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, 1996 Commission file number
0-17077
PENNS WOODS BANCORP, INC.
Incorporated in Pennsylvania 23-2226454
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, 1996 there were 1,272,248 shares of the
Registrant's common stock outstanding.
PART I FINANCIAL STATMENTS
PENNS WOODS BANCORP, INC.
CONSOLIDATED BALANCE SHEET
AT DATES INDICATED
June 30, December 31,
1996 1995
-----------------------------
ASSETS:
Cash and due from banks $8,552,900 14,283,649
Investment securities available-for-sale 77,661,239 65,322,241
Investment Securities held-to-maturity 2,676,603 2,817,174
Federal funds sold 0 570,000
Loans, net of unearned discount 156,765,781 153,640,485
Allowance for loan losses (2,425,012) (2,353,324)
Loans, net 154,340,769 151,287,161
Bank premises and equipment 3,905,298 3,808,885
Foreclosed assets held for sale 375,458 943,108
Accrued interest receivable 1,611,075 1,717,616
Other assets 3,688,820 1,878,740
---------------------------
TOTAL ASSETS $252,812,162 $242,628,574
===========================
LIABILITIES:
Demand Deposits $29,237,716 27,178,753
Interest-bearing demand deposits 36,674,868 37,155,122
Savings deposits 46,230,106 45,019,071
Time deposits 92,551,456 92,904,655
---------------------------
Total deposits $204,694,146 $202,257,601
Federal funds purchased $5,740,000 $0
Securities sold under repurchase agreements 7,280,018 6,344,111
Accrued interest payable 909,982 918,841
Other liabilities 4,519,319 3,423,217
---------------------------
Total liabilities $223,143,465 $212,943,770
---------------------------
SHAREHOLDERS' EQUITY:
Common stock, par value $10 per share,
10,000,000 shares authorized;
1,272,248 shares issued and outstanding
at June 30, 1996 and 10,000,000
shares authorized; 1,271,339 issued and
outstanding at December 31, 1995 $12,722,480 12,713,390
Additional paid-in capital 4,474,192 4,453,353
Retained earnings 11,748,437 10,059,806
Net unrealized gain (loss) on securities
available for sale 723,588 2,458,255
---------------------------
Total shareholders' equity $29,668,697 $29,684,804
---------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $252,812,162 $242,628,574
===========================
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIODS INDICATED
SIX MONTHS SIX MONTHS QUARTER QUARTER
ENDED ENDED ENDED ENDED
June 30, 1996 June 30, 1995 June 30,1996 June 30, 1995
--------------------------------------------------------
INTEREST INCOME:
Interest and fees on loans $7,273,763 $7,207,776 $3,633,657 $3,654,450
Interest and dividends on investments: --------------------------------------------------------
Taxable interest 1,610,098 1,139,152 877,136 516,320
Nontaxable interest 511,554 562,189 247,309 277,362
Dividends 248,766 199,457 127,182 110,012
--------------------------------------------------------
Total interest and dividends
on investments 2,370,418 1,900,798 1,251,627 903,694
Interest on Federal funds sold 25,331 66,362 2,542 66,245
--------------------------------------------------------
Total interest income 9,669,512 9,174,936 4,887,826 4,624,389
--------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits 3,758,864 3,485,010 1,861,576 1,813,702
Interest on Federal funds purchased 37,671 65,265 36,851 10,102
Interest on securities sold under
repurchase agreements 151,074 84,848 79,340 41,291
Interest on other borrowings 0 195,668 0 85,033
--------------------------------------------------------
Total interest expense 3,947,609 3,830,791 1,977,767 1,950,128
--------------------------------------------------------
Net interest income 5,721,903 5,344,145 2,910,059 2,674,261
Provision for loan losses 63,000 200,010 21,000 100,005
--------------------------------------------------------
Net interest income after provision for
loan losses 5,658,903 5,144,135 2,889,059 2,574,256
--------------------------------------------------------
OTHER OPERATING INCOME:
Service charges 408,056 357,120 205,856 185,398
Securities gains 290,524 565,652 254,047 282,786
Other income 158,127 131,491 97,833 66,002
--------------------------------------------------------
Total other operating income 856,707 1,054,263 557,736 534,186
--------------------------------------------------------
OTHER OPERATING EXPENSES:
Salaries and employee benefits 1,777,326 2,258,365 903,454 1,280,608
Occupancy expense, net 247,045 245,437 116,631 109,685
Furniture and equipment expense 232,271 367,032 104,148 220,571
Other expenses 1,250,935 1,351,008 623,282 603,429
--------------------------------------------------------
Total other operating expenses 3,507,577 4,221,842 1,747,515 2,214,293
--------------------------------------------------------
INCOME BEFORE TAXES 3,008,033 1,976,556 1,699,280 894,149
INCOME TAX PROVISION 759,772 343,064 433,447 53,991
--------------------------------------------------------
NET INCOME $2,248,261 $1,633,492 $1,265,833 $840,158
