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, 2000 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 November 13, 2000 there were 3,101,800 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,
2000 1999
--------------------------------
(IN THOUSANDS)
<S> <C>
ASSETS:
Cash and due from banks $10,719 $12,474
Investment securities available for sale 114,612 113,305
Investment securities held to maturity 3,229 3,014
Loans, net of unearned discount 244,872 233,823
Allowance for loan and lease losses (2,881) (2,823)
Loans, net 241,991 231,000
Bank premises and equipment, net 4,800 4,888
Accrued interest receivable 2,338 2,283
Other assets 8,209 6,778
--------------------------------
TOTAL ASSETS $385,898 $373,742
================================
LIABILITIES:
Demand deposits $44,746 $43,045
Interest-bearing demand deposits 43,993 44,671
Savings deposits 43,825 46,282
Time deposits 137,772 121,575
--------------------------------
Total deposits $270,336 $255,573
Short-term borrowings 29,888 41,641
Other borrowings 32,304 27,278
Accrued interest payable 1,317 1,123
Other liabilities 3,164 2,042
--------------------------------
Total liabilities $337,009 $327,657
--------------------------------
SHAREHOLDERS' EQUITY:
Common stock, par value $10; 10,000,000 shares
authorized and 3,130,344 and 3,128,332
shares issued $31,303 $31,283
Additional paid-in capital 18,204 18,165
Retained earnings 2,549 (166)
Accumulated other comprehensive loss (2,625) (2,927)
Less: Treasury stock at cost, 13,810 and 3,656 (542) (270)
--------------------------------
Total shareholders' equity $48,889 $46,085
--------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $385,898 $373,742
================================
</TABLE>
CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIODS INDICATED
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS QUARTER QUARTER
ENDED ENDED ENDED ENDED
September 30, 20September 30, 19September 30, 200September 30, 1999
-----------------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C>
INTEREST INCOME:
Interest and fees on loans $15,918 $14,784 $5,524 $5,067
Interest and dividends on investments: -----------------------------------------------------------------
Taxable interest 2,913 2,581 902 881
Nontaxable interest 1,514 1,214 598 428
Dividends 671 583 228 204
-----------------------------------------------------------------
Total interest and dividends
on investments 5,098 4,378 1,728 1,513
-----------------------------------------------------------------
Total interest income 21,016 19,162 7,252 6,580
-----------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits 6,679 5,912 2,393 1,938
Interest on short-term borrowings 1,371 636 449 285
Interest on other borrowings 1,268 1,122 507 387
-----------------------------------------------------------------
Total interest expense 9,318 7,670 3,349 2,610
-----------------------------------------------------------------
Net interest income 11,698 11,492 3,903 3,970
Provision for loan losses 208 208 78 78
-----------------------------------------------------------------
Net interest income after provision for
loan losses 11,490 11,284 3,825 3,892
-----------------------------------------------------------------
OTHER OPERATING INCOME:
Service charges 1,165 991 397 349
Securities gains 405 551 153 271
Other income 185 172 64 41
-----------------------------------------------------------------
Total other operating income 1,755 1,714 614 661
-----------------------------------------------------------------
OTHER OPERATING EXPENSES:
Salaries and employee benefits 3,628 3,465 1,199 1,164
Occupancy expense, net 555 476 162 162
Furniture and equipment expense 602 533 193 236
Other expenses 2,307 2,247 765 671
-----------------------------------------------------------------
Total other operating expenses 7,092 6,721 2,319 2,233
-----------------------------------------------------------------
INCOME BEFORE TAXES 6,153 6,277 2,120 2,320
INCOME TAX PROVISION 1,282 1,425 399 540
-----------------------------------------------------------------
NET INCOME $4,871 $4,852 $1,721 $1,780
=================================================================
EARNINGS PER SHARE - BASIC $1.56 $1.55 $0.55 $0.57
=================================================================
EARNINGS PER SHARE - DILUTED $1.56 $1.55 $0.55 $0.57
=================================================================
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING 3,124,469 3,121,151 3,125,384 3,121,501
=================================================================
