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, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-17455
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COMM BANCORP, INC.
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-2242292
- ------------------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
521 MAIN STREET, FOREST CITY, PA 18421
- ------------------------------------------- -------------------------------
(Address of principal executive offices) (Zip Code)
(570) 785-3181
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(Registrant's telephone number, including area code)
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(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 twelve 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: 1,987,347 at April 30, 2000.
Page 1 of 42
Exhibit Index on Page 40
COMM BANCORP, INC.
FORM 10-Q
MARCH 31, 2000
INDEX
CONTENTS PAGE NO.
- ------------------------------------------------------------------------
PART I. FINANCIAL INFORMATION:
Item 1: Financial Statements.
Consolidated Statements of Income and Comprehensive Income -
for the Three Months Ended March 31, 2000 and 1999......... 3
Consolidated Balance Sheets - March 31, 2000, and December
31, 1999................................................... 4
Consolidated Statement of Changes in Stockholders' Equity
for the Three Months Ended March 31, 2000.................. 5
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2000 and 1999.............................. 6
Notes to Consolidated Financial Statements.................. 7
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 8
Item 3: Quantitative and Qualitative Disclosures About Market
Risk.................................................. *
PART II. OTHER INFORMATION:
Item 1: Legal Proceedings...................................... 38
Item 2: Changes in Securities and Use of Proceeds.............. 38
Item 3: Defaults Upon Senior Securities........................ 38
Item 4: Submission of Matters to a Vote of Security Holders.... 38
Item 5: Other Information...................................... 38
Item 6: Exhibits and Reports on Form 8-K....................... 38
SIGNATURES..................................................... 39
Exhibit Index.................................................. 40
* Not Applicable
COMM BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31 2000 1999
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans:
Taxable............................................................................ $5,616 $5,000
Tax-exempt......................................................................... 124 93
Interest and dividends on investment securities available-for-sale:
Taxable............................................................................ 964 1,009
Tax-exempt......................................................................... 476 504
Dividends............................................................................ 33 30
Interest on federal funds sold....................................................... 9 48
------ ------
Total interest income............................................................ 7,222 6,684
------ ------
INTEREST EXPENSE:
Interest on deposits................................................................. 3,710 3,377
Interest on short-term borrowings.................................................... 68 1
Interest on long-term debt........................................................... 1 1
------ ------
Total interest expense........................................................... 3,779 3,379
------ ------
Net interest income.............................................................. 3,443 3,305
Provision for loan losses............................................................ 90 30
------ ------
Net interest income after provision for loan losses.............................. 3,353 3,275
------ ------
NONINTEREST INCOME:
Service charges, fees and commissions................................................ 440 380
Net gains on sale of loans........................................................... 1 32
Net gains on sale of investment securities........................................... 172
------ ------
Total noninterest income......................................................... 613 412
------ ------
NONINTEREST EXPENSE:
Salaries and employee benefits expense............................................... 1,279 1,164
Net occupancy and equipment expense.................................................. 391 348
Other expenses....................................................................... 957 716
------ ------
Total noninterest expense........................................................ 2,627 2,228
------ ------
Income before income taxes........................................................... 1,339 1,459
Provision for income tax expense..................................................... 279 319
------ ------
Net income....................................................................... 1,060 1,140
------ ------
OTHER COMPREHENSIVE INCOME (LOSS):
Unrealized gains (losses) on investment securities available-for-sale................ 89 (427)
Reclassification adjustment for gains included in net income......................... (172)
Income tax benefit related to other comprehensive income............................. (28) (146)
------ ------
Other comprehensive loss, net of income taxes.................................... (55) (281)
------ ------
Comprehensive income............................................................. $1,005 $ 859
====== ======
PER SHARE DATA:
Net income........................................................................... $ 0.53 $ 0.52
Cash dividends declared.............................................................. $ 0.17 $ 0.13
Average common shares................................................................ 2,016,768 2,208,634
See notes to consolidated financial statements.
</TABLE>
COMM BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
ASSETS:
<S> <C> <C>
Cash and due from banks............................................................... $ 8,775 $ 10,991
Federal funds sold....................................................................
Investment securities available-for-sale.............................................. 99,184 105,630
Loans held-for-sale, net..............................................................
Loans, net of unearned income......................................................... 285,874 276,850
Less: allowance for loan losses..................................................... 3,516 3,799
-------- --------
Net loans............................................................................. 282,358 273,051
Premises and equipment, net........................................................... 9,504 9,537
Accrued interest receivable........................................................... 2,258 2,166
Other assets.......................................................................... 6,138 5,737
-------- --------
Total assets...................................................................... $408,217 $407,112
======== ========
LIABILITIES:
Deposits:
Noninterest-bearing................................................................. $ 36,678 $ 36,061
Interest-bearing.................................................................... 331,485 326,422
-------- --------
Total deposits.................................................................... 368,163 362,483
Short-term borrowings................................................................. 800 5,500
Long-term debt........................................................................ 38 39
Accrued interest payable.............................................................. 2,310 1,976
Other liabilities..................................................................... 1,716 1,639
-------- --------
Total liabilities..,.............................................................. 373,027 371,637
-------- --------
STOCKHOLDERS' EQUITY:
Common stock, par value $0.33, authorized 12,000,000 shares, issued and outstanding:
March 31, 2000, 2,011,818 shares; December 31, 1999, 2,035,784 shares................ 664 672
Capital surplus....................................................................... 6,179 6,199
Retained earnings..................................................................... 29,185 29,387
Accumulated other comprehensive loss.................................................. (838) (783)
-------- --------
Total stockholders' equity........................................................ 35,190 35,475
-------- --------
Total liabilities and stockholders' equity........................................ $408,217 $407,112
======== ========
See notes to consolidated financial statements.
</TABLE>
COMM BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
-------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMMON CAPITAL RETAINED COMPREHENSIVE STOCKHOLDERS'
STOCK SURPLUS EARNINGS LOSS EQUITY
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1999........................ $672 $6,199 $29,387 $(783) $35,475
Net income........................................ 1,060 1,060
Dividends declared: $0.17 per share............... (342) (342)
Dividend reinvestment plan: 1,434 shares issued... 56 56
Repurchase and retirement: 25,400 shares.......... (8) (76) (920) (1,004)
Net change in other comprehensive loss............ (55) (55)
---- ------ ------- ----- -------
BALANCE, MARCH 31, 2000........................... $664 $6,179 $29,185 $(838) $35,190
==== ====== ======= ===== =======
See notes to consolidated financial statements.
</TABLE>
COMM BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
----------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31 2000 1999
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................................... $ 1,060 $ 1,140
Adjustments:
Provision for loan losses.............................................................. 90 30
Depreciation, amortization and accretion............................................... 452 431
Amortization of loan fees.............................................................. (24) (36)
Deferred income tax benefit............................................................ 66 (55)
Gains on sale of investment securities available-for-sale.............................. (172)
Losses (gains) on sale of other real estate............................................ 14 (2) Changes in:
Loans held for sale, net............................................................. 81
Accrued interest receivable.......................................................... (92) 31
Other assets......................................................................... (365) (415)
Accrued interest payable............................................................. 334 59
Other liabilities.................................................................... 61 231
------- -------
Net cash provided by operating activities.......................................... 1,424 1,495
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investment securities available-for-sale........................... 2,184
Proceeds from repayments of investment securities available-for-sale..................... 6,481 10,744
Purchases of investment securities available-for-sale.................................... (2,261) (16,984)
Proceeds from sale of other real estate.................................................. 38 90
Net increase in lending activities....................................................... (9,621) (555)
Purchases of premises and equipment...................................................... (166) (1,392)
------- -------
Net cash used in investing activities.............................................. (3,345) (8,097)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net changes in:
Money market, NOW, savings and noninterest-bearing accounts............................ (7,611) (1,422)
Time deposits.......................................................................... 13,291 (1,605)
Short-term borrowings.................................................................. (4,700)
Payments on long-term debt............................................................... (1)
Proceeds from the issuance of common shares.............................................. 56 45
Repurchase and retirement of common shares............................................... (1,004)
Cash dividends paid...................................................................... (326) (288)
------- -------
Net cash used in financing activities.............................................. (295) (3,270)
------- -------
Net increase (decrease) in cash and cash equivalents............................... (2,216) (9,872)
Cash and cash equivalents at beginning of year..................................... 10,991 19,164
------- -------
Cash and cash equivalents at end of period......................................... $ 8,775 $ 9,292
======= =======
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for interest.................................................. $3,445 $ 3,320
Income taxes.............................................................................. 6 129
Noncash items:
Transfers of loans to other real estate................................................. 248 48
Unrealized losses on investment securities available-for-sale........................... $ 55 $ 281
See notes to consolidated financial statements.
