secQ697
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, 1997 Commission file number
0-17077
PENNS WOODS BANCORP, INC.
Incorporated in Pennsylvania
Main office
115 South Main Street
Jersey Shore, Pennsylvania 17740
Indicate by check mark whether the Registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that
Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the
past 90 days.
YES [ X ] NO[ ]
On June 30, 1997 there were 1,278,724 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,
1997 1996
--------------------------------
ASSETS:
Cash and due from banks $12,278,039 $8,014,461
Federal funds sold $4,000,000 0
Investment securities available-for-sale 67,552,791 81,272,404
Investment Securities held-to-maturity 3,102,218 3,105,408
Loans, net of unearned discount 168,258,968 162,266,721
Allowance for loan losses (2,509,433) (2,413,021)
Loans, net 165,749,535 159,853,700
Bank premises and equipment 3,584,038 3,614,924
Foreclosed assets held for sale 237,083 252,710
Accrued interest receivable 1,611,596 1,676,206
Other assets 3,763,171 1,934,280
--------------------------------
TOTAL ASSETS $261,878,471 $259,724,093
================================
LIABILITIES:
Demand Deposits $31,704,710 $29,000,674
Interest-bearing demand deposits 35,698,263 38,122,803
Savings deposits 44,397,527 45,381,900
Time deposits 100,007,784 90,555,626
--------------------------------
Total deposits $211,808,284 $203,061,003
Federal funds purchased 0 14,490,477
Securities sold under repurchase agreements 8,200,104 5,628,067
Accrued interest payable 997,894 884,096
Other Liabilities 3,558,530 2,103,813
Total liabilities --------------------------------
$224,564,812 $226,167,456
--------------------------------
SHAREHOLDERS' EQUITY:
Common stock, par value $10 per share,
10,000,000 shares authorized; 1,278,724
and 1,277,298 shares issued and outstanding
at June 30, 1997 and December 31, 1996, respectively $12,787,240 $12,772,980
Additional paid-in capital 4,584,280 4,558,910
Retained earnings 17,008,755 13,873,040
Net unrealized gain (loss) on securities
available for sale 2,933,384 2,351,707
--------------------------------
Total shareholders' equity $37,313,659 $33,556,637
--------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $261,878,471 $259,724,093
================================
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIODS INDICATED
SIX MONTHS SIX MONTHS QUARTER QUARTER
ENDED ENDED ENDED ENDED
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
------------------------------------------------------------------
INTEREST INCOME:
Interest and fees on loans $7,683,521 $7,273,763 $3,864,739 $3,633,657
Interest and dividends on investments: ------------------------------------------------------------------
Taxable interest 1,407,035 1,610,098 683,577 877,136
Nontaxable interest 748,152 511,554 311,042 247,309
Dividends 253,116 248,766 121,671 127,182
------------------------------------------------------------------
Total interest and dividends
on investments 2,408,303 2,370,418 1,116,290 1,251,627
Interest on Federal funds sold 52,993 25,331 52,993 2,542
------------------------------------------------------------------
Total interest income 10,144,817 9,669,512 5,034,022 4,887,826
------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits 3,825,993 3,758,864 1,940,981 1,861,576
Interest on Federal funds purchased 99,857 37,671 788 36,851
Interest on securities sold under
repurchase agreements 225,374 151,074 127,628 79,340
Interest on other borrowings 0 0 0 0
------------------------------------------------------------------
Total interest expense 4,151,224 3,947,609 2,069,397 1,977,767
------------------------------------------------------------------
Net interest income 5,993,593 5,721,903 2,964,625 2,910,059
Provision for loan losses 120,000 63,000 60,000 21,000
------------------------------------------------------------------
Net interest income after provision for
loan losses 5,873,593 5,658,903 2,904,625 2,889,059
------------------------------------------------------------------
OTHER OPERATING INCOME:
Service charges 415,498 408,056 214,967 205,856
Securities gains 2,325,027 290,524 1,148,801 254,047
Other income 152,280 158,127 77,166 97,833
------------------------------------------------------------------
Total other operating income 2,892,805 856,707 1,440,934 557,736
------------------------------------------------------------------
