secQ999
FORM 10-Q QUARTERLY REPORT
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 10
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 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 September 30, 1999 were were 3,121,836 shares of the
Registrant's common stock outstanding.
PART I FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PENNS WOODS BANCORP, INC.
CONSOLIDATED BALANCE SHEET
AT DATES INDICATED
September 30, December 31,
1999 1998*
--------------------------------
(IN THOUSANDS)
<S> <C>
ASSETS:
Cash and due from banks $13,978 $12,297
Investment securities available-for-sale 112,407 102,324
Investment securities held-to-maturity 3,017 3,078
Loans, net of unearned discount 229,545 216,565
Allowance for loan and lease losses (2,789) (2,680)
Loans, net 226,756 213,885
Bank premises and equipment, net 5,205 4,738
Accrued interest receivable 2,241 1,857
Foreclosed assets held for sale 0 40
Other assets 5,648 3,401
--------------------------------
TOTAL ASSETS $369,252 $341,620
================================
LIABILITIES:
Demand Deposits $42,914 $42,233
Interest-bearing demand deposits 45,846 44,041
Savings deposits 48,357 49,737
Time deposits 119,890 117,123
--------------------------------
Total deposits $257,007 $253,134
Federal funds purchased 13,400 0
Securities sold under repurchase agreements 16,842 11,223
Accrued interest payable 978 1,115
Other Liabilities 3,616 3,474
Long-term borrowings 29,778 22,778
Total liabilities --------------------------------
$321,621 $291,724
--------------------------------
SHAREHOLDERS' EQUITY:
Common stock, par value $10 per share,
10,000,000 shares authorized $31,255 $28,409
Additional paid-in capital 18,110 4,768
Retained earnings (1,161) 11,975
Accumulated other comprehensive income (359) 4,958
Less: Treasury stock at cost, 3,656 shares in (214) (214)
--------------------------------
Total shareholders' equity $47,631 $49,896
--------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $369,252 $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>
NINE MONTHS NINE MONTHS QUARTER QUARTER
ENDED ENDED ENDED ENDED
September 30, 19September 30, 19September 30, 199September 30, 1998*
-----------------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $14,784 $14,719 $5,067 $5,026
Interest and dividends on investments: -----------------------------------------------------------------
Taxable interest 2,581 2,601 881 977
Nontaxable interest 1,214 851 428 308
Dividends 583 500 204 156
-----------------------------------------------------------------
Total interest and dividends
on investments 4,378 3,952 1,513 1,441
-----------------------------------------------------------------
Total interest income 19,162 18,671 6,580 6,467
-----------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits 5,912 6,637 1,938 2,239
Interest on Federal funds purchased 102 196 86 99
Interest on securities sold under
repurchase agreements 528 381 193 134
Interest on other borrowings 1,128 566 393 328
-----------------------------------------------------------------
Total interest expense 7,670 7,780 2,610 2,800
-----------------------------------------------------------------
Net interest income 11,492 10,891 3,970 3,667
Provision for loan losses 208 230 78 75
-----------------------------------------------------------------
Net interest income after provision for
loan losses 11,284 10,661 3,892 3,592
-----------------------------------------------------------------
OTHER OPERATING INCOME:
Service charges 991 812 348 273
Securities gains 551 1,059 272 216
Other income 172 187 41 53
-----------------------------------------------------------------
Total other operating income 1,714 2,058 661 542
-----------------------------------------------------------------
OTHER OPERATING EXPENSES:
Salaries and employee benefits 3,465 3,332 1,164 1,111
Occupancy expense, net 588 456 199 165
Furniture and equipment expense 546 568 241 196
Other expenses 2,122 1,815 629 602
-----------------------------------------------------------------
Total other operating expenses 6,721 6,171 2,233 2,074
-----------------------------------------------------------------
INCOME BEFORE TAXES 6,277 6,548 2,320 2,060
INCOME TAX PROVISION 1,425 1,664 540 574
-----------------------------------------------------------------
NET INCOME 4,852 4,884 1,780 1,486
=================================================================
EARNINGS PER SHARE - BASIC 1.55 1.57 0.57 0.48
=================================================================
EARNINGS PER SHARE - DILUTED 1.55 1.56 0.57 0.48
=================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING 3,121,151 **3 3,121,151 **3,113,399
=================================================================
*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 NINE MONTHS ENDED SEPTEMBER 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 nine months
ended September 30, 1999 4,852 4,852