</TABLE>
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 & Trust Company
(collectively, the "Company") have been prepared in accordance
with generally accepted accounting principles ("GAAP") 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. All significant intercompany
balances and transactions have been eliminated in the
consolidation. Prior-period amounts are reclassified when
necessary to conform with the current year's presentation.
The preparation of financial statements in conformity with GAAP
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 GAAP, reference is made to the Company's Annual
Report on Form 10-K for the period ended December 31, 1999.
COMM BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
-----------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
FORWARD-LOOKING DISCUSSION:
Certain statements in this Form 10-Q are forward-looking
statements that involve numerous risks and uncertainties. The
following factors, among others, may cause actual results to
differ materially from projected results:
Local, domestic and international economic and political
conditions, and government monetary and fiscal policies affect
banking both directly and indirectly. Inflation, recession,
unemployment, volatile interest rates, tight money supply, real
estate values, international conflicts, and other factors beyond
the control of Comm Bancorp, Inc. and its subsidiary, Community
Bank and Trust Company (collectively, the "Company") may also
adversely affect its future results of operations. Our
management team, consisting of the Board of Directors and
executive officers, expects that no particular factor will affect
the results of operations. Downward trends in areas such as real
estate, construction and consumer spending, may adversely impact
our ability to maintain or increase profitability. Therefore, we
cannot assure the continuation of our current rates of income and
growth.
Our earnings depend largely upon net interest income. The
relationship between our cost of funds, deposits and borrowings,
and the yield on our interest-earning assets, loans and
investments all influence net interest income levels. This
relationship, defined as the net interest spread, fluctuates 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 our interest rate risk ("IRR")
management strategy, we monitor the maturity and repricing
characteristics of interest-earning assets and interest-bearing
liabilities to control our exposure to interest rate changes.
In originating loans, some credit losses are likely to occur.
This risk of loss varies with, among other things:
- General economic conditions,
- Loan type,
- Creditworthiness and debt servicing capacity of the
borrower over the term of the loan, and
- The value and marketability of the collateral securing
the loan.
We maintain 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 a borrower's ability
to repay,
- The estimated value of any underlying collateral, and
- An evaluation of current economic conditions.
We currently believe that the allowance for loan losses is
adequate, but we cannot assure that nonperforming loans will not
increase in the future.
To a certain extent, our success depends upon the general
economic conditions in the geographic market that we serve.
Although we expect economic conditions in our market area to
remain favorable, we cannot assure that these conditions will
continue. Adverse changes to economic conditions in our
geographic market area would likely impair loan collections and
may have a materially adverse effect on the consolidated results
of operations and financial position.
The banking industry is highly competitive, with rapid changes in
product delivery systems and in consolidation of service
providers. We compete with many larger institutions in terms of
asset size. These competitors also have substantially greater
technical, marketing and financial resources. The larger size of
these companies affords them the opportunity to offer products
and services not offered by us. We are constantly striving to
meet the convenience and needs of our customers and to enlarge
our customer base, however, we cannot assure that these efforts
will be successful.
OVERVIEW:
Strong economic growth continued into the first quarter of 2000.
The Nation's gross domestic product, the value of all goods and
services produced in the United States, grew at an annual rate of
5.4 percent. Low inflation which has prevailed throughout the
majority of the expansion, appears to be on the upswing. The
core consumer price index ("CPI") for the first three months of
2000 rose 3.2 percent, the largest quarterly increase since the
first quarter of 1996 when the core CPI rose at a pace of 3.5
percent. The threat of inflation coupled with tight labor
conditions prompted the Federal Open Market Committee ("FOMC") to
raise short-term interest rates 50 basis points during the first
quarter of 2000. Further rate increases are expected should
these conditions persist.
Net income for the first quarter of 2000 totaled $1,060 or $0.53
per share. Comparable first quarter 1999 net income was $1,140 or
$0.52 per share. Return on average assets for the first three
months of 2000 equaled 1.05 percent compared to 1.21 percent for
the same three months of 1999. Return on average equity was
12.12 percent for the quarter ended March 31, 2000, compared to
11.47 percent for the first quarter of 1999. Increased
noninterest expense associated with the opening of two branches
and our Corporate Center in 1999 primarily caused the decline in
earnings. In addition, the reversal of interest earned on loans
placed on nonaccrual, along with opportunity costs associated
with the stock repurchase program also contributed to the
earnings decline.
We are currently developing a program which will enable us to
offer various insurance products such as life, health, disability
and long-term care to customers through our Trust and Financial
Services Division. In addition, we are in the process of updating
our current teller processing system. This will allow us to
better serve our customers and will pave the way for further
technological advancements such as telephone and Internet
banking.
REVIEW OF FINANCIAL POSITION:
Total assets amounted to $408.2 million at March 31, 2000, a $1.1
million increase compared to the $407.1 million recorded at
December 31,1999. At the end of the first quarter of 2000, loans,
net of unearned income totaled $285.9 million, an increase of
$9.0 million from the $276.9 million reported at year-end 1999.
The investment portfolio declined $6.4 million during the first
quarter of 2000 as proceeds from repayments were utilized to fund
loan demand. Total deposits increased $5.7 million to $368.2
million at March 31, 2000, from $362.5 million at December 31,
1999. In addition to funding loan demand, the deposit increases
were used to repay $4.7 million in short-term borrowings
outstanding at December 31, 1999. Total stockholders' equity
declined $285 from year-end 1999. Accounting for this decline was
common stock repurchases of $1,004, a net change in the
unrealized holding loss of $55 and net cash dividends declared of
$286 partially offset by net income of $1,060.
INVESTMENT PORTFOLIO:
Due to increased loan demand, the investment portfolio played a
less significant role in our earning assets mix. Investment
securities equaled 25.8 percent of earning assets at March 31,
2000, compared to 27.6 percent at December 31, 1999. In
addition, the composition of the investment portfolio changed
slightly from year-end 1999. U.S. Government agency mortgage-
backed securities represented 58.8 percent of the investment
portfolio at March 31, 2000, a decline in comparison to 60.1
percent at December 31, 1999. As a percentage of the portfolio,
state and municipal obligations increased to 35.3 percent at the
end of the first quarter, compared to 32.9 percent at the end of
1999. Despite the increases in general market rates, we continue
to receive principal repayments on mortgage-backed securities
according to schedule as a result of the quality and structure of
these investments. The proceeds from these repayments were used
to fund loan demand rather than being reinvested in similar type
investments. As a result, mortgage-backed securities became a
smaller proportion of the investment portfolio's composition.
The carrying values of the major classifications of securities as
they relate to the total investment portfolio at March 31, 2000,
and December 31, 1999, are summarized as follows:
DISTRIBUTION OF INVESTMENT SECURITIES
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
AMOUNT % AMOUNT %
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities............................ $ 2,989 3.01% $ 3,595 3.40%
U.S. Government agencies............................ 978 0.99 1,635 1.55
State and municipals................................ 35,026 35.31 34,781 32.93
Mortgage-backed securities.......................... 58,344 58.82 63,523 60.14
Equity securities................................... 1,847 1.87 2,096 1.98
-------- ------ -------- ------
Total............................................. $ 99,184 100.00% $105,630 100.00%
======== ====== ======== ======
</TABLE>
During the first quarter of 2000, we sold state and municipal
obligations having an amortized cost of $1.9 million and equity
holdings of local financial institutions having an amortized cost
of $63. During 1999, we decided to extend the average life of our
municipal portfolio as a result of the availability of higher
yields on these types of instruments in comparison to recent
historical offerings. Accordingly, we began selling municipal
obligations with shorter maturities and call features replacing
them with the same quality municipal securities having longer
maturities and call dates. The equity holdings of local financial
institutions were sold due to the fact that they exhibit a lower
total return as compared to other investment alternatives. We
realized gains of $172 on the sale of investment securities for
the three months ended March 31, 2000.
As a result of the actions taken to restructure the tax-exempt
portion of the portfolio, the tax-equivalent yield on our
investment portfolio increased 26 basis points in the first
quarter of 2000 to 6.59 percent, from 6.33 percent in the last
quarter of 1999. In addition to yield analysis, we utilize a
total return approach to measure the investment portfolio's
performance. This approach gives a more complete picture of an
investment portfolio's performance since it takes into
consideration both market value and reinvestment income from
repayments. The investment portfolio's total return is the sum
of all interest income, reinvestment income on all proceeds from
repayments and capital gains and losses, whether realized or
unrealized. Total return for the investment portfolio improved
for the twelve months ended March 31, 2000, to 4.6 percent
compared to 4.0 percent for the twelve months ended December 31,
1999. Furthermore, our investment portfolio ranked in the upper
92nd percentile of all banks throughout the United States over
the past twelve months according to latest results provided by a
national investment performance ranking company.
