SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
( X ) Quarterly Report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934 for the Quarterly Period
Ended June 30, 2001,
( ) Transition report pursuant to Section 13 or 15 (d) of the
Exchange Act for the Transition Period from
_______________ to _______________.
No. 0-17077
(Commission File Number)
PENNS WOODS BANCORP, INC.
(Exact name of Registrant as specified in its charter)
PENNSYLVANIA 23-2226454
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.)
300 Market Street, Williamsport, Pennsylvania 17701
(Address of principal executive offices) (Zip Code)
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 August 9, 2001 there were 3,065,307 shares of the
Registrant's common stock outstanding.
PENNS WOODS BANCORP, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
Page
Number
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet (unaudited) as of 3
June 30, 2001 And December 31, 2000
Consolidated Statement of Income (unaudited) for 5
the Three And Six Months ended June 30, 2001
and 2000
Consolidated Statement of Changes in Stockholders' 7
Stockholders' Equity (unaudited) for the
Six Months ended June 30, 2001
Consolidated Statement of Cash Flows 8
(unaudited) for the Six Months ended June 30,
2001 and 2000
Consolidated Statement of Comprehensive Income 10
(unaudited) For the Three and Six Months ended
June 30, 2001
Notes to Consolidated Financial Statements 11
Item 2. Management's Discussion and Analysis of 12
Financial Condition and Results of
Operations
Part II Other Information 22
Signatures 24
PENNS WOODS BANCORP, INC.
CONSOLIDATED BALANCE SHEET
June 30, December 31,
2001 2000
(IN THOUSANDS)
ASSETS:
Cash and due from banks $ 13,932 $ 15,318
Investment securities available for
sale 122,541 113,074
Investment securities held to 1,912 3,228
maturity (market value of
$1,967,000 and $3,261,000)
Loans, net of unearned discount 246,231 246,486
Allowance for loan losses (2,910) (2,879)
Loans, net 243,321 243,607
Bank premises and equipment, net 4,561 4,727
Accrued interest receivable 2,546 2,581
Bank owned life insurance 2,401 2,353
Other assets 7,756 10,025
TOTAL ASSETS $398,970 $394,913
LIABILITIES:
Demand deposits $ 48,048 $ 47,468
Interest-bearing demand deposits 46,107 46,672
Savings deposits 47,251 43,980
Time deposits 150,258 140,014
Total deposits $291,664 $278,134
Short-term borrowings 17,486 31,021
Other borrowings 31,778 31,778
Accrued interest payable 1,327 1,452
Other liabilities 2,260 2,014
Total liabilities $344,515 $344,399
SHAREHOLDERS' EQUITY:
Common stock, par value $10;
10,000,000 shares authorized and
3,130,844 shares issued $ 31,308 $ 31,308
Additional paid-in capital 18,214 18,214
Retained earnings 4,927 2,974
Accumulated other comprehensive
income (loss) 2,031 (810)
Less: Treasury stock at cost,
60,937 and 33,551 (2,025) (1,172)
Total shareholders' equity $ 54,455 $ 50,514
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $398,970 $394,913
See accompanying notes to the unaudited consolidated financial
statements.
