-----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, Mxsb0QULtp9ml41jz4upTWdt6Da02nt2jwArXjd/M1rAGyRvlLVQLvwe0RecjPS9 7kdP+04yFJttgE9n+9EJpA== 0000716605-99-000010.txt : 19990817 0000716605-99-000010.hdr.sgml : 19990817 ACCESSION NUMBER: 0000716605-99-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 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: 99692259 BUSINESS ADDRESS: STREET 1: 115 S MAIN ST CITY: JERSEY SHORE STATE: PA ZIP: 17740 BUSINESS PHONE: 5703982213 MAIL ADDRESS: STREET 1: 300 MARKET ST CITY: WILLIAMSPORT STATE: PA ZIP: 17701 10-Q 1 secQ699 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 June 30, 1999 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 June 30, 1999 were were 3,121,286 shares of the Registrant's common stock outstanding. PART I FINANCIAL STATEMENTS
PENNS WOODS BANCORP, INC. CONSOLIDATED BALANCE SHEET AT DATES INDICATED June 30, December 31, 1999 1998* -------------------------------- (IN THOUSANDS) ASSETS: Cash and due from banks $10,098 $12,297 Investment securities available-for-sa 110,983 102,324 Investment securities held-to-maturity 3,031 3,078 Loans, net of unearned discount 222,602 216,565 Allowance for loan and lease losses (2,772) (2,680) Loans, net 219,830 213,885 Bank premises and equipment, net 4,902 4,738 Accrued interest receivable 2,197 1,857 Foreclosed assets held for sale 34 40 Other assets 5,223 3,401 -------------------------------- TOTAL ASSETS $356,298 $341,620 ================================ LIABILITIES: Demand Deposits $39,843 $42,233 Interest-bearing demand deposits 43,921 44,041 Savings deposits 50,108 49,737 Time deposits 120,509 117,123 -------------------------------- Total deposits $254,381 $253,134 Federal funds purchased 2,550 0 Securities sold under repurchase agree 17,364 11,223 Accrued interest payable 1,056 1,115 Other Liabilities 4,305 3,474 Long-term borrowings 27,783 22,778 Total liabilities -------------------------------- $307,439 $291,724 -------------------------------- SHAREHOLDERS' EQUITY: Common stock, par value $10 per share, 10,000,000 shares authorized $31,249 $28,409 Additional paid-in capital 18,095 4,768 Retained earnings (2,317) 11,975 Accumulated other comprehensive income 2,046 4,958 Less: Treasury stock at cost, 3,656 sha (214) (214) -------------------------------- Total shareholders' equity $48,859 $49,896 -------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $356,298 $341,620 ================================ *Restated to relect the acquisition of First National Bank of Spring Mills
PENNS WOODS BANCORP, INC. CONSOLIDATED STATEMENT OF INCOME FOR THE PERIODS INDICATED
SIX MONTHS SIX MONTHS QUARTER QUARTER ENDED ENDED ENDED ENDED June 30, 1999 June 30, 1998* June 30, 1999 June 30, 1998* ---------------------------------------------------------------- (IN THOUSANDS EXCEPT PER SHARE DATA) INTEREST INCOME: Interest and fees on loans $9,717 $9,693 $4,891 $4,953 $4,826 $4,740 Interest and dividends on investments:-------------------------------------------------------- Taxable interest 1,700 1,624 873 851 827 773 Nontaxable interest 786 543 410 285 376 258 Dividends 379 344 194 147 185 197 -------------------------------------------------------- Total interest and dividends on investments 2,865 2,511 1,477 1,283 1,388 1,228 -------------------------------------------------------- Total interest income 12,582 12,204 6,368 6,236 6,214 5,968 -------------------------------------------------------- INTEREST EXPENSE: Interest on deposits 3,974 4,398 1,954 2,216 2,020 2,182 Interest on Federal funds purchased 16 97 14 42 2 55 Interest on securities sold under repurchase agreements 335 247 181 129 154 118 Interest on other borrowings 735 238 387 194 348 44 -------------------------------------------------------- Total interest expense 5,060 4,980 2,536 2,581 2,524 2,399 -------------------------------------------------------- Net interest income 7,522 7,224 3,832 3,655 3,690 3,569 Provision for loan losses 130 155 52 75 78 80 -------------------------------------------------------- Net interest income after provision for loan losses 7,392 7,069 3,780 3,580 3,612 3,489 -------------------------------------------------------- OTHER OPERATING INCOME: Service charges 643 539 333 272 310 267 Securities gains 279 843 94 234 185 609 Other income 131 134 64 47 67 87 -------------------------------------------------------- Total other operating income 1,053 1,516 491 553 562 963 -------------------------------------------------------- OTHER OPERATING EXPENSES: Salaries and employee benefits 2,301 2,221 1,163 1,137 1,138 1,084 Occupancy expense, net 389 291 193 146 196 145 Furniture