We experienced a slight increase of $55, net of income tax
benefits of $29, in the net unrealized holding loss on available-
for-sale securities. At March 31, 2000, the net unrealized
holding loss was $838, net of income tax benefits of $432. The
$55 change in the unrealized holding loss was directly related to
the U.S. Government agency mortgage-backed securities portion of
our portfolio. The yield on the two-year U.S. Treasury, used to
price this portion, influenced the change. The two-year U.S.
Treasury yield increased 43 basis points to 6.53 percent at March
31, 2000, from 6.10 at year-end 1999.
The maturity distribution of the amortized cost, fair value and
weighted-average, tax-equivalent yield of the available-for-sale
portfolio at March 31, 2000, is summarized in the table that
follows. 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, collateralized mortgage
obligations ("CMOs") and equity securities. Mortgage-backed
securities and CMOs have been presented based upon estimated cash
flows, assuming no change in the current interest rate
environment. Equity securities with no stated contractual
maturities are included in the after ten year maturity
distribution. Expected maturities may 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, 2000 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..... $ 3,026 5.07% $ 3,026 5.07%
U.S. Government agencies..... $ 1,011 6.20% 1,011 6.20
State and municipals......... 1,420 6.46 3,894 6.72 $ 9,765 8.06% $19,907 7.96% 34,986 7.79
Mortgage-backed securities... 17,914 5.96 39,614 5.94 2,118 5.95 59,646 5.95
Equity securities............ 1,785 6.94 1,785 6.94
------- ------- ------- ------- --------
Total...................... $22,360 5.87% $44,519 6.01% $11,883 7.68% $21,692 7.88% $100,454 6.58%
======= ======= ======= ======= ========
Fair value:
U.S. Treasury securities..... $ 2,989 $ 2,989
U.S. Government agencies..... $ 978 978
State and municipals......... 1,420 3,866 $ 9,750 $19,990 35,026
Mortgage-backed securities... 17,662 38,655 2,027 58,344
Equity securities............ 1,847 1,847
------- ------- ------- ------- --------
Total...................... $22,071 $43,499 $11,777 $21,837 $ 99,184
======= ======= ======= ======= ========
</TABLE>
LOAN PORTFOLIO:
The housing market kept up with last year's pace due to continued
high consumer confidence driven by strong job and income growth.
However, this market may be beginning to feel the effects of
rising interest rates. The rate on a 30-year conventional
mortgage closed the first quarter at 8.24 percent, up 120 basis
points from 7.04 percent at the end of the first quarter of 1999.
Annual sales of existing homes of 5.07 million posted for the
first quarter of 2000 were in line with annual sales of 5.06
million for the comparable period of 1999. New home sales were up
2.1 percent to 918 thousand compared to 899 thousand last year.
Conversely, the annual rate of housing starts for March of 2000
was down 8.1 percent from last year's pace.
The composition of the loan portfolio at March 31, 2000, and
December 31, 1999, is summarized as follows:
DISTRIBUTION OF LOAN PORTFOLIO
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
AMOUNT % AMOUNT %
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial and others............ $ 50,046 17.51% $ 43,907 15.86%
Real estate:
Construction.............................. 3,560 1.24 3,164 1.14
Mortgage.................................. 199,606 69.82 198,423 71.67
Consumer, net............................... 32,071 11.22 30,830 11.14
Lease financing, net........................ 591 0.21 526 0.19
-------- ------ -------- ------
Loans, net of unearned income............. 285,874 100.00% 276,850 100.00%
Less: allowance for loan losses............. 3,516 3,799
-------- --------
Net loans............................... $282,358 $273,051
======== ========
</TABLE>
During the first quarter of 2000, we again experienced strong
loan demand. Loans, net of unearned income grew $9.0 million to
$285.9 million at March 31, 2000, from $276.9 million at December
31, 1999. Commercial loan growth was the primary factor
contributing to the overall increase. Furthermore, the
composition of our loan portfolio continued to change during the
first quarter, as commercial loans played a more significant role
in our lending activities. Commercial loans, including commercial
mortgage loans, grew $6.4 million and comprise approximated 34.8
percent of our total portfolio at March 31, 2000, compared to
33.7 percent at year-end 1999. For the first quarter of 2000,
loans averaged $281.3 million, an increase of $32.9 million or
13.2 percent compared to $248.4 million averaged for the same
period of 1999. However, amidst intense competition, the tax
equivalent yield on the loan portfolio declined 9 basis points to
8.30 percent for the first three months of 2000 from 8.39 percent
for the same period of 1999. We expect loan yields to increase
for the remainder of 2000 due to the rise in general market
rates. However, yields could be adversely affected should
competition further intensify. Loan demand is facilitated though
increases in core deposits and repayments on loans and investment
securities.
We continually examine the maturity distribution and interest
rate sensitivity of the loan portfolio in an attempt to limit IRR
and liquidity strains. Approximately 33.7 percent of the lending
portfolio is expected to reprice within the next twelve months.
Management will price loan products in the near term in order to
reduce the average term of fixed-rate loans and increase its
holdings of variable-rate loans in attempting to reduce IRR in
the loan portfolio.
The maturity and repricing information of the loan portfolio by
major classification at March 31, 2000, is summarized as follows:
MATURITY DISTRIBUTION AND INTEREST SENSITIVITY OF LOAN PORTFOLIO
<TABLE>
<CAPTION>
AFTER ONE
WITHIN BUT WITHIN AFTER
MARCH 31, 2000 ONE YEAR FIVE YEARS FIVE YEARS TOTAL
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maturity schedule:
Commercial, financial and others..... $ 27,378 $15,296 $ 7,372 $ 50,046
Real estate:
Construction....................... 3,560 3,560
Mortgage........................... 25,620 61,415 112,571 199,606
Consumer, net........................ 11,797 16,463 3,811 32,071
Lease financing, net................. 8 583 591
-------- ------- -------- --------
Total............................ $ 68,363 $93,757 $123,754 $285,874
======== ======= ======== ========
Repricing schedule:
Predetermined interest rates......... $ 39,008 $76,058 $105,840 $220,906
Floating or adjustable interest rates 64,968 64,968
-------- ------- -------- --------
Total............................ $103,976 $76,058 $105,840 $285,874
======== ======= ======== ========
</TABLE>
ASSET QUALITY:
We experienced improvement in our asset quality during the first
quarter of 2000. Nonperforming assets were $4,726 or 1.65
percent of loans, net of unearned income, at March 31, 2000,
compared to $6,944 or 2.51 percent at December 31, 1999. A
decline in the amount of accruing loans past due 90 days or more
was the major factor which lead to the improvement.
Accruing loans past due 90 days or more decreased $2,230 to
$1,735 at March 31, 2000, from $3,965 at December 31, 1999. Real
estate loans accounted for the majority of this improvement.
Nonaccrual loans declined as a result of transfers to other real
estate. Due to the favorable economic conditions in our local
market area, we expect continued improvement in our asset quality
for the remainder of 2000. However, should economic conditions
weaken in our market area, borrowers' ability to make timely loan
payments could be limited. The possibility exists that these
levels could deteriorate should this occur.
Information concerning nonperforming assets at March 31, 2000,
and December 31, 1999, is summarized as follows. The table
includes loans or other extensions of credit classified for
regulatory purposes and all material loans or other extensions of
credit 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,
2000 1999
- -------------------------------------------------------------------------------------
<S> <C> <C>
NONACCRUAL LOANS:
Commercial, financial and others............................... $ 419 $ 166
Real estate:
Construction.................................................
Mortgage..................................................... 1,865 2,272
Consumer, net.................................................. 7 33
Lease financing, net...........................................
------ ------
Total nonaccrual loans..................................... 2,291 2,471
------ ------
Restructured loans............................................. 145 149
------ ------
Total impaired loans....................................... 2,436 2,620
------ ------
ACCRUING LOANS PAST DUE 90 DAYS OR MORE:
Commercial, financial and others............................... 168 726
Real estate:
Construction.................................................
Mortgage..................................................... 1,119 2,768
Consumer, net.................................................. 448 471
Lease financing, net...........................................
