UNITED STATES
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 September 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)
(570) 322-1111
--------------------------------------------------
Registrant's telephone number, including area 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 November 9, 2001, there were 3,040,090 shares of the
Registrant's common stock outstanding.
Item 1. Financial Statements
PENNS WOODS BANCORP, INC.
CONSOLIDATED BALANCE SHEET (Unaudited)
September 30, December 31,
2001 2000
------------- ------------
(IN THOUSANDS)
ASSETS:
Cash and due from banks $ 12,702 $ 15,318
Investment securities available
for sale 124,608 112,963
Investment securities held to
maturity (market value of
$1,974,000 and $3,261,000) 1,907 3,228
Loans, net of unearned discount 251,943 246,486
Allowance for loan losses (2,911) (2,879)
-------- --------
Loans, net 249,032 243,607
-------- --------
Bank premises and equipment, net 4,480 4,727
Accrued interest receivable 2,502 2,581
Bank owned life insurance 7,931 2,353
Other assets 7,755 10,083
-------- --------
TOTAL ASSETS $410,917 $394,860
======== ========
LIABILITIES:
Demand deposits $ 48,791 $ 47,468
Interest-bearing demand
deposits 45,299 46,672
Savings deposits 52,297 43,980
Time deposits 142,769 140,014
-------- --------
Total deposits $289,156 $278,134
Short-term borrowings 30,786 31,021
Other borrowings 31,778 31,778
Accrued interest payable 1,308 1,452
Other liabilities 2,301 2,014
-------- --------
Total liabilities $355,329 $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 6,288 2,974
Accumulated other comprehensive
income (loss) 2,488 (863)
Less: Treasury stock, at cost
(82,619 and 33,551 shares) (2,710) (1,172)
-------- --------
Total shareholders' equity $ 55,588 $ 50,461
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $410,917 $394,860
======== ========
See accompanying notes to the unaudited consolidated financial
statements.
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
<table>
<caption>
NINE MONTHS NINE MONTHS THREE MONTHS
THREE MONTHS
ENDED ENDED ENDED ENDED
September 30, September 30, September 30, September 30,
2001 2000 2001 2000
------------- ------------- ------------- -------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<s> <c> <c> <c> <c>
INTEREST INCOME:
Interest and fees on loans $16,429 $15,918 $5,563 $5,524
--------- --------- --------- ---------
Interest and dividends on investments:
Taxable interest 2,190 2,913 675 902
Nontaxable interest 2,272 1,514 804 598
Dividends 467 521 150 176
--------- --------- --------- ---------
Total interest and dividends on
investments 4,929 4,948 1,629 1,676
--------- --------- --------- ---------
Other interest income 124 150 37 52
--------- --------- --------- ---------
Total interest income 21,482 21,016 7,229 7,252
--------- --------- --------- ---------
INTEREST EXPENSE:
Interest on deposits 7,476 6,679 2,392 2,393
Interest on short-term borrowings 695 1,371 200 449
Interest on other borrowings 1,374 1,268 463 507
--------- --------- --------- ---------
Total interest expense 9,545 9,318 3,055 3,349
--------- --------- --------- ---------
Net interest income 11,937 11,698 4,174 3,903
Provision for loan losses 279 208 93 78
--------- --------- --------- ---------
Net interest income after provision for
loan losses 11,658 11,490 4,081 3,825
--------- --------- --------- ---------
OTHER OPERATING INCOME:
Service charges 1,128 1,165 412 342
Securities gains 715 405 369 153
Other income 1,214 185 448 119
--------- --------- --------- ---------
Total other operating income 3,057 1,755 1,229 614
--------- --------- --------- ---------
OTHER OPERATING EXPENSES:
Salaries and employee benefits 3,886 3,628 1,289 1,199
Occupancy expense, net 588 555 192 162
Furniture and equipment expense 579 602 197 193
Other expenses 2,637 2,307 920 765
--------- --------- --------- ---------
Total other operating expenses 7,690 7,092 2,598 2,319
--------- --------- --------- ---------
INCOME BEFORE TAXES 7,025 6,153 2,712 2,120
INCOME TAX PROVISION 1,409 1,282 586 399
--------- --------- --------- ---------
NET INCOME $ 5,616 $ 4,871 $2,126 $1,721
========= ========= ========= =========
EARNINGS PER SHARE - BASIC $ 1.83 $ 1.56 $ 0.68 $ 0.55
EARNINGS PER SHARE - DILUTED $ 1.83 $ 1.56 $ 0.68 $
0.55
BASIC WEIGHTED AVERAGE
SHARES OUTSTANDING 3,073,317 3,124,469 3,073,317
3,124,469
DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING 3,073,317 3,124,469 3,073,317
3,124,469
</table>
See accompanying notes to the unaudited consolidated financial
statements.
