000 shares, issued and outstanding
733,360 shares..................................................................... 733 733
Capital surplus..................................................................... 6,310 6,310
Retained earnings................................................................... 20,956 20,072
Net unrealized gain on available for sale securities................................ 83 780
________ ________
Total stockholders' equity...................................................... 28,082 27,895
________ ________
Total liabilities and stockholders' equity...................................... $341,655 $350,948
======== ========
</TABLE>
See notes to consolidated financial statements.
COMM BANCORP, INC.
CONSOLIDATED STATEMENTS 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........................................ 1,001 1,001
Dividends declared: $0.16 per share............... (117) (117)
Net change in unrealized gain on securities....... (697) (697)
____ ______ _______ _____ _______
BALANCE, MARCH 31, 1996........................... $733 $6,310 $20,956 $ 83 $28,082
==== ====== ======= ===== =======
</TABLE>
See notes to consolidated financial statements.
COMM BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS___________________________________________
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31 1996 1995
____________________________________________________________________________________________________________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................................ $ 1,001 $ 768
Adjustments:
Provision for loan losses............................................................... 75 210
Depreciation and amortization........................................................... 186 155
Amortization of loan fees............................................................... (59) (41)
Deferred income tax..................................................................... (443) 414
Changes in:
Interest receivable................................................................... (51) 270
Other assets.......................................................................... 718 (1,112)
Interest payable...................................................................... 79 264
Other liabilities..................................................................... (274) 667
_______ _______
Net cash provided by operating activities........................................... 1,232 1,595
_______ _______
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of available for sale securities...................................... 322
Proceeds from repayments of investment securities:
Held to maturity.......................................................................... 466
Available for sale...................................................................... 3,603 179
Purchases of investment securities:
Held to maturity.......................................................................... (179)
Available for sale...................................................................... (10,969) (608)
Net receipts (disbursements) from lending activities...................................... 3,737 (4,158)
Purchases of premises and equipment....................................................... (59) (172)
_______ _______
Net cash used in investing activities............................................... (3,688) (4,150)
_______ _______
CASH FLOWS FROM FINANCING ACTIVITIES:
Net changes in:
Money market, NOW, savings and noninterest-bearing accounts............................. (5,076) (8,529)
Time deposits........................................................................... (4,032) 3,250
Short-term borrowings................................................................... 7,544
Payments on long-term debt................................................................ (1) (1)
Cash dividends paid....................................................................... (293) (286)
_______ _______
Net cash provided by (used in) financing activities................................. (9,402) 1,978
_______ _______
Net decrease in cash and cash equivalents........................................... (11,858) (577)
Cash and cash equivalents at beginning of year...................................... 21,964 6,783
_______ _______
Cash and cash equivalents at end of period.......................................... $10,106 $ 6,206
======= =======
SUPPLEMENTAL DISCLOSURE:
Cash paid during the period for:
Interest................................................................................ $ 3,353 $ 3,396
Income taxes............................................................................ 4 54
Noncash items:
Transfer of loans to other real estate.................................................. 20 127
Change in net unrealized losses on available for sale securities........................ 697 $ 815
Cash dividends declared................................................................. $ 117
</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
affect the reported amounts of assets and liabilities and 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.
OVERVIEW:
Net income in the first quarter of 1996 of $1.0 million or $1.36 per share was
the highest first quarter earnings from normal operations ever achieved by the
Company. Such record level was a reflection of management's transitional action
taken in 1995 to transform the Company into a "traditional community bank."
Management's restructuring of the Company's balance sheet has favorably affected
its liquidity and interest sensitivity positions, allowing for a reemphasis of
the lending function. Loans, net of unearned income, represented 63.9 percent
of earning assets at March 31, 1996, as compared to 56.4 percent at March 31,
1995. Moreover, the Company's improved liquidity posture promotes the
facilitation of future loan demand. Management expects to receive approximately
$52.0 million f4rom repayments on loans and investment securities over the next
twelve months as compared to $15.9 million for the same period at March 31,
1995. In addition, the exposure of the Company's net interest income to
changing interest rates has been significantly limited as evidenced by having
approximately equal amounts of earning assets and interest-bearing liabilities
repricing within one year at March 31, 1996.
REVIEW OF FINANCIAL POSITION:
Total assets declined $9.2 million during the first quarter of 1996 from $350.9
million at December 31, 1995, to $341.7 million at March 31, 1996. Such
reduction was in line with cyclical trends and was a result of management's
decision to be less aggressive with respect to deposit pricing because of the
Company's improved liquidity position. The Company's deposit volumes typically
decline during the first quarter as customers use excess funds to pay off
holiday bills. Aggregate interest-bearing deposits declined approximately $8.0
million during the first quarters of 1995 and 1994. Loans, net of unearned
income, were $210.1 million at March 31, 1996, compared to $213.8 million at
December 31, 1995. Such decrease, adjusted for repayments on short-term credit
extensions to other financial institutions, would have amounted to an increase
of $4.3 million. Stockholders' equity grew $187 as retained earnings of $884
were partially offset by a $697 adjustment in the net unrealized gain on
on available for sale investment securities. The Board of Directors
restructured the Company's dividend payout schedule from a semiannual to
quarterly format effective for the first quarter of 1996. Cash dividends
declared as a percentage of net income amounted to 11.7 percent for the first
quarter of 1996.