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME
<table>
<caption>
SIX MONTHS SIX MONTHS QUARTER QUARTER
ENDED ENDED ENDED ENDED
June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000
(IN THOUSANDS EXCEPT PER SHARE DATA)
<s> <c> <c> <c> <c>
INTEREST INCOME:
Interest and fees on loans $10,866 $10,394 $ 5,477 $ 5,255
Interest and dividends on
investments:
Taxable interest 1,515 1,915 700 917
Nontaxable interest 1,468 916 792 460
Dividends 319 443 147 265
Total interest and dividends
on investments 3,302 3,274 1,639 1,642
Other interest income 85 96 34 48
Total interest income 14,253 13,764 7,150 6,945
INTEREST EXPENSE:
Interest on deposits 5,084 4,286 2,519 2,177
Interest on short-term borrowings 495 922 220 480
Interest on other borrowings 911 761 458 381
Total interest expense 6,490 5,969 3,197 3,038
Net interest income 7,763 7,795 3,953 3,907
Provision for loan losses 186 130 93 52
Net interest income after provision
for loan losses 7,577 7,665 3,860 3,855
OTHER OPERATING INCOME:
Service charges 716 768 383 394
Securities gains 346 252 211 91
Other income 766 121 368 83
Total other operating income 1,828 1,141 962 568
OTHER OPERATING EXPENSES:
Salaries and employee benefits 2,597 2,429 1,306 1,214
Occupancy expense, net 396 393 187 188
Furniture and equipment expense 382 409 191 203
Other expenses 1,717 1,542 900 797
Total other operating expenses 5,092 4,773 2,584 2,402
INCOME BEFORE TAXES 4,313 4,033 2,238 2,021
INCOME TAX PROVISION 823 883 432 417
NET INCOME $ 3,490 $ 3,150 $ 1,806 $ 1,604
EARNINGS PER SHARE - BASIC $ 1.13 $ 1.01 $ 0.58 $ 0.52
EARNINGS PER SHARE - DILUTED $ 1.13 $ 1.01 $ 0.58 $ 0.52
BASIC WEIGHTED AVERAGE SHARES
OUTSTANDING 3,079,471 3,125,040 3,079,471 3,125,040
DILUTED WEIGHTED AVERAGE SHARES
OUTSTANDING 3,079,471 3,125,040 3,079,471 3,125,040
</table>
See accompanying notes to the unaudited consolidated financial
statements.
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE DATA)
<table>
<caption>
ACCUMU-
LATED
OTHER TOTAL
COMMON ADDITIONAL COMPRE- SHARE-
STOCK PAID-IN RETAINED HENSIVE TREASURY HOLDERS'
SHARES AMOUNT CAPITAL EARNINGS INCOME STOCK EQUITY
<s> <c> <c> <c> <c> <c> <c> <c>
Balance, December 31, 2000 3,130,844 $31,308 $18,214 $ 2,974 $ (810) $(1,172) $50,514
Net income for the six months
ended June 30, 2001 3,490 3,490
Dividends declared, $0.50 (1,537) (1,537)
Treasury Stock acquired
(27,386 shs) (853) (853)
Net change in unrealized gain
on investments available for
sale, net of tax $1,464 2,841 2,841
Balance, June 30, 2001 3,130,844 $31,308 $18,214 $ 4,927 $2,031 $(2,025) $54,455
</table>
See accompanying notes to the unaudited consolidated financial
statements.
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
2001 2000
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 3,490 $ 3,150
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation 324 198
Provision for loan losses 186 130
Accretion and amortization of
investment security discounts
and premiums (394) (252)
Securities gains, net (346) (243)
Gain on sale of foreclosed assets (24) 25
Decrease (Increase) in all other
assets 561 (555)
Increase in all other liabilities 120 496
Net cash provided by operating
activities 3,917 2,949
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities available for
sale (28,675) (23,921)
Proceeds from sales of securities
available for sale 16,122 26,806
Proceeds from calls and maturities
of securities available for sale 8,014 3,505
Purchase of securities held to
maturity (25) (273)
Proceeds from calls and maturities
of securities held to maturity 1,346 -
Net decrease (increase) in loans 100 (7,816)
Acquisition of bank premises and
equipment (158) (94)
Proceeds from the sale of foreclosed
assets 368 97
Net cash used in investing
activities (2,908) (1,696)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in interest-bearing
deposits 12,950 11,611
Net (decrease) increase in non-
interest-bearing deposits 580 3,840
Net decrease in short-term
borrowings (13,535) (10,577)
Dividends paid (1,537) (1,438)
Stock options exercised 0 52
Purchase of Treasury Stock (853) -
Net cash (used in) provided by
financing activities (2,395) 3,488
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (1,386) 4,741
CASH AND CASH EQUIVALENTS, BEGINNING 15,318 12,474
CASH AND CASH EQUIVALENTS, ENDING $ 13,932 $ 17,215
The Company paid approximately $6,615,000 and $5,969,000
interest on deposits and other borrowings during the first half
of 2001 and 2000, respectively.