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
(IN THOUSANDS EXCEPT SHARE DATA)
<table>
<caption>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TOTAL
------------------- PAID-IN RETAINED COMPREHENSIVE TREASURY
SHAREHOLDERS'
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 $ (863) $(1,172) $50,461
Net income for the
nine months ended
September 30, 2001 5,616 5,616
Dividends declared,
$0.75 (2,302) (2,302)
Treasury Stock acquired
(49,068 shares) (1,538) (1,538)
Net change in unrealized
gain on investments
available for sale,
net of tax $1,726 3,351 3,351
--------- ------- ------- ------- ------- ------- -------
Balance, September 30,
2001 3,130,844 $31,308 $18,214 $ 6,288 $ 2,488 $(2,710) $55,588
========= ======= ======= ======= ======= =======
=======
</table>
See accompanying notes to the unaudited consolidated financial
statements.
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
2001 1 2000
------------- -------------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income $ 5,616 $ 4,871
Adjustments to reconcile net
income to net cash provided
by operating activities
Depreciation 474 529
Provision for loan losses 279 208
Accretion and amortization
of investment security
discounts and premiums (602) (417)
Securities gains, net (715) (405)
Gain on sale of foreclosed
assets (17) 25
Increase in Bank owned life
insurance (5,578) (80)
Decrease (Increase) in all
other assets 254 (1,680)
Increase in all other
liabilities 143 1,319
-------- --------
Net cash provided by (used
in operating activities) (146) 4,370
-------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of securities
available for sale (37,709) (41,807)
Proceeds from sales of secur-
ities available for sale 21,563 38,282
Proceeds from calls and matur-
ities of securities available
for sale 10,888 3,555
Purchase of securities held to
maturity (25) (273)
Proceeds from calls and matur-
ities of securities held to
maturity 1,353 -
Net increase in loans (5,704) (11,199)
Acquisition of bank premises
and equipment (227) (441)
Proceeds from the sale of fore-
closed assets 444 98
-------- --------
Net cash used in investing
activities (9,417) (11,785)
-------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net increase in interest-bearing
deposits 9,699 13,062
Net increase in noninterest-
bearing deposits 1,323 1,701
Net decrease in short-term
borrowings (235) (11,753)
Proceeds from long-term
borrowings - 5,026
Dividends paid (2,302) (2,156)
Stock options exercised - 52
Purchase of Treasury Stock (1,538) (272)
-------- --------
Net cash provided by
financing activities 6,947 5,660
-------- --------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (2,616) (1,755)
CASH AND CASH EQUIVALENTS,
BEGINNING 15,318 12,474
-------- --------
CASH AND CASH EQUIVALENTS, ENDING $ 12,702 $ 10,719
======== ========
The Company paid approximately $9,689,000 and $9,123,000
interest on deposits and other borrowings during the first nine
months of 2001 and 2000, respectively.