INVESTMENT PORTFOLIO:
Management continued to utilize funds not currently demanded by loan customers
to build the investment portfolio through acquisitions of short-term U.S.
Treasury securities and medium-term tax-exempt general obligations of states and
municipalities during the first three months of 1996. U.S. Treasury securities
will provide liquidity in assuring necessary funding for future loan demand,
whereas purchases of tax-exempt municipal obligations will lower the Company's
effective tax rate. At March 31, 1996, U.S. Treasury securities and tax-exempt
municipal obligations totaled $48.4 million or 42.1 percent of total investments
and $35.5 million or 30.8 percent of total investments, respectively.
Comparatively, U.S. Treasury securities and tax-exempt municipal obligations
accounted for $15.1 million or 9.9 percent and $20.8 million or 13.5 percent of
total investments, respectively, at March 31, 1995. Overall the investment
portfolio amounted to 35.0 percent of earning assets at March 31, 1996, as
compared to 43.6 percent at March 31, 1995. The Company reported a net
unrealized gain on available for sale securities of $83, net of income taxes of
$43, at March 31, 1996. The rise in general market rates of 25 basis points in
the short-term and 75 basis points in the medium-term caused a $697 adjustment
in the net unrealized gain during the first three months of 1996. Management
performs quarterly stress tests on the investment portfolio to determine what
effects interest rate changes will have on its value. These tests indicate the
investment portfolio at March 31, 1996, would lose approximately 2.7 percent of
its value with a 100 basis point increase in general market rates.
The following table sets forth the carrying values of the major classifications
of securities as they relate to the total investment portfolio at March 31,
1996, and December 31, 1995:
DISTRIBUTION OF INVESTMENT SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
AMOUNT % AMOUNT %
_________________________________________________________________________________________
<S> <C> <C> <C> <C>
U.S. Treasury securities............................ $ 48,430 42.10% $ 43,751 40.25%
U.S. Government agencies............................ 22,723 19.75 26,213 24.11
State and municipals................................ 35,472 30.84 30,512 28.07
Mortgage-backed securities.......................... 6,085 5.29 6,154 5.66
Other securities.................................... 2,318 2.02 2,076 1.91
________ ______ ________ ______
Total........................................... $115,028 100.00% $108,706 100.00%
======== ====== ======== ======
</TABLE>
The tax-equivalent yield on the investment portfolio declined slightly from 6.5
percent during the first quarter of 1995 to 6.4 percent for the first quarter of
1996. However, the quality and overall risk posture of the comparable
investment portfolios has improved significantly from 1995 to 1996.
The reconstitution of the investment portfolio in 1995 has significantly
mitigated interest rate, extension, prepayment, call and marketability risk.
The weighted average life of the investment portfolio at March 31, 1996, was 3.9
years.
The following table sets forth the maturity distribution of the amortized cost,
fair value and weighted average tax-equivalent yield of the available for sale
portfolio at March 31, 1996. The weighted average yield based on amortized cost
has been computed for state and municipals 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 ("CMOs"), which 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.
MATURITY DISTRIBUTION OF AVAILABLE FOR SALE PORTFOLIO
<TABLE>
<CAPTION>
AFTER ONE AFTER FIVE
WITHIN BUT WITHIN BUT WITHIN AFTER
ONE YEAR FIVE YEARS TEN YEARS TEN YEARS TOTAL
_____________ _____________ _____________ _____________
MARCH 31, 1996 AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD Amortized cost:
_____________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities..... $23,147 5.68% $25,346 5.58% $ 48,493 5.63%
U.S. Government agencies..... 5,196 4.77 17,825 4.70 23,021 4.72
State and municipals......... 405 5.84 4,203 5.94 $6,273 8.36% $24,496 7.92% 35,377 7.74
Mortgage-backed securities... 238 7.14 3,111 6.22 2,774 5.90 6,123 6.11
Other securities............. 1,888 5.96 1,888 5.96
_______ _______ ______ _______ ________
Total...................... $28,986 5.53% $50,485 5.34% $9,047 7.61% $26,384 7.78% $114,902 6.13%
======= ======= ====== ======= ========
Fair value:
U.S. Treasury securities..... $23,173 $25,257 $ 48,430
U.S. Government agencies..... 5,185 17,538 22,723
State and municipals......... 404 4,184 $6,491 $24,393 35,472
Mortgage-backed securities... 237 3,092 2,756 6,085
Other securities............. 2,318 2,318
_______ _______ ______ _______ ________
Total...................... $28,999 $50,071 $9,247 $26,711 $115,028
======= ======= ====== ======= ========
</TABLE>
LOAN PORTFOLIO:
As aforementioned, the loan portfolio, adjusted for $8.0 million of repayments
on short-term credit extensions to other financial institutions, would have
grown $4.3 million during the first quarter of 1996. Such increase is primarily
attributable to financing of commercial and residential real estate properties.