------ ------
Total accruing loans past due 90 days or more.............. 1,735 3,965
------ ------
Total nonperforming loans.................................. 4,171 6,585
------ ------
Foreclosed assets.............................................. 555 359
------ ------
Total nonperforming assets................................. $4,726 $6,944
====== ======
Ratios:
Impaired loans as a percentage of loans, net................... 0.85% 0.95%
Nonperforming loans as a percentage of loans, net.............. 1.46 2.38
Nonperforming assets as a percentage of loans, net............. 1.65% 2.51%
</TABLE>
Information relating to the recorded investment in impaired loans
at March 31, 2000 and December 31, 1999, is summarized as
follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
- --------------------------------------------------------------------------------------
<S> <C> <C>
Impaired loans:
With a related allowance....................................... $2,291 $2,471
With no related allowance...................................... 145 149
------ ------
Total........................................................ $2,436 $2,620
====== ======
</TABLE>
Impaired loans include a $145 restructured loan to one commercial
customer. This loan continued to perform in accordance with its
modified terms during the first quarter of 2000.
The analysis of changes affecting the allowance for loan losses
related to impaired loans at March 31, 2000 is summarized as
follows:
<TABLE>
<CAPTION>
MARCH 31,
2000
- ---------------------------------------------------------------------------------------
<S> <C>
Balance at January 1.............................................................. $613
Provision for loan losses......................................................... 48
Loans charged-off................................................................. 205
Loans recovered...................................................................
----
Balance at period-end............................................................. $456
====
</TABLE>
Interest income on impaired loans that would have been recognized
had the loans been current and the terms of the loan not been
modified, the aggregate amount of interest income recognized and
the amount recognized using the cash-basis method and the average
recorded investment in impaired loans for the three months ended
March 31, 2000 and 1999, are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31 2000 1999
- --------------------------------------------------------------------------------------
<S> <C> <C>
Gross interest due under terms................................. $ 69 $ 58
Interest income recognized..................................... 3 8
------ ------
Interest income not recognized................................. $ 66 $ 50
====== ======
Interest income recognized (cash-basis)........................ $ 3 $ 8
Average recorded investment in impaired loans.................. $2,936 $2,549
</TABLE>
Cash received on impaired loans applied as a reduction of
principal totaled $39 for the quarter ended March 31, 2000, and
$81 for the same period of 1999. There were no commitments to
extend additional funds to such parties at March 31, 2000.
Our allowance for loan losses account is established through
charges to earnings as a provision for loan losses. Loans, or
portions of loans, determined to be uncollectible are charged
against the allowance account with any subsequent recoveries
being credited to the account. Nonaccrual, restructured and
large delinquent commercial and real estate loans are reviewed
monthly to determine if carrying value reductions are warranted.
Consumer loans are considered losses when they are 120 days past
due, except those expected to be recovered through insurance or
collateral disposition proceeds. Under GAAP, the allowance for
loan losses related to impaired loans is based on discounted cash
flows using the loan's initial effective interest rate or the
fair value of the collateral for certain collateral-dependent
loans. We maintain the allowance for loan losses at a level
believe adequate to absorb estimated potential credit losses. We
employ the federal banking regulatory agencies' Interagency
Policy Statement on the Allowance for Loan Losses as the primary
analytical tool in assessing the adequacy of the allowance
account by assigning qualitative factors to each element of the
allowance. The allowance for loan losses consists of two
elements: allocated and unallocated.
We utilize the loss mitigation method for estimating the
allocated portion of the allowance for loan losses. Loss
mitigation involves determining the percentage of each
classification of individual loans and loan pools that are
expected to ultimately result in loss based on historical
experience. This estimating method and assumptions used for the
method have been followed in a consistent manner. Commercial
loans and commercial real estate loans are classified and have
historical percentages applied on an asset by asset basis.
Residential mortgages and consumer loans have historical
percentages applied on a pool by pool basis. The historical loss
percentages are updated quarterly and are based on the actual
amount of loans in each classification that resulted in loss over
the past eight quarters. The historical loss experience method
is only the starting point for estimating the allowance for loan
losses. We add to these historical loss percentages a
qualitative percentage representing a number of other relevant
factors that may cause estimated credit losses associated with
our current portfolio to differ from historical loss. These risk
factors include:
- Changes in lending policies and procedures,
- Economic conditions,
- Nature and volume of the portfolio,
- Loan review system,
- Volumes of past due and impaired loans,
- Concentrations,
- Borrowers' financial status,
- Collateral value,
- Experience, ability and depth of lending management,
and
- Other factors deemed relevant.
The volume of the allowance for loan losses and the composition
of its elements fluctuate based on changes in many of these risk
factors. There are no known trends which would lead us to
believe that the current level of the allowance for loan losses
is not adequate to cover expected loan losses.
The unallocated portion is used to cover inherent losses that
exist as of the evaluation date, but which have not been
identified by the loss mitigation method due to limitations in
the process. One such limitation is that it does not take into
account deviations of current losses from historical experience.
This may cause estimated credit losses associated with our
current portfolio to differ from historical loss experience
resulting in an allowance that is higher or lower than the
appropriate level. We establish the unallocated element of the
allowance based on judgments made by considering a number of the
risk factors similar to the ones used for determining the
allocated element.
We monitor the adequacy of the allocated portion of the allowance
quarterly and adjust the allowance for any deficiencies through
normal operations. This self-correcting mechanism reduces
potential differences between estimates and actual observed
losses. In addition, the unallocated portion of the allowance is
examined to ensure that it remains relatively constant in
relation to the total allowance unless there are changes in the
related criteria that would indicate a need to either increase or
decrease it. The determination of the allowance for loan loss
level inherently involves a high degree of uncertainty due to the
fact that knowledge of the portfolio may be incomplete.
Accordingly, we cannot ensure that charge-offs in future periods
will not exceed the allowance for loan losses or that additional
increases in the allowance for loan losses will not be required
resulting in an adverse impact on operating results.
The allowance for loan losses can generally 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,
2000 1999
--------------- ---------------
CATEGORY CATEGORY
AS A AS A
% OF % OF
AMOUNT LOANS AMOUNT LOANS
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial and others................... $1,098 17.51% $1,292 15.86%
Real estate:
Construction..................................... 1.24 1.14
Mortgage......................................... 1,272 69.82 1,289 71.67
Consumer, net...................................... 1,141 11.22 1,213 11.14
Lease financing, net............................... 5 0.21 5 0.19
------ ------ ------ ------
Total.......................................... $3,516 100.00% $3,799 100.00%
====== ====== ====== ======
</TABLE>
A reconciliation of the allowance for loan losses and
illustration of charge-offs and recoveries by major loan category
for the quarter ended March 31, 2000, is summarized as follows:
RECONCILIATION OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
MARCH 31,
2000
- ----------------------------------------------------------------------------------------
<S> <C>
Allowance for loan losses at beginning of period............................... $3,799
Loans charged-off:
Commercial, financial and others............................................... 264
Real estate:
Construction.................................................................
Mortgage..................................................................... 23
Consumer, net.................................................................. 116
Lease financing, net...........................................................
------
Total...................................................................... 403
------
Loans recovered:
Commercial, financial and others............................................... 8
Real estate:
Construction.................................................................
Mortgage..................................................................... 1
Consumer, net.................................................................. 21
Lease financing, net...........................................................
------
Total...................................................................... 30
------
Net loans charged-off.......................................................... 373
------
Provision charged to operating expense......................................... 90
------
Allowance for loan losses at end of period..................................... $3,516
======
Ratios:
Net loans charged-off as a percentage of average loans outstanding............. 0.53%
Allowance for loan losses as a percentage of period end loans.................. 1.23%
</TABLE>
The allowance for loan losses was $3,516 and equaled 1.23 percent
of loans, net of unearned income, at March 31, 2000, as compared
to $3,799 and 1.37 percent of loans, net of unearned income, at
December 31, 1999. The decrease resulted from net charge-offs
exceeding the provision for loan losses for the quarter ended
March 31, 2000. Approximately one-half of the total amount of
loans charged-off during the first quarter of 2000 resulted from
a write-down of a credit to one commercial real estate customer.
We do not anticipate further write-downs on such property based
on current appraisals. As a percentage of nonperforming loans,
the allowance account covered 84.3 percent at March 31, 2000, and
57.7 percent at December 31, 1999. Relative to all nonperforming
assets, the allowance covered 74.4 percent at March 31, 2000, and
54.7 percent at December 31, 1999.
Past due loans not 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. Any subsequent recoveries are
credited to the allowance account. Net charge-offs were $373 or
0.53 percent of average loans outstanding for the first quarter
of 2000, compared to $9 or 0.01 percent for the same period last
year.