The Company made income tax payments of approximately $920,000
and $982,000 in the first half of 2001 and 2000, respectively.
See accompanying notes to the unaudited consolidated financial
statements.
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended
June 30,
2001 2000
(In Thousands)
Net Income $1,806 $ 1,604
Other comprehensive Income:
Unrealized gains (losses) on available
for sale securities $ 214 $(1,103)
Less: Reclassification adjustment for
gain included in net income (211) (91)
Other comprehensive income before tax 3 (1,194)
Income tax expense (benefit) related to
other comprehensive income 1 (406)
Other comprehensive income (loss), net of
tax 2 (788)
Comprehensive income $1,808 $ 816
Six Months Ended
June 30,
2001 2000
(In Thousands)
Net Income $3,490 $ 3,150
Other comprehensive Income:
Unrealized gains (losses) on available
for sale securities $4,650 $(2,544)
Less: Reclassification adjustment for
gain included in net income (346) (252)
Other comprehensive income before tax 4,304 (2,796)
Income tax expense (benefit) related to
other comprehensive income 1,463 (951)
Other comprehensive income (loss), net of
tax 2,841 (1,845)
Comprehensive income $6,331 $ 1,305
PENNS WOODS BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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, 2000.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards Nos. 141,
Business Combinations, effective for all business combinations
initiated after June 30, 2001, as well as all business
combinations accounted for by the purchase method that are
completed after June 30, 2001. The new statement requires that
the purchase method of accounting be used for all business
combinations and prohibits the use of the pooling-of-interests
method. The adoption of Statement No. 141 is not expected to
have a material effect on the Company's financial position or
results of operations.
In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets,
effective for fiscal years beginning after December 15, 2001.
The new statement changes the accounting for goodwill form an
amortization method to an impairment-only approach. Thus,
amortization of goodwill including goodwill recorded in past
business combinations, will cease upon adoption of this
Statement. At June 30, 2001, the Company has approximately $3.1
million of intangibles resulting from previous business
acquisitions.
Reclassification of Comparative Amounts
Certain comparative amounts for the prior periods have been
reclassified to conform to current period presentations. Such
reclassifications had no effect on net income or stockholders'
equity.
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 herein: (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.
EARNINGS SUMMARY
Comparison of the Six Months Ended June 30, 2001 and 2000
Interest Income
For the six months ended June 30, 2001, total interest income
increased by $489,000 or 3.55% compared to the same period in
2000. This improvement is due to an increase of $472,000 in
interest and fees on loans, an increase in total interest and
dividends on investments of $28,000 and offset by a slight
decrease in other interest income of $11,000.
The increase in interest and fees on loans of $472,000 was
primarily due to the net effect of average gross loan growth of
$11,738,000 from June 30, 2000 to June 30, 2001 and offset by a
275 basis point decline in the prime rates during the first six
months of 2001. Interest and dividends on investments increased
due to the net effect of a $400,000 decrease in taxable interest
as a result of a decrease in the average holdings of U.S.
Government agency securities during the first six months of 2001
compared to the same period in 2000; a $552,000 increase in
nontaxable interest related to the higher average volume of
municipal securities held during the first six months of 2001
compared to the first six months of 2000; and a decrease in
dividend income on equity securities of $124,000. Management
has focused on the acquisition of nontaxable securities, thereby
maximizing after tax returns.
