-----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, Qic0z4QUE9alWHp+3GaST9c1XIOBiuRAOLlKXdCU9/o0NbmHPAQ29ue2Zh0d//Od 45J42X03rr9N/nCGgqiCDw== 0000903594-02-000043.txt : 20020515 0000903594-02-000043.hdr.sgml : 20020515 20020515145817 ACCESSION NUMBER: 0000903594-02-000043 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020515 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: 1934 Act SEC FILE NUMBER: 000-17077 FILM NUMBER: 02651333 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 r10q.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (X) Quarterly Report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 for the Quarterly Period Ended March 31, 2002, ( ) Transition report pursuant to Section 13 or 15 (d) of the Exchange Act for the Transition Period from _______________ to _______________. No. 0-17077 (Commission File Number) PENNS WOODS BANCORP, INC. (Exact name of Registrant as specified in its charter) PENNSYLVANIA 23-2226454 (State or other jurisdiction of I.R.S. Employer incorporation or organization) Identification No.) 300 Market Street, Williamsport, Pennsylvania 17701 (Address of principal executive offices) (Zip Code) 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 April 30, 2002 there were 3,033,590 of the Registrant's common stock outstanding. PENNS WOODS BANCORP, INC. INDEX TO QUARTERLY REPORT ON FORM 10-Q Part I Financial Information Item 1. Financial Statements Consolidated Balance Sheet (unaudited) as of March 31, 2002 And December 31, 2001 Consolidated Statement of Income (unaudited) for the Three Months ended March 31, 2002 and 2001 Consolidated Statement of Comprehensive Income (unaudited) For the Three Months ended March 31, 2002 and 2001 Consolidated Statement of Changes in Shareholders' Equity (unaudited) for the Three Months ended March 31, 2002 Consolidated Statement of Cash Flows (unaudited) for the Three Months ended March 31, 2002 and 2001 Notes to Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Part II Other Information Signatures PENNS WOODS BANCORP, INC. CONSOLIDATED BALANCE SHEET (UNAUDITED)
March 31, December 31, 2002 2001 ----------- ------------- (IN THOUSANDS) ASSETS: Cash and due from banks $ 15,687 $ 14,844 Investment securities available for sale 141,082 131,985 Investment securities held to maturity (market value of $1,316,000 and $1,312,000) 1,280 1,302 Loans held for sale 2,504 3,993 Loans, net of unearned discount 245,959 251,623 Allowance for loan losses (2,958) (2,927) -------- -------- Loans, net 243,001 248,696 Bank premises and equipment, net 4,377 4,478 Accrued interest receivable 2,455 2,685 Bank owned life insurance 8,227 8,126 Other assets 10,103 8,701 -------- -------- TOTAL ASSETS $428,716 $424,810 ======== ======== LIABILITIES: Demand deposits $ 51,186 $ 55,277 Interest-bearing demand deposits 62,756 58,139 Savings deposits 56,422 53,309 Time deposits 135,749 138,425 -------- -------- Total deposits $306,113 $305,150 Short-term borrowings 20,804 19,105 Other borrowings 41,778 41,778 Accrued interest payable 1,063 1,190 Other liabilities 2,920 2,335 -------- -------- Total liabilities 372,678 369,558 -------- -------- SHAREHOLDERS' EQUITY: Common stock, par value $10; 10,000,000 shares authorized and 3,131,644 shares issued $ 31,316 $ 31,316 Additional paid-in capital 18,230 18,230 Retained earnings 8,265 6,987 Accumulated other comprehensive income 1,434 1,729 Less: Treasury stock at cost, 98,054 and 92,054 (3,207) (3,010) -------- -------- Total shareholders' equity $ 56,038 $ 55,252 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $428,716 $424,810 ======== ========
See accompanying notes to the unaudited consolidated financial statements. PENNS WOODS BANCORP, INC. CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2002 2001 ---------- ---------- (IN THOUSANDS EXCEPT PER SHARE DATA) INTEREST INCOME: Interest and fees on loans $ 5,270 $ 5,389 Interest and dividends on investments: Taxable interest 839 815 Nontaxable interest 785 676 Dividends 147 172 ---------- ---------- Total interest and dividends on investments 1,771 1,663 ---------- ---------- Other interest income 35 51 ---------- ---------- Total interest income 7,076 7,103 ---------- ---------- INTEREST EXPENSE: Interest on deposits 2,037 2,565 Interest on short-term borrowings 117 275 Interest on other borrowings 565 453 ---------- ---------- Total interest expense 2,719 3,293 ---------- ---------- Net interest income 4,357 3,810 Provision for loan losses 105 93 ---------- ---------- Net interest income after provision for loan losses 4,252 3,717 ---------- ---------- OTHER OPERATING INCOME: Service charges 390 333 Securities gains (losses), net (119) 135 Other income 670 398 ---------- ---------- Total other operating income 941 866 ---------- ---------- OTHER OPERATING EXPENSES: Salaries and employee benefits 1,359 1,291 Occupancy expense, net 191 209 Furniture and equipment expense 207 191 Other expenses 854 817 ---------- ---------- Total other operating expenses 2,611 2,508 ---------- ---------- INCOME BEFORE TAXES 2,582 2,075 ---------- ---------- INCOME TAX PROVISION 485 391 ---------- ---------- NET INCOME $ 2,097 $ 1,684 ========== ========== EARNINGS PER SHARE - BASIC $ 0.69 $ 0.55 EARNINGS PER SHARE - DILUTED $ 0.69 $ 0.55 BASIC WEIGHTED AVERAGE SHARES OUTSTANDING 3,037,934 3,086,919 DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 3,040,468 3,086,919