DEPOSITS:
The average amount of, and the rate paid on, the major
classifications of deposits for the quarters ended March 31, 2000
and 1999, are summarized as follows:
DEPOSIT DISTRIBUTION
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
2000 1999
----------------- ----------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest-bearing:
Money market accounts....................... $ 22,683 3.62% $ 16,696 2.94%
NOW accounts................................ 25,020 2.64 23,359 2.47
Savings accounts............................ 73,585 2.51 63,041 2.36
Time deposits less than $100................ 177,119 5.55 179,366 5.48
Time deposits $100 or more.................. 30,294 5.79 22,520 5.85
-------- --------
Total interest-bearing.................... 328,701 4.54% 304,982 4.49%
Noninterest-bearing......................... 35,319 34,372
-------- --------
Total deposits............................ $364,020 $339,354
======== ========
</TABLE>
Total deposits increased $5.7 million to $368.2 million at March
31, 2000, from $362.5 million at December 31, 1999. The growth
was primarily attributable to an increase in time deposits from
tax-exempt entities. Total deposits averaged $364.0 million, an
increase of $24.6 million compared to the $339.4 million average
for the same quarter of 1999. The general rise in market deposit
rates as a result of the FOMC's two additional 25 basis point
rate increases in the first quarter of 2000 caused us to raise
interest rates paid on deposits in order to remain competitive.
These FOMC actions following the three 25 basis point changes in
the second half of 1999 resulted in an increase of 5 basis points
in our average cost of deposits from 4.49 percent in the first
quarter of 1999 to 4.54 percent in the first quarter of 2000.
Moreover, our cost of deposits for the first quarter of 2000
increased 12 basis points as compared to the cost of deposits for
the fourth quarter of 1999. Further interest rate increases are
expected for 2000. Should additional rate increases occur, we
may experience further increases in our cost of funds.
Volatile deposits, time deposits in denominations of $100 or
more, increased $10.8 million from $23.3 million at December 31,
1999, to $34.1 million at March 31, 2000. This increase directly
resulted from improved depository relationships with tax-exempt
entities. The average cost of these deposit increased 24 basis
points from 5.55 percent for the fourth quarter of 1999 to 5.79
for the first quarter of 2000.
Maturities of time deposits of $100 or more at March 31, 2000,
and December 31, 1999, are summarized as follows:
MATURITY DISTRIBUTION OF TIME DEPOSITS OF $100 OR MORE
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
- --------------------------------------------------------------------------------------
<S> <C> <C>
Within three months............................................ $18,397 $ 3,752
After three months but within six months....................... 2,147 5,240
After six months but within twelve months...................... 3,987 5,411
After twelve months............................................ 9,526 8,850
------- -------
Total........................................................ $34,057 $23,253
======= =======
</TABLE>
MARKET RISK SENSITIVITY:
Market risk is the risk to a company's financial position
resulting from changes in market rates or prices, such as,
interest rates, foreign exchange rates or commodity prices. We
have no exposures to foreign currency exchange risk nor do we
have any specific exposure to the commodity price risk. Our
major area of market risk exposure is IRR. Our exposure to IRR
can be explained as the potential for change in our reported
earnings and/or the market value of our net worth. Variations in
interest rates affect earnings by changing its net interest
income and its level of other interest-sensitive income and
operating expenses. Interest rate changes also affect the
underlying economic value of our assets, liabilities and off-
balance sheet items. These changes arise because the present
value of future cash flows, and often the cash flows themselves,
change with interest rates. The effects of the changes in these
present values reflect the change in our underlying economic
value and provide a basis for the expected change in future
earnings related to interest rates. IRR is inherent in the role
of banks as financial intermediaries, however a bank with a high
exposure to IRR may experience lower earnings, impaired liquidity
and capital positions and, most likely, a greater risk of
insolvency. Therefore, banks must carefully evaluate interest
rate risk to promote safety and soundness in their activities.
Interest rate sensitivity management attempts to limit and, to
the extent possible, control the effects interest rate
fluctuations have on net interest income and the market value of
financial instruments. The responsibility of this 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 the
influence that market changes have on our rate-sensitive assets
and liabilities. One such technique utilizes a static gap
report, which attempts to measure our 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 a RSA/RSL ratio
greater than 1.0, implies that earnings will be impacted
favorably if interest rates rise and adversely if interest rates
fall during the period. A negative gap, a RSA/RSL ratio less
than 1.0, tends to indicate that earnings will be affected
inversely to interest rate changes.
Our interest rate sensitivity gap position, illustrating RSA and
RSL at their related carrying values, is summarized as follows.
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, 2000 THREE MONTHS TWELVE MONTHS FIVE YEARS FIVE YEARS TOTAL
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Rate sensitive assets:
Investment securities............... $ 5,410 $ 16,661 $ 43,499 $ 33,614 $ 99,184
Loans held for sale, net............
Loans, net of unearned income....... 81,692 22,284 76,058 105,840 285,874
Federal funds sold..................
------- -------- -------- -------- --------
Total............................. $87,102 $ 38,945 $119,557 $139,454 $385,058
======= ======== ======== ======== ========
Rate sensitive liabilities:
Money market accounts............... $ 20,293 $ 20,293
NOW accounts........................ 25,125 25,125
Savings accounts.................... $ 73,262 73,262
Time deposits less than $100........ $35,702 45,728 96,819 $ 499 178,748
Time deposits $100 or more.......... 18,397 6,134 9,363 163 34,057
Short-term borrowings............... 800 800
Long-term debt...................... 1 2 13 22 38
------- -------- -------- -------- --------
Total............................. $54,900 $ 97,282 $179,457 $ 684 $332,323
======= ======== ======== ======== ========
Rate sensitivity gap:
Period............................ $32,202 $(58,337) $(59,900) $138,770
Cumulative........................ $32,202 $(26,135) $(86,035) $ 52,735 $ 53,735
RSA/RSL ratio:
Period............................ 1.59 0.40 0.67 203.88
Cumulative........................ 1.59 0.83 0.74 1.16 1.16
</TABLE>
Our one-year RSA/RSL ratio improved from 0.65 at March 31, 1999,
to 0.83 at March 31, 2000 and falls within our asset/liability
guidelines of 0.70 and 1.30. An increase in the amount of RSA
maturing or repricing within one year, coupled with a decrease in
the amount of RSL maturing or repricing within one year were
primarily responsible for the improved ratio. Increased demand
for adjustable-rate commercial loans was the primary factor for
the improvement as loans, net of unearned income maturing or
repricing within one year rose $26.2 million compared to March
31, 1999. Partially offsetting the increase in loans, net of
unearned income was a $8.3 million decrease in investment
securities due within one year. Also positively affecting the
one-year ratio was a $34.5 million decrease in time deposits less
than $100. Promotional pricing strategies on longer-term
certificate of deposits lengthened the average life for this type
of funding. This decrease was partially offset by increases of
$4.4 million in money market accounts, $1.8 million in NOW
accounts and $9.2 million in time deposits $100 or more.
We also experienced an increase in our three-month ratio at March
31, 2000, as compared to one year earlier. At the end of the
first quarter of 2000 this ratio equaled 1.59 as compared to 1.45
at March 31, 1999. The reasons attributable to the increase are
relatively the same as those discussed for the one-year ratio.
According to the results of the static gap report, we were
liability rate-sensitive for the cumulative one-year period.
This indicates that should general market rates increase, the
likelihood exists that net interest income would be adversely
affected. Conversely, a decline in market rates would likely
have a favorable effect on net interest income. However, these
forward-looking statements are qualified in the aforementioned
section entitled "Forward-Looking Discussion" in this
Management's Discussion and Analysis.
Static gap analysis, although a credible measuring tool, does
not fully illustrate the impact of interest rate changes on
future earnings. First, market rate changes normally do 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 interest rate
sensitivity table presents a one-day position. Variations occur
daily as we adjust our rate sensitivity throughout the year.
Finally, assumptions must be made in constructing such a table.
For example, the conservative nature of our 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 the static gap report fails to address the dynamic changes in
the balance sheet composition or prevailing interest rates, we
utilize a simulation model to enhance our asset/liability
management. This model is used to create pro forma net interest
income scenarios under various interest rate shocks. Model
results at March 31, 2000, produced results similar to those
indicated by the one-year static gap position. Given a parallel
and instantaneous rise in interest rates of 100 basis points, net
interest income should decrease 2.7 percent. Conversely, a
similar decline in interest rates would result in a 2.7 percent
increase in net interest income.
