-----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, JMNqMpZYb07aOUP2D17dXLEK09pZwB+g99rxLX5vAnl8+h8jnYs1m3K9sKjEysS4 nz8yyv9Xkpfb8ZSyQGsp1w== 0000716605-98-000016.txt : 19981118 0000716605-98-000016.hdr.sgml : 19981118 ACCESSION NUMBER: 0000716605-98-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PENNS WOODS BANCORP INC CENTRAL INDEX KEY: 0000716605 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 232226454 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-17077 FILM NUMBER: 98751708 BUSINESS ADDRESS: STREET 1: 115 S MAIN ST CITY: JERSEY SHORE STATE: PA ZIP: 17740 BUSINESS PHONE: 7173982213 MAIL ADDRESS: STREET 1: 300 MARKET ST CITY: WILLIAMSPORT STATE: PA ZIP: 17701 10-Q 1 FORM 10-Q QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 10 OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended September 30 , 1998 Commission file number 0-17077 PENNS WOODS BANCORP, INC. Incorporated in Pennsylvania Main Office 115 South Main Street Jersey Shore, Pennsylvania, 17740 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [ X ] NO[ ] On September 30, 1998 there were 2,571,302 shares of the Registrant's common stock outstanding. PART I FINANCIAL STATEMENTS
PENNS WOODS BANCORP, INC. CONSOLIDATED BALANCE SHEET AT DATES INDICATED September 30, December 31, 1998 1997 -------------------------------- (IN THOUSANDS) ASSETS: Cash and due from banks $8,508 $12,557 Investment securities available-for-sale 93,064 75,400 Investment securities held-to-maturitity 3,050 3,234 Loans, net of unearned discount 197,221 187,567 Allowance for loan and lease losses (2,461) (2,414) Loans, net 194,760 185,153 Bank premises and equipment, net 3,850 3,835 Foreclosed assets held for sale 0 35 Accrued interest receivable 1,764 1,708 Other assets 4,592 2,066 -------------------------------- TOTAL ASSETS $309,588 $283,988 ================================ LIABILITIES: Demand Deposits $32,120 $35,811 Interest-bearing demand deposits 37,615 38,499 Savings deposits 43,569 43,399 Time deposits 105,151 102,827 -------------------------------- Total deposits $218,455 $220,536 Federal funds purchased 8,620 6,980 Securities sold under repurchase agreements 12,388 8,580 Accrued interest payable 890 907 Other Liabilities 4,753 4,011 Long-term borrowings 20,000 0 Total liabilities -------------------------------- $265,106 $241,014 -------------------------------- SHAREHOLDERS' EQUITY: Common stock, par value $10 per share, 10,000,000 shares authorized $25,713 $12,828 Stock dividend distributable 0 12,828 Additional paid-in capital 4,695 4,712 Retained earnings 9,807 6,621 Accumulated other comprehensive income 4,267 5,985 -------------------------------- Total shareholders' equity $44,482 $42,974 -------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $309,588 $283,988 ================================
PENNS WOODS BANCORP, INC. CONSOLIDATED STATEMENT OF INCOME FOR THE PERIODS INDICATED
NINE MONTHS NINE MONTHS QUARTER QUARTER ENDED ENDED ENDED ENDED Sept 30, 1998 Sept 30, 1997 Sept 30, 1998 Sept 30, 1997 ---------------------------------------------------------------- (IN THOUSANDS EXCEPT PER SHARE DATA) INTEREST INCOME: Interest and fees on loans $13,365 $11,738 $4,570 $4,054 Interest and dividends on investments---------------------------------------------------------------- Taxable interest 2,199 2,131 831 724 Nontaxable interest 747 976 291 228 Dividends 490 370 152 117 ---------------------------------------------------------------- Total interest and dividends on investments 3,436 3,477 1,274 1,069 Interest on Federal funds sold 0 59 0 7 ---------------------------------------------------------------- Total interest income 16,801 15,274 5,844 5,130 ---------------------------------------------------------------- INTEREST EXPENSE: Interest on deposits 5,957 5,733 2,004 1,907 Interest on Federal funds purchased 196 125 100 25 Interest on securities sold under repurchase agreements 381 323 134 98 Interest on other borrowings 439 0 283 0 ---------------------------------------------------------------- Total interest expense 6,973 6,181 2,521 2,030 ---------------------------------------------------------------- Net interest income 9,828 9,093 3,323 3,100 Provision for loan losses 225 160 75 40 ---------------------------------------------------------------- Net interest income after provision for loan losses 9,603 8,933 3,248 3,060 ---------------------------------------------------------------- OTHER OPERATING INCOME: Service charges 772 631 258 215 Securities gains 1,059 3,295 216 970 Other income 154 228 45 76 ---------------------------------------------------------------- Total other operating income 1,985 4,154 519 1,261 ---------------------------------------------------------------- OTHER OPERATING EXPENSES: Salaries and employee benefits 2,951 2,851 983 956 Occupancy expense, net 417 363 157 120 Furniture and equipment expense 447 507 149 165 Other expenses 1,627 1,651 522 605 ---------------------------------------------------------------- Total other operating expense 5,442 5,372 1,811 1,846 ---------------------------------------------------------------- INCOME BEFORE TAXES 6,146 7,715 1,956 2,475 INCOME TAX PROVISION 1,573 2,090 545 688 ---------------------------------------------------------------- NET INCOME $4,573 $5,625 $1,411 $1,787 ================================================================ EARNINGS PER SHARE - BASIC 1.78 2.20 0.55 0.70 ================================================================ EARNINGS PER SHARE - DILUTED 1.77 2.19 0.55 0.70 ================================================================ WEIGHTED AVERAGE SHARES OUTSTANDING 2,567,892 2,555,824 2,567,892 2,555,824 ================================================================
PENNS WOODS BANCORP, INC. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE PERIODS INDICATED
SEPTEMBER 30, SEPTEMBER 30, 1998 1997 -------------------------------- (IN THOUSANDS) NET INCOME $4,573 $5,625 -------------------------------- OTHER COMPREHENSIVE INCOME (LOSS), Unrealized gains on securities: Gains (losses) arising during the quarter (2,777) (1,203) Reclassification adjustment for gains included in net income 1,059 3,295 -------------------------------- OTHER COMPREHENSIVE INCOME (LOSS), BEFORE TAX (1,718) 2,092 INCOME TAX EXPENSE (BENEFIT) RELATED TO OTHER COMPREHENSIVE INCOME (LOSS) (584) 711 -------------------------------- OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX (1,134) 1,381 -------------------------------- COMPREHENSIVE INCOME $3,439 $7,006 ================================ PENNS WOODS BANCORP, INC. NOTES TO THE FINANCIAL STATEMENTS FOR THE QUARTERS ENDING SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 Note : During the first quarter of 1998, Penns Woods Bancorp, Inc. adopted FASB Statement no. 130, Reporting Comprehensive Income. Statement no. 130 requires the reporting of comprehensive income in addition to net income from operations. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income. At quarterend September 30, 1998 and September 30, 1997, securities classified as available-for-sale were held, which had unrealized (losses) gains of ($1,718,000) and $2,092,000 before tax, respectively. The tax (benefit) expense for each period was ($584,000) and $711,000, resepctively, resulting in other comprehensive (loss) income of ($1,134,000) for the quarter ended September 30, 1998 and $1,381,000 for the quarter ended September 30, 1997.