and equipment expense 305 372 138 174 167 198 Other expenses 1,493 1,213 726 604 767 609 -------------------------------------------------------- Total other operating expenses 4,488 4,097 2,220 2,061 2,268 2,036 -------------------------------------------------------- INCOME BEFORE TAXES 3,957 4,488 2,051 2,072 1,906 2,416 INCOME TAX PROVISION 885 1,090 454 471 431 619 ------------------------------------------------------- NET INCOME $3,072 $3,398 $1,597 $1,601 $1,475 $1,797 ======================================================== EARNINGS PER SHARE - BASIC 0.98 1.09 0.51 0.51 0.52 0.64 ======================================================== EARNINGS PER SHARE - DILUTED 0.98 1.09 0.51 0.51 ======================================================== WEIGHTED AVERAGE SHARES OUTSTANDING 3,120,973 **3,111,737 3,120,973 **3,111,737 ======================================================== *Restated to reflect the acquisition of First National Bank of Spring Mills **Weighted average shares used for computation of net income per share reflect the issuance of a 10% stock dividend on June 8, 1999.
PENNS WOODS BANCORP, INC. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 1999 (IN THOUSANDS EXCEPT SHARE DATA)
UNREALIZED ACCUMULATED APPREC. COMMON ADDITIONAL OTHER TOTAL STOCK PAID-IN RETAINED COMPREHENSIVE TREASURY SHAREHOLDERS' SHARES AMOUNT CAPITAL EARNINGS INCOME STOCK EQUITY ----------------------------------------------------------------------------------------------------- Balance, December 31, 1998 2,578,352 $25,784 $4,768 $10,462 $4,826 ($214) $45,626 Adjustments in connection with pooling of interest 262,471 $2,625 $1,513 $132 $4,270 Balance, December 31, 1998 2,840,823 28,409 4,768 11,975 4,958 (214) 49,896 As restated Net income for the six months ended June 30, 1999 3,072 3,072 Dividends declared, $0.3818 (1,211) (1,211) Stock dividend 10% 283,399 2,833 13,320 (16,153) 0 Stock options exercised 720 7 7 14 Net change in unrealized appreciation (depreciation) (2,912) (2,912) ----------------------------------------------------------------------------------------------------- Balance, June 30, 1999 3,124,942 $31,249 $18,095 ($2,317) $2,046 ($214) $48,859 =====================================================================================================
PENNS WOODS BANCORP, INC. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE QUARTERS ENDED JUNE 30, 1999 AND JUNE 30, 1998
JUNE 30, JUNE 30, 1999 1998* -------------------------------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $3,072 $1,797 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 293 113 Provision for loan losses 130 80 Amortization of investment security premiums 34 18 Accretion of investment security discounts (57) (25) Securities gains, net (279) (609) Gain on sale of foreclosed assets (3) (12) (Increase) decrease in all other assets (2,054) (496) Increase (decrease) in all other liabilities 2,166 196 -------------------------------- Net cash provided by operating activities 3,302 1,062 -------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of securities available-for-sale (40,282) (5,287) Proceeds from sale and maturities of sec avail-for-sale 25,512 7,581 Proceeds from the sale of foreclosed assets 43 47 Purchase of securities held-to-maturity (25) (224) Proceeds from calls and maturities of securities held- 2,073 1,013 Net increase in loans (6,075) (3,902) Acquisition of bank premises and equipment (457) (24) Acquisition of foreclosed assets (34) 0 -------------------------------- Net cash (used in)provided by investing activities (19,245) (796) -------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in interest-bearing deposits 3,637 3,558 Net (decrease) increase in noninterest-bearing deposits (2,390) (2,783) Net increase in sec. sold under repurch. agree. 6,141 2,242 Increase (Decrease) in other borrowed funds 2,550 (5,180) Proceeds from long-term borrowings 5,005 (750) Dividends paid (1,211) (462) Stock options exercised 12 11 -------------------------------- Net cash (used in)provided by financing activities 13,744 (3,364) -------------------------------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,199) (3,098) CASH AND CASH EQUIVALENTS, BEGINNING 12,297 13,124 -------------------------------- CASH AND CASH EQUIVALENTS, ENDING $10,098 $10,026 ================================ *Restated to reflect the acquisition of First National Bank of Spring Mills