Financial institutions are affected differently by inflation than
are commercial and industrial companies that have significant
investments in fixed assets and inventories. Most of our assets
are monetary in nature and change correspondingly with variations
in the inflation rate. It is difficult to precisely measure the
impact inflation has on us, however we believe that its exposure
to inflation can be mitigated 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. Our
principal sources of liquidity are core deposits and loan and
investment payments and prepayments. Providing a secondary
source of liquidity is our available-for-sale portfolio. As a
final source of liquidity, we can exercise existing credit
arrangements. We manage liquidity daily, thus enabling us to
effectively monitor fluctuations in our liquidity position and to
adapt the position according to market changes. We believe our
liquidity is adequate to meet both present and future financial
obligations and commitments on a timely basis. There are
presently no known trends, demands, commitments, events or
uncertainties that have resulted or are reasonably likely to
result in material changes with respect to our liquidity.
Our liquidity position at the end of the first quarter of 2000
weakened in comparison to one year earlier. The net noncore
funding dependence ratio and net short-term noncore funding
dependence ratio best illustrate the change in the liquidity
position. The net noncore funding dependence ratio, defined as
the difference between noncore funds, time deposits $100 or more
and brokered time deposits less than $100, and short-term
investments to long-term assets, was 3.3 percent at March 31,
2000, compared to negative 3.5 percent at the end of the first
quarter of 1999. The net short-term noncore funding dependence
ratio, defined as the difference between noncore funds maturing
within one year, including borrowed funds, less short-term
investments to long-term assets, equaled 0.7 percent and
negative 5.2 percent at March 31, 2000 and 1999. We believe
that by maintaining adequate volumes of short-term investments
and remaining competitive in pricing our deposits, we can ensure
sufficient liquidity to support future growth.
The consolidated statements of cash flows present the changes in
cash and cash equivalents from operating, investing and financing
activities. Cash and cash equivalents, consisting of cash on
hand, cash items in the process of collection, noninterest-
bearing deposits with other banks, balances with the Federal
Reserve Bank of Philadelphia ("FRB") and the Federal Home Loan
Bank of Pittsburgh ("FHLB-Pgh"), and federal funds sold,
decreased $2.2 million in the first quarter of 2000. Net cash
provided by operating activities totaled $1.4 million, which
primarily resulted from net income of $1,060 earned in the first
three months of 2000.
Net cash used in investing activities amounted to $3.3 million
and was the primary reason for overall decline in cash in the
first quarter. A net increase in lending activities of $9.6
million, offset partially by repayments from available-for-sale
investment securities of $6.5 million was predominantly
responsible for the net cash outflow.
Net cash used in financing activities during the first three
months of 2000 equaled $295. Short-term borrowing repayments of
$4.7 million, common stock repurchases of $1.0 million and net
cash dividends paid of $270 were almost entirely offset by a net
increase in deposits of $5.7 million.
CAPITAL ADEQUACY:
Stockholders' equity decreased $285 in the first quarter of 2000.
Net income of $1,060, was more than offset by common stock
repurchases of $1,004 and net cash dividends declared of $286.
During the first quarter of 2000, we repurchased and retired
25,400 shares of our common stock under a stock repurchase
program authorized in the second quarter of 1999. Also affecting
stockholders' equity was a $55 increase in the accumulated other
comprehensive loss resulting entirely from the change in the net
unrealized loss on available-for-sale investment securities.
Dividend declared for the quarter ended March 31, 2000, were $342
or $0.17 per share. The dividend payout ratio in the first
quarter of 2000 was 32.3 percent compared to 25.3 percent for the
same quarter of 1999. It is the intention of the Board of
Directors to continue to pay cash dividends in the future.
However, these decisions are affected by operating results,
financial and economic decisions, capital and growth objectives,
appropriate dividend restrictions and other relevant factors.
Our dividend reinvestment plan allows stockholders to
automatically reinvest their dividends in shares of our common
stock. During the first quarter of 2000, 1,434 shares were
issued under this plan.
We attempt to assure capital adequacy by monitoring our current
and projected capital positions to support future growth, while
providing stockholders with an attractive long-term appreciation
of their investments. According to bank regulation, at a
minimum, banks must maintain a Tier I capital to risk-adjusted
assets ratio of 4.0 percent and a total capital to risk-adjusted
assets ratio of 8.0 percent. Additionally, banks must maintain a
Leverage ratio, defined as Tier I capital to total average assets
less intangibles, of 3.0 percent. The minimum Leverage ratio of
3.0 percent only applies to institutions with a composite rating
of one under the Uniform Interagency Bank Rating System, that are
not anticipating or experiencing significant growth and have
well-diversified risk. An additional 100 to 200 basis points are
required for all but these most highly-rated institutions. Our
minimum Leverage ratio was 4.0 percent at March 31, 2000 and
1999. If an institution is deemed to be undercapitalized under
these standards, banking law prescribes an increasing amount of
regulatory intervention, including the required institution of a
capital restoration plan and restrictions on the growth of
assets, branches or lines of business. Further restrictions are
applied to significantly or critically undercapitalized
institutions, including restrictions on interest payable on
accounts, dismissal of management and appointment of a receiver.
For well capitalized institutions, banking law provides authority
for regulatory intervention where the institution is deemed to be
engaging in unsafe and unsound practices or receives a less than
satisfactory examination report rating.
The Board of Governors of the Federal Reserve Board, ("Federal
Reserve Board")in conjunction with the other federal banking
agencies recently amended their respective risk-based capital
standards for banks, bank holding companies and thrifts with
regard to the regulatory treatment of unrealized holding gains on
certain available-for-sale equity securities. Currently under
GAAP, unrealized gains are reported as a component of equity
capital, however, unrealized gains have been excluded from
regulatory capital under the capital standards of the federal
banking agencies. Under the amended rule, institutions that
legally hold equity securities are permitted, but not required,
to include up to 45.0 percent of the pretax net unrealized
holding gains on certain available-for-sale equity securities in
Tier II capital. We have elected not to include such unrealized
gains in our Tier II capital.
Our and Community Bank's capital ratios at March 31, 2000 and
1999, as well as the required minimum ratios for capital adequacy
purposes and to be well capitalized under the prompt corrective
action provisions as defined by the Federal Deposit Insurance
Corporation Act of 1991 are summarized as follows:
RISK-ADJUSTED CAPITAL
<TABLE>
<CAPTION>
MINIMUM TO BE WELL
CAPITALIZED UNDER
MINIMUM FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
-------------------------------------------------------------
MARCH 31 2000 1999 2000 1999 2000 1999
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basis for ratios:
Tier I capital to risk-adjusted assets:
Consolidated........................... $ 33,740 $ 36,461 $ 9,678 $ 8,506 $14,517 $12,760
Community Bank......................... 32,468 35,220 9,623 8,442 14,434 12,663
Total capital to risk-adjusted assets:
Consolidated........................... 36,770 39,137 19,356 17,013 24,195 21,266
Community Bank......................... 35,481 37,876 19,245 16,883 24,057 21,104
Tier I capital to total average assets
less goodwill:
Consolidated........................... 33,740 36,461 16,185 15,226 20,231 19,033
Community Bank......................... 32,468 35,220 $16,115 $15,093 $20,144 $18,866
Risk-adjusted assets:
Consolidated........................... 227,008 202,917
Community Bank......................... 225,627 201,298
Risk-adjusted off-balance sheet items:
Consolidated........................... 14,938 9,745
Community Bank......................... 14,938 9,745
Average assets for Leverage ratio:
Consolidated........................... 404,613 380,659
Community Bank......................... $402,873 $377,323
Ratios:
Tier I capital as a percentage of risk-
adjusted assets and off-balance sheet
items:
Consolidated............................ 13.9% 17.1% 4.0% 4.0% 6.0% 6.0%
Community Bank.......................... 13.5 16.7 4.0 4.0 6.0 6.0
Total of Tier I and Tier II capital as a
percentage of risk-adjusted assets and
off-balance sheet items:
Consolidated............................ 15.2 18.4 8.0 8.0 10.0 10.0
Community Bank.......................... 14.7 17.9 8.0 8.0 10.0 10.0
Tier I capital as a percentage of total
average assets less goodwill:
Consolidated............................ 8.3 9.6 4.0 4.0 5.0 5.0
Community Bank.......................... 8.1% 9.3% 4.0% 4.0% 5.0% 5.0%
</TABLE>
The decline in the risk-based capital ratios at March 31, 2000
compared to one year earlier directly resulted from continuing to
repurchase and retire our common stock. Despite the decline, we
exceeded all relevant regulatory capital measurements at March
31, 2000, and were 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: (i) a Tier I risk-based ratio of at least
6.0 percent; (ii) a total risk-based ratio of at least 10.0
percent; and (iii) a Leverage ratio of at least 5.0 percent.