OTHER OPERATING EXPENSES:
Salaries and employee benefits 1,895,518 1,777,326 948,058 903,454
Occupancy expense, net 243,359 247,045 122,726 116,631
Furniture and equipment expense 342,024 232,271 192,789 104,148
Other expenses 1,044,583 1,250,935 486,537 623,282
------------------------------------------------------------------
Total other operating expenses 3,525,484 3,507,577 1,750,110 1,747,515
------------------------------------------------------------------
INCOME BEFORE TAXES 5,240,914 3,008,033 2,595,449 1,699,280
INCOME TAX PROVISION 1,402,257 759,772 702,887 433,447
------------------------------------------------------------------
NET INCOME $3,838,657 $2,248,261 $1,892,562 $1,265,833
==================================================================
EARNINGS PER SHARE 3.00 1.77 1.48 1.00
==================================================================
TOTAL SHARES OUTSTANDING 1,277,500 1,271,620 1,277,500 1,271,620
==================================================================
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997
UNREALIZED
APPRECIATION
ADDITIONAL (DEPRECIATION) O TOTAL
COMMON PAID-IN RETAINED SECURITIES SHAREHOLDERS'
STOCK CAPITAL EARNINGS AVAILABLE-FOR-SA EQUITY
----------------------------------------------------------------------------------
Balance, December 31, 1996 $12,772,980 $4,558,910 $13,873,040 $2,351,707 $33,556,637
Net income for the six months ended
June 30, 1997 3,838,657 3,838,657
Dividends declared and paid (702,942) (702,942)
Net change in unrealized gain on marketable
equity securities 581,677 581,677
Stock options exercised 14,260 25,370 39,630
----------------------------------------------------------------------------------
Balance, June 30, 1997 $12,787,240 $4,584,280 $17,008,755 $2,933,384 $37,313,659
==================================================================================
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT
OF CASH FLOWS
FOR THE QUARTERS ENDED JUNE 30, 1997 AND JUNE 30, 1996
JUNE 30, JUNE 30,
1997 1996
--------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $3,838,657 $2,248,261
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 267,767 202,324
Provision for loan losses 120,000 63,000
Amortization of investment security premiums 10,597 9,590
Accretion of investment security discounts (64,707) (27,435)
Securities gains (2,325,027) (290,524)
Increase in all other assets (1,791,778) (1,515,233)
Increase (decrease) in all other liabilities 1,296,360 1,750,115
--------------------------------
Net cash provided by operating activities 1,351,869 2,440,098
--------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities available-for-sale (31,962,260) (24,803,603)
Proceeds from sale of securities available-for-sale 48,917,500 10,137,260
Purchase of securities held-to-maturity 0 (647,599)
Proceeds from calls and maturities of securities held-to-maturity 28,029 795,601
Net increase in loans (6,015,835) (3,116,608)
Decrease in foreclosed assets 15,627 567,650
Acquisition of bank premises and equipment (236,881) (292,162)
--------------------------------
Net cash provided by (used in) investing activities 10,746,180 (17,359,461)
--------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in interest-bearing deposits 6,043,245 377,582
Net increase in noninterest-bearing deposits 2,704,036 2,094,826
Net increase (decrease) in sec. sold under repurch. agree. 2,572,037 935,907
Increase (decrease) in other borrowed funds (14,490,477) 5,740,000
Dividends paid (702,942) (559,630)
Stock options exercised 39,630 29,929
--------------------------------
Net cash (used in) provided by financing activities (3,834,471) 8,618,614
--------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 8,263,578 (6,300,749)
CASH AND CASH EQUIVALENTS, BEGINNING 8,014,461 14,853,649
--------------------------------
CASH AND CASH EQUIVALENTS, ENDING $16,278,039 $8,552,900
================================
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, 1996.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EARNINGS SUMMARY
Interest Income
For the six months ended June 30, 1997,
total interest income increased by $475,305
or 4.92% compared to the same period in 1996.
This increase is due to an increase of $409,758
in interest and fees on loans, an increase in total
interest and dividends on investments of
$37,885 and a $27,662 increase in income
on federal funds sold.