Approximately 37.2 percent of the $4.3 million increase is due to management's
agreement with a participating financial institution to acquire their portion of
a participated commercial loan. Loans to finance one-to-four family residential
properties increased $657 during the first three months of 1996. Such loans
represented 56.5 percent of total loans, net of unearned income, at March 31,
1996. The average volume of loans during the first quarter of 1996 amounted to
$212.8 million as compared to $196.0 million for the same period of 1995. The
tax-equivalent yield on the loan portfolio increased from 8.7 percent for the
first three months of 1995 to 8.9 percent for the comparable period of 1996.
Loan yields should remain stable throughout the remainder of 1996 as rises in
general market rates are offset by management's desire to foster loan demand
through competitive product pricing. Loan demand is expected to be facilitated
through increases in core deposits and repayments on loans and investments.
The following table sets forth the major categories of the loan portfolio at
March 31, 1996, and December 31, 1995:
DISTRIBUTION OF LOAN PORTFOLIO
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
AMOUNT % AMOUNT %
_______________________________________________________________________________________
<S> <C> <C> <C> <C>
Commercial, financial and others............ $ 33,833 16.10% $ 41,593 19.45%
Real estate:
Construction.............................. 1,027 0.49 1,014 0.47
Mortgage.................................. 155,117 73.82 151,926 71.05
Consumer, net............................... 20,142 9.59 19,302 9.03
________ ______ ________ ______
Loans, net of unearned income............. 210,119 100.00% 213,835 100.00%
Less: allowance for loan losses............. 3,960 ====== 3,903 ======
________ ________
Net loans............................... $206,159 $209,932
======== ========
</TABLE>
Management continually examines the maturity distribution and interest rate
sensitivity of the loan portfolio in an attempt to limit interest rate risk and
liquidity strains. Approximately 37.8 percent of the lending portfolio will
reprice within the next twelve months as management attempts to reduce the
average term of fixed-rate loans and increase its holdings of adjustable rate
loans in order to limit interest rate risk in the future. The 37.8 percent
surpasses the 32.2 percent at March 31, 1995, as a result of increased levels of
short-term funding and a slight improvement towards achieving management's goal
of generating variable-rate loans.
The following table sets forth the maturity and repricing information of the
loan portfolio by major category at March 31, 1996:
MATURITY DISTRIBUTION AND INTEREST SENSITIVITY OF LOAN PORTFOLIO
<TABLE>
<CAPTION>
AFTER ONE
WITHIN BUT WITHIN AFTER
MARCH 31, 1996 ONE YEAR FIVE YEARS FIVE YEARS TOTAL
_______________________________________________________________________________________
<S> <C> <C> <C> <C>
Maturity schedule:
Commercial, financial and others..... $15,623 $ 9,993 $ 8,217 $ 33,833
Real estate:
Construction....................... 1,027 1,027
Mortgage........................... 3,430 17,582 134,105 155,117
Consumer, net........................ 2,914 11,140 6,088 20,142
_______ _______ ________ ________
Total............................ $22,994 $38,715 $148,410 $210,119
======= ======= ======== ========
Repricing schedule:
Predetermined interest rates......... $37,213 $56,518 $ 74,213 $167,944
Floating or adjustable interest rates 42,175 42,175
_______ _______ ________ ________
Total............................ $79,388 $56,518 $ 74,213 $210,119
======= ======= ======== ========
</TABLE>
ASSET QUALITY:
Nonperforming assets improved from $4,184 or 1.96 percent of loans, net, at
December 31, 1995, to $3,563 or 1.70 percent at March 31, 1996. Reductions in
loans past due ninety days or more as a result of management's improved
procedures with respect to delinquent credits during the first quarter of 1996
was the primary cause of such improvement. Accruing loans past due ninety days
or more declined from $2,150 or 1.01 percent of loans, net, to $1,519 or 0.72
percent at December 31, 1995 and March 31, 1996, respectively. Management
expects a reduction in nonperforming loan levels based on intensified collection
efforts, unless local economic conditions deteriorate, thus reducing the ability
of borrowers to repay loans on a timely basis.
The Company's recorded investment in impaired loans, consisting of nonaccrual
and restructured loans, was $1,600 and $1,593 at March 31, 1996, and
December 31, 1995, respectively. The average recorded investment in impaired
loans during the first quarters of 1996 and 1995 was $1,625 and $1,602,
respectively. Impaired loans include a $258 restructured loan to one commercial
customer. Such credit continued to perform in accordance with its modified
terms during the first quarter of 1996. Interest income related to impaired
loans would have been $16 and $30 for the first three months of 1996 and 1995,
respectively, had such loans been current and the terms not been modified.
Interest recognized on impaired loans amounted to $16 for the first three months
of 1996 and $6 for the comparable period last year. Cash received on impaired
loans applied as a reduction of principal totaled $41 and $14 for the quarters
ended March 31, 1996 and 1995, respectively. There were no commitments to
extend additional funds to such parties at March 31, 1996.