See accompanying notes to the unaudited consolidated financial statements. PENNS WOODS BANCORP, INC. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended March 31, 2002 2001 ---------- -------- (In Thousands) Net Income $ 2,097 $ 1,684 Other comprehensive Income: Unrealized gains (losses) on available for sale securities $ (328) $ 4,436 Less: Reclassification adjustment for gain (loss) included in net income (119) 135 ------- ------- Other comprehensive income (loss) before tax (447) 4,301 Income tax expense (benefit) related to other (152) 1,462 ------- ------- Comprehensive income (loss) Other comprehensive income (loss), net of tax (295) 2,839 ------- ------- Comprehensive income $ 1,802 $ 4,523 ======= =======
PENNS WOODS BANCORP, INC. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED) (IN THOUSANDS EXCEPT SHARE DATA)
ACCUMULATED COMMON ADDITIONAL OTHER TOTAL STOCK PAID-IN RETAINED COMPREHENSIVE TREASURY SHAREHOLDERS' SHARES AMOUNT CAPITAL EARNINGS INCOME (LOSS) STOCK EQUITY --------- --------- --------- -------- ------------- --------- --------- Balance, December 31, 2001 3,131,644 $ 31,316 $ 18,230 $ 6,987 $ 1,729 $ (3,010) $ 55,252 Net income for the three months ended March 31, 2002 2,097 2,097 Dividends declared, $0.27 (819) (819) Treasury Stock acquired (6,000 shs) (197) (197) Net change in unrealized gain on investments available for sale, net of tax benefit $152 (295) (295) --------- -------- -------- -------- -------- -------- -------- Balance, March 31, 2002 3,131,644 $ 31,316 $ 18,230 $ 8,265 $ 1,434 $ (3,207) $ 56,038 ========= ======== ======== ======== ======== ======== ========
See accompanying notes to the unaudited consolidated financial statements. PENNS WOODS BANCORP, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
THREE MONTHS THREE MONTHS ENDED ENDED MARCH 31, MARCH 31, 2002 2001 ------------ ------------ (IN THOUSANDS) OPERATING ACTIVITIES: Net Income $ 2,097 $ 1,684 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 138 162 Provision for loan losses 105 93 Accretion and amortization of investment security discounts and premiums (248) (194) Securities losses (gains), net 119 (135) Gross originations of loans held for sale (3,919) (3,609) Gross proceeds of loans held for sale 5,408 3,336 Decrease (Increase) in all other assets (1) 50 Increase in all other liabilities 458 264 -------- -------- Net cash provided by operating activities $ 4,157 $ 1,651 -------- -------- INVESTING ACTIVITIES: Investment securities available for sale: Proceeds from sales 11,540 1,065 Proceeds from calls and maturities 2,795 3,553 Purchases (24,808) (1,575) Investment securities held to maturity: Proceeds from calls and maturities 28 691 Purchases (6) (25) Net decrease in loans 5,464 3,258 Acquisition of bank premises and equipment (37) (98) Proceeds from the sale of foreclosed assets 64 130 -------- -------- Net cash provided by (used in) investing activities $ (4,960) $ 6,999 FINANCING ACTIVITIES: Net increase in interest-bearing deposits 5,054 7,709 Net decrease in noninterest-bearing deposits (4,091) (1,232) Net increase (decrease) in short-term borrowings 1,699 (15,771) Dividends paid (819) (770) Purchase of Treasury Stock (197) (664) -------- -------- Net cash provided by (used in) by financing activities 1,646 (10,728) -------- -------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 843 (2,078) CASH AND CASH EQUIVALENTS, BEGINNING 14,844 15,318 -------- -------- CASH AND CASH EQUIVALENTS, ENDING $ 15,687 $ 13,240 ======== ========
The Company paid approximately $2,846,000 and $3,315,000 interest on deposits and other borrowings during the first quarter of 2002 and 2001, respectively. See accompanying notes to the unaudited consolidated financial statements. PENNS WOODS BANCORP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1. Basis of Presentation The consolidated financial statements include the accounts of Penns Woods Bancorp, Inc. (the "Company") and its wholly-owned subsidiaries Woods Investment Company, Woods Real Estate, and Jersey Shore State Bank (the "Bank") and its wholly-owned subsidiary The M Group, Inc. D/B/A The Comprehensive Financial Group ("The M Group"). All significant inter-company balances and transactions have been eliminated in the consolidation. 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. All of those adjustments are of a normal, recurring nature. 