-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AXg+UxmIYOifbo7IX9uKtAeI4mFpve0UFuS9hnYfJ9u7RypqgYrcneb1DFrVJFuJ q1v0Z8o56nTjpxJSNKG/gA== 0000893220-96-001845.txt : 19961115 0000893220-96-001845.hdr.sgml : 19961115 ACCESSION NUMBER: 0000893220-96-001845 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST JERMYN CORP CENTRAL INDEX KEY: 0000741562 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 232275242 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-13312 FILM NUMBER: 96661225 BUSINESS ADDRESS: STREET 1: 645 WASHINGTON AVE STREET 2: P O BOX 39 CITY: JERMYN STATE: PA ZIP: 18433-0039 BUSINESS PHONE: 7178766500 MAIL ADDRESS: STREET 1: 645 WASHINGTON AVE STREET 2: P O BOX 39 CITY: JERMYN STATE: PA ZIP: 18433-0039 10QSB 1 FORM 10-QSB, THE FIRST JERMYN CORPORATION 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 Commission file number 0-133312 THE FIRST JERMYN CORP. (Exact name of small business issuer as specified in its charter) Pennsylvania 23-2275242 - ------------ ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 645 Washington Avenue; P.O. Box 39; Jermyn Pennsylvania 18433-0039 - ------------------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Issuer's telephone number 717-876-6500 Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] State the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class Outstanding at October 21, 1996 ----- ------------------------------- Common stock, $1.25 par value 884,680
2 THE FIRST JERMYN CORP. AND SUBSIDIARIES FORM 10-QSB INDEX
PAGE PART 1 - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED): Consolidated Balance Sheets - September 30, 1996 and December 31, 1995 1 Consolidated Statements of Income - Three Months and Nine Months Ended September 30, 1996 and 1995 2 Consolidated Statements of Cash Flows - Nine Months Ended September 30, 1996 and 1995 3 Notes to Consolidated Financial Statements 4 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 PART II - OTHER INFORMATION 11 SIGNATURES 12
3 PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS THE FIRST JERMYN CORP. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands of dollars, except per share information)
- ------------------------------------------------------------------------------------------------------------- September 30, December 31, ASSETS 1996 1995 - ------------------------------------------------------------------------------------------------------------- Cash and due from banks $9,077 12,341 Federal funds sold --- 1,860 Securities available for sale 26,200 13,375 Mortgage backed securities available for sale 25,374 26,206 Investment securities (total market value - 1996 - $65,608, 1995 - $77,394) 64,869 75,317 Loans, gross 190,380 174,470 Less: Unearned discount and origination fees (1,009) (1,128) Allowance for loan losses (3,104) (3,015) - ------------------------------------------------------------------------------------------------------------- Loans, net 186,267 170,327 Accrued interest receivable 2,681 2,551 Bank premises, leasehold improvements and furniture and equipment-net 5,060 5,190 Real estate owned other than bank premises 324 296 Other assets 2,369 2,523 - ------------------------------------------------------------------------------------------------------------- Total assets $322,221 309,986 ============================================================================================================= LIABILITIES - ------------------------------------------------------------------------------------------------------------- Deposits: Noninterest-bearing demand $28,530 29,071 Interest-bearing 259,716 252,227 - ------------------------------------------------------------------------------------------------------------- Total deposits 288,246 281,298 - ------------------------------------------------------------------------------------------------------------- Federal funds purchased 3,100 --- Capitalized lease obligation 839 891 Accrued interest payable 1,189 1,106 Other liabilities 312 482 - ------------------------------------------------------------------------------------------------------------- Total liabilities 293,686 283,777 - ------------------------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------------- Common stock, $1.25 par value, authorized 2,500,000 shares; Outstanding 899,885 shares 1,125 1,125 Surplus 3,876 3,876 Retained earnings 24,381 21,944 Unrealized loss on securities available for sale, net of tax (651) (540) Less treasury stock-at cost (15,205 shares) (196) (196) - ------------------------------------------------------------------------------------------------------------- Total shareholders' equity 28,535 26,209 - ------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $322,221 309,986 =============================================================================================================
*See accompanying notes to consolidated financial statements. 1 4 THE FIRST JERMYN CORP. AND SUBSIDIARIES Consolidated Statements of Income (In thousands of dollars, except per share information)