Interest Expense
For the six months ended June 30, 2001 total interest expense
increased $521,000 or 8.73% over the same period in 2000. The
overall increase in interest expense is the result of a $798,000
increase in interest paid on deposits, a $427,000 decrease in
interest expense paid on short-term borrowings and an increase
of $150,000 on interest paid on other borrowings. Interest paid
on deposits increased as a result of interest bearing deposit
growth of $19,477,000, over the last twelve months. The
substantial growth in deposits reduced the need for overnight
FHLB borrowings. As a result of the decline in average
overnight FHLB borrowings of approximately $10,774,000, interest
expense on short-term borrowings decreased. Deposit growth also
funded the increases in the investment portfolio. The increase
of $150,000 in interest paid on other borrowings was due to a
net increase of $4,500,000 in FHLB borrowings. The substantial
increase in interest expense related to deposits.
Provision for Loan Losses
The provision for loan losses totaled $186,000 for the six
months ended June 30, 2001. The provision for the same period
in 2000 was $130,000.
As of June 30, 2001, charge-offs exceeded recoveries by $155,000
compared to June 30, 2000, when charge-offs exceeded recoveries
by $60,000.
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 concentrations, absence of foreign
credit exposure and growth objectives in refining the allowance
and provisions.
The ratio of the allowance to net loans for June 30, 2001 was
1.18% compared to 1.17% at December 31, 2000.
The overall decrease in non-performing loans from December 31,
2000, totaled $343,000. Non-performing commercial and
agricultural loans, installment loans and loans secured by real
estate decreased $178,000, $3,000 and $162,000, respectively.
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, 2001
increased $687,000. This increase is due to the net effect of a
decrease in service charges collected of $52,000, an increase in
securities gains realized of $94,000 and an increase in other
income of $645,000.
The substantial increase in other income was mostly due to
commission income realized during the first and second quarters
of 2001 from the sale of various financial products. Such
financial products are offered through the Bank's subsidiary,
The M Group, Inc., which was acquired in the fourth quarter of
2000. Income generated from The M Group, Inc., comprised
$476,000 of the increase in other income.
Other Operating Expense
For the six months ended June 30, 2001 total other operating
expenses increased $319,000 over the same period in 2000.
Employee salaries and benefits increased $168,000 as a result of
normal increases in salary levels and additional salaries
associated with the Bank's subsidiary.
Occupancy expense increased $3,000 and furniture and equipment
expense decreased $27,000. The $27,000 decrease in furniture
and equipment expense is explained by the reduction of general
maintenance costs and depreciation expenses.
An overall increase in other expenses totaled $175,000. This
increase is mainly due to the addition of normal operating costs
and amortization expense associated with the acquisition and
operation of The M Group, Inc. The amortization of goodwill
amounted to $110,000. Management anticipates that adopting of
FASB Statement No. 142, the amortization of goodwill will
discontinue beginning in 2002.
Provision for Income Taxes
The provision for income taxes for the six months ended June 30,
2001 resulted in an effective income tax rate of 19.08% compared
to 21.89% for the corresponding period in 2000. The securities
portfolio has continued to shift towards tax-exempt securities
from a year ago resulting in the tax rate reduction.
Comparison of the Three Months Ended June 30, 2001 and 2000
Interest Income
During the second quarter of 2001 interest income earned was
$7,150,000 an increase of $205,000 or 2.95% over the same
quarter in 2001.
Interest income on loans accounted for $222,000 of the total
increase in interest income. Gross loans increased $4,652,000
from June 30, 2001 to June 30, 2000. The net effect of the
volume increase and declining prime rates explain the overall
increase.
A decrease of $3,000 occurred in interest and dividends on
investments. Taxable interest decreased $217,000, non-taxable
interest increased $332,000 and dividends decreased $118,000 due
to the same reasons noted for the six-month comparison. Taxable
interest decreased as a result of a decline in the average
holdings of U.S. Government agency securities during the second
quarter of 2001 compared to the same period in 2000; the
increase in nontaxable interest is related to the higher average
volume of municipal securities held during the second quarter of
2001 compared to the second quarter of 2000.