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, 2001. Recent Accounting Pronouncements In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (FAS) No. 141, Business Combinations, effective for all business combinations initiated after June 30, 2001, as well as all business combinations accounted for by the purchase method that are completed after June 30, 2001. The new statement requires that the purchase method of accounting be used for all business combinations and prohibits the use of the pooling-of-interests methods. The adoption of FAS No. 141 did not have a material effect on the Company's financial position or results of operations. In July 2001, the FASB issued FAS No. 142, Goodwill and Other Intangible Assets effective for fiscal years beginning after December 15, 2001. The statement changes the accounting for goodwill from an amortization method to an impairment-only approach. Thus, amortization of goodwill, including goodwill recorded in past business combinations, will cease upon adoption of this statement. At March 31, 2002, the Company has goodwill of approximately $3.0 million from past business combinations that will be evaluated for impairment prospectively. In August 2001, the FASB issued FAS No. 143, Accounting for Asset Retirement Obligations, which requires that the fair value of a liability be recognized when incurred for the retirement of a long-lived asset and the value of the asset be increased by that amount. The statement also requires that the liability be maintained at its present value in subsequent periods and outlines certain disclosures for such obligations. The adoption of this statement, which is effective January 1, 2003, is not expected to have a material effect on the Company's financial statements. In October 2001, the FASB issued FAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. FAS No. 144 supersedes FAS No. 121 and applies to all long-lived assets (including discontinued operations) and consequently amends APB Opinion No. 30, Reporting Results of Operations-Reporting the Effects of Disposal of a Segment of a Business. FAS No. 144 requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less costs to sell. FAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001 and, generally, its provisions are to be applied prospectively. The adoption of this statement did not have a material effect on the Company's financial statements. Reclassification of Comparative Amounts Certain comparative amounts for the prior periods have been reclassified to conform to current period presentations. Such reclassifications had no effect on net income or Shareholders' equity. 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. 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 herein: (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. EARNINGS SUMMARY Comparison of the Three Months Ended March 31, 2002 and 2001 Interest Income For the three months ended March 31, 2002, total interest income decreased by $27,000 compared to the first quarter of 2001. Total interest and dividends on investments increased $108,000 while interest and fees on loans decreased $119,000 and Other interest income decreased $16,000. Overall, declining rates have negatively effected interest income. Investment opportunities that have generated additional interest income partially offset the decease in loan interest, resulting in a minimal total interest income decline of $27,000. Total interest and fees on loans decreased $119,000 in the first quarter 2002 compared to the same period in 2001. Prime rates declined 325 basis points from a year ago, negatively impacting the interest collected on variable rate loans and new loans initiated over the past twelve months. Interest and dividends on investments increased $108,000 due to the net effect of a $24,000 increase in taxable interest, an increase of $109,000 in nontaxable interest and a $25,000 decrease in dividends. The increase of nontaxable interest is due to the purchase of municipal securities over the past year. Management has focused on the acquisition of nontaxable securities, thereby maximizing after tax returns. The decrease in other interest income of $25,000 is partially the result of fewer dividends received on Federal Home Loan Bank Stock. Interest Expense For the three months ended March 31, 2002, total interest expense decreased by $574,000 or 17% compared to the first quarter of 2001. The overall decrease in interest expense is the result of a $528,000 decrease in interest paid on deposits, a $158,000 decrease in interest expense paid on short-term borrowings and an increase of $112,000 on interest paid on other borrowings. Although interest bearing deposits increased more than $15 million over the past year, declining rates have had a positive effect on interest expense. Average short-term borrowings declined from a year ago mostly due to deposit growth. Fewer borrowings and declining rates also reduced interest expense on short-term borrowings. Growth of long-term borrowings, which are generally less responsive to short-term rate fluctuations, caused an increase of $112,000 expense on other borrowings. Provision for Loan Losses The provision for loan losses is based upon management's quarterly review of the loan portfolio. The purpose of the review is to assess loan quality, identify impaired loans, analyze delinquencies, ascertain loan growth, evaluate