secQ997
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, 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 September 30, 1997 there were 1,278,724 shares of the
Registrant's common stock outstanding.
PART I FINANCIAL STATEMENTS
PENNS WOODS BANCORP, INC.
CONSOLIDATED BALANCE SHEET
AT DATES INDICATED
September 30, December 31,
1997 1996
--------------------------------
<
ASSETS:
Cash and due from banks $7,752,491 $8,014,461
Investment securities available-for-sale 72,112,838 81,272,404
Investment securities held-to-maturity 3,281,196 3,105,408
Loans, net of unearned discount 178,361,595 162,266,721
Allowance for loan losses (2,524,888) (2,413,021)
Loans, net 175,836,707 159,853,700
Bank premises and equipment 3,553,302 3,614,924
Foreclosed assets held for sale 130,166 252,710
Accrued interest receivable 1,580,987 1,676,206
Other assets 3,989,045 1,934,280
--------------------------------
TOTAL ASSETS $268,236,732 $259,724,093
================================
LIABILITIES:
Demand Deposits $30,348,758 $29,000,674
Interest-bearing demand deposits 36,037,345 38,122,803
Savings deposits 43,204,658 45,381,900
Time deposits 97,472,107 90,555,626
--------------------------------
Total deposits $207,062,868 $203,061,003
Federal funds purchased 7,220,000 14,490,477
Securities sold under repurchase agreements 8,459,745 5,628,067
Accrued interest payable 809,109 884,096
Other Liabilities 5,097,349 2,103,813
Total liabilities --------------------------------
$228,649,071 $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 September 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 17,772,528 13,873,040
Net unrealized gain (loss) on securities
available for sale 4,443,613 2,351,707
--------------------------------
Total shareholders' equity $39,587,661 $33,556,637
--------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $268,236,732 $259,724,093
================================
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIODS INDICATED
NINE MONTHS NINE MONTHS QUARTER QUARTER
ENDED ENDED ENDED ENDED
September 30, 19September 30, 19September 30, 19September 30, 1996
---------------------------------------------------------------
INTEREST INCOME:
Interest and fees on loans $11,737,974 $11,041,682 $4,054,453 $3,767,919
Interest and dividends on investments: ---------------------------------------------------------------
Taxable interest 2,130,481 2,367,102 723,446 757,004
Nontaxable interest 976,398 902,886 228,246 391,332
Dividends 369,733 381,637 116,617 132,871
---------------------------------------------------------------
Total interest and dividends
on investments 3,476,612 3,651,625 1,068,309 1,281,207
Interest on Federal funds sold 59,570 25,331 6,577 0
---------------------------------------------------------------
Total interest income 15,274,156 14,718,638 5,129,339 5,049,126
---------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits 5,732,723 5,612,904 1,906,730 1,854,040
Interest on Federal funds purchased 125,229 162,708 25,372 125,037
Interest on securities sold under
repurchase agreements 323,042 229,441 97,668 78,367
Interest on other borrowings 0 0 0 0
---------------------------------------------------------------
Total interest expense 6,180,994 6,005,053 2,029,770 2,057,444
---------------------------------------------------------------
Net interest income 9,093,162 8,713,585 3,099,569 2,991,682
Provision for loan losses 160,000 84,000 40,000 21,000
---------------------------------------------------------------
Net interest income after provision for
loan losses 8,933,162 8,629,585 3,059,569 2,970,682
---------------------------------------------------------------
OTHER OPERATING INCOME:
Service charges 630,647 625,809 215,149 217,753
Securities gains 3,295,156 688,300 970,129 397,776
Other income 228,128 215,665 75,848 57,538
---------------------------------------------------------------
Total other operating income 4,153,931 1,529,774 1,261,126 673,067
---------------------------------------------------------------
OTHER OPERATING EXPENSES:
Salaries and employee benefits 2,851,558 2,697,959 956,040 920,633
Occupancy expense, net 363,023 356,848 119,664 109,803
Furniture and equipment expense 507,018 386,695 164,994 154,424
Other expenses 1,650,075 1,816,532 605,492 565,597
---------------------------------------------------------------
Total other operating expenses 5,371,674 5,258,034 1,846,190 1,750,457
---------------------------------------------------------------
INCOME BEFORE TAXES 7,715,419 4,901,325 2,474,505 1,893,292
INCOME TAX PROVISION 2,090,010 1,295,627 687,753 535,855
---------------------------------------------------------------
NET INCOME $5,625,409 $3,605,698 $1,786,752 $1,357,437
===============================================================
EARNINGS PER SHARE 4.40 2.84 1.48 1.07
===============================================================
TOTAL SHARES OUTSTANDING 1,278,724 1,272,248 1,278,724 1,272,248
===============================================================
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
UNREALIZED
APPREC.