[FN] PENNS WOODS BANCORP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. Basis of Presentation 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, 1998. NOTE 2. Pooling of Interest On January 11, 1999 (the "Effective Date") Penns Woods Bancorp, Inc. ("Penns Woods") completed the merger of The First National Bank of Spring Mills ("FNBSM") with and into Jersey Shore State Bank, a wholly-owned subsidiary of Penns Woods. On the Effective Date, FNBSM merged with, into and under the charter of Jersey Shore, with Jersey Shore surviving the merger. On the Effective Date each outstanding share of FNBSM was automatically converted into 3.5 shares of Penns Woods common stock. A total of 262,471 shares of Penns Woods common stock were issued in the merger (cash was paid out for 29 fractional shares in connection with the completion of the merger). The merger was treated as a pooling of interest for financial accounting purposes and constitutes a tax free reorganization for federal income tax purposes. The financial information of Penns Woods at and for the three-and six month periods ended June 30, 1999 reflect the combined business and operations of Penns Woods and FNBSM. NOTE 3. Comprehensive Income The components of other comprehensive income and related tax effects are as follows:
JUNE 30, JUNE 30, 1999 1998* -------------------------------- (IN THOUSANDS) Unrealized holding gains on avail-for-sale securities ($4,133) $916 Less: Reclassification adjustment for gains realized 279 843 -------------------------------- Net unrealized gains (losses) (4,412) 73 Tax effect (1,500) 25 Net-of-tax amount ($2,912) $48 ================================ *Restated to reflect the acquisition of First National Bank of Spring Mills
NOTE 4. Business Combinations NOTES TO CONSOLIDATED FINANCIAL STATMENTS FOR THE PERIODS INDICATED
THE FIRST NATIONAL BANK PENNS WOODS OF SPRING MILLS CONSOLIDATED SIX MONTHS SIX MONTHS ADJUSTMENTS SIX MONTHS ENDED ENDED ENDED June 30, 1998 June 30, 1998 N/A June 30, 1998 - - - - (IN THOUSANDS EXCEPT PER SHARE DATA) Interest income $10,957 $1,247 N/A $12,204 Interest expense 4,452 528 4,980 -------------------------------------------------------------- Net interest income 6,505 719 7,224 Provision for possible loan losses 150 5 155 -------------------------------------------------------------- Net interest income after provision for possible loan losses 6,355 714 7,069 -------------------------------------------------------------- Other non-interest income 1,466 48 1,514 Non-interest expense 3,631 464 4,095 -------------------------------------------------------------- Income before taxes 4,190 298 4,488 Income taxes 1,028 62 1,090 -------------------------------------------------------------- Net income $3,162 $236 $3,398 ============================================================== EARNINGS PER SHARE - BASIC 1.23 3.15 1.20 ============================================================== EARNINGS PER SHARE - DILUTED 1.23 3.15 1.20 ============================================================== WEIGHTED AVERAGE 2,566,381 75,000 2,828,852 ==============================================================
THE FIRST NATIONAL BANK PENNS WOODS OF SPRING MILLS CONSOLIDATED THREE MONTHS THREE MONTHS ADJUSTMENTS THREE MONTHS ENDED ENDED ENDED June 30, 1998 June 30, 1998 N/A June 30, 1998 - - - - (IN THOUSANDS EXCEPT PER SHARE DATA) Interest income $5,602 $634 N/A $6,236 Interest expense 2,319 262 2,581 -------------------------------------------------------------- Net interest income 3,283 372 3,655 Provision for possible loan losses 75 0 75 -------------------------------------------------------------- Net interest income after provision for possible loan losses 3,208 372 3,580 -------------------------------------------------------------- Other non-interest income 529 22 551 Non-interest expense 1,808 251 2,059 -------------------------------------------------------------- Income before taxes 1,929 143 2,072 Income taxes 439 32 471 -------------------------------------------------------------- Net income $1,490 $111 $1,601 ============================================================== EARNINGS PER SHARE - BASIC 0.58 1.48 0.57 ============================================================== EARNINGS PER SHARE - DILUTED 0.58 1.48 0.57 ============================================================== WEIGHTED AVERAGE SHARES OUTSTANDING 2,566,381 75,000 2,828,852 ==============================================================
