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 March 31, 2002,
( ) 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 April 30, 2002 there were 3,033,590 of the Registrant's
common stock outstanding.
PENNS WOODS BANCORP, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet (unaudited) as of
March 31, 2002 And December 31, 2001
Consolidated Statement of Income (unaudited)
for the Three Months ended March 31, 2002 and 2001
Consolidated Statement of Comprehensive Income
(unaudited) For the Three Months ended March 31,
2002 and 2001
Consolidated Statement of Changes in Shareholders'
Equity (unaudited) for the Three Months ended
March 31, 2002
Consolidated Statement of Cash Flows (unaudited)
for the Three Months ended March 31, 2002 and 2001
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Part II Other Information
Signatures
PENNS WOODS BANCORP, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
<table>
<caption>
March 31, December 31,
2002 2001
----------- -------------
(IN THOUSANDS)
<s> <c> <c>
ASSETS:
Cash and due from banks $ 15,687 $ 14,844
Investment securities available for sale 141,082 131,985
Investment securities held to maturity
(market value of $1,316,000 and $1,312,000) 1,280 1,302
Loans held for sale 2,504 3,993
Loans, net of unearned discount 245,959 251,623
Allowance for loan losses (2,958) (2,927)
-------- --------
Loans, net 243,001 248,696
Bank premises and equipment, net 4,377 4,478
Accrued interest receivable 2,455 2,685
Bank owned life insurance 8,227 8,126
Other assets 10,103 8,701
-------- --------
TOTAL ASSETS $428,716 $424,810
======== ========
LIABILITIES:
Demand deposits $ 51,186 $ 55,277
Interest-bearing demand deposits 62,756 58,139
Savings deposits 56,422 53,309
Time deposits 135,749 138,425
-------- --------
Total deposits $306,113 $305,150
Short-term borrowings 20,804 19,105
Other borrowings 41,778 41,778
Accrued interest payable 1,063 1,190
Other liabilities 2,920 2,335
-------- --------
Total liabilities 372,678 369,558
-------- --------
SHAREHOLDERS' EQUITY:
Common stock, par value $10; 10,000,000 shares
authorized and 3,131,644 shares issued $ 31,316 $ 31,316
Additional paid-in capital 18,230 18,230
Retained earnings 8,265 6,987
Accumulated other comprehensive income 1,434 1,729
Less: Treasury stock at cost, 98,054 and 92,054 (3,207) (3,010)
-------- --------
Total shareholders' equity $ 56,038 $ 55,252
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $428,716 $424,810
======== ========
</table>
See accompanying notes to the unaudited consolidated financial
statements.
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
<table>
<caption>
THREE MONTHS
ENDED MARCH 31,
2002 2001
---------- ----------
(IN THOUSANDS
EXCEPT PER SHARE DATA)
<s> <c> <c>
INTEREST INCOME:
Interest and fees on loans $ 5,270 $ 5,389
Interest and dividends on investments:
Taxable interest 839 815
Nontaxable interest 785 676
Dividends 147 172
---------- ----------
Total interest and dividends on investments 1,771 1,663
---------- ----------
Other interest income 35 51
---------- ----------
Total interest income 7,076 7,103
---------- ----------
INTEREST EXPENSE:
Interest on deposits 2,037 2,565
Interest on short-term borrowings 117 275
Interest on other borrowings 565 453
---------- ----------
Total interest expense 2,719 3,293
---------- ----------
Net interest income 4,357 3,810
Provision for loan losses 105 93
---------- ----------
Net interest income after provision for
loan losses 4,252 3,717
---------- ----------
OTHER OPERATING INCOME:
Service charges 390 333
Securities gains (losses), net (119) 135
Other income 670 398
---------- ----------
Total other operating income 941 866
---------- ----------
OTHER OPERATING EXPENSES:
Salaries and employee benefits 1,359 1,291
Occupancy expense, net 191 209
Furniture and equipment expense 207 191
Other expenses 854 817
---------- ----------
Total other operating expenses 2,611 2,508
---------- ----------
INCOME BEFORE TAXES 2,582 2,075
---------- ----------
INCOME TAX PROVISION 485 391
---------- ----------
NET INCOME $ 2,097 $ 1,684
========== ==========
EARNINGS PER SHARE - BASIC $ 0.69 $ 0.55
EARNINGS PER SHARE - DILUTED $ 0.69 $ 0.55
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING 3,037,934 3,086,919
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 3,040,468 3,086,919
</table>
See accompanying notes to the unaudited consolidated financial
statements.