The following table sets forth information concerning nonperforming loans and
foreclosed assets at March 31, 1996, and December 31, 1995. The table includes
all credits classified for regulatory purposes as loss or doubtful. 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.
DISTRIBUTION OF NONPERFORMING ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
______________________________________________________________________________________
<S> <C> <C>
Nonaccrual loans:
Commercial, financial and others............................... $ 166 $ 167
Real estate:
Construction.................................................
Mortgage..................................................... 1,176 1,164
Consumer, net..................................................
______ ______
Total nonaccrual loans..................................... 1,342 1,331
______ ______
Loans past due 90 days or more:
Commercial, financial and others............................... 329 181
Real estate:
Construction.................................................
Mortgage..................................................... 881 1,633
Consumer, net.................................................. 309 336
______ ______
Total loans past due 90 days or more....................... 1,519 2,150
______ ______
Restructured loans............................................. 258 262
______ ______
Total nonperforming loans.................................. 3,119 3,743
Other real estate.............................................. 444 441
______ ______
Total nonperforming assets................................. $3,563 $4,184
====== ======
Ratios:
Nonperforming assets as a percentage of loans, net............. 1.70% 1.96%
Loans past due 90 days or more as a percentage of loans, net... 0.72% 1.01%
</TABLE>
The allowance for loan losses account is established through charges to earnings
in the form of a provision for loan losses. Loans, or portions of loans,
determined to be uncollectible are charged against the allowance account with
subsequent recoveries, if any, being credited to the account. The allowance is
maintained at a level believed adequate by management to absorb estimated
potential credit losses. While historical loss experience provides a reasonable
starting point in assessing the adequacy of the allowance account, management
also considers a number of relevant factors likely to cause estimated credit
losses associated with the Company's current portfolio to differ from historical
loss experience. Such factors include changes in lending policies and
procedures, economic conditions, nature and volume of the portfolio, loan
review system, volumes of past due and classified loans, concentrations,
borrowers' financial status, collateral value and other factors deemed
relevant by management. 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 may
require the Company to recognize additions to the allowance based on their
judgments concerning information available to them at the time of their
examination. No such charge was deemed necessary upon conclusion of the 1995
examination.
In general, the allowance for loan losses is 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.
DISTRIBUTION OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
MARCH 31, 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................... $1,352 16.10% $1,358 19.45%
Real estate:
Construction..................................... 0.49 0.47
Mortgage......................................... 1,383 73.82 1,333 71.05
Consumer, net...................................... 1,225 9.59 1,212 9.03
______ ______ ______ ______
Total.......................................... $3,960 100.00% $3,903 100.00%
====== ====== ====== ======
</TABLE>
The following table sets forth a reconciliation of the allowance for loan losses
and illustrates the charge-offs and recoveries by major loan category for the
quarter ended March 31, 1996:
RECONCILIATION OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
MARCH 31,
1996
______________________________________________________________________________________
<S> <C>
Allowance for loan losses at beginning of period............................... $3,903
Loans charged-off:
Commercial, financial and others............................................... 3
Real estate:
Construction.................................................................
Mortgage..................................................................... 21
Consumer, net.................................................................. 15
______
Total...................................................................... 39
______
Loans recovered:
Commercial, financial and others............................................... 5
Real estate:
Construction.................................................................
Mortgage..................................................................... 5
Consumer, net.................................................................. 11
______
Total...................................................................... 21
______
Net loans charged-off.......................................................... 18
______
Provision charged to operating expense......................................... 75
______
Allowance for loan losses at end of period..................................... $3,960
======
Ratios:
Net loans charged-off as a percentage of average loans outstanding............. 0.01%
Allowance for loan losses as a percentage of period end loans.................. 1.99%
</TABLE>
The Company analyzes the adequacy of its allowance for loan losses account
quarterly through utilization of the regulatory agency policy statement on the
allowance for loan losses in conjunction with its internal loan review and
classified asset identification system. The allowance for loan losses was
$3,960 and 1.99 percent of loans, net, at March 31, 1996, as compared to $3,903
and 1.83 percent at December 31, 1995. The increase was a result of the
provision exceeding net loans charged-off during the first quarter of 1996. As
a percentage of nonperforming loans, the allowance account covered 127.0
percent and 104.3 percent at March 31, 1996 and December 31, 1995, respectively.
Relative to all nonperforming assets, the allowance covered 111.1 percent at
March 31, 1996, and 93.3 percent at December 31, 1995. Management considers
the Company adequately reserved at March 31, 1996.
Included in the allowance account were amounts for impaired loans of $1,342 and
$1,331 at March 31, 1996, and December 31, 1995, respectively, with the related
allowances for loan losses of $614 for both periods. The recorded investment,
for which there was no related allowance for loan losses, was $258 and $262 at
March 31, 1996, and December 31, 1995, respectively.
Past due loans that have not been satisfied through repossession, foreclosure or
related actions, are 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, are credited to the allowance account.
Net charge-offs were $18 or 0.01 percent of average loans outstanding compared
to $34 or 0.02 percent for the first quarters ended March 31, 1996 and 1995,
respectively.