PENNS WOODS BANCORP, INC. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS EXCEPT SHARE DATA)
UNREALIZED APPREC. COMMON STOCK ADDITIONAL (DEPREC.) ON TOTAL STOCK DIVIDEND PAID-IN RETAINED SECURITIES SHAREHOLDERS SHARES AMOUNT DISTRIBUTABLE CAPITAL EARNINGS AVAIL.-FOR-SALE EQUITY ----------------------------------------------------------------------------------------------------- Balance, December 31, 1997 1,282,779 $12,828 $12,828 $4,712 $6,621 $5,985 $42,974 Net income for the nine months ended September 30, 1998 4,573 4,573 Stock split effected in the form of a 100% stock dividend 1,282,779 12,828 (12,828) 0 Dividends declared, $0.54 (1,387) (1,387) Net change in unrealized appreciation (depreciation) (1,719) (1,719) Stock options exercised 5,744 58 (17) 41 ------------------------------------------------------------------------------------------------------ Balance, Sept 30, 1998 2,571,302 $25,714 $0 $4,695 $9,807 $4,266 $44,482 =========================================================================================================
PENNS WOODS BANCORP, INC. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE QUARTERS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
SEPTEMBER 30, SEPTEMBER 30, 1998 1997 -------------------------------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $4,573 $5,625 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 211 283 Provision for loan losses 225 160 Amortization of investment security premiums 47 24 Accretion of investment security discounts (76) (91) Securities gains, net (1,059) (3,295) Gain on sale of foreclosed assets (12) (40) Increase in all other assets (2,574) (1,180) Increase in all other liabilities 1,614 1,062 -------------------------------- Net cash provided by operating activities 2,949 2,548 -------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of securities available-for-sale (38,460) (50,907) Proceeds from sale of securities available-for-sale 17,050 66,574 Proceeds from the sale of foreclosed assets 47 270 Purchase of securities held-to-maturity (224) (200) Proceeds from calls and maturities of securities held 2,403 48 Proceeds from calls and maturities of securities available-for-sale 235 0 Net increase in loans (9,832) (16,143) Acquisition of bank premises and equipment (226) (221) Acquisition of foreclosed assets 0 (107) -------------------------------- Net cash (used in) provided by investing activities (29,007) (686) -------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in interest-bearing deposits 1,610 2,654 Net (decrease) increase in noninterest-bearing deposits (3,691) 1,348 Net increase in sec. sold under repurch. agree. 3,808 2,832 Increase (Decrease) in other borrowed funds 1,640 (7,271) Net increase in long-term borrowings 20,000 0 Dividends paid (1,387) (1,726) Stock options exercised 29 40 -------------------------------- Net cash (used in) provided by financing activities 22,009 (2,123) -------------------------------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (4,049) (261) CASH AND CASH EQUIVALENTS, BEGINNING 12,557 8,014 -------------------------------- CASH AND CASH EQUIVALENTS, ENDING $8,508 $7,753 ================================
The interim financial statements are unaudited but, in the opinion of management, reflect all adjustments necessary for the fair presentation of results for such periods. The results of operations for any interim period are not necessarily indicative of results for the full year. These financial statements should be read in conjunction with financial statements and notes thereto contained in the Company's annual report for the year ended December 31, 1997. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS EARNINGS SUMMARY Interest Income For the nine months ended September 30, 1998, total interest income increased by $1,527,000 or 10.00% compared to the same period in 1997. This increase is due to an increase of $1,627,000 in interest and fees on loans, a decrease in total interest and dividends on investments of $41,000 and a decrease in interest on Federal funds sold of $59,000. The increase in interest and fees on loans of $1,527,000 was primarily due to an increase in the loan volume during the first nine months, ended September 30, 1998 of $9,654,000, and also due to loan fees and late charges collected. Interest and dividends on investments decreased due to the net effect of a $68,000 increase in taxable interest, a $229,000 decrease in nontaxable interest and an increase in dividend income of $120,000. Interest Expense For the nine months ended September 30, 1998 total interest expense increased $792,000 or 12.81% over the same period in 1997. The increase in interest expense can be attributed to the interest paid on time deposits, due to the increase in volume of such deposits