Three months Nine months Ended September 30 Ended September 30 1996 1995 1996 1995 - ------------------------------------------------------------------------------------------------------------- Interest income: Interest and fees on loans 3,862 3,691 11,240 10,948 Interest and dividends on securities U.S. Treasury 1,177 1,200 3,592 3,565 U.S. government agencies 2 2 5 4 CMO's of U.S. government agencies and corporations 414 350 1,277 839 State and political subdivisions 247 87 742 162 Other taxable debt 5 11 18 35 Taxable equity 3 3 7 7 Interest on federal funds sold 6 98 193 224 - ------------------------------------------------------------------------------------------------------------- Total interest income 5,716 5,442 17,074 15,784 - ------------------------------------------------------------------------------------------------------------- Interest expense: Deposits 2,772 2,707 8,400 7,424 Federal funds purchased 15 0 17 1 Capitalized lease obligations 22 23 65 69 - ------------------------------------------------------------------------------------------------------------- Total interest expense 2,809 2,730 8,482 7,494 - ------------------------------------------------------------------------------------------------------------- Net interest income 2,907 2,712 8,592 8,290 Provision for loan losses 46 92 137 273 - ------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 2,861 2,620 8,455 8,017 - ------------------------------------------------------------------------------------------------------------- Noninterest income: Service charges and fees 108 135 307 384 Gain on legal settlement --- --- 600 --- Other 31 36 86 60 - ------------------------------------------------------------------------------------------------------------- Total noninterest income 139 171 993 444 - ------------------------------------------------------------------------------------------------------------- Noninterest expense: Salaries and benefits 917 832 2,680 2,414 Net occupancy and furniture/ equipment expenses 291 272 893 740 Data processing services 106 122 317 343 Advertising 66 43 182 117 Other expenses 451 390 1,341 1,503 - ------------------------------------------------------------------------------------------------------------- Total noninterest expense 1,831 1,659 5,413 5,117 - ------------------------------------------------------------------------------------------------------------- Income before federal income tax provision 1,169 1,132 4,035 3,344 Federal income tax provision 295 338 1,068 1,025 - ------------------------------------------------------------------------------------------------------------- Net income 874 794 2,967 2,319 ============================================================================================================= Per share information: Net income $.99 $.90 $3.35 $2.62 Weighted average shares outstanding 884,680 884,680 884,680 884,680 =============================================================================================================
*The accompanying notes are an integral part of the consolidated financial statements. 2 5 THE FIRST JERMYN CORP. AND SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands of dollars)
- ------------------------------------------------------------------------------------------------------------- Nine months ended September 30, 1996 1995 - ------------------------------------------------------------------------------------------------------------- Operating activities: Net income $ 2,967 $2,319 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 137 273 Depreciation and amortization of investment securities, bank premises, leasehold improvements and furniture and equipment 390 333 Increase in interest receivable and other assets (119) (567) Increase in interest payable and other liabilities 1 161 Other --- 1 - ------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 3,376 2,520 - ------------------------------------------------------------------------------------------------------------- Investing activities: Purchases of securities (18,248) (26,762) Proceeds from maturities of securities 16,649 13,659 Net increase in loans (16,127) (2,817) Purchases of bank premises, leasehold improvements and furniture and equipment-net (260) (644) Proceeds from sales of assets acquired through foreclosure 21 497 Proceeds from sales of equipment --- --- - ------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (17,965) (16,067) - ------------------------------------------------------------------------------------------------------------- Financing activities: Net increase in noninterest-bearing demand deposits and interest-bearing deposits 6,948 19,487 Increase in (repayment of ) federal funds purchased 3,100 (1,900) Principal payments on capitalized lease obligation (52) (47) Dividends paid (531) (487) - ------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 9,465 17,053 - ------------------------------------------------------------------------------------------------------------- Increase in cash and cash equivalents (5,124) 3,506 Cash and cash equivalents at beginning of period 14,201 10,659 - ------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $9,077 $14,165 ============================================================================================================= Cash paid during the period: Interest 8,334 7,066 Taxes 1,087 952 ============================================================================================================= Noncash transactions Transfer of loans to real estate owned --- 200 Change in unrealized loss on securities available for sale, net of tax 111 737 =============================================================================================================