The Company made income tax payments of approximately $1,430,000
and $1,757,000 in the first nine months 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
September 30,
------------------
2001 2000
------ ------
(In Thousands)
Net Income $2,126 $1,721
------ ------
Other comprehensive income:
Unrealized gains (losses) on available
for sale securities $1,142 $3,385
Less: Reclassification adjustment for
gain included in net income (369) (153)
------ ------
Other comprehensive income before tax 773 3,232
Income tax expense (benefit) related to
other comprehensive income 263 1,099
------ ------
Other comprehensive income (loss), net of
tax 510 2,133
------ ------
Comprehensive income $2,636 $3,854
====== ======
Nine Months Ended
September 30,
------------------
2001 2000
------ -------
(In Thousands)
Net Income $5,616 $4,871
------ ------
Other comprehensive income:
Unrealized gains (losses) on available
for sale securities $5,792 $ 841
Less: Reclassification adjustment for
gain included in net income (715) (405)
------ ------
Other comprehensive income before tax 5,077 436
Income tax expense (benefit) related to
other comprehensive income 1,726 148
------ ------
Other comprehensive income (loss), net of
tax 3,351 288
------ ------
Comprehensive income $8,967 $5,159
====== ======
PENNS WOODS BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. Basis of Presentation
The consolidated financial statements include the accounts of
Penns Woods Bancorp, Inc. (the "Company") and its wholly-owned
subsidiaries Penns Woods Investment, Penns Woods Real Estate,
and Jersey Shore State Bank and its wholly-owned subsidiary The
M Group. All significant inter-company balances and
transactions have been eliminated in the consolidation.
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 No. 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 does not currently
nor is 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 from 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 September 30, 2001, the Company has approximately
$3.1 million of net 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 shareholders'
equity.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
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. 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 Nine Months Ended September 30, 2001 and 2000
Interest Income
For the nine months ended September 30, 2001, total interest
income increased by $466,000 or 2.21% compared to the same
period in 2000. This improvement is due to an increase of
$511,000 in interest and fees on loans offset by decreases in
total interest and dividends on investments of $19,000 and other
interest income of $26,000.
Total interest and fees on loans increased $511,000 from
September 30, 2000. The increase is primarily due to the effect
of average net loan growth of $7,804,000 from September 30, 2000
to September 30, 2001. The increase due to loan growth was
partially offset by a 400 basis point decline in the prime rates
during the same period. Declining prime rates do not affect the
entire loan portfolio but do adversely affect interest income
collected on variable rate loans and loans initiated this year.
Interest and dividends on investments decreased $19,000 due to
the net effect of a $723,000 decrease in taxable interest, a
$758,000 increase in nontaxable interest and a $54,000 decrease
in dividends. A decrease in the average holdings of U.S.
Government agency securities during the last twelve months was
offset by an increase in the average volume of municipal
securities held during the same period. Management has focused
on the acquisition of nontaxable securities, thereby maximizing
after tax returns. The decrease in other interest income of
$26,000 is the result of fewer dividends received on Federal
Home Loan Bank Stock.
Interest Expense
For the nine months ended September 30, 2001, total interest
expense increased $227,000 or 2.44% over the same period in
2000. The overall increase in interest expense is the result of
a $797,000 increase in interest paid on deposits, a $676,000
decrease in interest expense paid on short-term borrowings and
an increase of $106,000 on interest paid on other borrowings.
Interest paid on deposits increased as a result of interest
bearing deposit growth of $14,775,000, 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 $8,552,000,
interest expense on short-term borrowings decreased. Deposit
growth also funded the increases in the investment portfolio.
The increase of $106,000 in interest paid on other borrowings
was due to a net increase of $4,500,000 in other borrowings.
Provision for Loan Losses
The provision for loan losses totaled $279,000 for the nine
months ended September 30, 2001. The provision for the same
period in 2000 was $208,000.
As of September 30, 2001, charge-offs exceeded recoveries by
$247,000 compared to September 30, 2000, when charge-offs
exceeded recoveries by $150,000.