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 3,125,040 3,131,082 3,117,446 3,128,568
=================================================================
**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 30,2000
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON ADDITIONAL OTHER TOTAL
STOCK PAID-IN RETAINED COMPREHENSIVE TREASURY SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS LOSS STOCK EQUITY
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 3,128,332 $31,283 $18,165 ($166) ($2,927) ($270) $46,085
Net income for the nine months
ended September 30, 2000 4,871 4,871
Dividends declared, $0.69 (2,156) (2,156)
Stock options exercised 2,012 20 39 59
Treasury Stock acquired (8,850 shs) (272) (272)
Net change in unrealized loss on
investments available for sale 302 302
---------------------------------------------------------------------------------------------------------
Balance, September 30, 2000 3,130,344 $31,303 $18,204 $2,549 ($2,625) ($542) $48,889
========================================================================================================
</TABLE>
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT
OF CASH FLOWS
FOR THE PERIODS INDICATED
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
---------------------------------
(IN THOUSANDS)
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $4,871 $4,852
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 529 512
Provision for loan losses 208 208
Accretion and amortization of investment security discounts
and premiums (417) (69)
Securities gains, net (405) (551)
Loss (Gain) on sale of foreclosed assets 25 (6)
Increase in all other assets (1,566) (1,886)
Increase all other liabilities 1,319 1,822
---------------------------------
Net cash provided by operating activities 4,564 4,882
---------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities available for sale (41,807) (57,023)
Proceeds from sales of securities available for sale 38,282 35,886
Proceeds from calls and maturities of securities available fo 3,555 1,818
Purchase of securities held to maturity (273) (25)
Proceeds from calls and maturities of securities held to matu - 2,086
Net increase in loans (11,199) (13,079)
Proceeds from the sale of foreclosed assets 98 80
Acquisition of bank premises and equipment (441) (979)
Acquisition of foreclosed assets (194) (34)
---------------------------------
Net cash used in investing activities (11,979) (31,270)
---------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in interest-bearing deposits 13,062 681
Net increase in noninterest-bearing deposits 1,701 3,192
Net increase (decrease) in short-term borrowings (11,753) 21,019
Proceeds from long-term borrowings 5,026 5,000
Dividends paid (2,156) (1,835)
Stock options exercised 52 12
Purchase of Treasury Stock (272) -
---------------------------------
Net cash provided by financing activities 5,660 28,069
---------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,755) 1,681
CASH AND CASH EQUIVALENTS, BEGINNING 12,474 12,297
---------------------------------
CASH AND CASH EQUIVALENTS, ENDING $10,719 $13,978
=================================
</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. 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, 1999.
NOTE 2. Comprehensive Income
The components of other comprehensive income
and related tax effects are as follows:
<TABLE>
<CAPTION>
September 30, September 30,
2000 1999
---------------------------------
(IN THOUSANDS)
<S> <C>
Change in net unrealized gain (loss) on securities available for sale,
net of tax benefit of $293 for 2000 and $2552 for 1999 569 (4,953)
---------------------------------
Less: Reclassification adjustment for realized gains included
in net income, net of taxes of $138 for 2000 a 267 364
Net unrealized gain (loss) net of tax $302 ($5,317)
=================================
</FN>
</TABLE>
EARNINGS SUMMARY
Comparison of the Nine Months Ended September 30, 2000 and 1999
Interest Income
For the nine months ended September 30, 2000,
total interest income increased by $1,854,000 or
9.68% compared to the same period in 1999.
This increase is due to an increase of $1,134,000 in
interest and fees on loans and an increase in
total interest and dividends on investments of
$720,000.
The increase in interest and fees on loans of
$1,134,000 was primarily due to the effect of the 100
basis point increase in the prime rate during the first nine
months as well the $11,049,000 increase in gross
loans from December 31, 1999 to September 30, 2000.