*The accompanying notes are an integral part of the consolidated financial statement. 3 6 FIRST JERMYN CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF FINANCIAL STATEMENT PRESENTATION The accompanying consolidated financial statements of First Jermyn Corp and subsidiaries (the Company) were prepared in accordance with instructions to Form 10-QSB, and therefore, do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows In conformity with generally accepted accounting principles. However, all normal, recurring adjustments which, in the opinion of management, are necessary for a fair presentation of the financial statements, have been included. These financial statements should be read in conjunction with the audited financial statements and the notes thereto included in the Company's Annual Report for the period ended December 31, 1995. The results for the nine months ended September 30, 1996 are not necessarily indicative of the results that may be expected for the year ended December 31, 1996. BUSINESS The Company's principal subsidiary, The First National Bank of Jermyn (the Bank), conducts business from its branch bank system located in Lackawanna County, Pennsylvania. The Bank is subject to competition from other financial institutions and other companies which provide financial services. The Bank is subject to the regulations of certain federal agencies and undergoes periodic examinations by those regulatory authorities. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of all of the Company's wholly-owned subsidiaries. All significant intercompany transactions have been eliminated in consolidation. Additionally, certain reclassifications have been made in order to conform with the current year's presentation. The accompanying consolidated financial statements have been prepared on an accrual basis. (2) EARNINGS PER SHARE Earnings per share were $.99 and $3.35 for the three-month and nine month periods ended September 30, 1996 as compared to $.90 and $2.62 for the three month and nine month periods ended September 30, 1995. Earnings per share was computed based on the weighted average number of shares outstanding during each period. 4 7 (3) RECENT ACCOUNTING PRONOUNCEMENTS In March 1995, the FASB issued SFAS No. 121, Accounting for the Impairment of Long-lived Assets and for Long-Lived Assets to be Disposed of. This statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, and that any related impairment be based on the fair value of the asset. In addition, long-lived assets to be disposed of must generally be reported at the lower of carrying amount or fair value, less cost to sell. SFAS No. 121 has been adopted by the Company effective January 1, 1996. The adoption of this statement did not materially effect the Company's results of operations, equity, or financial condition. In May 1995, the FASB issued SFAS No. 122, Accounting for Mortgage Servicing Rights and Excess Servicing Receivables and for Securitization of Mortgage Loans. This statement will prospectively require the Company, which services mortgage loans for others in return for a fee, to recognize these servicing assets, regardless of how they were acquired. Additionally, the Company will be required to assess the fair value of the assets at each reporting date to determine impairment. SFAS No. 122 was adopted by the Company effective January 1, 1996. The adoption of this statement did not materially effect the Company's results of operations, equity, or financial condition. In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-based Compensation. This statement encourages the adoption of fair value accounting for stock options issued to employees. Further, in the event that fair value accounting is not adopted, the statement requires proforma disclosure of net income and earnings per share as if fair value accounting had been adopted. The Bank does not offer stock-based compensation, and, therefore, the adoption of this statement as of January 1, 1996 did not effect the Company's results of operation, equity, or financial condition. In June 1996, the FASB Issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS 125"). This statement provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities based on consistent application of a financial-components approach that focuses on control. It distinguishes transfers of financial assets that are sales from transfers that are secured borrowings. Under the financial-components approach, after a transfer of financial assets, an entity recognizes all financial and servicing assets it controls and liabilities it has incurred and derecognizes financial assets it no longer controls and liabilities that have been extinguished. The approach focuses on the assets and liabilities that exist after the transfer. If a transfer does not meet the criteria for a sale, the transfer is accounted for as a secured borrowing with pledge of collateral. The Company has not yet determined the effect, if any, that SFAS 125 will have on its financial statements and will adopt SFAS 125 prospectively, effective January 1, 1997, the required date of adoption. 