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
<table>
<caption>
Three Months
Ended March 31,
2002 2001
---------- --------
(In Thousands)
<s> <c> <c>
Net Income $ 2,097 $ 1,684
Other comprehensive Income:
Unrealized gains (losses) on available for
sale securities $ (328) $ 4,436
Less: Reclassification adjustment for gain
(loss) included in net income (119) 135
------- -------
Other comprehensive income (loss) before tax (447) 4,301
Income tax expense (benefit) related to other (152) 1,462
------- -------
Comprehensive income (loss)
Other comprehensive income (loss), net of tax (295) 2,839
------- -------
Comprehensive income $ 1,802 $ 4,523
======= =======
</table>
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY (UNAUDITED)
(IN THOUSANDS EXCEPT SHARE DATA)
<table>
<caption>
ACCUMULATED
COMMON ADDITIONAL OTHER TOTAL
STOCK PAID-IN RETAINED COMPREHENSIVE TREASURY SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS INCOME (LOSS) STOCK EQUITY
--------- --------- --------- -------- ------------- --------- ---------
<s> <c> <c> <c> <c> <c> <c> <c>
Balance, December 31, 2001 3,131,644 $ 31,316 $ 18,230 $ 6,987 $ 1,729 $ (3,010) $ 55,252
Net income for the three months
ended March 31, 2002 2,097 2,097
Dividends declared, $0.27 (819) (819)
Treasury Stock acquired (6,000 shs) (197) (197)
Net change in unrealized gain on
investments available for sale,
net of tax benefit $152 (295) (295)
--------- -------- -------- -------- -------- -------- --------
Balance, March 31, 2002 3,131,644 $ 31,316 $ 18,230 $ 8,265 $ 1,434 $ (3,207) $ 56,038
========= ======== ======== ======== ======== ======== ========
</table>
See accompanying notes to the unaudited consolidated financial
statements.
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<table>
<caption>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
2002 2001
------------ ------------
(IN THOUSANDS)
<s> <c> <c>
OPERATING ACTIVITIES:
Net Income $ 2,097 $ 1,684
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 138 162
Provision for loan losses 105 93
Accretion and amortization of investment security
discounts and premiums (248) (194)
Securities losses (gains), net 119 (135)
Gross originations of loans held for sale (3,919) (3,609)
Gross proceeds of loans held for sale 5,408 3,336
Decrease (Increase) in all other assets (1) 50
Increase in all other liabilities 458 264
-------- --------
Net cash provided by operating activities $ 4,157 $ 1,651
-------- --------
INVESTING ACTIVITIES:
Investment securities available for sale:
Proceeds from sales 11,540 1,065
Proceeds from calls and maturities 2,795 3,553
Purchases (24,808) (1,575)
Investment securities held to maturity:
Proceeds from calls and maturities 28 691
Purchases (6) (25)
Net decrease in loans 5,464 3,258
Acquisition of bank premises and equipment (37) (98)
Proceeds from the sale of foreclosed assets 64 130
-------- --------
Net cash provided by
(used in) investing activities $ (4,960) $ 6,999
FINANCING ACTIVITIES:
Net increase in interest-bearing deposits 5,054 7,709
Net decrease in noninterest-bearing deposits (4,091) (1,232)
Net increase (decrease) in short-term borrowings 1,699 (15,771)
Dividends paid (819) (770)
Purchase of Treasury Stock (197) (664)
-------- --------
Net cash provided by
(used in) by financing activities 1,646 (10,728)
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 843 (2,078)
CASH AND CASH EQUIVALENTS, BEGINNING 14,844 15,318
-------- --------
CASH AND CASH EQUIVALENTS, ENDING $ 15,687 $ 13,240
======== ========
</table>
The Company paid approximately $2,846,000 and $3,315,000
interest on deposits and other borrowings during the first
quarter of 2002 and 2001, respectively.