potential charge-offs and recoveries, and assess general economic conditions in the markets served. An external independent loan review is also performed annually for the bank. Management remains committed to an aggressive program of problem loan identification and resolution. The allowance is calculated by applying loss factors to outstanding loans by type, excluding loans for which a specific allowance has been determined. Loss factors are based on management's consideration of the nature of the portfolio segments, changes in mix and volume of the loan portfolio, and historical loan loss experience. In addition, management considers industry standards and trends with respect to nonperforming loans and its knowledge and experience with specific lending segments. Although management believes that it uses the best information available to make such determinations and that the allowance for loan losses was adequate at March 31, 2002, future adjustments could be necessary if circumstances or economic conditions differ substantially from the assumptions used in making the initial determinations. A downturn in the local economy, employment and delays in receiving financial information from borrowers could result in increased levels of nonperforming assets and charge-offs, increased loan loss provisions and reductions in income. Additionally, as an integral part of the examination process bank regulatory agencies periodically review the bank's loan loss allowance. The banking agencies could require the recognition of additions to the loan loss allowance based on their judgement of information available to them at the time of their examination. The allowance for loan losses increased $68,000 from March 31, 2001 compared to the allowance for loan losses of $2,958,000 or 1.2% of total loans for March 31, 2002. This percentage is consistent with the guidelines of regulators and peer banks. Management's conclusion is that the provision for loan loss is adequate. The provision for loan losses totaled $105,000 for the three months ended March 31, 2002. The provision for the same period in 2001 was $93,000. As of March 31, 2002, charge-offs exceeded recoveries by $74,000 compared to March 31, 2001, when charge-offs exceeded recoveries by $82,000. The ratio of the allowance to net loans for March 31, 2002 and December 31, 2001 was 1.2%. The overall decrease in non-performing loans from December 31, 2001, totaled $306,000. Non-performing commercial and agricultural loans decreased $25,000, real estate secured loans decreased by $277,000 and installment loans decreased by $4,000. 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 three months ended March 31, 2002 increased $75,000. Excluding security losses, service charges and other income increased $329,000. An increase in service charges of $57,000 was mostly due to the revision of the Bank's overdraft fee structure in May of 2001. Other income increased $272,000. The substantial increase in other income was mostly due to commission income realized from the sale of various financial products offered through the Bank's subsidiary, The M Group, Inc. Income generated from The M Group, Inc., comprised $148,000 of the increase in other income. Proceeds of $116,000 from a bank owned life insurance policy contributed to the increase in other income. Management has analyzed its equity portfolio for impairment that would qualify as other than temporary. Impairment is determined using factors such as length of time and the extent to which the market value is less than cost; the financial condition and the near-term prospects of the issuer; and the intent and ability of the Company to retain its investment to allow for the market to recover. In doing so, management has identified securities within the equity portfolio that have an other than temporary decline in market value. Management has reserved $250,000, which was charged to security gains and losses, to provide for this decline. Other Operating Expense For the three months ended March 31, 2002 total other operating expenses increased $103,000 over the same period in 2001. Employee salaries and benefits increased $68,000 as a result of normal increases in salary levels. Occupancy expense decreased $18,000 and furniture and equipment expense increased $16,000. Occupancy experienced an overall decline in normal expenses. The $16,000 increase in furniture and equipment expense is explained by miscellaneous costs associated with the new State College office build-out and Wide Area Network preparation. An overall increase in other expenses totaled $37,000. Excluding a decrease of $55,000 due to the elimination of amortization of goodwill, other expenses increased $92,000. The significant increases are $20,000 of advertising and a $21,000 annual NASDAQ fee. The remaining $51,000 increase includes professional fees, pension costs, and expenses on foreclosed assets held for sale. Provision for Income Taxes The provision for income taxes for the three months ended March 31, 2002 resulted in an effective income tax rate of 