DEPOSITS:
Total deposits decreased $9.1 million during the first quarter of 1996 from
$317.1 million at December 31, 1995, to $308.0 million at March 31, 1996. The
decline was a result of management modifying pricing strategies in light of the
Company's improved liquidity position during the first quarter of 1996. Such
decline also reflects cyclical trends as customers forewent savings to pay off
holiday bills. Average deposits increased from $310.9 million for the first
quarter of 1995 to $313.2 million for the same period this year. The average
cost of deposits increased from 4.60 percent in the first quarter of 1995 to
4.75 percent in the first quarter of 1996. The 15 basis point increase was
attributable to management's aggressive deposit pricing during the second and
third quarters of 1995 caused by liquidity strains. Management resolved the
Company's liquidity problems early in the fourth quarter of 1995 through the
the investment portfolio reconstitution, which resulted in less aggressive
deposit product pricing. Such action caused a 13 basis point decline in the
cost of deposits for the first quarter of 1996 from 4.88 percent in the final
quarter of 1995. Management expects such cost to increase slightly during the
remainder of 1996 in line with rises in general market rates and competitive
pricing pressure.
The following table sets forth the average amount of, and the rate paid on, the
major classifications of deposits for the quarters ended March 31, 1996 and
1995:
DEPOSIT DISTRIBUTION
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1996 1995
_________________ _________________
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE
_______ _______ _______ _______
<S> <C> <C> <C> <C>
Interest-bearing:
Money market accounts....................... $ 18,700 2.88% $ 22,249 3.65%
NOW accounts................................ 15,383 1.96 15,014 1.97
Savings accounts............................ 67,400 2.85 75,694 3.25
Time less than $100......................... 157,565 5.81 145,597 5.47
Time $100 or more........................... 28,900 6.08 29,823 5.77
________ ________
Total interest-bearing.................... 287,948 4.75% 288,377 4.60%
Noninterest-bearing......................... 25,272 22,560
________ ________
Total deposits............................ $313,220 $310,937
======== ========
</TABLE>
Average volumes of noninterest-bearing deposits increased from $22.6 million to
$25.3 million during the comparable first quarters of 1995 and 1996,
respectively. As a percentage of total deposits, noninterest-bearing deposits
accounted for 8.1 percent in 1996 as comparable to 7.3 percent in 1995.
Time deposits in denominations of $100 or more, decreased from $29.7 million at
December 31, 1995, to $28.6 million at March 31, 1996. Management took a less
aggressive stance in competing for such higher costing deposits as a result of
the Company's improved liquidity posture. The average cost of such deposits
remained constant at 6.1 percent from year end 1995. The following table sets
forth maturities of time deposits of $100 or more at March 31, 1996, and
December 31, 1995:
MATURITY DISTRIBUTION OF TIME DEPOSITS OF $100 OR MORE
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
_________ ____________
<S> <C> <C>
Within three months......................................... $10,492 $ 6,466
After three months but within six months.................... 2,824 6,646
After six months but within twelve months................... 8,543 8,590
After twelve months......................................... 6,765 7,982
_______ _______
Total..................................................... $28,624 $29,684
======= =======
</TABLE>
INTEREST RATE SENSITIVITY:
Interest rate sensitivity management attempts 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
market changes have on the Company's rate sensitive assets and liabilities.
One such technique utilizes a static gap report, which attempts 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
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, call provisions, 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.
INTEREST RATE SENSITIVITY
<TABLE>
<CAPTION>
DUE AFTER DUE AFTER
THREE MONTHS ONE YEAR
DUE WITHIN BUT WITHIN BUT WITHIN DUE AFTER
MARCH 31, 1996 THREE MONTHS TWELVE MONTHS FIVE YEARS FIVE YEARS TOTAL
_____________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Rate sensitive assets:
Investment securities............... $16,719 $ 24,734 $ 39,682 $ 33,893 $115,028
Loans, net of unearned income....... 53,771 25,617 56,518 74,213 210,119
Interest-bearing deposits........... 104 104
Federal funds sold.................. 3,400 3,400
_______ ________ ________ ________ ________
Total............................. $73,994 $ 50,351 $ 96,200 $108,106 $328,651
======= ======== ======== ======== ========
Rate sensitive liabilities:
Money market accounts............... $ 16,720 $ 16,720
NOW accounts........................ 15,116 15,116
Savings accounts.................... $ 305 $ 66,322 66,627
Time deposits less than $100........ 30,193 56,364 69,492 $ 8 156,057
Time deposits $100 or more.......... 10,860 11,000 6,764 28,624
Other borrowings.................... 3,000 47 3,047
_______ ________ ________ ________ ________
Total............................. $41,358 $102,200 $142,625 $ 8 $286,191
======= ======== ======== ======== ========
Rate sensitivity gap:
Period............................ $32,636 $(51,849) $(46,425) $108,098
Cumulative........................ $32,636 $(19,213) $(65,638) $ 42,460 $ 42,460
RSA/RSL ratio:
Period............................ 1.79 0.49 0.67 13,513.25
Cumulative........................ 1.79 0.87 0.77 1.15 1.15
</TABLE>
Management has effectively lessened the Company's exposure to changing interest
rates as represented by the improvement in its ratio of rate sensitive assets to
rate sensitive liabilities repricing within one year from 0.83 at March 31,
1995, to 0.87 at March 31, 1996. Based upon the guidelines set forth in the
Company's asset/liability management policy, this ratio falls within the 0.7 and
1.3 deemed by management to be acceptable. Such an improvement was directly
attributable to the Company's disposal of long-term investment securities. The
proceeds from such sales were used to retire short-term debt and invest in
short-term securities and loans. The Company's cumulative one-year gap position
improved as a result of such action, partially offset by an increase in the
volume of retail time deposits repricing within one year. Such deposits
amounted to $79.0 million at March 31, 1995, as compared to $86.6 million at
March 31, 1996.