See accompanying notes to the unaudited consolidated financial
statements.
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 Woods Investment Company, Woods Real Estate, and
Jersey Shore State Bank (the "Bank") and its wholly-owned
subsidiary The M Group, Inc. D/B/A The Comprehensive Financial
Group ("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, 2001.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (FAS)
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
methods. The adoption of FAS No. 141 did not have a material
effect on the Company's financial position or results of
operations.
In July 2001, the FASB issued FAS No. 142, Goodwill and Other
Intangible Assets effective for fiscal years beginning after
December 15, 2001. The 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 March 31, 2002, the Company has goodwill
of approximately $3.0 million from past business combinations
that will be evaluated for impairment prospectively.
In August 2001, the FASB issued FAS No. 143, Accounting for
Asset Retirement Obligations, which requires that the fair value
of a liability be recognized when incurred for the retirement of
a long-lived asset and the value of the asset be increased by
that amount. The statement also requires that the liability be
maintained at its present value in subsequent periods and
outlines certain disclosures for such obligations. The adoption
of this statement, which is effective January 1, 2003, is not
expected to have a material effect on the Company's financial
statements.
In October 2001, the FASB issued FAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. FAS No. 144
supersedes FAS No. 121 and applies to all long-lived assets
(including discontinued operations) and consequently amends APB
Opinion No. 30, Reporting Results of Operations-Reporting the
Effects of Disposal of a Segment of a Business. FAS No. 144
requires that long-lived assets that are to be disposed of by
sale be measured at the lower of book value or fair value less
costs to sell. FAS No. 144 is effective for financial
statements issued for fiscal years beginning after December 15,
2001 and, generally, its provisions are to be applied
prospectively. The adoption of this statement did not have a
material effect on the Company's financial statements.
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.
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 Three Months Ended March 31, 2002 and 2001
Interest Income
For the three months ended March 31, 2002, total interest income
decreased by $27,000 compared to the first quarter of 2001.
Total interest and dividends on investments increased $108,000
while interest and fees on loans decreased $119,000 and Other
interest income decreased $16,000. Overall, declining rates
have negatively effected interest income. Investment
opportunities that have generated additional interest income
partially offset the decease in loan interest, resulting in a
minimal total interest income decline of $27,000.
Total interest and fees on loans decreased $119,000 in the first
quarter 2002 compared to the same period in 2001. Prime rates
declined 325 basis points from a year ago, negatively impacting
the interest collected on variable rate loans and new loans
initiated over the past twelve months. Interest and dividends
on investments increased $108,000 due to the net effect of a
$24,000 increase in taxable interest, an increase of $109,000 in
nontaxable interest and a $25,000 decrease in dividends. The
increase of nontaxable interest is due to the purchase of
municipal securities over the past year. Management has focused
on the acquisition of nontaxable securities, thereby maximizing
after tax returns. The decrease in other interest income of
$25,000 is partially the result of fewer dividends received on
Federal Home Loan Bank Stock.
Interest Expense
For the three months ended March 31, 2002, total interest
expense decreased by $574,000 or 17% compared to the first
quarter of 2001. The overall decrease in interest expense is
the result of a $528,000 decrease in interest paid on deposits,
a $158,000 decrease in interest expense paid on short-term
borrowings and an increase of $112,000 on interest paid on other
borrowings. Although interest bearing deposits increased more
than $15 million over the past year, declining rates have had a
positive effect on interest expense. Average short-term
borrowings declined from a year ago mostly due to deposit
growth. Fewer borrowings and declining rates also reduced
interest expense on short-term borrowings. Growth of long-term
borrowings, which are generally less responsive to short-term
rate fluctuations, caused an increase of $112,000 expense on
other borrowings.