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 September 30, 2001
was 1.15% compared to 1.17% at December 31, 2000.
The overall decrease in non-performing loans from December 31,
2000, totaled $170,000. Non-performing commercial and
agricultural loans decreased $141,000, real estate secured loans
decreased by $43,000 and installment loans increased by $14,000.
Based upon this analysis as well as the others noted above,
senior management has concluded that the allowance for loan
losses is adequate.
Other Operating Income
Other operating income for the nine months ended September 30,
2001 increased $1,302,000. This increase is due to a decrease
in service charges collected of $37,000, a increase in
securities gains realized of $310,000 and an increase in other
income of $1,029,000.
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
$764,000 of the increase in other income.
Other Operating Expense
For the six months ended September 30, 2001, total other
operating expenses increased $598,000 over the same period in
2000.
Employee salaries and benefits increased $258,000 as a result of
normal increases in salary levels and additional salaries
associated with the Bank's subsidiary.
Occupancy expense increased $33,000 and furniture and equipment
expense decreased $23,000. The $23,000 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 $330,000. 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 $166,000. 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
September 30, 2001 resulted in an effective income tax rate of
20.06% compared to 20.84% 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 September 30, 2001 and 2000
Interest Income
During the third quarter of 2001 interest income earned was
$7,229,000 a decrease of $23,000 over the same quarter in 2001.
Interest income on loans increased $39,000. Gross loans
increased $7,071,000 from September 30, 2001 to September 30,
2000. The net effect of the volume increase and declining prime
rates explain the overall increase.
A decrease of $47,000 occurred in interest and dividends on
investments. Taxable interest decreased $227,000, non-taxable
interest increased $206,000 and dividends decreased $26,000 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.
Other interest income declined $15,000 compared to the quarter
ended September 30, 2000.
Interest Expense
Interest expense during the third quarter of 2001 decreased by
$294,000 or 8.78% over interest expense incurred during the
third quarter of 2000.
Most of the decrease in interest expense is the result of a
decrease of interest expense on short-term borrowings of
$249,000. Interest expense on other borrowings decreased $44,000
and interest expense on deposits decreased $1,000. The decrease
in interest expense paid on short-term borrowings was due to a
decline of average overnight FHLB borrowings of approximately
$8,552,000. The Federal Reserve has lowered its Federal Funds
target rate 400 basis points over the past twelve months. Their
policy initiatives have resulted in lower overnight borrowing
rates. In addition to declining overnight borrowings, the lower
rates reduce short-term interest expenses.
Other Operating Income
Total other operating income increased $615,000 to $1,229,000
during the three-month period in 2001 compared to $614,000 in
2000. Other income and security gains and service charges
increased $329,000, $216,000 and $70,000, respectively. The
substantial increase in other income was mostly due to
commission income realized during the third 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 $279,000 or 12.03%.
Salaries and employee benefits increased $90,000 as a result of
normal increases in salary levels and salaries associated with
the Bank's subsidiary. Occupancy expense increased during the
third quarter of 2001 when compared to the third quarter of 2000
by $30,000. Furniture and equipment expense increased $4,000.
Other operating expenses increased during the three-month period
in 2001 when compared to the same period in 2000 by $155,000.
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 $187,000 or 4.69% due to taxes associated
with M Group, Inc. that were partially offset by increased
holdings of tax-exempt municipal securities.
ASSET/LIABILITY MANAGEMENT
Assets
At September 30, 2001, cash and investment securities totaled
$139,217,000 or a net increase of $7,708,000 over the
corresponding balance at December 31, 2000. Investment
securities increased $10,324,000 while cash decreased
$2,616,000. During this period, net loans increased by
$5,425,000 to $249,032,000.
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 $3,769,000 at September 30,
2001. Additionally, deposit growth was utilized to acquire
investment securities.
The Bank has not had nor presently has any foreign outstandings.
In addition, no known concentrations of credit presently exist.