Interest and dividends on investments increased due
to the net effect of a $332,000 increase in taxable
interest due to the increase in the average holdings of
taxable municipal securities during the first nine months
of 2000 compared to the same period in 1999; a
$300,000 increase in nontaxable interest related to the
higher average volume of municipal securities held
during the first nine months of 2000 compared to
the first nine months of 1999; and an increase in dividend income
on equity securities of $88,000.
Interest Expense
For the nine months ended September 30, 2000
total interest expense increased $1,648,000 or
21.49% over the same period in 1999. The overall
increase in interest expense is the result of an
$767,000 increase in interest paid on deposits, mainly
due to volume; a $735,000 increase in interest
expense paid on short-term borrowings, due to an
increase of average overnight FHLB borrowings
and the rate paid on these borrowings and an
increase in the average rate paid on repurchase agreements
during the first nine months of 2000 compared to the first
nine months of 1999; and an increase of $146,000 in
interest paid on other borrowings, due to an increase
in the average outstanding borrowings in 2000
compared to 1999.
Provision for Loan Losses
The provision for loan losses totaled $208,000
for the nine months ended September 30, 2000. The
provision for the same period in 1999 also totaled
$208,000.
As of the third quarter of 2000, charge offs
exceeded recoveries by $150,000 compared to
the third quarter of 1999 when charge offs
exceeded recoveries by $100,000.
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 .33 times at September 30, 2000 a
decrease in coverage from the .19 times at
December 31, 1999. The overall increase in
non-performing loans totaled $416,000. Non-
performing loans secured by real estate and
non-performing commercial and agriculatural loans
accounted for $263,000 and $166,000, respectively of
the overall increase whereas non-performing
installment loans declined $13,000. 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 nine months
ended September 30, 2000 increased $41,000.
This increase is due to the net effect of an
increase in service charges collected of
$174,000, a decrease in securities gains
realized of $146,000 and a decrease in
other income of $13,000.
Volume as well as fee increases for overdraft and
stop payment services, effective December 1, 1999,
effected the amount of service charges on deposit
accounts. In addition, there was an increase in
charges collected during the first nine months of 2000 when
compared to the first nine months of 1999 due to a
service charge relating to ATM usage that was put
into effect in late March, 1999. A "charge-back" fee
that became effective in August of 2000 had also contributed
to the increase in overall services charges.
The increases in interest rates have provided an opportunity
for management to better match investments with rate
sensitive liabilities. During the third quarter, management
sold "available for sale" GNMA securities and reinvested
in more favorable tax-exempt municipal securities.
To accomplish this investment strategy losses were
realized on the sales of the GNMA's. Overall
net interest income will be enhanced from the purchases
of the municipal securities. In addition, gains will
continue to be realized on sales of equity securities
that have been in the portfolio long-term and have
reached what management determines to be their
maximum potential.
Other Operating Expense
For the nine months ended September 30, 2000
total other operating expenses increased $371,000
over the same period in 1999.
Employee salaries and benefits
increased $163,000 as a result of normal increases in
salary levels.
Occupancy expense increased $79,000 and
furniture and equipment expense increased
$69,000. The increase in occupancy
expense can be attributed to increases
in rental and depreciation expenses related to
the opening of the full-service branch office in
Zion, Pennsylvania, on May 8, 1999 in addition to
an overall increase in maintenance and repairs
expense.
The $69,000 increase in furniture and
equipment expense can be attributed mainly
to the implementation of Internet and Telephone
Banking. General maintenance and depreciation
expenses also contributed to the increase.
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 totaled $60,000. This
increase can be mainly attributed to the hiring of an
outside firm to perform the Bank's internal audits
and also to expenses related to the implementation of
Telephone Banking.
Provision for Income Taxes
Provision for income taxes for the nine
months ended September 30, 2000 resulted in an
effective income tax rate of 20.84%
compared to 22.70% for the corresponding
period in 1999. The decrease noted is
due to an increase in non-taxable income for the
period.
Comparison of the Three Months Ended September 30, 2000 and 1999
During the third quarter of 2000 interest income
earned was $7,252,000 an increase of $672,000 or
10.21% over the same quarter in 1999.