Interest Expense
Interest expense during the second quarter of 2001 increased by
$159,000 or 5.23% over interest expense incurred during the
second quarter of 2000.
Interest bearing deposits grew $19,477,000 from the second
quarter 2000, contributing to the additional interest expense.
Interest expense on short-term borrowings decreased by $260,000
and interest expense on other borrowings increased $77,000. The
decrease in interest expense paid on short-term borrowings was
due to a decline of average overnight FHLB borrowings of
approximately $12,500,000. The increase of $77,000 in interest
paid on other borrowings was due to a net increase of $4,500,000
in FHLB borrowings.
Other Operating Income
Total other operating income increased $394,000 or 69.37% to
$962,000 during the three-month period in 2001 compared to
$568,000 in 2000. Other income and security gains increased
$285,000 and $120,000, respectively, while service charges
decreased by $11,000. The substantial increase in other income
was mostly due to commission income realized during the second
quarter of 2001 from the sale of various financial products.
Such financial products are offered through the Bank's
subsidiary, The M Group, Inc., which was acquired in the fourth
quarter of 2000.
Other Operating Expense
Total other operating expenses increased $182,000 or 7.58%.
Salaries and employee benefits increased $92,000 as a result of
normal increases in salary levels and salaries associated with
the Bank's subsidiary. Occupancy expense decreased minimally
during the second quarter of 2001 when compared to the second
quarter of 2000 by $1,000. Furniture and equipment expense
decreased $12,000 or 5.91%. The decrease is mainly attributable
to a decline of depreciation expense. Other operating expenses
increased during the three-month period in 2001 when compared to
the same period in 2000 by $103,000. This increase is mainly
due to normal operating expenses and amortization expenses
associated with the acquisition of The M Group, Inc. on
October 1, 2000.
Provision for Income Taxes
Income taxes increased $15,000 or 3.60% due to taxes associated
with The M Group, Inc. that were partially offset by increased
holdings of tax-exempt municipal securities and.
ASSET/LIABILITY MANAGEMENT
Assets
At June 30, 2001, cash and investment securities totaled
$138,385,000 or a net increase of $6,765,000 over the
corresponding balance at December 31, 2000. Investment
securities increased $8,151,000 while cash decreased $1,386,000.
During this period, net loans decreased by $286,000 to
$243,321,000.
The increase in investment securities is primarily due to the
change in the net unrealized gain/loss from a loss of $1,227,000
at December 31, 2000 to a gain of $3,078,000 at June 30, 2001.
Additionally, deposit growth was utilized to acquire investment
securities.
The Bank has not had nor does it presently have any foreign
outstandings. In addition, no known concentrations of credit
presently exist.
At June 30, 2001 the balance of other real estate was $223,000
compared to $162,000 at December 31, 2000. All three properties
totaling $162,000 that were held in other real estate at
December 31, 2000 were sold. One of three additional properties
that were placed into other real estate during the first and
second quarters of 2001 was sold.
Deposits
At June 30, 2001 total deposits amounted to $291,664,000
representing an increase of $13,530,000, or 4.86%, from total
deposits at December 31, 2000. Non-interest bearing deposits
increased $580,000. Savings and time deposits increased
$3,271,000 and $10,244,000, respectively. Interest bearing
deposits declined $565,000. The overall increase in deposits
represents Penns Woods Bancorp, Inc.'s growing presence in the
Centre County market area and successful marketing strategies.
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.
Bank holding companies are required to comply with the Federal
Reserve Board's risk-based capital guidelines. 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. Specifically, each is
required to maintain certain minimum dollar amounts and ratios
of Total risk-based, Tier I risk-based and Tier I leverage
capital requirements. In addition to the capital requirements,
the Federal Deposit Insurance Corporation Improvements Act
(FDICIA) established five capital categories ranging from "well
capitalized" to "critically undercapitalized." To be classified
as "well capitalized, "Total risk-based, Tier I risked-based and
Tier I leverage capital ratios must be at least 10%, 6%, and 5%
respectively.