Based on the static gap model at March 31, 1996, it appears the Company is
properly matched to guard against risk from fluctuations in interest rates.
However, management is aware that should such an interest rate fluctuation
occur, depositors could shift funds from transaction accounts into retail time
deposits causing an increase in fund costs. Such a shift would negate some of
the positive effects of short-term loans and investments.
Although understanding the Company's gap position is important in determining
interest rate exposure, an interest rate sensitivity table 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 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
proforma net interest income scenarios under various interest rate assumptions
("shocks"). Model results from March 31, 1996, indicate that a decline in net
interest income of 4.8 percent is expected should there be a parallel and
instantaneous rise in interest rates of 100 basis points. Conversely, a similar
decline in interest rates would result in 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 interest rate changes has been limited 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.
Management took significant steps in 1995 toward improving the Company's
liquidity position. Such improvement is evidenced by the ratio of temporary
investments to volatile liabilities and the ratio of volatile liabilities less
temporary investments to total assets less temporary investments. At March 31,
1996, these ratios showed a dramatic improvement to 106.3 and negative 0.58,
respectively, from 13.71 percent and 7.19 percent, respectively at March 31,
1995.
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 $11,858 in the first quarter of 1996. Net cash provided by operating
activities totaled $1,232 primarily through recognizing net income of $1,001 for
the first three months of 1996 adjusted for changes in deferred tax assets and
other assets.
Net cash used in investing activities amounted to $3,688 at March 31, 1996. The
majority of such amount resulted from investment purchases of $10,969 as
management utilized funds not employed in lending to acquire high quality
investments with short average lives to facilitate future loan demand.
Partially offsetting this decline were repayments received from investment
securities of $3,603 and repayments on term federal funds extended to other
banking institutions.
Net cash used in financing activities was the major component of the net
decrease in cash and cash equivalents, aggregating $9,402 for the first quarter
of 1996. Decreased volumes of deposits accounted for $9,108 of the total
reduction as management took a less aggressive deposit pricing stance as a
result of the Company's improved liquidity position.
CAPITAL ADEQUACY:
The Company's stockholders' equity improved slightly as first quarter net income
of $1,001 less dividends of $117 was offset by a reduction in the unrealized
gain on available for sale securities of $697. The $697 adjustment,
representing a 0.91 percent decline in the market value of available for sale
securities from rising interest rates is significantly less than the
depreciation experienced historically as a result of the mitigation of risk
through the 1995 portfolio restructuring. The Board of Directors revised the
Company's dividend payment policy effective the first quarter of 1996 from a
semiannual to quarterly schedule. Cash dividends declared as a percentage of
net income for the first quarter of 1996 was 11.7 percent. It is the present
intention of the Board of Directors to continue to increase dividends in the
future. However, these decisions will depend on operating results, financial
and economic conditions, capital needs, growth objectives, appropriate dividend
restrictions related to the Company and its subsidiary and other relevant
factors. Subsequent to quarter end March 31, 1996, the Company amended its
Amended Articles of Incorporation to effectuate a three-for-one stock split
effective April 1, 1996.
The following table sets forth the risk-adjusted core and total capital
calculations at March 31, 1996, and December 31, 1995:
RISK-ADJUSTED CAPITAL
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
____________________________________________________________________________________________________________
<S> <C> <C>
Tier I capital....................................................................... $ 25,797 $ 24,845
Tier II capital...................................................................... 2,232 2,203
________ ________
Total capital...................................................................... $ 28,029 $ 27,048
======== ========
Risk-adjusted assets................................................................. $171,992 $170,089
Risk-adjusted off-balance sheet items................................................ 4,806 4,489
Adjusted average assets for Leverage ratio........................................... $344,437 $357,410
Tier I capital as a percentage of risk-adjusted assets and off-balance sheet items... 14.6% 14.2%
Total of Tier I and Tier II capital as a percentage of risk-adjusted assets and off-
balance sheet items................................................................. 15.9 15.5
Tier I capital as a percentage of total average assets less goodwill................. 7.5% 7.0%
</TABLE>
The Company significantly exceeded all relevant regulatory capital measurements
at March 31, 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.