5 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company's net income for the three month and nine month periods ended September 30, 1996 was $874,000 and $2,967,000 or $.99 and $3.35 per share, respectively, compared to $794,000 and $2,319,000 or $.90 and $2.62, respectively, in the same three month and nine-month periods in the preceding year. The increase in net income for the three month period ended September 30, 1996 is primarily attributable to the increase in net interest income combined with a decrease in the provision for loan losses and a lower effective tax rate. For the nine month period ended September 30, 1996, the increase is also due to a gain on a legal settlement. At September 30, 1996, the Company had total assets of $322 million compared to $310 million at December 31, 1995. The growth in total assets substantially consists of growth in the loan portfolios which were primarily funded by deposit growth. The Company improved on certain ratios that measure overall profitability, namely, return on average assets and return on average equity. The Company recorded an annualized return on average assets of 1.25% for the nine-month period ending September 30, 1996, compared to 1.08% for the same period in 1995. Return on average equity of 14.54% was recorded for the nine-month period ended September 30, 1996, compared to 12.78% for the same period in l995. The Company continues to build its allowance for loan losses, providing $46,000 and $137,000 for the three-month and nine-month periods ended September 30, 1996, which increased the allowance for loan losses to $3,104,000 at September 30, 1996 from $3,015,000 at December 31, 1995. The Company is susceptible to a continued increasing interest rate environment that may erode the net interest margin. Strategies to enhance earnings and improve the interest rate exposure of the Company will be considered, such as the sale of existing mortgage-related securities and purchasing higher yielding, rate sensitive assets with the proceeds. Additionally, the Company will be seeking to enhance its net interest margin by increasing the higher yielding loan portfolio with the cash flows from the repayments on the mortgage-related and investment securities portfolios. The Company is attempting to increase market penetration through branch expansion. The branch expansion has begun with the opening of a new branch in Carbondale in December 1995. The Company plans to open a branch in Daleville in December 1996. FINANCIAL CONDITION CASH AND DUE FROM BANKS AND FEDERAL FUNDS SOLD Cash and Due From Banks and Federal Funds Sold declined to approximately $9.1 million at September 30, 1996 from $14.2 million at December 31, 1995 due to normal fluctuations resulting from the conduct of customer business. 6 9 SECURITIES AVAILABLE FOR SALE Securities available for sale, including mortgage backed securities available for sale, have increased $12 million or 30% to $51.6 million from $39.6 million at December 31, 1995. This increase was primarily driven by the purchase of short-term Treasury Notes, which were funded by the related increase in savings deposits. INVESTMENT SECURITIES Investment Securities have decreased $10.4 million or 14% to $64.9 million at September 30, 1996 from $75.3 million in December 31, 1995. The decrease related to proceeds from maturities. The funds which became available were reinvested in securities available for sale. LOANS RECEIVABLE, NET Aggregate loans receivable totaled $186.3 million at September 30, 1996, an increase of $16 million or 9.4% from $170.3 million at December 31, 1995. The mix of loans is substantially unchanged at those dates. The Company attributes this growth to its increased advertising and enhanced marketing effort driven by the employees. NON-PERFORMING ASSETS The Company's total non-performing assets increased from $2.8 million or .90 of total assets at December 31, 1995 to $4.1 million or l.26% of total assets at September 30, 1996. Nonaccrual loans increased from $1,978,000 at December 31, 1995 to $2,943,000 at September 30, 1996. These delinquencies consist primarily of commercial and residential real estate loans in the process of collection. Real estate owned, increased $28,000 or 9.8% from $296,000 as of December 31, 1995 to $324,000 as of September 30, 1996, due to the foreclosure of property securing one credit. There were no significant gains or losses on the sale of real estate owned.