During the third quarter of 2000 average gross loans
were $244,554,000 at an average rate of 8.77%. Average
gross loans during the third quarter of 1999 were $229,530,000
at an average rate of 8.51%. The higher average volume
and rate explain the $457,000 increase in interest
income on loans when comparing the quarter
ending September 30, 2000 to the quarter ending
September 30, 1999.
The remaining $215,000 increase occurred in interest
and dividends on investments. Taxable interest
increased $21,000, non-taxable interest increased
$170,000 and dividends increased $24,000 due to the
same reasons noted for the nine-month comparison.
Interest expense during the third quarter of 2000
increased by $739,000 or 28.31% over interest expense
incurred during the third quarter of 1999.
Interest bearing deposits grew $1,451,000 and the
average rate increased from 3.99% to 4.27% from
June 30, 2000 to September 30, 2000. During this same
period in 1999, interest bearing deposits grew
$445,000 and the average rate decreased from
3.67% to 3.63%. Special time deposit products offered
during the recent rising interest rate environment
attracted such deposits. In addition, time deposits that matured
during the 2000 period were replaced with higher costing
deposits, thereby increasing the average rate paid.
Interest expense on short-term borrowings increased
by $164,000 and interest expense on other borrowings
increased by $120,000. A higher level of over-
night funds were borrowed throughout the 2000 period
at a higher average rate and an increase in higher-
costing, average repurchase agreements were held,
therefore, increasing interest expense. The reason
for the increase in interest expense on other borrowings
is noted in the nine-month comparison.
Total other operating income decreased $47,000 or
7.11% to $614,000 during the three-month period
in 2000 compared to $661,000 in 1999. Service
charges and other income increased $48,000 and
$23,000, respectively, while securities gains decreased
by $118,000. The volume and fee increases discussed
in the nine-month comparison account for the increase
in service charges. Increases in other income occurred
due to a gain on the sale of a piece of fully depreciated
equipment, an increase in income from our Debit
Card product and also from fees associated with MC/VISA
merchants.
The decline in securitiy gains is discussed in
the nine-month comparison.
Total other operating expenses increased $86,000
or 3.85%.
Salaries and employee benefits increased $35,000
due to normal increases in salary levels and
premium increases in health insurance benefits.
Occupancy expense remained unchanged for the
third quarter of 2000 when compared to the third
quarter of 1999.
Furniture and equipment expense increased $43,000
or 18.22%. The increase is mainly attributable to
depreciation expense related to telephone and
Internet banking which were implemented at the
beginning of April, 2000. General maintenance and
repairs on equipment also contributed to the
increase in expense.
Other operating expenses increased during the
three-month period in 2000 when compared to the
same period in 1999 by $94,000. This increase
was derived mainly from an increase in outside
professional fees specifically related to the hiring of
of an outside auditing firm for performing internal
audits and the hiring of an outside transfer agent to
handle Penns Woods Bancorp, Inc. stock and dividend
transactions.
Income taxes decreased $141,000 or 26.11% due to the
decline in overall taxable income.
ASSET/LIABILITY MANAGEMENT
Assets
At September 30, 2000, cash and investment securities
totaled $128,560,000 or a net decrease of $233,000
over the corresponding balance at December 31, 1999.
Investment securities increased $1,522,000 while
cash decreased $1,755,000. During this period, net
loans increased by $10,991,000 to $241,991,000.
The decrease in investment securities is primarily
due to the change in the net unrealized loss from
$4,435,000 at December 31, 1999 to $3,977,000 at
September 30, 2000. Also contributing to the decrease were
sales of available for sale U.S. Government agencies
and maturities of U.S. Treasury securities.
Management evaluates credit risk,
anticipated economic conditions and other
relevant factors impacting the quality of
the loan portfolio in order to establish an
adequate loan-loss allowance. An internal
credit review committee monitors loans in
accordance with Federal supervisory standards
In addition, management frequently reviews and
utilizes the results of examinations and reports
provided by the committee, regulators, and
independent loan review consultants, on the
adequacy of the loan loss allowance.