REVIEW OF FINANCIAL PERFORMANCE:
The Company reported the highest first quarter earnings from normal operations
in its history, without considering one-time security gains. Net income
amounted to $1,001 or $1.36 per share in the first quarter of 1996 as compared
to $768 or $1.05 per share for the same period in 1995. Such improvement was
attributable to a higher level of tax-equivalent net interest income coupled
with a lower amount of noninterest expense.
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.
Net interest income on a tax-equivalent basis improved 2.6 percent from $3,091
at March 31, 1995, to $3,181 at March 31, 1996. Such improvement resulted
primarily from reduced volumes of interest-bearing liabilities falling at a more
rapid pace than the decline in earning assets. An improved net interest margin
also provided part of the betterment but to a lesser degree. Average interest-
bearing liabilities declined $23.8 million while earning assets dropped $20.8
million in comparing the first quarters of 1996 and 1995. The reduced volumes
of earning assets and interest-bearing liabilities were primarily attributable
to declines in investments and short-term borrowings, respectively. For the
first quarter of 1996, the Company's net interest margin was 3.83 percent as
compared to 3.54 percent for the comparable period of 1995. Such increase
resulted from earning assets yield rising at a faster pace than the cost of
funds. Earning assets yield increased from 7.72 percent to 7.96 percent while
funds cost rose from 4.71 percent to 4.74 percent over the comparable periods of
1995 and 1996, respectively.
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
and paid on assets and liabilities, along with changes in the volume of earning
assets and interest-bearing liabilities, have on net interest income. Earning
asset 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 tax rate. The net
change attributable to the combined impact of rate and volume has been allocated
proportionately to the change due to rate and the change due to volume.
NET INTEREST INCOME CHANGES DUE TO RATE AND VOLUME
<TABLE>
<CAPTION>
MARCH 31,
1996 VS. 1995
_______________________
INCREASE (DECREASE)
ATTRIBUTABLE TO
_______________________
TOTAL
CHANGE RATE VOLUME
______ ____ ______
<S> <C> <C> <C>
Interest income:
Loans:
Taxable.................................................... $ 504 $ 78 $ 426
Tax-exempt................................................. 3 103 (100)
Investments:
Taxable.................................................... (1,054) (139) (915)
Tax-exempt................................................. 279 (19) 298
Interest-bearing deposits with banks......................... 1 1
Federal funds sold........................................... 122 122
_______ _____ _____
Total interest income.................................... (145) 24 (169)
_______ _____ _____
Interest expense:
Money market accounts........................................ (66) (37) (29)
NOW accounts................................................. 2 (3) 5
Savings accounts............................................. (129) (68) (61)
Time deposits less than $100................................. 313 85 228
Time deposits $100 or more................................... 13 31 (18)
Short-term borrowings........................................ (334) (334)
Long-term debt............................................... (27) (5) (22)
_______ _____ _____
Total interest expense................................... (228) 3 (231)
_______ _____ _____
Net interest income...................................... $ 83 $ 21 $ 62
======= ===== =====
</TABLE>
The following table sets forth a summary of net interest income for major
categories of earning assets and interest-bearing liabilities:
SUMMARY OF NET INTEREST INCOME
<TABLE>
<CAPTION>
MARCH 31, 1996 MARCH 31, 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..................................... $209,506 $4,625 8.88% $191,472 $4,121 8.73%
Tax-exempt.................................. 3,265 76 9.33 4,539 73 6.50
Investments:
Taxable..................................... 77,814 1,051 5.43 137,967 2,105 6.19
Tax-exempt.................................. 34,457 735 8.58 20,761 456 8.91
Interest-bearing deposits with banks.......... 142 4 11.33 129 3 9.43
Federal funds sold............................ 8,849 122 5.55
________ ______ ________ ______
Total earning assets...................... 334,033 6,613 7.96% 354,868 6,758 7.72%
Less: allowance for loan losses............... 3,935 3,676
Other assets.................................. 15,961 11,937
________ ________
Total assets.............................. $346,059 $363,129
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Money market accounts......................... $ 18,700 134 2.88% $ 22,249 200 3.65%
NOW accounts.................................. 15,383 75 1.96 15,014 73 1.97
Savings accounts.............................. 67,400 477 2.85 75,694 606 3.25
Time deposits less than $100.................. 157,565 2,276 5.81 145,597 1,963 5.47
Time deposits $100 or more.................... 28,900 437 6.08 29,823 424 5.77
Short-term borrowings......................... 21,396 334 6.33
Long-term debt................................ 3,047 33 4.36 5,049 60 4.82
________ ______ ________ ______
Total interest-bearing liabilities........ 290,995 3,432 4.74% 314,822 3,660 4.71%
Noninterest-bearing deposits.................. 25,272 22,560
Other liabilities............................. 2,661 633
Stockholders' equity.......................... 27,131 25,114
________ ______ ________ ______
Total liabilities and stockholders' equity $346,059 3,432 $363,129 3,660
======== ______ ======== ______
Net interest/income spread................ $3,181 3.22% $3,098 3.01%
====== ======
Net interest margin....................... 3.83% 3.54%
Tax equivalent adjustments:
Loans......................................... $ 26 $ 25
Investments................................... 250 155
______ ______
Total adjustments......................... $ 276 $ 180
====== ======
</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 $1,129 at March 31, 1996, and an
average unrealized holding loss of $6,208 at March 31, 1995, included
in other assets. Tax equivalent adjustment was calculated using the
prevailing statutory rate of 34.0 percent.