At June 30, 2001 the Company was "well capitalized" with a total
capital ratio of 21.06%, a Tier I capital ratio of 19.63% and a
Tier I leverage ratio of 12.65%.
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 totaling $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 $113,724,000 through the Federal Home Loan Bank's "Open Repo
Plus", revolving line of credit program, with commitment up to
one year. Federal Home Loan Bank advances totaled $35,178,000
as of June 30, 2001.
All of the funding mentioned is available to the Bank, should
the need for short-term funds arise.
The following table sets forth the Company's interest rate
sensitivity as of June 30, 2001:
<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) $ 5,473 $ 6,229 $ 20,850 $ 90,904
Loans(2) 84,823 39,674 101,941 19,793
Total earning assets 90,296 45,903 122,791 110,697
Deposits(3) 131,715 38,395 45,405 28,125
Borrowings 17,487 0 31,778 0
Total interest bearing
liabilities 149,202 38,395 77,183 28,125
Net non-interest bearing
funding(4) 7,678 7,678 23,035 38,391
Total net funding sources 156,880 46,073 100,218 66,516
Excess assets (liabilities) (66,584) (170) 22,573 44,181
Cumulative excess
assets (liabilities) (66,584) (66,754) (44,181) -
</table>
(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 March 31, 2001:
Net Interest Income
Change in Rates Change (After tax)
-200 80
-100 78
+100 127
+200 201
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.
Inflation
The asset and liability structure of a financial institution 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.
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.
The annual meeting of shareholders of Penns Woods Bancorp, Inc.
took place on April 25, 2001. The following two (2) matters
were voted upon:
1. Election of the four (4) persons listed in Class (1)
Directors of the Proxy Statement dated March 27, 2001
whose terms expire in 2004.
Class (1) Directors:
Michael J. Casale, Jr.
R. Edward Nestlerode, Jr.
William H. Rockey
Ronald A. Walko
2. To ratify the appointment by the Corporation's Board of
Directors of S.R. Snodgrass A.C., of Wexford,
Pennsylvania, Certified Public Accountants as the
independent auditors for the year ending December 31,
2001.
The following table presents the results of the vote tabulation:
Issue Description For Withheld
1. Election of Directors for a
Three Year Term
Michael J. Casale, Jr. 2,234,583 9,511
R. Edward Nestlerode, Jr. 2,239,936 4,158
William H. Rockey 2,242,604 1,490
Ronald A. Walko 2,243,009 1,085
Issue Description For Against Abstain
2. Ratification of S.R.
Snodgrass A.C.,
Certified Public
Accountants as
independent auditors 2,221,287 1,172 21,635
Item 5. Other Information
On April 11, 2001, Penns Woods Bancorp, Inc. filed with the
Securities and Exchange Commission a Registration Statement on
Form S-8 with respect to 100,000 shares of common stock of Penns
Woods that may be issued under the Penns Woods Bancorp, Inc.
1998 Stock Option Plan.
Item 6. Exhibits and reports on Form 8-K.
(a) Exhibits required by Item 601 of Regulation S-K:
Number Description
(3)(i) Articles of Incorporation of the Registrant, as
presently in effect (incorporated herein by reference
to Exhibit 3.1 of Registration Statement No. 333-65821
on Form S-4).
(3)(ii) Bylaws of the Registrant as presently in effect
(incorporated herein by reference to Exhibit 3.2 of
Registration Statement No. 333-65821 on Form S-4).
(b) Reports on Form 8-K
None
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, 2001 /s/Ronald A. Walko
Ronald A. Walko,
President and Chief
Executive Officer
Date: August 9, 2001 /s/Sonya E. Scott
Sonya E. Scott,
Secretary