EARNINGS SUMMARY Interest Income For the six months ended June 30, 1999, total interest income increased by $378,000 or 3.10% compared to the same period in 1998. This increase is due to an increase of $24,000 in interest and fees on loans and an increase in total interest and dividends on investments of $354,000. The increase in interest and fees on loans of $24,000 was primarily due to the increase in loans and also to an increase in fees and late charges collected . Interest and dividends on investments increased due to the net effect of a $76,000 increase in taxable interest, a $243,000 increase in nontaxable interest and an increase in dividend income of $35,000. Interest Expense For the six months ended June 30, 1999 total interest expense increased $80,000 or 1.61% over the same period in 1998. The increase in interest expense can be attributed to the increase in interest expense paid on advances from the Federal Home Loan Bank of Pittsburgh ("FHLB") in addition to an increase in interest expense paid on repurchase agreements. Provision for Loan Losses The provision for losses for the six months ended June 30, 1999 decreased $25,000 from the corresponding period in 1998. This decrease reflects an anticipated moderate decline in consumer loan losses for the year. As of the first quarter of 1999, charge offs exceeded recoveries by $39,000 compared to the second quarter of 1998 when charge offs exceeded recoveries by $118,000. Provisions to date total $130,000 as compared to provisions through June 30, 1998 of $155,000. 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 .20 times at June 30, 1999 an increase in coverage from the .26 times at December 31, 1998. The decrease 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 six months ended June 30, 1999 decreased $463,000. This decrease is due to the net effect of an increase in service charges collected of $104,000, a decrease in securities gains realized of $564,000 and a decrease in other income of $3,000. 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 $564,000 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 six months ended June 30, 1999 total other operating expenses increased $391,000 over the same period in 1998. Employee salaries and benefits increased $80,000 as a result of increases in salary levels and the hiring of additional employees. Occupancy expense increased $98,000 and furniture and equipment expense decreased 67,000. The increase in occupancy expense can be attributed to an increase in such expenses related to the opening of the full-service branch office in Zion, Pennsylvania, on May 8, 1999 and the Wal-Mart Supercenter in Mill Hall, Pennsylvania, in October, 1998. The $67,000 decrease in furniture and equipment expense can be attributed mainly to a significant reduction in lease expenses incurred relating to the Company's main frame computer equipment. 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 increase in other expenses totalled $280,000. This increase can be largely attributed to the opening of the two new branches mentioned above. In addition, included in the $280,000 increase is $91,137 of non-recurring expenses related to the acquisition of The First National Bank of Spring Mills. Provision for Income Taxes Provision for income taxes for the six months ended June 30, 1999 resulted in an effective income tax rate of 22.37% compared to 24.29% for the corresponding period in 1998. 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 June 30, 1999, cash, federal funds sold, and investment securities totalled $124,112,000, or a net increase of $6,413,000 over the corresponding balance at December 31, 1998. Investment securities increased $8,612,000 while cash decreased $2,199,000. During this period, net loans increased by $5,945,000 to $219,830,000. The increase in investment securities from December 31, 1998 to June 30, 1999 is primarily due to the purchases of obligations of states and political subdivisions and Government securities which were funded by long-term advances from FHLB. 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 $2,772,000 at June 30, 1999, an increase of $92,000 over the balance at December 31, 1998. For the six months ended June 30, 1999, the provision for loan losses totalled $130,000. As a percent of loans, the allowance for loan losses at June 30, 1999 totalled 1.25% versus 1.24% at December 31, 1998. Loans accounted for on a non-accrual basis totalled $541,000 and $646,000 at June 30, 1999 December 31, 1998 respectively. Accruing loans, contractually delinquent 90 days or more were $23,000 at June 30, 1999 and $60,000 at December 31, 1998. 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 .20 times at June 30, 1999 and .26 times at December 31, 1998. 