========================================================
EARNINGS PER SHARE 1.77 1.29 1.00 0.66
========================================================
TOTAL SHARES OUTSTANDING 1,271,620 1,266,878 1,271,620 1,266,878
========================================================
(ADJUSTED FOR 50% STOCK DIVIDEND)
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1996
UNREALIZED
APPRECIATION
ADDITIONAL (DEPRECIATION) ON TOTAL
COMMON PAID-IN RETAINED SECURITIES SHAREHOLDERS'
STOCK CAPITAL EARNINGS AVAILABLE-FOR-SALE EQUITY
-------------------------------------------------------------------------
Balance, December 31, 1995 $12,713,390 $4,453,353 $10,059,806 $2,458,255 $29,684,804
Net income for the six months ended
June 30, 1996 2,248,261 2,248,261
Dividends declared and paid (559,630) (559,630)
Net change in unrealized gain on marketable
equity securities (1,734,667) (1,734,667)
Stock options exercised 9,090 20,839 29,929
-------------------------------------------------------------------------
Balance, June 30, 1996 $12,722,480 $4,474,192 $11,748,437 $723,588 $29,668,697
=======================================================================
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT
OF CASH FLOWS
FOR THE QUARTERS ENDED JUNE 30, 1996 AND JUNE 30, 1995
JUNE 30, JUNE 30,
1996 1995
------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $2,248,261 $1,633,492
Adjustments to reconcile net income to net cash
provided by operating actvities
Depreciation 202,324 170,811
Provision for loan losses 63,000 200,010
Amortization of investment security premiums 9,590 23,225
Accretion of investment security discounts (27,435) (52,360)
Securities gains (290,524) (565,652)
Salary expense recognized in relation to exercise of
stock options 0 37,883
Increase in all other assets (509,923) (402,068)
Increase (decrease) in all other liabilities 1,087,243 824,985
---------------------------
Net cash provided by operating activities 2,782,536 1,870,326
---------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities available-for-sale (24,803,603) (19,074,901)
Proceeds from sale of securities available-for-sale 10,137,260 31,705,476
Purchase of securities held-to-maturity (647,599) (50,000)
Proceeds from calls and maturities of securities held-to-maturity 795,601 3,817,458
Net increase in loans (3,116,608) (3,431,806)
Decrease in foreclosed assets 567,650 200,725
Acquisition of bank premises and equipment (298,737) (330,089)
-------------------------
Net cash provided by (used in) investing activities (17,366,036) 12,836,863
-------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in interest-bearing deposits 377,582 4,991,853
Net increase in noninterest-bearing deposits 2,058,963 3,993,324
Net increase (decrease) in sec. sold under repurch. agree. 935,907 (1,283,650)
Increase (decrease) in other borrowed funds 5,740,000 (7,170,000)
Repayment of long-term borrowings 0 (7,000,000)
Dividends paid (559,630) (475,869)
Stock options exercised 29,929 0
---------------------------
Net cash (used in) provided by financing activities 8,582,751 (6,944,342)
---------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (6,000,749) 7,762,847
CASH AND CASH EQUIVALENTS, BEGINNING 14,853,649 12,025,441
---------------------------
CASH AND CASH EQUIVALENTS, ENDING $8,852,900 $19,788,288
===========================
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, 1995.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EARNINGS SUMMARY
Interest Income
For the six months ended June 30, 1996,
total interest income increased by $494,576
or 5.39% compared to the same period in 1995.
This increase is due to a slight increase
of $65,987 in interest and fees on loans,
an increase in total interest and dividends
on investments of $469,620 and a $41,031
decrease in income in federal funds sold.
The slight increase in interest and fees on
loans of $65,987 was primarily due to an
increase in loan volume during this period
of $3,125,296. The decrease in interest on
federal funds sold of $41,031 was due to a
decrease in the amount of funds sold.
Interest and dividends on investments
increased primarily due to an increase in
taxable interest of $470,946 and a slight
decrease in nontaxable interest on
investments of $50,635. In addition, there
was an increase in dividend income of
$49,309 due to an increase of holdings in
the equity portfolio.
Interest Expense
For the six months ended June 30, 1996,
total interest expense increased $116,818 or
3.05% over the same period in 1995. This
increase can be attributed to the interest paid
on interest-bearing deposits due to the
$377,582 increase in volume.
Provision for Loan Losses
The provision for losses for the six
months ended June 30, 1996 decreased
$137,010 from the corresponding period in
1995. This decrease reflects a decline in
anticipated losses on small business loans
for the first six months of 1996 and the
fiscal year.