ADDITIONAL (DEPREC.) ON TOTAL
COMMON PAID-IN RETAINED SECURITIES SHAREHOLDERS'
STOCK CAPITAL EARNINGS AVAIL.-FOR-SALE EQUITY
-------------------------------------------------------------------------------
Balance, December 31, 1996 $12,772,980 $4,558,910 $13,873,040 $2,351,707 $33,556,637
Net income for the nine months ended
September 30, 1997 5,625,409 5,625,409
Dividends declared and paid (1,725,921) (1,725,921)
Net change in unrealized gain
on marketable equity securities 2,091,906 2,091,906
Stock options exercised 14,260 25,370 39,630
-------------------------------------------------------------------------------
Balance, September 30, 1997 $12,787,240 $4,584,280 $17,772,528 $4,443,613 $39,587,661
===============================================================================
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT
OF CASH FLOWS
FOR THE QUARTERS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
--------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $5,625,409 $3,605,698
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 283,013 256,194
Provision for loan losses 160,000 84,000
Amortization of investment security premiums 23,680 14,603
Accretion of investment security discounts (91,062) (42,840)
Securities gains (3,295,156) (688,300)
Increase in all other assets (1,180,232) (544,358)
Increase (decrease) in all other liabilities 1,061,586 495,160
--------------------------------
Net cash provided by operating activities 2,587,238 3,180,157
--------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities available-for-sale (50,907,465) (36,002,645)
Proceeds from sale of securities available-for-sale 66,574,436 21,980,284
Purchase of securities held-to-maturity (199,596) (647,599)
Proceeds from calls and maturities of securities held-to-maturity 48,496 862,071
Net increase in loans (16,143,007) (6,255,468)
Decrease in foreclosed assets 122,544 532,650
Acquisition of bank premises and equipment (221,391) (316,128)
--------------------------------
Net cash provided by (used in) investing activities (725,983) (19,846,835)
--------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in interest-bearing deposits 2,653,781 (1,408,037)
Net increase in noninterest-bearing deposits 1,348,084 249,896
Net increase (decrease) in sec. sold under repurch. agree. 2,831,678 622,848
Increase (decrease) in other borrowed funds (7,270,477) 12,360,000
Dividends paid (1,725,921) (877,692)
Stock options exercised 39,630 29,929
--------------------------------
Net cash (used in) provided by financing activities (2,123,225) 10,976,944
--------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (261,970) (5,689,734)
CASH AND CASH EQUIVALENTS, BEGINNING 8,014,461 14,853,649
--------------------------------
CASH AND CASH EQUIVALENTS, ENDING $7,752,491 $9,163,915
================================
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 nine months ended September 30, 1997,
total interest income increased by $555,518
or 3.77% compared to the same period in 1996.
This increase is due to an increase of $696,292
in interest and fees on loans, a decrease in total
interest and dividends on investments of
$175,013 and a $34,239 increase in income
on federal funds sold.
The increase in interest and fees on
loans of $696,292 was primarily due to
an increase in the loan volume during the first
nine months, ended September 30, 1997 of $16,094,874,
and also due to fees and late charges collected.
The increase in interest on federal funds sold of
$34,239 was due to an increase in the amount of
funds sold during the second and part of the third
quarter of 1997. Interest and dividends on investments
decreased due to the net effect of a $236,621
decrease in taxable interest, and a $73,512 increase
in nontaxable interest. In addition, there was a slight
decrease in dividend income of $11,904.
Interest Expense
For the nine months ended September 30, 1997
total interest expense increased $175,941 or
2.93% 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 securities sold under repurchase
agreements due to the increase in volume
of these accounts.
Provision for Loan Losses
The provision for losses for the nine
months ended September 30, 1997 increased
$76,000 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 third quarter of 1997, charge offs
exceeded recoveries by $48,000 compared to
the third quarter of 1996 when recoveries
exceeded charge offs by $36,000. Provisions
to date total $160,000 as compared to
provisions through September 30, 1996 of
$84,000.