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 June 30, 1999 the balance of other real estate was $34,000 compared to $40,000 at December 31, 1998. The $40,000 property that was being held in the account on December 31, 1998 was sold in March, 1999 and a $34,000 property was placed into other real estate in June, 1999. Deposits At June 30, 1999 total deposits amounted to $254,381,000 representing an increase of $1,247,000, or .49%, from total deposits at December 31, 1998. Other Liabilities At June 30, 1999, other liabilities totalled $4,305,000 or a $831,000 increase over the balance at December 31, 1998. 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 June 30, 1999, regulatory capital to total assets was 13.71% compared to 14.61% at December 31, 1998. Primary capital to total assets at June 30, 1999 was 14.49% compared to 15.39% at December 31, 1998. 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 20.21% and the total capital ratio to total risk weighted assets ratio is 22.37%. 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 $93,032,000 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 June 30, 1999:
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) $11,943 $12,877 $24,714 $61,409 Loans (2) 73,024 28,704 95,024 25,849 -------------------------------------------------------------- Total earning assets 84,967 41,581 119,738 87,258 Deposits (3) 115,971 27,656 55,184 15,725 Borrowings 19,914 2,783 25,000 0 -------------------------------------------------------------- Total interest bearing liab 135,885 30,439 80,184 15,725 Net non-interest bearing funding (4) 12,489 9,513 23,179 26,130 -------------------------------------------------------------- Total net funding sources 148,374 39,952 103,363 41,855 Excess assets (liabilities) (63,407) 1,629 16,375 45,403 Cumulative excess assets (liabilities) (63,407) (61,778) (45,403) 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 June 30, 1999. Net Interest Income Change in Rates Change (After tax) -200 $762 -100 $407 +100 ($422) +200 ($848) 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's were upgraded, which resulted in a cost of $6,565.00. In addition, Penns Woods Bancorp, Inc. 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 has been completed. No incompatibilities were found. 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. This company was added to the already compliant main frame system. 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 has been developed to address any withdrawal of funds and other issues. In July of 1998, 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 have been evaluated and are considered adequate. We will continue to assess software upgraded by program enhancements. In January 1999, The First National Bank of Spring Mills was merged into Jersey Shore State Bank. In the first quarter of 1999 we assessed and remediated any Year 2000 inconsistencies within these new offices which have been changed to our already Y2K compliant third party vendors. We did not incur any additional Year 2000 costs as a result of the merger. 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 December 1998 Testing December 1998 February 1999 Implementation 1st quarter 1999 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 May 8, 1999, Jersey Shore State Bank, a wholly-owned subsidiary of Penns Woods Bancorp, Inc. opened the Zion branch office. This full-service branch is located at 100 Cobblestone Road, Bellefonte, PA 16823. 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 second quarter of 1999. 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: August 16, 1999 -------------------------------- Ronald A. Walko, Executive V President and Chief Executive Officer Date: August 16, 1999 -------------------------------- Sonya E. Scott, 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 6/30/99 LESS FRACTION SHARES FRACTIONAL OF WEIGHTED DATE OUTSTANDING RESTATEMENT SHARES YEAR SHARES - ---------------------------------------------------------------------------------------- 1/01/99 - 4/ 2,837,167 110% - 97/181 1,672,517.8 4/08/99 - 6/ 2,837,227 110% 57/181 982,840.5 6/07/99 - 6/ 2,837,887 110% 4/181 68,987.3 6/08/99 - 6/ 3,121,286 23/181 396,627.5 WEIGHTED SHARES OUTSTANDING 6/30/99 3,120,973 ================ NET INCOME 6/30/99 $3,071,812 WEIGHTED SHARES OUTSTANDING 6/30/99 3,120,973 EARNINGS PER SHARE 6/30/99 - BASIC $0.98 ================ NET INCOME 6/30/99 $3,071,812 WEIGHTED SHARES OUTSTANDING 6/30/99 3,120,973 DILUTIVE EFFECT OF STOCK OPTIONS 6/30/99 9,146 3,130,119 EARNINGS PER SHARE 6/30/99 - DILUTED $0.98 ================
EX-27 2
9 1000 6-MOS DEC-31-1999 JUN-30-1999 10098 214538 0 0 110983 3031 0 222602 2772 356298 254381 19914 5361 27783 0 0 31249 17610 356298 9717 2865 0 12582 3974 1086 7522 130 279 4488 3957 3957 0 0 3072 .98 .98 0 541 23 0 0 2680 56 17 2772 2772 0 0
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