Provision for Loan Losses
The provision for loan losses is based upon management's
quarterly review of the loan portfolio. The purpose of the
review is to assess loan quality, identify impaired loans,
analyze delinquencies, ascertain loan growth, evaluate potential
charge-offs and recoveries, and assess general economic
conditions in the markets served. An external independent loan
review is also performed annually for the bank. Management
remains committed to an aggressive program of problem loan
identification and resolution.
The allowance is calculated by applying loss factors to
outstanding loans by type, excluding loans for which a specific
allowance has been determined. Loss factors are based on
management's consideration of the nature of the portfolio
segments, changes in mix and volume of the loan portfolio, and
historical loan loss experience. In addition, management
considers industry standards and trends with respect to
nonperforming loans and its knowledge and experience with
specific lending segments.
Although management believes that it uses the best information
available to make such determinations and that the allowance for
loan losses was adequate at March 31, 2002, future adjustments
could be necessary if circumstances or economic conditions
differ substantially from the assumptions used in making the
initial determinations. A downturn in the local economy,
employment and delays in receiving financial information from
borrowers could result in increased levels of nonperforming
assets and charge-offs, increased loan loss provisions and
reductions in income. Additionally, as an integral part of the
examination process bank regulatory agencies periodically review
the bank's loan loss allowance. The banking agencies could
require the recognition of additions to the loan loss allowance
based on their judgement of information available to them at the
time of their examination.
The allowance for loan losses increased $68,000 from March 31,
2001 compared to the allowance for loan losses of $2,958,000 or
1.2% of total loans for March 31, 2002. This percentage is
consistent with the guidelines of regulators and peer banks.
Management's conclusion is that the provision for loan loss is
adequate.
The provision for loan losses totaled $105,000 for the three
months ended March 31, 2002. The provision for the same period
in 2001 was $93,000.
As of March 31, 2002, charge-offs exceeded recoveries by $74,000
compared to March 31, 2001, when charge-offs exceeded recoveries
by $82,000.
The ratio of the allowance to net loans for March 31, 2002 and
December 31, 2001 was 1.2%.
The overall decrease in non-performing loans from December 31,
2001, totaled $306,000. Non-performing commercial and
agricultural loans decreased $25,000, real estate secured loans
decreased by $277,000 and installment loans decreased by $4,000.
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 three months ended March 31, 2002
increased $75,000. Excluding security losses, service charges
and other income increased $329,000. An increase in service
charges of $57,000 was mostly due to the revision of the Bank's
overdraft fee structure in May of 2001. Other income increased
$272,000.
The substantial increase in other income was mostly due to
commission income realized from the sale of various financial
products offered through the Bank's subsidiary, The M Group,
Inc. Income generated from The M Group, Inc., comprised
$148,000 of the increase in other income. Proceeds of $116,000
from a bank owned life insurance policy contributed to the
increase in other income.
Management has analyzed its equity portfolio for impairment that
would qualify as other than temporary. Impairment is determined
using factors such as length of time and the extent to which the
market value is less than cost; the financial condition and the
near-term prospects of the issuer; and the intent and ability of
the Company to retain its investment to allow for the market to
recover. In doing so, management has identified securities
within the equity portfolio that have an other than temporary
decline in market value. Management has reserved $250,000,
which was charged to security gains and losses, to provide for
this decline.
Other Operating Expense
For the three months ended March 31, 2002 total other operating
expenses increased $103,000 over the same period in 2001.
Employee salaries and benefits increased $68,000 as a result of
normal increases in salary levels.
Occupancy expense decreased $18,000 and furniture and equipment
expense increased $16,000. Occupancy experienced an overall
decline in normal expenses. The $16,000 increase in furniture
and equipment expense is explained by miscellaneous costs
associated with the new State College office build-out and Wide
Area Network preparation.