As of the first quarter of 1996, recoveries
exceeded charge offs by $9,000 compared to
the second quarter of 1995 when recoveries
exceeded charege offs by $3,000. Provisions
to date total $63,000 as compared to
provisions through June 30, 1995 of
$200,010.
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 further
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 .85 times at June 30, 1996 a
decline in coverage from the .76 times at
December 31, 1995. All of the increase in
non-performing loans occurred in the residential
real estate 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, 1996 decreased $197,556 or
18.74% from the same time period in 1995.
This decrease is due to the net effect of
an increase in service charges collected of
$50,936, a decrease in securities gains
of $275,128 and an increase in
other income of $26,636.
The increase in service charges was
a result of an increase in service charges
collected on deposit accounts. Gains taken
on the sale of two foreclosed assets during the
second quarter of 1996 was the contributing
factor to the increase in other income. The
primary decrease in other operating income
was due to the decline in securities gains
recognized of $275,128. Realized gains
were 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, 1996
total operating expenses decreased $714,265
or 16.92% over the same period in 1995.
Expenses included under the other expenses
heading are such items as: advertising, postage,
maintenance, FDIC, SAIF and other
insurance, Pennsylvania State shares tax,
legal and professional fees, telephone,
printing and supplies and other general and
administrative expenses. Decreases in
other expenses totalled $100,073. During the
first quarter of 1995, expenses were incurred
that related to the acquisition of Lock Haven
Savings Bank. These expenses were non-
recurring, and therefore, did not reoccur during
the first quarter of 1996. This reduction in other
operating expense coupled with an increase
in ORE expenses, are the primary factors
contributing to the $100,073 decrease
in other expense.
In addition, employee salaries and benefits
decreased $481,039. When comparing the
amount of salaries and employee benefits
expense incurred during the first six months
of 1996 to the same period in 1995, it should
be noted that in the first quarter of 1995,
salaries and employee benefits was charged
to satsify the terms of two Lock Haven Savings
Bank executives' employment agreements in
connection with the merger. This expense did
not reoccur in 1996, therefore, this reduction,
netted with increases in salary levels, accounts
for the overall $481,039 decrease in salaries
and employee benefits.
Occupancy expense increased $1,608 and
furniture and equipment expense decreased
$134,761. The minimal increase in occupancy
expense is a result of an increase in the amount
of maintenance and repairs expense incurred
due to renovations, and a decrease in rental
expense due to the expiration of the lease for
one of the branch offices that was closed after
the merger with Lock Haven Savings Bank in
April, 1995.
The $134,761 decrease in furniture and
equipment expense can be attributed to the
closing of two branch offices after the merger.
Provision for Income Taxes
Provision for income taxes for the six
months ended June 30, 1996 resulted in an
effective income tax rate of 25.26%
compared to 22.23% for the corresponding
period in 1995. The increase noted is
primarily a result of an increase in taxable
interest and a decrease in nontaxable interest
on investments.
ASSET/LIABILITY MANAGEMENT
Assets
At June 30, 1996, cash, federal funds sold,
and investment securities totalled
$88,890,742, or a net increase of $5,897,678
over the corresponding balance at December
31, 1995. Investment securities increased,
$12,198,427, while cash and federal funds
sold decreased $5,730,749 and $570,000,
respectfully. During this period, net
loans increased by $3,053,608 to $154,340,769.
The purchase of agency and municipal
securities accounts for the increase in
investment securities from December 31, 1995
to June 30, 1996.
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. Furthermore, results of
examination and appraisal of the coverage of
the loan-loss allowance by the committee,
Federal regulators and independent
accountants are frequently reviewed by
management.
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 totalled
$2,425,012 at June 30, 1996, an increase of
$71,688 over the balance at December 31,
1995. For the six months ended June 30,
1996, the provision for loan losses totalled
$63,000. As a percent of loans, the
allowance for loan losses at June 30, 1996
totalled 1.55% versus 1.53% at December 31,
1995.
Loans accounted for on a non-accrual basis
totalled $1,051,000 and $1,009,000 at June
30, 1996 and December 31, 1995 respectively.
Accruing loans, contractually delinquent 90
days or more were $1,022,000 at June 30,
1996 and $791,000 at December 31, 1995.
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 .85
times at June 30, 1996 and .76 times at
December 31, 1995. 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, 1996, the balance of other real
estate was $375,458 compared to $943,108 at
December 31, 1995. During the first quarter
of 1996, two properties were transferred into
the account. In addition, three properties that
were on the books at December 31, 1995,
were sold during the first six months of 1996.
Deposits
At June 30, 1996 total deposits amounted to
$204,694,146 representing an increase of
$2,436,545 or a 1.20% increase over total
deposits at December 31, 1995.