At September 30, 2001 the balance of other real estate was
$201,000 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. Four properties were held in
other real estate during the first nine months of 2001. Two of
the four properties remain in other real estate.
Deposits
At September 30, 2001, total deposits amounted to $289,156,000
representing an increase of $11,022,000, or 3.96%, from total
deposits at December 31, 2000. Non-interest bearing deposits
increased $1,323,000. Savings and time deposits increased
$8,317,000 and $2,755,000, respectively. Interest bearing
deposits declined $1,373,000. 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 September 30, 2001, the Company was "well capitalized" with a
total capital ratio of 20.43%, a Tier I capital ratio of 19.30%
and a Tier I leverage ratio of 12.73%
Item 3. Quantitative and Qualitative Disclosure About Market
Risk
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 $118,077,000 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 $48,639,000
as of September 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 September 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) $ 9,228 $ 12,597 $ 17,288 $ 83,634
Loans(2) 98,353 39,786 96,359 17,445
------ ------ ------ ------
Total earning assets 107,581 52,383 113,647 101,079
Deposits(3) 124,849 41,641 45,830 28,075
Borrowings 30,706 -- 30,050 1,778
------ ------ ------ ------
Total interest bearing
liabilities 155,555 41,641 75,880 29,853
Net non-interest bearing
funding(4) 7,176 7,176 21,528 35,881
------ ------ ------ ------
Total net funding sources 162,731 48,817 97,408 65,734
Excess assets (liabilities) (55,150) 3,566 16,239 35,345
Cumulative excess assets
(liabilities) (55,150) (51,584) (35,345) --
</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 September, 2001:
Net Interest Income
Change in Rates Change (After tax)
-200 274
-100 155
+100 (144)
+200 (277)
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 Company'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.
None
Item 5. Other Information.
None
Item 6. Exhibits and reports on Form 8-K.
(a) Exhibits
Exhibit Title
3.1 Articles of Incorporation of the
Company (Incorporated by reference to
Exhibit 3.1 of the Company's
Registration Statement on Form S-4,
No. 333-65821.)
3.2 Bylaws of the Company (Incorporated
by reference to Exhibit 3.2 of the
Company's Registration Statement on
Form S-4, No. 333-65821.)
10.1 Employment Agreement, dated as of
January 1, 1995, among the Company
Jersey Shore State Bank, and
Theodore H. Reich (Incorporated by
reference to Exhibit 10.2 to the
Company's Registration Statement on
Form S-4, No. 333-65821.)
10.2 Employment Agreement, dated August 29,
1991, between Jersey Shore State Bank
and Ronald A. Walko (Incorporated by
reference to Exhibit 10.3 to the
Company's Registration Statement on
Form S-4, No. 333-65821.)
10.3 Employment Agreement, dated November 5,
1984, between Jersey Shore State Bank
and Hubert A. Valencik (Incorporated
by reference to the Company's Annual
Report on Form 10-K for the fiscal
year ended December 31, 2000.)
10.4 Employment Severance Benefit Plan,
dated May 30, 1996, between Jersey
Shore State Bank and Ronald A. Walko
(Incorporated by reference to
Exhibit 10.4 to the Company's
Registration Statement on Form S-4,
No. 333-65821.)
10.5 Employment Severance Benefit Plan,
dated May 30, 1996, between Jersey
Shore State Bank and Hubert A. Valencik
(Incorporated by reference to the
Company's Annual Report on Form 10-K
for the fiscal year ended December 31,
2000.)
10.6 The Company's 1998 Stock Option Plan
(Incorporated by reference to Exhibit 10.1
to the Company's Registration Statement
on Form S-4, No. 333-65821.)
(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: November 9, 2001 /s/ Ronald A. Walko
----------------------------------
Ronald A. Walko,
President and Chief Executive
Officer
Date: November 9, 2001 /s/ Sonya E. Scott
----------------------------------
Sonya E. Scott,
Secretary