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
<TABLE>
<CAPTION>
PENNS WOODS BANCORP, INC.
CONSOLIDATED BALANCE SHEET
AT DATES INDICATED
June 30, December 31,
1999 1998*
--------------------------------
(IN THOUSANDS)
<S> <C>
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
</TABLE>
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIODS INDICATED
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C> <C>
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.
</TABLE>
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
UNREALIZED
ACCUMULATED APPREC.
COMMON ADDITIONAL OTHER TOTAL
STOCK PAID-IN RETAINED COMPREHENSIVE TREASURY SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS INCOME STOCK EQUITY
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
=====================================================================================================
</TABLE>
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT
OF CASH FLOWS
FOR THE QUARTERS ENDED JUNE 30, 1999 AND JUNE 30, 1998
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1999 1998*
--------------------------------
(IN THOUSANDS)
<S> <C>
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
</TABLE>
[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:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1999 1998*
--------------------------------
(IN THOUSANDS)
<S> <C>
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
</FN>
</TABLE>
NOTE 4. Business Combinations
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
FOR THE PERIODS INDICATED
<TABLE>
<CAPTION>
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)
<S> <C>
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
==============================================================
</TABLE>
<TABLE>
<CAPTION>
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)
<S> <C>
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
==============================================================
</TABLE>
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:
<TABLE>
<CAPTION>
AFTER ONE AFTER TWO AFTER
WITHIN BUT WITHIN BUT WITHIN FIVE
ONE YEAR TWO YEARS FIVE YEARS YEARS
<S> <C> <C> <C> <C>
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
<FN>
(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.
</FN>
</TABLE>
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.
<TABLE>
<S> <C> <C>
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
</TABLE>
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
<TABLE>
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
- ----------------------------------------------------------------------------------------
<S> <C>
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
================
<S> <C> <C>
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
================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 10098
<INT-BEARING-DEPOSITS> 214538
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 110983
<INVESTMENTS-CARRYING> 3031
<INVESTMENTS-MARKET> 0
<LOANS> 222602
<ALLOWANCE> 2772
<TOTAL-ASSETS> 356298
<DEPOSITS> 254381
<SHORT-TERM> 19914
<LIABILITIES-OTHER> 5361
<LONG-TERM> 27783
0
0
<COMMON> 31249
<OTHER-SE> 17610
<TOTAL-LIABILITIES-AND-EQUITY> 356298
<INTEREST-LOAN> 9717
<INTEREST-INVEST> 2865
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 12582
<INTEREST-DEPOSIT> 3974
<INTEREST-EXPENSE> 1086
<INTEREST-INCOME-NET> 7522
<LOAN-LOSSES> 130
<SECURITIES-GAINS> 279
<EXPENSE-OTHER> 4488
<INCOME-PRETAX> 3957
<INCOME-PRE-EXTRAORDINARY> 3957
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3072
<EPS-BASIC> .98
<EPS-DILUTED> .98
<YIELD-ACTUAL> 0
<LOANS-NON> 541
<LOANS-PAST> 23
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2680
<CHARGE-OFFS> 56
<RECOVERIES> 17
<ALLOWANCE-CLOSE> 2772
<ALLOWANCE-DOMESTIC> 2772
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