9/30/96 12/31/95 9/30/95 -------- -------- ------- Nonaccrual 2,943,000 1,978,000 2,272,000 Loans 90 days of more delinquent 795,000 511,000 962,000 Restructured --- --- --- --------- --------- --------- Total non-performing loans 3,738,000 2,489,000 3,234,000 Other real estate owned other than Bank premises 324,000 296,000 277,000 ------- ------- ------- Total non-performing assets 4,062,000 2,785,000 3,511,000
7 10 At September 30, 1996, the Company's allowance for loan losses amounted to $3.10 million or 1.63% of gross loans receivable. At December 31, 1995, the Company's allowance for loan losses was $3.02 million or l.73% of gross loans receivable. DEPOSITS Deposits increased $6.9 million or 2.5% from $281.3 million at December 31, 1995 to $288.2 million at September 30, 1996. The increase in deposits was primarily due to an increase in certificates of deposit from the local market. The Company believes this increase is due to the Bank's competitive rates. EQUITY At September 30, 1996, total equity was $28.5 million or 8.8% of total assets compared to $26.2 million or 8.5% of total assets as of December 31, 1995. Total equity increased primarily due to the retention of net income during the intervening period less dividends paid. RESULTS OF OPERATIONS NET INCOME The Company's net income increased $80,000 to $874,000 for the three months ended September 30, 1996, compared to $794,000 recorded in the comparable period of the prior year. For the nine-month period ended September 30, 1996, net income increased $648,000 or approximately 28% compared to $2,319,000 for the nine-months ended September 30, 1995. Earnings for the nine-month period of 1996 have improved primarily due to increased net interest income, a reduced provision for loan losses, an increase in noninterest income related to a gain on legal settlement and a reduction in the Company's effective tax rate. NET INTEREST INCOME Net interest income before provision for loan losses amounted to $2.9 million and $8.6 million for the three-month and nine month periods ended September 30, 1996 as compared to $2.7 million and $8.3 million for the respective periods in 1995. Interest income in 1996 increased for income on securities and loans but was somewhat offset by interest on an enlarged deposit base. Total interest income increased to $5,716,000 and $17,074,000 for the three month and nine month periods ended September 30, 1996 from $5,442,000 and $15,784,000 during the comparable prior periods. The increase was primarily the result of an increase in the average interest- earning assets of $32,246,000 for the nine months ended September 30, 1996 or 11.3% compared to the nine months ended September 30, 1995. Additionally, the yield earned on average interest-earning assets decreased 20 basis points during the nine months ended September 30, 1996 compared to the 1995 period. Total interest expense increased by $79,000 and $988,000 to $2,809,000 and $8,482,000 for the three and nine months ended September 30, 1996 from $2,730,000 and $7,494,000 for the comparable prior periods. The increase was due to an increase in interest expense associated with deposits, where the average balance increased by $28,543,000 or 11% during the nine months ended September 30, 1996 compared to the 1995 period. The increase in interest expense on deposits was also caused by a 6 basis point increase in the average rates paid for the six months ended September 30, 1996 over the comparable 1995 period. 8 11 PROVISION FOR LOAN LOSSES The Company establishes a provision for loan losses, which is charged to operations, in order to maintain the allowance for loan losses at a level which is deemed to be appropriate based upon an assessment of prior loss experience, the volume and type of lending presently being conducted by the Company, industry standards, past due loans, economic conditions in the Company's market area generally and other factors related to the collect ability of the Company's loan portfolio. For the three month and nine month periods ended September 30, 1996, the provision for loan losses amounted to $46,000 and $137,000. This represents a decrease of $46,000 for the three months ended September 30, 1996 compared to 1995. For the nine months ended September 30, 1996 a decrease of $136,000 in the provision for loan losses was noted when compared to the corresponding period of the previous year. After considering the decrease in the provision expense the Company's allowance for loan losses increased by $89,000 to $3,104,000 at September 30, 1996 compared to December 31, 1995, in part due to the reduction in net charge offs from $102,000 for the nine months ended September 30, 1995 to $48,000 for the nine months ended September 30,1996. Although management utilizes its best judgment in providing for possible losses, there can be no assurance that the Company will not have to increase its provision for loan losses in the future as a result of the future increases in non-performing loans or for other reasons which could adversely affect the Company's results of operations. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance for loan losses based on their judgments of information which is available to them at the time of their examination. NONINTEREST INCOME Noninterest income for the nine months ending September 30, 1996 increased approximately $549,000 and $993,000 from the comparable prior period, due to a one-time gain on a legal settlement in the Company's favor which was recorded in the first quarter of 1996. Noninterest income decreased $32,000 primarily related to deposit services fees, for the three month period ended September 30, 1996 to $139,000 compared to $171,000 for the same period in the prior year. NONINTEREST EXPENSES Noninterest expenses for the nine month period ending September 30, 1996 increased approximately 5.8% from the comparable prior period, with the biggest increase occurring in salaries and benefits and net occupancy and furniture/equipment expenses as a result of normal merit increases and personnel and facilities related to the opening of the Carbondale office. Non interest expense for the three month period ending September 30, 1996 increased $172,000 to $1,831,000 from $1,659,000 for the nine months ended September 30, 1995. The largest factor in this change was an $85,000 increase in salaries and benefits, primarily relating to the additional personnel in the Carbondale office. INCOME TAXES Income tax expense totaled $295,000 and $1,068,000 for the three-month and nine-month periods ended September 30, 1996 compared to $338,000 and $1,025,000 for the comparable prior periods. These amounts resulted in effective tax rates of 25% and 26% respectively, compared to 30% and 31%, respectively. The increase in tax expense during the nine-month period ending September 30, 1996 was due to an increase in income before the federal income tax provision. The effective tax rate 9 12 declined in both the three and nine month periods due primarily to an increase in tax-exempt income. CAPITAL ADEQUACY A strong capital position is important to the continued profitability of the Company and promotes depositor and investor confidence. The Company's capital consists of shareholders' equity, which provides a basis for future growth and expansion and also provides a buffer against unexpected losses. Shareholders' equity increased $2,325,000 to $28,535,000 at September 30, 1996, as a result of income retained during the nine-months ended September 30, 1996 partially offset by an increase in the net unrealized loss on securities available for sale. It is management's intention to continue paying a reasonable return on shareholders' investment while retaining adequate earnings to allow for continued growth. The Federal Reserve Board measures capital adequacy for bank holding companies by using a risk-based capital frame-work and by monitoring compliance with minimum leverage ratio guidelines. The minimum ratio of total risk-based capital to risk-adjusted assets is 8% at September 30, 1996, of which 4% must be Tier 1 capital. The Company's total risk-based capital ratio was 18.44% at September 30, 1996. The Company's Tier 1 risk-based capital ratio was 17.18% at September 30, 1996. In addition, the Federal Reserve Board has established minimum leverage ratio guidelines for bank holding companies. Those guidelines provide for a minimum leverage ratio of 3% for bank holding companies that meet certain criteria, including that they maintain the highest regulatory rating. All other bank holding companies are required to maintain a leverage ratio of 3% plus an additional cushion of at least 100 to 200 basis points. The Federal Reserve Board has not advised the Company of any specific minimum leverage ratio applicable to it. The Company's leverage ratio was 9.08% at September 30, 1996. In December 1991, the Federal Deposit Insurance Corporation Improvement Act (FDICIA) was enacted, which substantially revises the bank regulatory and funding provisions of the Federal Deposit Insurance Act and makes revisions to several other federal banking statutes. The Act establishes minimum capital requirements for all depository institutions and established five capital tiers: "well capitalized", "adequately capitalized", "under-capitalized", "significantly under-capitalized", and "critically under-capitalized". FDICIA imposes significant restrictions on the operations of a bank which is not at least adequately capitalized. A depository institutions' capital tier will depend upon where its capital levels are in relation to various other capital measures which include a risk-based capital measure, a leverage ratio capital measure and other factors. Under regulations adopted, for an institution to be well capitalized it must have a total risk-based capital ratio of at least 10%, a Tier I risk-based capital ratio of at least 6%, and a Tier I leverage ratio of at least 5%, and not be subject to any specific capital order or directive. At September 30, 1996, the Bank's total risk-based capital, Tier I risk-based capital and Tier I leverage ratios were 18.44%, 17.18% and 9.08%, respectively. 10 13 FIRST JERMYN CORP. AND SUBSIDIARIES September 30, 1996 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON 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: None (b): Reports on Form 8-K: None 11 14 FIRST JERMYN CORP. AND SUBSIDIARIES September 30, 1996 SIGNATURES In accordance with requirement of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE FIRST JERMYN CORP. ---------------------- (Registrant) Date November 06, 1996 By /s/ William M. Davis ----------------- ------------------------------ William M. Davis Chairman, President and Director (Principal Executive Officer) Date November 06, 1996 By /s/ Martha Myshak ----------------- ------------------------------ Martha Myshak (Principal Financial Officer and Treasurer) Date November 06, 1996 By /s/ Donald J. Gibbs ------------------------------ Donald J. Gibbs (Principal Accounting Officer and Vice President, Finance/ Control Division Manager) 12 EX-27 2 FINANCIAL DATA SCHEDULE
9 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 9,077 0 0 0 51,574 64,869 65,608 190,380 3,104 322,221 288,246 3,100 1,501 839 0 0 1,125 24,381 322,221 11,240 5,834 0 17,074 8,400 8,482 8,592 137 0 5,413 4,035 0 0 0 2,967 3.35 3.35 3.29 2,943 795 0 0 3,015 120 72 3,104 1,622 0 1,482
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