and an increase in the amount of interest paid on securities sold under repurchase agreements due to the increase in volume of these accounts. In addition, interest expense on other borrowings increased due to two, $10,000,000 advances from the Federal Home Loan Bank of Pittsburgh ("FHLB"). Provision for Loan Losses The provision for losses for the nine months ended September 30, 1998 increased $65,000 from the corresponding period in 1997. This increase reflects an anticipated rise in consumer loan losses throughout the remainder of the year. As of the third quarter of 1998, charge offs exceeded recoveries by $178,000 compared to the third quarter of 1997 when charge offs exceeded recoveries by $48,000. Provisions to date total $225,000 as compared to provisions through September 30, 1997 of $160,000. Senior Management utilizes several different methods to determine the adequacy of the loan loss allowance and to establish quarterly provisions. Among these methods is the analysis of the most recent five year average loss history, the coverage of non-performing loans provided by the allowance, an estimate of potential loss in homogeneous pools of loans and the internal credit rating assigned to watch and problem loans. In addition to the preceding, senior management also reviews macro portfolio risks such as the absence of concentrations, absence of foreign credit exposure and growth objectives in fine tuning the allowance and provisions. The ratio of non-accruing loans and those accruing but delinquent more than 90 days (collectively called "non-performing" loans) to the allowance for loan losses stood at .39 times at September 30, 1998 an increase in coverage from the .40 times at December 31, 1997. The increase in non-performing loans occurred mainly in the mortgage loan portfolio. Based upon this analysis as well as the others noted above, senior management has concluded that the allowance for loan losses is adequate. Other Operating Income Other operating income for the nine months ended September 30, 1998 decreased $2,169,000. This decrease is due to the net effect of an increase in service charges collected of $141,000, a decrease in securities gains realized of $2,236,000 and a decrease in other income of $74,000. The increase in service charges was a result of an increase in service charges collected on deposit accounts. The overall decrease in other operating income was primarily due to the $2,236,000 decrease in securities gains recognized. Realized gains were on sales of bonds that were sold in effort to better match the Bank's rate-sensitive assets and rate-sensitive liabilities given the current economic conditions. In addition, gains were realized on partial sales of equity securities that have been in the portfolio long-term that had reached what management had determined to be their maximum potential. Other Operating Expense For the nine months ended September 30, 1998 total other operating expenses increased $70,000 over the same period in 1997. Employee salaries and benefits increased $100,000 as a result of increases in salary levels and the hiring of additional employees. Occupancy expense increased $54,000 and furniture and equipment expense decreased $60,000. The increase in occupancy expense can be attributed to an increase in depreciation expense and an increase in the amount of maintenance and repairs expense incurred during the third quarter of 1998 compared to the same period in 1997. The $60,000 decrease in furniture and equipment expense can be attributed mainly to a decrease in depreciation expense, and to a decrease in maintenance and repairs. Expenses included under the other expenses heading are such items as: advertising, postage, maintenance, FDIC, other insurance, Pennsylvania State shares tax, legal and professional fees, telephone, printing and supplies and other general and administrative expenses. An overall decrease in other expenses totalled $24,000. Provision for Income Taxes Provision for income taxes for the nine months ended September 30, 1998 resulted in an effective income tax rate of 25.59% compared to 27.09% for the corresponding period in 1997. The decrease noted is primarily a result of the decrease in the amount of security gains included in taxable income. ASSET/LIABILITY MANAGEMENT Assets At September 30, 1998, cash, federal funds sold, and investment securities totalled $104,622,000, or a net increase of $13,431,000 over the corresponding balance at December 31, 1997. Investment securities increased $17,480,000 while cash decreased $4,049,000. During this period, net loans increased by $9,607,000 to $194,760,000. The increase in investment securities from December 31, 1997 to September 30, 1998 is primarily due to the purchases of Government securities and obligations