Dividends declared, $0.5818 (1,835) (1,835)
Stock dividend 10% 283,399 2,833 13,320 (16,153) 0
Stock options exercised 1270 13 22 35
Net change in unrealized
appreciation (depreciation) (5,317) (5,317)
--------------------------------------------------------------------------------------
Balance, September 30, 1999 3,125,492 $31,255 $18,110 ($1,161) ($359) ($214) $47,631
=======================================================================================
</TABLE>
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT
OF CASH FLOWS
FOR THE QUARTERS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER30,
1999 1998*
---------------------------------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $4,852 $4,884
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 512 267
Provision for loan losses 208 230
Amortization of investment security premiums 50 60
Accretion of investment security discounts (119) (83)
Securities gains, net (578) (1,059)
Gain on sale of foreclosed assets (6) (12)
(Increase) decrease in all other assets (351) (2,513)
Increase (decrease) in all other liabilities 472 1,543
---------------------------------
Net cash provided by operating activities 5,040 3,317
---------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities available-for-sale (57,223) (39,956)
Proceeds from sale and maturities of securities available-for 37,731 20,257
Proceeds from the sale of foreclosed assets 80 47
Purchase of securities held-to-maturity (25) (224)
Proceeds from calls and maturities of securities held-to-matu 2,086 2,999
Net increase in loans (13,079) (12,673)
Acquisition of bank premises and equipment (979) (335)
Acquisition of foreclosed assets (34) 0
---------------------------------
Net cash (used in) provided by investing act (31,443) (29,885)
---------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in interest-bearing deposits 3,192 3,592
Net increase in noninterest-bearing deposits 681 (3,207)
Net increase in sec. sold under repurch. agree. 5,619 3,809
Increase (Decrease) in other borrowed funds 13,400 640
Proceeds from long-term borrowings 7,000 19,278
Dividends paid (1,835) (1,477)
Stock options exercised 27 38
---------------------------------
Net cash (used in) provided by financing acti 28,084 22,673
---------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 1,681 (3,895)
CASH AND CASH EQUIVALENTS, BEGINNING 12,297 13,124
---------------------------------
CASH AND CASH EQUIVALENTS, ENDING $13,978 $9,229
=================================
*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 nine month periods ended Sept 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>
SEPTEMBER 30, SEPTEMBER 30,
1999 1998*
---------------------------------
(IN THOUSANDS)
<S> <C>
Unrealized holding gains on available-for-sale securities ($7,505) ($1,529)
Less: Reclassification adjustment for gains realized in inc 551 1,059
---------------------------------
Net unrealized gains (losses) (8,056) (2,588)
Tax effect (2,739) (880)
Net-of-tax amount ($5,317) ($1,708)
=================================
*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
NINE MONTHS NINE MONTHS ADJUSTMENTS NINE MONTHS
ENDED ENDED ENDED
Sept 30, 1999 Sept 30, 1998 N/A Sept 30, 1998
- - - -
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income $16,801 $1,870 N/A $18,671
Interest expense 6,973 808 7,781
------------------------------------------------------------------
Net interest income 9,828 1,062 10,890
Provision for possible
loan losses 225 5 230
------------------------------------------------------------------
Net interest income after
provision for possible
loan losses 9,603 1,057 10,660
------------------------------------------------------------------
Other non-interest income 1,985 73 2,058
Non-interest expense 5,442 728 6,170
------------------------------------------------------------------
Income before taxes 6,146 402 6,548
Income taxes 1,573 91 1,664
------------------------------------------------------------------
Net income $4,573 $311 $4,884
==================================================================
EARNINGS PER SHARE - BASIC 1.62 3.77 1.57
==================================================================
EARNINGS PER SHARE -
DILUTED 1.62 3.77 1.56
==================================================================
WEIGHTED AVERAGE
2,824,681 82,500 3,113,399
==================================================================
Combined weighted average shares are based on (i) the weighted average
number of shares of Penns Woods Common Stock outstanding during the first
nine months of 1998 of 2,567,892 shares plus (ii) the weighted average number
of shares of FNBSM Common Stock outstanding during the first nine months of
1998 of 75,000, multiplied by the Exchange Ratio, less 29 fractional shares.
All shares have been adjusted to reflect the issuance of a 10% stock dividend
on June 8, 1999.