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 .45 times at September 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 nine months
ended September 30, 1997 increased $2,624,157
This increase is due to the net effect of a
slight increase in service charges collected of
$4,838, an increase in securities gains
realized of $2,606,856 and a slight increase in
other income of $12,463.
The increase in service charges was
a result of an increase in service charges
collected on deposit accounts. The income
generated by the new debit card product
offered to our customers is the primary source of
the $12,463 increase in other income. The primary
increase in other operating income was due to
the increase in securities gains recognized of
$2,606,856. 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, 1997
total other operating expenses increased $113,640
over the same period in 1996.
Employee salaries and benefits
increased $153,599 as a result of increases in
salary levels and the hiring of additional employees.
Occupancy expense increased $6,175 and
furniture and equipment expense increased
$120,323. The minimal increase in occupancy
expense is the result of a increase in the amount
of maintenance and repairs expense incurred.
The $120,323 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 $166,457. 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 over the first
nine 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 $166,457 decrease in other expenses.
Provision for Income Taxes
Provision for income taxes for the nine
months ended September 30, 1997 resulted in an
effective income tax rate of 27.09%
compared to 26.43% 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 September 30, 1997, cash, federal funds sold,
and investment securities totalled
$83,146,525, or a net decrease of $9,245,748
over the corresponding balance at December
31, 1996. Investment securities and cash
decreased by $8,983,778 and $261,970,
respectively. During this period, net loans
increased by $15,983,007 to $175,836,707.
The decrease in investment securities from
December 31, 1996 to September 30, 1997 can be
attributed to the net effect of various purchases and
sales of investments during the first nine months
with the main transactions being; purchases of
United States Treasury Notes and net sales of
agency 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
$2,524,888 at September 30, 1997, an increase of
$111,867 over the balance at December 31,
1996. For the nine months ended September 30, 1997,
the provision for loan losses totalled
$160,000. As a percent of loans, the
allowance for loan losses at September 30, 1997
totalled 1.42% versus 1.49% at December 31,
1996.
Loans accounted for on a non-accrual basis
totalled $866,000 and $748,000 at September
30, 1997 and December 31, 1996 respectively.
Accruing loans, contractually delinquent 90
days or more were $271,000 at September 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 .45
times at September 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 September 30, 1997 the balance of other real
estate was $130,166 compared to $252,710 at
December 31, 1996. Two properties were
transferred into the account during the first
quarter of 1997 and sold during the third quarter.
In addition, three properties that were on the books
at December 31, 1996 were sold during the first six
months of 1997.
Deposits
At September 30, 1997 total deposits amounted to
$207,062,868 representing an increase of
$4,001,865 or a 1.97% increase from total
deposits at December 31, 1996.
Other Liabilities
At September 30, 1997, other liabilities
totalled $5,097,349 or a $2,993,536 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 September 30, 1997, regulatory capital to
total assets was 14.76% compared to 12.92%
at December 31, 1996. Primary capital to
total assets at September 30, 1997 was 15.70%
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 20.54% and the
total capital ratio to total risk weighted
assets ratio is 21.79%.
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 $80,802,000 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 September 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 ( $13,251 $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) 100,014 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 5. Other Information.
On July 7, 1997, Jersey Shore State Bank opened a Mortgage/Loan
Center in State College, Pennsylvania. Loan applications, including
secondary mortgage applications will be accepted at this Loan
Center.
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 third 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: November 12, 1997
--------------------------------
Theodore H. Reich, President
Date: November 12, 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 9/30/97
LESS FRACTION
SHARES FRACTIONAL OF WEIGHTED
DATE OUTSTANDING RESTATEMENT SHARES YEAR SHARES
- --------------------------------------------------------------------------------------
1/01/97-5/28 1,277,298 - - 148/273 692,455
5/29/97-6/04 1,277,598 - - 7/273 32,759
6/05/97-6/10 1,278,278 - - 6/273 28,094
6/11/97-6/30 1,278,724 - - 20/273 93,679
7/01/97 -9/3 1,278,724 - - 92/273 430,925
WEIGHTED SHARES OUTSTANDING 9/30/97 1,277,912
================
NET INCOME 9/30/97 $5,625,409
WEIGHTED SHARES OUTSTANDING 9/30/97 1,277,912
EARNINGS PER SHARE 9/30/97 $4.40
================