of states and political subdivisions which were funded by long-term advances from FHLB and purchases of equity securities. Management evaluates credit risk, anticipated economic conditions and other relevant factors impacting the quality of the loan portfolio in order to establish an adequate loan-loss allowance. An internal credit review committee monitors loans in accordance with Federal supervisory standards In addition, management frequently reviews and utilizes the results of examinations and reports provided by the committee, regulators, and independent loan review consultants, on the adequacy of the loan loss allowance. Accordingly, on a quarterly basis, management determines an appropriate provision for possible loan losses from earnings in order to maintain allowance coverage relative to potential losses. Management has reviewed the loan portfolio for credit risk related to the Year 2000 compliance and found no material effect to the allowance. The allowance for loan losses totalled $2,461,000 at September 30, 1998, an increase of $47,000 over the balance at December 31, 1997. For the nine months ended September 30, 1998, the provision for loan losses totalled $225,000. As a percent of loans, the allowance for loan losses at September 30, 1998 totalled 1.25% versus 1.29% at December 31, 1997. Loans accounted for on a non-accrual basis totalled $850,000 and $552,000 at September 30, 1998 and December 31, 1997 respectively. Accruing loans, contractually delinquent 90 days or more were $111,000 at September 30, 1998 and $409,000 at December 31, 1997. These loans are predominately secured by first lien mortgages on residential real estate where appraisal values mitigate any potential loss of interest and principal. The ratio of non-accruing loans and those accruing but delinquent more than 90 days to the allowance for loan losses stood at .39 times at September 30, 1998 and .40 times at December 31, 1997. Presently the portfolio has no loans that meet the definition of "trouble debt restructurings" under FAS 15. A watch list of potential problem loans is maintained and updated quarterly by an internal credit review committee. At this time there are no credits of substance that have the potential to become more than 90 days delinquent. The Bank has not had nor presently has any foreign outstandings. In addition, no known concentrations of credit presently exist. At September 30, 1998 the balance of other real estate was $0 compared to $35,000 at December 31, 1997. The property that was being held in the account on December 31, 1997 was sold in February, 1998. Deposits At September 30, 1998 total deposits amounted to $218,455,000 representing a decrease of $2,081,000, or .94%, from total deposits at December 31, 1997. Other Liabilities At September 30, 1998, other liabilities totalled $4,753,000 or a $742,000 increase over the balance at December 31, 1997. This increase is primarily due to an increase in accrued taxes and accrued expenses. Capital The adequacy of the Company's capital is reviewed on an ongoing basis with reference to the size, composition and quality of the Company's resources and regulatory guidelines. Management seeks to maintain a level of capital sufficient to support existing assets and anticipated asset growth, maintain favorable access to capital markets and preserve high quality credit ratings. The capital requirements of the Pennsylvania Department of Banking are 6%. The capital requirements of the Federal Deposit Insurance Corporation are: 1. Regulatory capital to total assets 6%. 2. Primary capital to total assets 5 1/2%. At September 30, 1998, regulatory capital to total assets was 14.37% compared to 15.13% at December 31, 1997. Primary capital to total assets at September 30, 1998 was 15.16% compared to 15.98% at December 31, 1997. The Federal Reserve Board, the FDIC and the OCC have issued certain risk-based capital guidelines, which supplement existing capital requirements. The guidelines require all United States banks and bank holding companies to maintain a minimum risk-based capital ratio of 8.00% (of which at least 4.00% must be in the form of common stockholders' equity). Assets are assigned to five risk categories, with higher levels of capital being required for the categories perceived as representing greater risk. The required capital will represent equity and (to the extent permitted) nonequity capital as a percentage of total risk-weighted assets. The risk-based capital rules are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies and to minimize disincentives for holding liquid assets. Capital is being maintained in compliance with risk-based capital guidelines. The Company's Tier 1 Capital to total risk weighted assets ratio is 20.09% and the total capital ratio to total risk weighted assets ratio is 22.40%. Liquidity and Interest Rate Sensitivity The asset/liability committee addresses the liquidity needs of the Bank to see that sufficient funds are available to meet credit demands and deposit withdrawals as well as to the placement of available funds in the investment portfolio. In assessing liquidity requirements, equal consideration is given to the current position as well as the future outlook. The following liquidity measures are monitored and kept within the limits cited. 