The increase in interest and fees on
loans of $409,758 was primarily due to
an increase in the loan volume during the first
six months, ended June 30, 1997 of $5,992,247,
and also due to fees and late charges collected.
The increase in interest on federal funds sold of
$27,662 was due to an increase in the amount of
funds sold during the second quarter of 1997.
Interest and dividends on investments increased
primarily due to the net effect of a $203,063 decrease
in taxable interest, and a $236,598 increase in nontaxable
interest. In addition, there was a slight increase
in dividend income of $4,350.
Interest Expense
For the six months ended June 30, 1997
total interest expense increased $203,615 or
5.16% over the same period in 1996. The
increase in interest expense can be attributed
to the interest paid on time deposits, due to the
increase in volume of such deposits. In
addition, there was an increase in the amount of
interest paid on federal funds purchased, and
on securities sold under repurchase
agreements due to the increase in volume
of these accounts.
Provision for Loan Losses
The provision for losses for the six
months ended June 30, 1997 increased
$57,000 from the corresponding period in
1996. This increase reflects an anticipated
rise in consumer loan losses throughout the
remainder of the year.
As of the second quarter of 1997, charge offs
exceeded recoveries by $24,000 compared to
the second quarter of 1996 when recoveries
exceeded charge offs by $9,000. Provisions
to date total $120,000 as compared to
provisions through June 30, 1996 of
$63,000.
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 .51 times at June 30, 1997 a
decrease in coverage from the .42 times at
December 31, 1996. The increase in
non-performing loans occurred mainly in the
commercial loan portfolio. Based upon this analysis
as well as the others noted above, senior
management has concluded that the allowance
for loan losses is adequate.
Other Operating Income
Other operating income for the six months
ended June 30, 1997 increased $2,036,098
This increase is due to the net effect of a
slight increase in service charges collected of
$7,442, an increase in securities gains
realized of $2,034,503 and a slight decrease in
other income of $5,847.
The increase in service charges was
a result of an increase in service charges
collected on deposit accounts. As compared to
the second quarter of 1996, there were fewer
gains on foreclosed assets during the first six
months of 1997, resulting in the slight decrease
in other income. The primary increase in
other operating income was due to the
increase in securities gains recognized of
$2,034,503. Realized gains were on sales
of bonds that were sold in effort to better
match the Bank's rate-sensitive assets and
rate-sensitive liabilities given the current
economic conditions. In addition, gains
were realized on partial sales of equity securities
that have been in the portfolio long-term
that had reached what management had
determined to be their maximum potential.
Other Operating Expense
For the six months ended June 30, 1997
total other operating expenses increased $17,907
over the same period in 1996.
Employee salaries and benefits
increased $118,192 as a result of increases in
salary levels and the hiring of additional employees.
Occupancy expense decreased $3,686 and
furniture and equipment expense increased
$109,753. The minimal decrease in occupancy
expense is the result of a decrease in the amount
of maintenance and repairs expense incurred.
The $109,753 increase in furniture and
equipment expense can be attributed to
an increase in the amount of repairs and
maintenance incurred and also to an increase
in depreciation.
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 $206,352. As compared
to the first quarter of 1996, FDIC Insurance
declined considerably due to the decrease in
the Bank's "Bank Insurance Fund" assessment
rate. There was also a decrease in the amount
of repairs and maintenance expense on the
foreclosed assets incurred during the first
six months of 1997 compared to the same period in
1996. These savings, netted against increases
in other expenses, mainly legal, supplies and
Pennsylvania Capital shares tax, account for
the $206,352 decrease in other expenses.
Provision for Income Taxes
Provision for income taxes for the six
months ended June 30, 1997 resulted in an
effective income tax rate of 26.76%
compared to 25.26% for the corresponding
period in 1996. The increase noted is
primarily a result of an increase in the amount
of security gains included in taxable income.
ASSET/LIABILITY MANAGEMENT
Assets
At June 30, 1997, cash, federal funds sold,
and investment securities totalled
$86,933,048, or a net decrease of $5,459,225
over the corresponding balance at December
31, 1996. Investment securities decreased,
$13,722,803, while cash increased $4,263,578.
During this period, net loans
increased by $5,895,835 to $165,749,535.