PROVISION FOR LOAN LOSSES:
The Company's provision for loan losses was $75 for the three months ended March
31, 1996, as compared to $210 for the same period of 1995. The reduced level
experienced in 1996 was a result of management's assessment of the adequacy of
the Company's allowance for loan losses account. Should nonperforming asset
levels continue to improve and loan growth does not significantly increase
throughout the remainder of 1996, consideration will be made to reduce the
amount credited to the allowance account.
NONINTEREST INCOME:
Noninterest income for the first quarter of 1996 was up slightly to $336 from
$328 for the comparable period of 1995. Such increase was the result of service
charges received from an increased amount of customer deposit accounts.
NONINTEREST EXPENSE:
Noninterest expense totaled $1,887 for the first quarter of 1996, a decline of
$150 or 7.4 percent compared to the same period last year. The net overhead to
average assets ratio for the first quarter of 1996 fell slightly to 1.8 percent
in comparison to the 2.0 percent for the corresponding period of 1995.
Productivity is also measured by the operating efficiency ratio. Such ratio is
defined as 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 1996 first quarter operating ratio improved to 57.9
percent compared to 62.4 percent for the same period of 1995 as a result of the
improved level of noninterest expenses.
Salaries and benefits represented 51.0 percent of noninterest expenses for the
first three months of 1996 and amounted to $962, a $40 or 4.0 percent decrease
compared to the same period of 1995. Such variance primarily resulted from
management's introduction of a procedure to calculate the provision for the
pension plan based on salaries. Pension expense declined $54 for the first
quarter of 1996 as compared to the same period of 1995. Partially offsetting
the favorable pension variance was an increase in health and other insurance
costs of $22 from the first quarter of 1995.
Net occupancy and equipment expenses aggregated $327 for the first three months
of 1996 representing a $15 or 4.8 percent increase over the same period of 1995.
The increase was primarily attributable to increased costs associated with the
maintenance of equipment used in normal bank operations partially offset by
reduced costs associated with the maintenance of bank facilities.
Other expenses amounted to $598 for the first quarter of 1996, a $125 or 17.3
percent reduction compared to the same period of 1995. The primary source of
such improvement was a reduced cost of Federal Deposit Insurance Corporation
("FDIC") insurance for the Company. On November 14, 1995, the FDIC's Board of
Directors voted to reduce insurance premiums paid on deposits covered by the
Bank Insurance Fund effective January 1, 1996. Under the new rate structure,
insurance rates will range from 3 to 27 cents per every one hundred dollars of
insured deposits, subject to the statutory requirement that all institutions pay
a minimum of $2 annually for FDIC insurance. Based on the Company's first
quarter risk characteristics, FDIC insurance declined $156 from $180 for the
three months ended March 31, 1995, to $24 for the same period of 1996.
Partially diluting this favorable change in other expenses were increases in the
Company's audit and legal expenses for the first quarter of 1996 as compared to
the same period of 1995 as the Company completed its final phase of compliance
under the Memorandum of Understanding ("MOU") regulatory agreement. Such
agreement, effective May 24, 1995, was terminated by the Federal Reserve Bank of
Philadelphia on February 16, 1996, as a result of the improved financial
condition of Comm Bancorp, Inc. and Community Bank and Trust Company and
substantial compliance with the MOU.
The following table sets forth the major components of noninterest expenses for
the quarters ended March 31, 1996, and March 31, 1995:
NONINTEREST EXPENSES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1996 1995
_______________________________________________________________________________________
<S> <C> <C>
Salaries and employee benefits expense:
Salaries and payroll taxes........................................ $ 806 $ 812
Employee benefits................................................. 156 190
______ ______
Salaries and employee benefits expense.......................... 962 1,002
______ ______
Net occupancy and equipment expense:
Net occupancy expense............................................. 166 178
Equipment expense................................................. 161 134
______ ______
Net occupancy and equipment expense............................. 327 312
______ ______
Other expenses:
Marketing expense................................................. 73 42
Other taxes....................................................... 56 54
Stationery and supplies........................................... 50 33
Contractual services.............................................. 217 181
Insurance including FDIC assessment............................... 36 203
Other............................................................. 166 210
______ ______
Other noninterest expense....................................... 598 723
______ ______
Total noninterest expense..................................... $1,887 $2,037
====== ======
</TABLE>
INCOME TAXES:
The Company's effective tax rate declined from 23.1 percent for the first
quarter of 1995 to 21.7 percent for the same period of 1996. The reduction
reflected a higher level of tax-exempt income partially offset by a greater
amount of before-tax income.
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
(a) NONE
(b) 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 April 15, 1996 /s/ David L. Baker
______________ _________________________________________
David L. Baker
Chief Executive Officer
Date April 15, 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 OF INCOME 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> 3-MOS
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0
0
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