1. Net Loans to Total Assets, 70% maximum 2. Net Loans to Total Deposits, 92.5% maximum 3. Net Loans to Core Deposits, 100% maximum 4. Investments to Total Assets, 40% maximum 5. Investments to Total Deposits, 50% maximum 6. Total Liquid Assets to Total Assets, 25% minimum 7. Total Liquid Assets to Total Liabilities, 25% minimum 8. Net Core Funding Dependence, 15% maximum The Bank has maintained a liquidity level at or above the guidelines of the FDIC and the Pennsylvania Department of Banking. The Bank has available to it Federal Funds lines of credit totalling $8,000,000 from correspondent banks. In addition, the Bank has an agreement with the Federal Home Loan Bank of Pittsburgh that enables the Bank to receive advances up to $94,425,000 through the Federal Home Loan Bank's "Open Repo Plus", revolving line of credit program, with commitment up to one year. All of the funding mentioned is available to the Bank, should the need for short-term funds arise. The following table sets forth the Bank's interest rate sensitivity as of September 30, 1998:
AFTER ONE AFTER TWO AFTER WITHIN BUT WITHIN BUT WITHIN FIVE ONE YEAR TWO YEARS FIVE YEARS YEARS Earning assets: (1) (2) Investment securities (1) $14,119 $14,171 $29,712 $31,678 Loans (2) 77,767 23,259 79,126 17,072 ------------------------------------------------------------- Total earning assets 91,886 37,430 108,838 48,750 Deposits (3) 103,155 22,253 45,387 15,540 Borrowings 16,854 0 24,154 0 ------------------------------------------------------------- Total interest bearing liabilities 120,009 22,253 69,541 15,540 Net non-interest bearing funding (4) 10,212 7,848 19,286 22,215 ------------------------------------------------------------- Total net funding sources 130,221 30,101 88,827 37,755 Excess assets (liabilities) (38,335) 7,329 20,011 10,995 Cumulative excess assets (liabilities) (38,335) (31,006) (10,995) 0 (1) Investment balances reflect estimated prepayments on mortgage-backed securities. (2) Loan balances include annual repayment assumptions based on projected cash flow from the loan portfolio. The cash flow projections are based on the terms of the credit facilities and estimated prepayments on fixed rate mortgage loans. Loans include loans held for resale. (3) Adjustments to the interest sensitivity of Savings, NOW and MMDA account balances reflect managerial assumptions based on historical experience, expected behavior in future rate environments and the Bank's positioning for these products. (4) Net non-interest bearing funds is the sum of non-interest bearing liabilities and shareholders' equity minus non-interest earning assets and reflect managerial assumptions as to the appropriate investment maturities for these sources. In this analysis the company examines the result of a 100 and 200 basis point change in market interest rates and the effect on net interest income. It is assumed that the change is instantaneous and that all rates move in a parallel manner. In addition, it is assumed that rates on core deposit products such as NOW's, savings accounts, and the MMDA accounts will be adjusted by 50% of the assumed rate change. Assumptions are also made concerning prepayment speeds on mortgage loans and mortgage securities. The results of this rate shock are a useful tool to assist the Company in assessing interest rate risk inherent in its balance sheet. Below are the results of this rate shock analysis as of September 30, 1998. Net Interest Income Change in Rates Change (After tax) -200 $547 -100 $297 +100 ($346) +200 ($704) The model utilized to create the report presented above makes various estimates at each level of interest rate change regarding cash flow from principal repayment on loans and mortgage-backed securities and or call activity on investment securities. Actual results could differ significantly from these estimates which would result in significant differences in the calculated projected change. In addition, the limits stated above do not necessarily represent the level of change under which management would undertake specific measure to realign its portfolio in order to reduce the projected level of change. Generally, management believes the Company is well positioned to respond expeditiously when the market interest rate outlook changes.