</TABLE>
<TABLE>
<CAPTION>
THE FIRST
NATIONAL BANK
PENNS WOODS OF SPRING MILLS CONSOLIDATED
THREE MONTHS THREE MONTHS ADJUSTMENTS THREE MONTHS
ENDED ENDED ENDED
September 30, 199September 30, 19 N/A September 30, 1998
- - - -
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C>
Interest income $5,844 $623 N/A $6,467
Interest expense 2,521 280 2,801
------------------------------------------------------------------
Net interest income 3,323 343 3,666
Provision for possible
loan losses 75 0 75
------------------------------------------------------------------
Net interest income after
provision for possible
loan losses 3,248 343 3,591
------------------------------------------------------------------
Other non-interest income 519 25 544
Non-interest expense 1,811 264 2,075
------------------------------------------------------------------
Income before taxes 1,956 104 2,060
Income taxes 545 29 574
------------------------------------------------------------------
Net income $1,411 $75 $1,486
==================================================================
EARNINGS PER SHARE - BASIC 0.50 .91 0.48
==================================================================
EARNINGS PER SHARE -
DILUTED 0.50 .91 0.48
==================================================================
WEIGHTED AVERAGE
SHARES OUTSTANDING 2,824,681 82,500 3,113,399
==================================================================
Combined weighted average shares are based on (i) the weighted average
number of shares of Penns Woods Common Stock outstanding during the
first nine months of 1998 of 2,567,892 shares plus (ii) the weighted average
number of shares of FNBSM Common Stock outstanding during the first nine
months of 1998 of 75,000, multiplied by the Exchange Ratio, less 29
fractional shares. All shares have also been adjusted to reflect the issuance
of a 10% stock dividend on June 8, 1998.
</TABLE>
EARNINGS SUMMARY
Interest Income
For the nine months ended September 30, 1999,
total interest income increased by $491,000 or
2.63% compared to the same period in 1998.
This increase is due to an increase of $65,000 in
interest and fees on loans and an increase in
total interest and dividends on investments of
$426,000.
The increase in interest and fees on loans of
$65,000 was primarily due to the increase in loans
and also to the increases in rates during the third
quarter . Interest and dividends on investments
increased due to the net effect of a $20,000 decrease
in taxable interest, a $363,000 increase in nontaxable
interest and an increase in dividend income of
$83,000.
Interest Expense
For the nine months ended September 30, 1999
total interest expense decreased $110,000 or
1.41% over the same period in 1998. The overall
decrease in interest expense can be attributed to
the decrease in interest paid on deposit accounts and
Federal funds purchased.
Provision for Loan Losses
The provision for losses for the nine
months ended September 30, 1999 decreased
$22,000 from the corresponding period in
1998. This decrease reflects an anticipated
moderate decline in consumer loan losses
for the year.
As of the third quarter of 1999, charge offs
exceeded recoveries by $100,000 compared to
the third quarter of 1998 when charge offs
exceeded recoveries by $168,000. Provisions
to date total $208,000 as compared to
provisions through September 30, 1998 of
$230,000.
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 September 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 nine months
ended September 30, 1999 decreased $344,000.
This decrease is due to the net effect of an
increase in service charges collected of
$179,000, a decrease in securities gains
realized of $508,000 and a decrease in
other income of $15,000.
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 $508,000 decrease in securities gains
recognized. Realized gains were on sales
of bonds that were sold in effort to better
match the Bank's rate-sensitive assets and
rate-sensitive liabilities given the current
economic conditions. In addition, gains
were realized on partial sales of equity securities
that have been in the portfolio long-term
that had reached what management had
determined to be their maximum potential.
Other Operating Expense
For the nine months ended September 30, 1999
total other operating expenses increased $550,000
over the same period in 1998.
Employee salaries and benefits
increased $133,000 as a result of increases in
salary levels and the hiring of additional employees.
Occupancy expense increased $132,000 and
furniture and equipment expense decreased
22,000. 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 $22,000 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 $307,000. This
increase can be largely attributed to the opening
of the two new branches mentioned above and a check
imaging system that was installed during the year.
In addition, included in the $307,000 increase is
approximately $116,000 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 nine
months ended Setpember 30, 1999 resulted in an
effective income tax rate of 22.70%
compared to 25.41% 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 September 30, 1999, cash, federal funds sold,
and investment securities totalled
$129,402,000, or a net increase of $11,703,000
over the corresponding balance at December
31, 1998. Investment securities increased
$10,022,000 while cash increased $1,681,000.
During this period, net loans
increased by $12,871,000 to $226,756,000.
The increase in investment securities from
December 31, 1998 to September 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
$2,789,000 at September 30, 1999, an increase of
$109,000 over the balance at December 31,
1998. For the nine months ended
September 30, 1999, the provision for loan
losses totalled $208,000. As a percent of loans,
the allowance for loan losses at
September 30, 1999 totalled 1.22% versus
1.24% at December 31, 1998.
Loans accounted for on a non-accrual basis
totalled $462,000 and $646,000 at September 30, 1999
December 31, 1998 respectively.
Accruing loans, contractually delinquent 90
days or more were $93,000 at September 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 September 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 September 30, 1999 the balance of other real
estate was $0 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 that was placed into other real estate
during the second quarter of 1999 was sold in
August, 1999.