Accordingly, on a quarterly basis,
management determines an appropriate
provision for possible loan losses from
earnings in order to maintain allowance
coverage relative to potential losses.
The allowance for loan losses totaled
$2,881,000 at September 30, 2000, an increase of
$58,000 over the balance at December 31,
1999. For the nine months ended
September 30, 2000, the provision for loan
losses totaled $208,000. As a percent of loans,
the allowance for loan losses totaled 1.18% at
September 30, 2000 and 1.21% at December 31, 1999.
Loans accounted for on a non-accrual basis
totaled $858,000 and $284,000 at September 30, 2000 and
December 31, 1999 respectively.
Accruing loans, contractually delinquent 90
days or more were $83,000 at September 30, 2000
and $241,000 at December 31, 1999.
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 .33
times at September 30, 2000 and .19 times at
December 31, 1999. 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, 2000 the balance of other real
estate was $138,000 compared to $67,000 at
December 31, 1999. The two properties totaling
$67,000 that were held in other real estate at
December 31, 1999 were sold, five properties totaling
$193,000 were placed into other real estate, two of which
were subsequently sold during this nine month period.
On October 2, 2000 Jersey Shore State Bank , a wholly-
owned subsidiary of Penns Woods Bancorp, Inc.
completed the acquisition of a securities brokerage and
insurance business, CLU and The M Group, Inc. This
acquisition was effective October 1, 2000 and will be
operated as a wholly-owned bank subsidiary, The M
Group, Inc. D/B/A The Comprehensive Financial Group.
The acquisition has been accounted for under the purchase
method of accounting.
Deposits
At September 30, 2000 total deposits amounted to
$270,336,000 representing an increase of
$14,763,000, or 5.78%, from total deposits
at December 31, 1999. Non-interest and interest-
bearing demand deposits grew $1,701,000 and
$678,000, respectively. Savings deposits changed
slightly, decreasing $2,457,000. Time deposits increased
$16,197,000 due to successful marketing strategies
as well as efforts to strategically manage the Bank's
asset and liability position during the rising interest
rate environment.
Other Liabilities
At September 30, 2000, other liabilities
totaled $3,164,000 or a $1,122,000 increase
over the balance at December 31, 1999. 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%.
Regulatory capital to total assets was 12.67% for
September 30, 2000 and 12.33% for December 31, 1999.
Primary capital to total assets at September 30, 2000
was 13.42% compared to 13.09% at
December 31, 1999.
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 20.33% and the
total capital ratio to total risk weighted
assets ratio is 21.48%.
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 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 $89,183,000 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, 2000:
<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) $8,006 $6,574 $13,611 $93,557
Loans (2) 83,168 33,828 102,097 25,778
------------------------------------------------------------------
Total earning assets 91,174 40,402 115,708 119,335
Deposits (3) 113,629 51,266 55,852 49,478
Borrowings 25,063 0 27,278 8,245
------------------------------------------------------------------
Total interest bearing liabili 138,692 51,266 83,130 57,723
Net non-interest bearing
funding (4) 3,580 3,581 10,742 17,905
------------------------------------------------------------------
Total net funding sources 142,272 54,847 93,872 75,628
Excess assets (liabilities) (51,098) (14,445) 21,836 43,707
Cumulative excess
assets (liabilities) (51,098) (65,543) (43,707) -
<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 25% 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, 2000:
Net Interest Income
Change in Rates Change (After tax)
-200 228
-100 192
+100 -23
+200 -117
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>
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.
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 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.
(a) Exhibits required by Item 601 of Regulation S-K:
Number Description
------------------------------
(99) Independent Accountants' Report
(b) Reports on Form 8-K
On August 10, 2000 Penns Woods Bancorp, Inc. filed
on Form 8-K report under Item 5. of Form 8-K
reporting a Stock Repurchase Program.
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 13, 2000 /s/ Ronald A. Walko
----------------
Ronald A. Walko, President and Chief
Executive Officer
Date: November 13, 2000 /s/ Sonya E. Scott
----------------
Sonya E. Scott, Secretary
</TABLE>