Inflation The asset and liability structure of a financial insitution is primarily monetary in nature, therefore, interest rates rather than inflation have a more significant impact on the Corporation's performance. Interest rates are not always affected in the same direction or magnitude as prices of other goods and services, but are reflective of fiscal policy initiatives or economic factors which are not measured by a price index. Year 2000 Compliance; Management Information Systems Penns Woods Bancorp, Inc. has taken a proactive approach to assessment, remediation, testing and external and internal risks related to the upcoming date change challenge. On September 18, 1997 a Year 2000 Committee first met to evaluate the above criteria for Jersey Shore State Bank, Penns Woods Bancorp, Inc., Woods Investment Co., Inc., and Woods Real Estate Development Co., Inc. As of September 30, 1998 the assessment phase, during which information technology systems and non-information technology systems were identified and assigned core system or non-core system status was complete. Most of the systems that were known to be non-compliant were already scheduled for replacement and in the budget as such before any replacement became necessary due to year 2000 concerns. These expenses, therefore, are neither included in any historical expenses nor in estimates of future expenses stemming from year 2000 issues. ATM does require an upgrade, which will cost approximately $ 12,000.00. In addition, Penns Woods was in the midst of upgrading hardware, software and personal computers as early as 1997 and continued in 1998 by adding a compliant phone system and more updated personal computers and software. These expenses were not generated because of Year 2000, but rather by our holding company's commitment to better serve our customers. "Stand alone testing" of core information technology systems as well as any certifications of non-core information technology systems and non-information technology systems (ie: phones, heating/ cooling) were substantially complete as of September 30, 1998. Testing of software that relates information between systems continues. No incompatibilities are expected. The readiness of these systems for all companies under the holding company have been carefully considered. For instance, the software and personal computer used to track and operate Woods Investment Company, Inc. was determined to be non-compliant and has been scheduled to be replaced by March 31,1999. Internal risks relating to deposit and loan customers were ' assessed to the extent possible by use of questionnaires to major loan customers, culminating in on-site visits where deemed necessary by management. The effects on investments and deposits in the year 2000 will be, in our opinion, undeterminable events. A contingency plan is being developed to address any withdrawal of funds. In July of 1998 the Jersey Shore State Bank began mailing brochures to all deposit customers explaining the Year 2000 and the Bank's efforts in that regard. We do not anticipate any change in liquidity, operations or financial condition due to these factors. Except for Woods Investment Company, Inc.'s and Woods Real Estate Development Co., Inc.'s reliance on the same systems as Jersey Shore State Bank for Year 2000 readiness, no major computer to computer transmission of information or sharing exists, with the exception of computer links with the Federal Reserve Bank and Federal Home Loan Bank that have already been tested and shown to be compliant. Third party vendors from suppliers of office equipment and forms to providers of software and hardware for computers have been contacted and have adequately responded. Those responses were evaluated and are considered adequate with the exception of Jersey Shore State Bank's payroll provider, one electronic forms provider, a branch phone system provider, two third parties who purchase our mortgages and the manufacturer of our automatic mailing machine. We will also be assessing newly purchased software and an imaging system that will be installed as they are activated. Contingency plans are being formulated for the event that these third parties cannot attain compliance. The plans are expected to be complete by the end of the first quarter in 1999. In addition, Jersey Shore State Bank has made an offer to purchase and merge with another bank. In the first quarter of 1999 we expect to have assessed and remediated any Year 2000 inconsistencies within these new offices and remediated any problems, if found. These new offices will be switched to our already Year 2000 certified third party providers. We do not anticipate any additional Year 2000 costs as a result of the merger. Any costs determined at a later date would be included in our regular Year 2000 budget. To date no independent verifications of any systems have been necessary. The following definitions and chart have been prepared to provide a snapshot of our Year 2000 progress: PHASES DEFINITIONS: Awareness: The Board of Directors and employee recognition that the Year 2000 hurdle exists and the possible effect it could have on our holding company. Assessment: Determination of which are core and non-core systems to our operations, income, budgeting and scheduling remediation, as necessary. Determining loan, deposit and investment risk. Remediation: The actual replacement or upgrading of systems found to be non-compliant and developing policies and procedures to offset or minimize internal and external risks including contingency plans for undetermined effects. Testing: Trying systems used for core and non-core operations separately and together to assure proper results as of the century date change. Implementation: All systems are certified Year 2000 compliant and are in place in the everyday operations of the Corporation. EXPECTED COMPLETED OR PHASE COMPLETION DATE IMPLEMENTED Awareness September 1997 September 1997 Assessment June 1998 August 1998 Remediation December 1998 Testing December 1998 Implementation 1st quarter 1999