Deposits
At September 30, 1999 total deposits amounted to
$257,007,000 representing an increase of
$3,873,000, or 1.53%, from total deposits
at December 31, 1998.
Other Liabilities
At September 30, 1999, other liabilities
totalled $3,616,000 or a $142,000 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 September 30, 1999, regulatory capital to
total assets was 12.90% compared to 14.61%
at December 31, 1998. Primary capital to
total assets at September 30, 1999 was 13.65%
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 20.04% and the
total capital ratio to total risk weighted
assets ratio is 21.71%.
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 $88,050,000 through
the Federal Home Loan Bank's "Open Repo Plus", revolving
line of credit program, with commitment up to one year.
All of the funding mentioned is available to the Bank,
should the need for short-term funds arise.
The following table sets forth the Bank's interest rate
sensitivity as of September 30, 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) $10,319 $18,186 $22,834 $64,658
Loans (2) 77,099 29,682 95,957 26,807
------------------------------------------------------------------
Total earning assets 87,418 47,868 118,791 91,465
Deposits (3) 106,628 40,156 49,840 17,468
Borrowings 33,241 0 26,778 0
------------------------------------------------------------------
Total interest bearing liabili 139,869 40,156 76,618 17,468
Net non-interest bearing
funding (4) 12,357 9,461 23,167 26,446
------------------------------------------------------------------
Total net funding sources 152,226 49,617 99,785 43,914
Excess assets (liabilities) (64,808) (1,749) 19,006 47,551
Cumulative excess
assets (liabilities) (64,808) (66,557) (47,551) 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 September 30, 1999.
Net Interest Income
Change in Rates Change (After tax)
-200 435
-100 841
+100 -442
+200 -886
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. RepoOn September 23, 1999 Penns Woods Bancorp, Inc. filed a
Form 8-K report under Item 4. of Form 8-K reporting
a change in the registrant's independent certified puplic
accountants.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
PENNS WOODS BANCORP, INC.
(Registrant)
Date: November 15, 1999
---------------- -
Ronald A. Walko, Executive Vice President
and Chief Executive Officer
Date: November 15, 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 9/30/99
LESS FRACTION
SHARES FRACTIONAL OF WEIGHTED
DATE OUTSTANDING RESTATEMENT SHARES YEAR SHARES
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
1/01/99 - 4/0 2,837,167 110% - 97/273 1,108,885.4
4/08/99 - 6/0 2,837,227 110% 57/273 651,626.9
6/07/99 - 6/0 2,837,887 110% 4/273 45,738.8
6/08/99 - 8/2 3,121,286 79/273 903,229.3
8/26/99 - 9/3 3,121,836 36/273 411,670.7
WEIGHTED SHARES OUTSTANDING 9/30/99 3,121,151
=================
<S> <C> <C>
NET INCOME 9/30/99 $4,851,858
WEIGHTED SHARES OUTSTANDING 9/30/99 3,121,151
EARNINGS PER SHARE 9/30/99 - BASIC $1.55
=================
NET INCOME 9/30/99 $4,851,858
WEIGHTED SHARES OUTSTANDING 9/30/99 3,121,151
DILUTIVE EFFECT OF STOCK OPTIONS 9/30/99 8,278
3,129,429
EARNINGS PER SHARE 9/30/99 - DILUTED $1.55
=================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 8508
<INT-BEARING-DEPOSITS> 186335
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 93064
<INVESTMENTS-CARRYING> 3050
<INVESTMENTS-MARKET> 0
<LOANS> 197221
<ALLOWANCE> 2461
<TOTAL-ASSETS> 309588
<DEPOSITS> 218455
<SHORT-TERM> 21008
<LIABILITIES-OTHER> 5643
<LONG-TERM> 20000
0
0
<COMMON> 25713
<OTHER-SE> 18769
<TOTAL-LIABILITIES-AND-EQUITY> 309588
<INTEREST-LOAN> 13365
<INTEREST-INVEST> 3436
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 16801
<INTEREST-DEPOSIT> 5957
<INTEREST-EXPENSE> 1016
<INTEREST-INCOME-NET> 9828
<LOAN-LOSSES> 225
<SECURITIES-GAINS> 1059
<EXPENSE-OTHER> 5442
<INCOME-PRETAX> 6146
<INCOME-PRE-EXTRAORDINARY> 6146
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4573
<EPS-BASIC> 1.78
<EPS-DILUTED> 1.77
<YIELD-ACTUAL> 0
<LOANS-NON> 462
<LOANS-PAST> 93
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2680
<CHARGE-OFFS> 123
<RECOVERIES> 23
<ALLOWANCE-CLOSE> 2789
<ALLOWANCE-DOMESTIC> 2789
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