18.78% compared to 18.84% for the corresponding period in 2001. The securities portfolio has continued to shift towards tax- exempt securities from a year ago. Additional tax-exempt income was experienced from insurance proceeds. ASSET/LIABILITY MANAGEMENT Assets At March 31, 2002, cash and investment securities totaled $158,049,000 or a net increase of $9,918,000 over the corresponding balance at December 31, 2001. Investment securities increased $9,075,000 and cash increased $843,000. During this period, net loans decreased by $5,695,000 to $243,001,000. Loans held for resale also decreased $1,489,000 to $2,504,000. Other assets increased $1,402,000 mostly due to the increase of accounts receivable relating to matured securities on a non business day that had not yet been paid to the Bank. Payment for the matured securities were subsequently received on the following business day. At March 31, 2002 the balance of other real estate was $411,000 compared to $346,000 at December 31, 2001. One of three properties totaling $61,000 that was held in other real estate at December 31, 2001 was sold during the quarter. An additional property was acquired in the amount of $126,000. Three properties remain in other real estate at March 31, 2002. Deposits At March 31, 2002 total deposits amounted to $306,113,000 representing an increase of $963,000, from total deposits at December 31, 2001. Deposits shifted during the first quarter from non-interest bearing to interest-bearing and from time deposits to savings. Non-interest bearing demand deposits decreased $4,091,000 while interest-bearing demand deposits increased $4,617,000. Savings increased $3,113,000 while time deposits decreased $2,676,000. Deposit growth was somewhat flat during the quarter ended March 31, 2002. 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. Bank holding companies are required to comply with the Federal Reserve Board's risk-based capital guidelines. 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. Specifically, each is required to maintain certain minimum dollar amounts and ratios of Total risk-based, Tier I risk-based and Tier I leverage capital requirements. In addition to the capital requirements, the Federal Deposit Insurance Corporation Improvements Act (FDICIA) established five capital categories ranging from "well capitalized" to "critically undercapitalized." To be classified as "well capitalized, "Total risk-based, Tier I risked-based and Tier I leverage capital ratios must be at least 10%, 6%, and 5% respectively. At March 31, 2002 the Company was "well capitalized" with a total capital ratio of 20.89%, a Tier I capital ratio of 19.51% and a Tier I leverage ratio of 12.29%. 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, 35% 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 totaling $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 $140,690,000 through the Federal Home Loan Bank's "Open Repo Plus", revolving line of credit program, with commitment up to one year. Federal Home Loan Bank advances totaled $41,778,000 as of March 31, 2002. All of the funding mentioned is available to the Bank, should the need for short-term funds arise. The following table sets forth the Company's interest rate sensitivity as of March 31, 2002:
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) $ 21,448 $ 10,103 $ 19,545 $ 89,092 Loans (2) 91,062 34,807 105,348 17,246 -------- -------- -------- -------- Total earning assets 112,510 44,910 124,893 106,338 Deposits (3) 108,739 36,708 73,935 35,546 Borrowings 20,804 0 41,778 0 -------- -------- -------- -------- Total interest bearing liabilities 129,543 36,708 115,713 35,546 Net non-interest bearing funding (4) 7,114 7,114 21,342 35,571 -------- -------- -------- -------- Total net funding sources 136,657 43,822 137,055 71,117 Excess assets (liabilities) (24,147) 1,088 (12,162) 35,221 Cumulative excess assets (liabilities) (24,147) (23,059) (35,221) -
(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. 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 March, 2002: Net Interest Income Change in Rates Change (After tax) -200 (485) -100 (229) +100 333 +200 593 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 institution 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. 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 1. Legal Proceedings. None Item 2. Changes in Securities and Use of Proceeds. 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. (3)(i) Articles of Incorporation of the Registrant, as presently in effect (incorporated by reference to Exhibit 3.1 of the Registrant's Registration Statement on Form S-4, No. 333-65821). (3)ii) Bylaws of the Registrant as presently in effect (incorporated by reference to Exhibit 3.2 of the Registrant's Registration Statement on Form S-4, No. 333-65821). 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: May 15, 2002 /s/ Ronald A. Walko Ronald A. Walko, President and Chief Executive Officer Date: May 15, 2002 /s/ Sonya E. Scott Sonya E. Scott, Secretary 1 -----END PRIVACY-ENHANCED MESSAGE-----