Other Liabilities
At June 30, 1996, other liabilities
totalled $4,519,319 or a $1,096,102 increase
over the balance at December 31, 1995. 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, 1996, regulatory capital to
total assets was 11.74% compared to 12.23%
at December 31, 1995. Primary capital to
total assets at June 30, 1996 was 12.69%
compared to 13.20% at December 31, 1995.
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 the new risk-based capital guidelines.
The Company's Tier 1 Capital to total risk
weighted assets ratio is 18.39% and the
total capital ratio to total risk weighted
assets ratio is 19.64%.
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, less than 70%
2. Net Loans to Total Deposits, less than 80%
3. Net Loans to Core Deposits, less than 85%
4. Investments to Total Assets, less than 40%
5. Investments to Total Deposits, less 50%
6. Net Primary Liquid Assets to Total
Assets, greater than 10%
7. Net Primary Liquid Assets to Total
Liabilities, greater than 10%
8. Total Liquid Assets to Total Assets,
greater than 25%
9. Total Liquid Assets to Total
Liabilities, greater than 25%
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 $15,509,900 from correspondent banks
should the need for short-term funds arise.
The following table sets forth the Bank's interest rate
sensitivity as of June 30, 1996:
AFTER ONE AFTER FIVE AFTER
WITHIN BUT WITHIN BUT WITHIN TEN
ONE YEAR FIVE YEARS TEN YEARS YEARS
Earning Assets (1) (2) $68,095 $31,364 $30,967 $105,627
Interest-bearing
liabilities (3) 129,377 58,570 444 85
---------------------------------------------------------
Gap:
By period (61,282) (27,206) 30,523 105,542
By cumulative (61,282) (88,488) (57,965) 47,577
---------------------------------------------------------
Earning assets:
Investments (1) $17,881 $2,782 $4,636 $55,039
Loans (2) 50,214 28,582 26,331 50,588
Interest-bearing
liabilities: (3)
Interest-bearing
deposits $118,634 $56,293 $444 $85
<FN>
(1) Investment balances include annual repayment
assumptions of 6%. Mortgage backed securities
and certain other securities include repayment
assumptions based on the terms of the securities.
(2) Loan balances include annual repayment
assumptions based on the projected cash flow from
the loan portfolio. The cash flow projections
are based on the terms of the credit facilities.
No assumptions are made regarding prepayment of
loans. Loans are presented net of deferred loan
fees and include loans held for resale and
allowance for loan losses.
(3) The Corporation considers one-half of
its regular saving deposits to be stable core
deposits, and accordingly has classified 50%
of such deposits in the "Within One Year
category" and 50 % in the "After One but
Within Five years" category. All other
interest-bearing demand deposits are
classified in the "Within One Year" category
and time deposits are categorized according
to scheduled maturity.
</FN>
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 6. Exhibits and reports on Form 8-K.
a. Exhibits:
Number Description
- -------------------------
(11) Statement Regarding Computation of Per Share Earnings
(27) Financial Data Schedule
b. Reports: No reports on Form 8-K were filed in the second quarter of
1996.
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 9, 1996
--------------
Date: August 9, 1996
--------------
Number Description
- -------------------------
(11) Statement Regarding Computation of Per Share Earnings
(27) Financial Data Schedule
EXHIBIT 11
STATEMENT OF COMPUTATION OF EARNING PER SHARE
FOR THE PERIOD ENDED 6/30/96
LESS FRACTION
SHARES FRACTIONAL OF WEIGHTED
DATE OUTSTANDING RESTATEMENT SHARES YEAR SHARES
- ----------------------------------------------------------------------------------
1/01/96-1/03 1,271,339 - - 3/182 20,956
1/04/96-6/02 1,271,528 - - 151/182 1,054,949
6/03/96-6/10 1,271,903 - - 8/182 55,908
6/11/96-6/30 1,272,248 - - 20/182 139,807
------------
WEIGHTED SHARES OUTSTANDING 6/30/96 1,271,620
=============
NET INCOME 6/30/96 $2,248,261
----------
WEIGHTED SHARES OUTSTANDING 6/30/96 1,271,620
EARNINGS PER SHARE 6/30/96 $1.77
=============
STATEMENT OF COMPUTATION OF EARNING PER SHARE
FOR THE PERIOD ENDED 6/30/95
LESS FRACTION
SHARES FRACTIONAL OF WEIGHTED
DATE OUTSTANDING RESTATEMENT SHARES YEAR SHARES
- ----------------------------------------------------------------------------------
1/01/95-6/30 844,612 1.5 40 181/181 1,266,878
=============
NET INCOME 6/30/95 1,633,492
WEIGHTED SHARES OUTSTANDING 6/30/95 1,266,878
EARNINGS PER SHARE 6/30/95 $1.29
=============