CAUTIONARY STATEMENT FOR PURPOSES OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This Report contains certain "forward-looking statements" including statements concerning plans, objectives, future events or performance and assumptions and other statements which are other than statements of historical fact. Penns Woods Bancorp, Inc. and its subsidiaries (the "Company") wishes to caution readers that the following important factors, among others, may have affected and could in the future affect the Company's actual results and could cause the Company's actual results for subsequent periods to differ materially from those expressed in any forward-looking statement made by or on behalf of the Company herin: (i) the effect of changes in laws and regulations, including federal and state banking laws and regulations, which the Company must comply, and the associated costs of compliance with such laws and regulations either currently or in the future as applicable; (ii) the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies as well as by the Financial Accounting Standards Board, or of changes in the Company's organization, compensation and benefit plans; (iii) the effect on the Company's competitive position within its market area of the increasing consolidation within the banking and financial services industries, including the increased competition from larger regional and out-of-state banking organizations as well as nonbank providers of various financial services; (iv) the effect of changes in interest rates; and (v) the effect of changes in the business cycle and downturns in the local, regional or national economies. In reference to the attached financial statements, all adjustments are of a normal recurring nature pursuant to Rule 10-01 (b) (8) of Regulation S-X. Part II. OTHER INFORMATION Item 5. Other Information. On July 22, 1998, Penns Woods Bancorp, Inc. entered into an agreement of merger with The First National Bank of Spring Mills ("FNBSM") providing for the merger of FNBSM with and into Jersey Shore State Bank, a wholly-owned subsidiary of Penns Woods Bancorp, Inc., and the conversion of each outstanding share of common stock of FNBSM into 3.5 shares of common stock, $10.00 par value per share, of Penns Woods common stock. Based on this exchange ratio, Penns Woods expects to issue 262,500 shares of Penns Woods Bancorp, Inc. common stock. The Company anticipates that the Merger transaction will close early in the first quarter of 1999. On October 14, 1998, Jersey Shore State Bank, a wholly-owned subsidiary of Penns Woods Bancorp, Inc. opened a full-service branch office in the Wal-Mart Supercenter in Mill Hall, Pennsylvania. This in-store bank branch will provide our customers with the ability to shop and bank in the same location. Item 6. Exhibits and reports on Form 8-K. Number Description - -------------------------- (11) Statement Regarding Computation of Per Share Earnings (27) Financial Data Schedule b. RepNo reports on Form 8-K were filed in the third quarter of 1998. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PENNS WOODS BANCORP, INC. (Registrant) Date: November 16, 1998 -------------------------------- Theodore H. Reich, President Date: November 16, 1998 -------------------------------- Sonya E. Hartranft, Secretary Description - -------------------------- (11) Statement Regarding Computation of Per Share Earnings (27) Financial Data Schedule EXHIBIT 11 STATEMENT OF COMPUTATION OF EARNING PER SHARE FOR THE PERIOD ENDED 9/30/98 LESS FRACTION SHARES FRACTIONAL OF WEIGHTED DATE OUTSTANDING RESTATEMENT SHARES YEAR SHARES - --------------------------------------------------------------------------------------- 1/01/98-1/14 1,282,779 2 - 14/273 131,567.0 1/15/98-2/25 2,565,598 - - 42/273 394,707.0 2/26/98-6/03 2,565,958 - - 98/273 921,113.0 6/04/98-7/23 2,569,558 - - 50/273 470,615.0 7/24/98-9/30 2,571,302 - - 69/273 649,890.0 WEIGHTED SHARES OUTSTANDING 9/30/98 2,567,892 ================ NET INCOME 9/30/98 $4,572,986 WEIGHTED SHARES OUTSTANDING 9/30/98 2,567,892 EARNINGS PER SHARE 9/30/98 - BASIC $1.78 ================ NET INCOME 9/30/98 $4,572,986 WEIGHTED SHARES OUTSTANDING 9/30/98 2,567,892 DILUTIVE EFFECT OF STOCK OPTIONS 9/30/98 12,130 2,580,022 EARNINGS PER SHARE 9/30/98 - DILUTED $1.77 ================
EX-27 2
9 1000 9-MOS DEC-31-1998 SEP-30-1998 8477 31 0 0 93604 3050 0 197221 2461 309588 21845 21008 5643 20000 0 0 25713 18769 309588 13365 3436 0 16801 5957 1016 9828 225 1059 5442 6146 6146 0 0 4573 1.78 1.78 0 850 111 0 0 2414 226 48 2461 2461 0 0
-----END PRIVACY-ENHANCED MESSAGE-----