REVIEW OF FINANCIAL PERFORMANCE:
Our net income for the first three months of 2000 totaled $1,060
or $0.53 per share. Net income for the same three months of 1999
was $1,140 or $0.52 per share. Improvements in net interest
income and noninterest income were more than offset by a higher
amount of loan loss provision and increases in noninterest
expense related to the opening of two new branch offices and our
Corporate Center in 1999. Other factors which contributed to the
decline in earnings were opportunity costs associated with the
stock repurchase program and the reversal of interest earned on
loans placed on nonaccrual status during the first quarter of
2000.
NET INTEREST INCOME:
Our major source of operating income is derived from net interest
income. Net interest income is defined as the excess amount of
income, interest and fees, from earning assets over the cost of
interest-bearing liabilities supporting those assets. The
primary sources of earning assets are loans and investment
securities, while deposits, short-term borrowings and long-term
debt comprise interest-bearing liabilities. Net interest margin
is the percentage of net interest income on a tax-equivalent
basis to average earning assets. Variations 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. The composition of earning assets and interest-
bearing liabilities and the volume of nonperforming assets also
influence the levels of interest income.
We analyze interest income and interest expense by segregating
rate and volume components of earning assets and interest-bearing
liabilities. 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 are summarized in the following table. 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,
2000 VS. 1999
----------------------
INCREASE (DECREASE)
ATTRIBUTABLE TO
----------------------
TOTAL
CHANGE RATE VOLUME
------ ---- ------
<S> <C> <C> <C>
INTEREST INCOME:
Loans:
Taxable......................................................... $616 $ (44) $660
Tax-exempt...................................................... 45 (73) 118
Investments:
Taxable......................................................... (42) (6) (36)
Tax-exempt...................................................... (43) (18) (25)
Federal funds sold................................................ (39) (1) (38)
---- ----- ----
Total interest income......................................... 537 (142) 679
---- ----- ----
INTEREST EXPENSE:
Money market accounts............................................. 83 33 50
NOW accounts...................................................... 22 11 11
Savings accounts.................................................. 93 26 67
Time deposits less than $100...................................... 23 126 (103)
Time deposits $100 or more........................................ 112 (2) 114
Short-term borrowings............................................. 67 1 66
Long-term debt....................................................
---- ----- ----
Total interest expense........................................ 400 195 205
---- ----- ----
Net interest income........................................... $137 $(337) $474
==== ===== ====
</TABLE>
For the first quarter of 2000, we experienced a slight
improvement of $137 in our tax-equivalent net interest income as
compared to the same period last year. For the three months
ended March 31, 2000, net interest income on a tax-equivalent
basis totaled $3,750 compared to $3,613 for the same three months
of last year. Higher volumes of average loans more than offset
increases in average interest-bearing liabilities. Total loans
averaged $32.8 million higher for the first quarter of 2000
compared to the same period of 1999, and resulted in a $778
increase in tax-equivalent interest income. Partially offsetting
the favorable volume variance from loans was a $99 reduction in
tax-equivalent interest income resulting from a $7.8 million
decrease in average investments and federal funds sold. As
previously mentioned, repayments of investment securities were
used to fund the increased loan demand. In addition, our net
interest income was affected by opportunity costs associated with
the stock repurchase program, as we deployed excess funds into
common stock repurchases. Interest-bearing liabilities averaged
$28.3 million more in the first quarter of 2000 compared to the
same period last year, resulting in a $205 reduction in net
interest income. We experienced increases in the average
balances of all major deposit types except time deposits less
than $100. In addition, short-term borrowings averaged $4.5
million more for the first quarter of 2000 compared to the first
quarter of 1999. Net interest expense was also negatively
impacted by a 7 basis point increase in our cost of funds to 4.56
percent for the quarter ended March 31, 2000, compared to 4.49
percent for the same quarter of last year. A 125 basis point rise
in short-term interest rates since March 31, 1999, coupled with
competitive pressures, caused deposit rates to increase.
Maintenance of an adequate net interest margin is one of our
primary concerns. Our net interest margin weakened to 3.90
percent for the first quarter of 2000 from 4.05 percent for the
same period of 1999. In a rising rate environment deposits tend
to reprice faster than loans, which has led to the margin
compression. Additional rate increases by the FOMC could cause
interest margins to tighten even further. We believe following
prudent pricing practices coupled with careful investing, will
keep our net interest margin in check. However, no assurance can
be given that net interest income will not be adversely affected
should general market rates continue to increase and competition
further intensify.
The average balances of assets and liabilities, corresponding
interest income and expense and resulting average yields or rates
paid for the quarters ended March 31, 2000 and 1999, are
summarized as follows. Earning assets averages include
nonaccrual loans. Investment averages include available-for-sale
securities at amortized cost. Income on investment securities
and loans are adjusted to a tax-equivalent basis using a
statutory tax rate of 34.0 percent.
SUMMARY OF NET INTEREST INCOME
<TABLE>
<CAPTION)
MARCH 31, 2000 MARCH 31, 1999
--------------------------- -----------------------------
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..................................... $271,288 $5,616 8.33% $241,389 $5,000 8.40%
Tax-exempt.................................. 9,977 186 7.50 7,049 141 8.11
Investments:
Taxable..................................... 68,238 997 5.88 71,142 1,039 5.92
Tax-exempt.................................. 36,675 721 7.91 38,098 764 8.13
Federal funds sold............................ 817 9 4.43 4,258 48 4.57
-------- ------ -------- ------
Total earning assets...................... 386,995 7,529 7.82% 361,936 6,992 7.83%
Less: allowance for loan losses............... 3,606 4,069
Other assets.................................. 23,512 25,568
-------- --------
Total assets.............................. $406,901 $383,435
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Money market accounts......................... $ 22,683 204 3.62% $ 16,696 121 2.94%
NOW accounts.................................. 25,020 164 2.64 23,359 142 2.47
Savings accounts.............................. 73,585 460 2.51 63,041 367 2.36
Time deposits less than $100.................. 177,119 2,446 5.55 179,366 2,423 5.48
Time deposits $100 or more.................... 30,294 436 5.79 22,520 324 5.83
Short-term borrowings......................... 4,651 68 5.88 101 1 4.02
Long-term debt................................ 38 1 10.58 41 1 9.89
-------- ------ -------- ------
Total interest-bearing liabilities........ 333,390 3,779 4.56% 305,124 3,379 4.49%
Noninterest-bearing deposits.................. 35,319 34,372
Other liabilities............................. 3,024 3,644
Stockholders' equity.......................... 35,168 40,295
-------- --------
Total liabilities and stockholders' equity $406,901 $383,435
======== ------ ======== ------ ========
Net interest/income spread................ $3,750 3.26% $3,613 3.34%
====== ======
Net interest margin....................... 3.90% 4.05%
Tax equivalent adjustments:
Loans......................................... $ 62 $ 48
Investments................................... 245 260
------ ------
Total adjustments......................... $ 307 $ 308
====== ======
Note: Average balances were calculated using average daily balances. Average balances for loans
include nonaccrual loans. Available-for-sale securities, included in investment
securities, are stated at amortized cost with the related average unrealized holding loss
of $728 for the first quarter of 2000 and an unrealized holding gain of $2,040 for the
first quarter of 1999 included in other assets. Tax-equivalent adjustments were
calculated using the prevailing statutory tax rate of 34.0 percent.
</TABLE>
PROVISION FOR LOAN LOSSES:
We make provisions for loan losses based on evaluations of the
adequacy of the allowance for loan losses account. Factors such
as previous loan experience, overall loan portfolio
characteristics, prevailing economic conditions and other
relevant factors are considered when determining the
provision. Based on our most recent evaluation, we believe that
the allowance is adequate to absorb any known and inherent losses
in the portfolio.
The provision for loan losses totaled $90 for the three months
ended March 31, 2000, compared to $30 for the same period of
1999. We believe that maintaining a standard monthly charge to
operations in the form of a provision is warranted. If loan
demand intensifies or nonperforming asset levels deteriorate, we
will consider adjusting the monthly provision amount for the
remainder of 2000.
NONINTEREST INCOME:
Noninterest income totaled $613 for the first quarter of 2000,
compared to $412 for the first quarter of 1999. Included in
noninterest income in 2000 were gains on the sale of investment
securities of $172. The majority of these gains resulted from
the sale of equity securities of local financial institutions.
The decision to sell these securities was based on a decline in
their total return compared to alternative investments.
Adjusting for these gains, noninterest income for the first three
months of 2000 increased $29, compared to the same period one
year ago. Service charges, fees and commissions increased $60
which was partially offset by a $31 decrease in gains on the sale
of one-to-four family residential mortgages on the secondary
market.