The decrease in investment securities from
December 31, 1996 to June 30, 1997 can be
attributed to the net effect of various purchases and
sales of investments during the first two quarters
with the main transactions being; purchases of
United States Treasury Notes and sales of agency
securities and municipal 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 totalled
$2,509,433 at June 30, 1997, an increase of
$96,412 over the balance at December 31,
1996. For the six months ended June 30, 1997,
the provision for loan losses totalled
$120,000. As a percent of loans, the
allowance for loan losses at June 30, 1997
totalled 1.49% versus 1.49% at December 31,
1996.
Loans accounted for on a non-accrual basis
totalled $1,142,000 and $748,000 at June
30, 1997 and December 31, 1996 respectively.
Accruing loans, contractually delinquent 90
days or more were $139,000 at June 30,
1997 and $256,000 at December 31, 1996.
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 .51
times at June 30, 1997 and .42 times at
December 31, 1996. 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, 1997 the balance of other real
estate was $237,083 compared to $252,710 at
December 31, 1996. Two properties were
transferred into the account during the first
quarter of 1997. In addition, three properties that
were on the books at December 31, 1996 were sold
during the first six months of 1997.
Deposits
At June 30, 1997 total deposits amounted to
$211,808,284 representing an increase of
$8,747,281 or a 4.31% increase from total
deposits at December 31, 1996.
Other Liabilities
At June 30, 1997, other liabilities
totalled $3,558,530 or a $1,454,717 increase
over the balance at December 31, 1996. 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, 1997, regulatory capital to
total assets was 14.25% compared to 12.92%
at December 31, 1996. Primary capital to
total assets at June 30, 1997 was 15.21%
compared to 13.85% at December 31, 1996.
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 20.99% and the
total capital ratio to total risk weighted
assets ratio is 22.25%.
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, 85% maximum
3. Net Loans to Core Deposits, 90% 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. Volatility Liability Dependence Ratio, 10% 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 $77,042,000 for terms of 1
to 120 days under the Federal Home Loan Bank's
"Repo Plus" credit program.
All of the funding mentioned is available to the Bank,
should the need for short-term funds arise.
The following table sets forth the Bank's interest rate
sensitivity as of June 30, 1997:
AFTER ONE AFTER THREE AFTER
WITHIN BUT WITHIN BUT WITHIN FIVE
ONE YEAR THREE YEARS FIVE YEARS YEARS
Earning assets: (1) (2)
Investment securities (1) $ 13,521 $ 8,132 $21,103 $ 29,528
Loans (2) 68,369 21,774 61,042 17,074
--------------------------------------------------------------
Total earning assets 81,890 29,906 82,145 46,602
Deposits (3) 100,114 22,870 52,209 13,111
Borrowings 0 0 0 0
--------------------------------------------------------------
Total interest bearing lia 100,114 22,870 52,209 13,111
Net non-interest bearing
funding (4) 9,112 7,542 16,377 19,208
--------------------------------------------------------------
Total net funding sources 109,226 30,412 68,586 32,319
Excess assets (liabilities (27,336) ( 506) 13,559 14,283
Cumulative excess
assets (liabilities) (27,336) (27,842) (14,283) 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
JSSB'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.
</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. RepNo reports on Form 8-K were filed in the second quarter of 1997.
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 13, 1997
--------------------------------
Theodore H. Reich, President
Date: August 13, 1997
--------------------------------
Sonya E. Hartranft, Secretary
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 6/30/97
LESS FRACTION
SHARES FRACTIONAL OF WEIGHTED
DATE OUTSTANDING RESTATEMENT SHARES YEAR SHARES
- ----------------------------------------------------------------------------------------
1/01/97-5/28 1,277,298 - - 148/181 1,044,420
5/29/97-6/04 1,277,598 - - 7/181 49,410
6/5/97-6/10/ 1,278,278 - - 6/181 42,374
6/11/97-6/30 1,278,724 - - 20/181 141,296
WEIGHTED SHARES OUTSTANDING 6/30/97 1,277,500
================
NET INCOME 6/30/97 $3,838,657
WEIGHTED SHARES OUTSTANDING 6/30/97 1,277,500
EARNINGS PER SHARE 6/30/97 $3.00
================