An overall increase in other expenses totaled $37,000.
Excluding a decrease of $55,000 due to the elimination of
amortization of goodwill, other expenses increased $92,000.
The significant increases are $20,000 of advertising and a
$21,000 annual NASDAQ fee. The remaining $51,000 increase
includes professional fees, pension costs, and expenses on
foreclosed assets held for sale.
Provision for Income Taxes
The provision for income taxes for the three months ended
March 31, 2002 resulted in an effective income tax rate of
18.78% compared to 18.84% for the corresponding period in 2001.
The securities portfolio has continued to shift towards tax-
exempt securities from a year ago. Additional tax-exempt income
was experienced from insurance proceeds.
ASSET/LIABILITY MANAGEMENT
Assets
At March 31, 2002, cash and investment securities totaled
$158,049,000 or a net increase of $9,918,000 over the
corresponding balance at December 31, 2001. Investment
securities increased $9,075,000 and cash increased $843,000.
During this period, net loans decreased by $5,695,000 to
$243,001,000. Loans held for resale also decreased $1,489,000
to $2,504,000. Other assets increased $1,402,000 mostly due to
the increase of accounts receivable relating to matured
securities on a non business day that had not yet been paid to
the Bank. Payment for the matured securities were subsequently
received on the following business day.
At March 31, 2002 the balance of other real estate was $411,000
compared to $346,000 at December 31, 2001. One of three
properties totaling $61,000 that was held in other real estate
at December 31, 2001 was sold during the quarter. An additional
property was acquired in the amount of $126,000. Three
properties remain in other real estate at March 31, 2002.
Deposits
At March 31, 2002 total deposits amounted to $306,113,000
representing an increase of $963,000, from total deposits at
December 31, 2001. Deposits shifted during the first quarter
from non-interest bearing to interest-bearing and from time
deposits to savings. Non-interest bearing demand deposits
decreased $4,091,000 while interest-bearing demand deposits
increased $4,617,000. Savings increased $3,113,000 while time
deposits decreased $2,676,000. Deposit growth was somewhat flat
during the quarter ended March 31, 2002.
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 March 31, 2002 the Company was "well capitalized" with a
total capital ratio of 20.89%, a Tier I capital ratio of 19.51%
and a Tier I leverage ratio of 12.29%.
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 $140,690,000 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 $41,778,000
as of March 31, 2002.
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 March 31, 2002:
<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) $ 21,448 $ 10,103 $ 19,545 $ 89,092
Loans (2) 91,062 34,807 105,348 17,246
-------- -------- -------- --------
Total earning assets 112,510 44,910 124,893 106,338
Deposits (3) 108,739 36,708 73,935 35,546
Borrowings 20,804 0 41,778 0
-------- -------- -------- --------
Total interest bearing liabilities 129,543 36,708 115,713 35,546
Net non-interest bearing
funding (4) 7,114 7,114 21,342 35,571
-------- -------- -------- --------
Total net funding sources 136,657 43,822 137,055 71,117
Excess assets (liabilities) (24,147) 1,088 (12,162) 35,221
Cumulative excess
assets (liabilities) (24,147) (23,059) (35,221) -
</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.
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, 2002:
Net Interest Income
Change in Rates Change (After tax)
-200 (485)
-100 (229)
+100 333
+200 593
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.
None
Item 5. Other Information
None
Item 6. Exhibits and reports on Form 8-K.
(3)(i) Articles of Incorporation of the Registrant, as
presently in effect (incorporated by reference to
Exhibit 3.1 of the Registrant's Registration
Statement on Form S-4, No. 333-65821).
(3)ii) Bylaws of the Registrant as presently in effect
(incorporated by reference to Exhibit 3.2 of the
Registrant's Registration Statement on Form S-4,
No. 333-65821).
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: May 15, 2002 /s/ Ronald A. Walko
Ronald A. Walko, President and
Chief Executive Officer
Date: May 15, 2002 /s/ Sonya E. Scott
Sonya E. Scott, Secretary
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