NONINTEREST EXPENSE:
In general, noninterest expense is categorized into three main
groups: employee-related expenses, occupancy and equipment
expenses and other expenses. Employee-related expenses are costs
associated with providing salaries, including payroll taxes and
benefits, to our employees. Occupancy and equipment expenses,
the costs related to the maintenance of facilities and equipment,
include depreciation, general maintenance and repairs, real
estate taxes, rental expense offset by any rental income, and
utility costs. Other expenses include general operating expenses
such as advertising, contractual services, insurance including
FDIC assessment, other taxes and supplies. Several of these
costs and expenses are variable while the remainder are fixed.
We utilize budgets and other related strategies in an effort to
control the variable expenses.
Noninterest expense amounted to $2,627 for the quarter ended
March 31, 2000, an increase of $399 or 17.9 percent compared to
$2,228 reported for the same quarter of last year. We
experienced increases in all three major categories of expenses
over the prior year. A key industry ratio used to measure
productivity is the operating efficiency ratio, noninterest
expenses less other real estate expenses to net interest income
and noninterest income less any nonrecurring gains. Another
productivity ratio is the overhead ratio, noninterest expense as
a percentage of total average assets. Both ratios deteriorated
for the first quarter of 2000 as compared to the same quarter of
1999. Our efficiency ratio was 67.2 percent and our overhead
ratio was 2.6 percent for the quarter ended March 31, 2000. In
comparison, for the same period of 1999 these ratios were 59.8
percent and 2.4 percent.
Salaries and employee benefit expenses comprise the majority of
our noninterest expense. These expenses totaled $1,279 and
represented 48.7 percent of noninterest expense for the quarter
ended March 31, 2000. In comparison, these expenses were $1,164
or 52.2 percent of noninterest expense for the first quarter of
1999. Additional staffing needs relative to the opening of the
Dickson City branch office along with merit increases related to
personnel performance appraisals effective in the first quarter
of 2000 were the primary reasons for the increase.
For the first three months of 2000 net occupancy and equipment
expenses totaled $391, an increase of $43 compared to $348 for
the same three months of 1999. Additional expenses associated
with the operation of Clarks Summit and Dickson City branch
offices and data processing enhancements contributed to the
increase.
Increases in advertising expenses coupled with added costs to
operate the two new branches resulted in a $241 increase in other
expenses. Other expenses amounted to $957 for the first quarter
of 2000, compared to $716 for the same period of 1999.
Recently, the Federal Deposit Insurance Corporation ("FDIC")
decided to retain the existing Bank Insurance Fund ("BIF") and
Savings Association Insurance Fund ("SAIF") assessment schedules
of 0 to 27 basis points per year for the first semiannual
assessment period of 2000. According to FDIC statistics:
- 95.0 percent of all BIF-member institutions and 92.4
percent of SAIF-member institutions are estimated to be
listed in the lowest risk category, thus paying no
premiums,
- Only 0.1 percent of BIF-member institutions and 0.2
percent of SAIF-member institutions are estimated to be
in the highest risk category, paying a premium of 27
cents per 100 dollars in deposits,
- The average annual assessment rate is projected to be
12 cents per 100 dollars and cents per 100 dollars for
BIF-member and SAIF-member institutions,
- The FDIC-approved rate schedules are expected to
maintain the reserve ratios for both the BIF and SAIF
above the Congressional mandated 1.25 percent through
June 30, 2000,
- At June 30, 1999, the BIF reserve ratio was 1.40
percent and the SAIF reserve ratio was 1.29 percent,
and
- There will continue to be a separate levy assessed on
all FDIC-insured institutions to bear the cost of bonds
sold by the Finance Corporation ("FICO") between 1987
and 1989 in support of the former Federal Savings and
Loan Insurance Corporation. The 1996 law required the
FICO rate on BIF-assessable deposits to be one-fifth
the rate for SAIF assessable deposits until January 1,
2000.
We were included in the 95.0 percent of all BIF-member
institutions classified in the well capitalized supervisory risk
subgroup at March 31, 2000. Accordingly, we will be exempt from
paying a BIF assessment for the second quarter of 2000.
However, along with all banks, we continue to be assessed
quarterly for assistance in interest payments on FICO bonds used
to capitalize the SAIF. Our assessments were $24 and $21 for the
first quarter of 2000 and 1999.
Major components of noninterest expense for the quarters ended
March 31, 2000, and March 31, 1999, are summarized as follows:
NONINTEREST EXPENSES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
- ---------------------------------------------------------------------------------------
<S> <C> <C>
SALARIES AND EMPLOYEE BENEFITS EXPENSE:
Salaries and payroll taxes........................................ $1,093 $ 996
Employee benefits................................................. 186 168
------ ------
Salaries and employee benefits expense.......................... 1,279 1,164
------ ------
NET OCCUPANCY AND EQUIPMENT EXPENSE:
Net occupancy expense............................................. 193 166
Equipment expense................................................. 198 182
------ ------
Net occupancy and equipment expense............................. 391 348
------ ------
OTHER EXPENSES:
Marketing expense................................................. 87 39
Other taxes....................................................... 84 80
Stationery and supplies........................................... 121 107
Contractual services.............................................. 272 218
Insurance including FDIC assessment............................... 43 31
Other............................................................. 350 241
------ ------
Other expenses.................................................. 957 716
------ ------
Total noninterest expense..................................... $2,627 $2,228
====== ======
</TABLE>
INCOME TAXES:
For the first quarter of 2000, Income tax expense totaled $279
compared to $319 for the same period of 1999. The effective tax
rate improved to 20.8 percent for the three months ended March
31, 2000, from 21.9 percent for the same period of 1999. We
expect the effective tax rate to remain relatively stable for the
remainder of 2000 through emphasizing income on tax-exempt
investments and loans as well as utilizing investment tax credits
available through its investment in a residential housing program
for elderly and low- to moderate-income families.
The difference between the amount of income tax currently payable
and the provision for income tax expense reflected in the income
statements arise from temporary differences. Temporary
differences are differences between the tax bases of assets and
liabilities and their reported amounts in the financial
statements, which result in deferred tax assets or liabilities.
We perform quarterly reviews on the tax criteria related to the
recognition of deferred tax assets. We decided not to establish
a valuation reserve for the deferred tax assets since it is more
likely than not that these assets could be principally realized
through carry-back to taxable income in prior years and by future
reversals of existing taxable temporary differences or, to a
lesser extent, through future taxable 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) Exhibits:
27-Financial Data Schedule
(b) 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: May 12, 2000 /s/ David L. Baker
------------------------- --------------------------------
David L. Baker
Chief Executive Officer
Date: May 12, 2000 /s/ Scott A. Seasock
------------------------- --------------------------------
Scott A. Seasock
Chief Financial Officer
(Principal Financial Officer)
Date: May 12, 2000 /s/ Stephanie A. Ganz
------------------------- --------------------------------
Stephanie A. Ganz
Vice President of Finance
(Principal Accounting Officer)
EXHIBIT INDEX
ITEM NUMBER DESCRIPTION PAGE
- ----------- ----------------------- ----
27 Financial Data Schedule 41
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF OPERATIONS 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
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 8,775
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 99,184
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 285,874
<ALLOWANCE> 3,516
<TOTAL-ASSETS> 408,217
<DEPOSITS> 368,163
<SHORT-TERM> 800
<LIABILITIES-OTHER> 4,026
<LONG-TERM> 38
0
0
<COMMON> 664
<OTHER-SE> 34,526
<TOTAL-LIABILITIES-AND-EQUITY> 408,217
<INTEREST-LOAN> 5,740
<INTEREST-INVEST> 1,473
<INTEREST-OTHER> 9
<INTEREST-TOTAL> 7,222
<INTEREST-DEPOSIT> 3,710
<INTEREST-EXPENSE> 3,779
<INTEREST-INCOME-NET> 3,443
<LOAN-LOSSES> 90
<SECURITIES-GAINS> 172
<EXPENSE-OTHER> 2,627
<INCOME-PRETAX> 1,339
<INCOME-PRE-EXTRAORDINARY> 1,339
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,060
<EPS-BASIC> 0.53
<EPS-DILUTED> 0.53
<YIELD-ACTUAL> 7.82
<LOANS-NON> 2,291
<LOANS-PAST> 1,735
<LOANS-TROUBLED> 145
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,799
<CHARGE-OFFS> 403
<RECOVERIES> 30
<ALLOWANCE-CLOSE> 3,516
<ALLOWANCE-DOMESTIC> 3,516
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
