FORM 10-Q QUARTERLY REPORT
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 10
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1996 Commission file number
0-17077
PENNS WOODS BANCORP, INC.
Incorporated in Pennsylvania 23-2226454
Main Office 115 South Main Street
Jersey Shore, Pennsylvania 17740
Indicate by check mark whether the Registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that
Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the
past 90 days.
YES [X] NO [ ]
On March 31, 1996 there were 1,271,528 shares of the
Registrant's common stock outstanding.
PART I FINANCIAL STATMENTS
PENNS WOODS BANCORP, INC.
CONSOLIDATED BALANCE SHEET
AT DATES INDICATED
March 31, December 31,
1996 1995
-----------------------
ASSETS:
Cash and due from banks
Investment securities available-for-sale 74,337,725 65,322,241
Investment Securities held-to-maturity 2,809,052 2,817,174
Federal funds sold 0 570,000
Loans, net of unearned discount 151,346,924 153,640,485
Allowance for loan losses (2,419,312) (2,353,324)
Loans, net 148,927,612 151,287,161
Bank premises and equipment 3,842,071 3,808,885
Foreclosed assets held for sale 653,015 943,108
Accrued interest receivable 1,772,242 1,717,616
Other assets 2,459,609 1,878,740
-----------------------
TOTAL ASSETS 245,277,511 242,628,574
=======================
LIABILITIES:
Demand Deposits 27,127,760 27,178,753
Interest-bearing demand deposits 37,991,976 37,155,122
Savings deposits 46,235,739 45,019,071
Time deposits 93,299,591 92,904,655
-----------------------
Total deposits 204,65,066 202,257,601
Federal funds purchased 0 0
Securities sold under repurchase agreements 6,392,566 6,344,111
Accrued interest payable 804,395 918,841
Long-term Borrowings 0 0
Other liabilites 3,721,002 3,423,217
-----------------------
Total liabilities 215,573,029 212,943,770
-----------------------
SHAREHOLDERS' EQUITY:
Common stock, par value $10 per share,
10,000,000 shares authorized;
1,271,528 shares issued and outstanding
at March 31, 1996 and 1,000,000
shares authorized; 839,046 issued and
outstanding at December 31, 1995 12,712,280 12,713,390
Additional paid-in capital 4,452,723 4,453,353
Retained earnings 10,762,498 10,059,806
Net unrealized gain (loss) on securities
available for sale 1,773,981 2,458,255
-----------------------
Total shareholders' equity 29,704,482 29,684,804
-----------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY 245,277,511 242,628,574
=======================
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIODS INDICATED
THREE MONTHS THREE MONTHS QUARTER QUARTER
ENDED ENDED ENDED ENDED
March 31, March 31, March 31, March 31, 1995
1996 1995 1996 1995
----------------------------------------------
INTEREST INCOME:
Interest and fees on loans $3,640,106 $3,553,326 $3,640,106 $3,553,326
Interest and dividends on investments: -----------------------------------------------
Taxable interest 732,962 622,832 732,962 622,832
Nontaxable interest 264,245 284,827 264,245 284,827
Dividends 121,584 89,445 121,584 89,445
-----------------------------------------------
Total Interest and
dividends on investments 1,118,791 997,104 1,118,791 997,104
Interest on Federal funds sold 22,789 117 22,789 117
-----------------------------------------------
Total interest income 4,781,686 4,550,547 4,781,686 4,550,547
-----------------------------------------------
INTEREST EXPENSE:
Interest on deposits 1,897,288 1,671,308 1,897,288 1,671,308
Interest on Federal funds purchased 820 55,163 820 55,163
Interest on securities sold under
repurchase agreements 71,734 43,557 71,734 43,557
Interest on other borrowings 0 110,635 0 110,635
-----------------------------------------------
Total interest expense 1,969,842 1,880,663 1,969,842 1,880,663
-----------------------------------------------
Net interest income 2,811,844 2,669,884 2,811,844 2,669,884
Provision for loan losses 42,000 100,005 42,000 100,005
-----------------------------------------------
Net interest income after provision for
loan losses 2,769,844 2,569,879 2,769,844 2,569,879
-----------------------------------------------
OTHER OPERATING INCOME:
Service charges 202,200 171,722 202,200 171,722
Securities gains 36,477 282,866 36,477 282,866
Other income 60,294 65,489 60,294 65,489
-----------------------------------------------
Total other operating income 298,971 520,077 298,971 520,077
-----------------------------------------------
OTHER OPERATING EXPENSES:
Salaries and employee benefits 873,872 977,757 873,872 977,757
Occupancy expense, net 130,414 135,752 130,414 135,752
Furniture and equipment expense 128,123 146,461 128,123 146,461
Other expenses 627,653 747,579 627,653 747,579
-----------------------------------------------
Total other operating expenses 1,760,062 2,007,549 1,760,062 2,007,549
-----------------------------------------------
INCOME BEFORE TAXES 1,308,753 1,082,407 1,308,753 1,082,407
INCOME TAX PROVISION 326,325 289,073 326,325 289,073
-----------------------------------------------
NET INCOME $982,428 $793,334 $982,428 $793,334
===============================================
EARNINGS PER SHARE 0.77 0.63 0.77 0.63
===============================================
TOTAL SHARES OUTSTANDING 1,271,522 1,266,878 1,271,522 1,266,878
===============================================
(ADJUSTED FOR 50% STOCK DIVIDEND)
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1996
UNREALIZED
APPRECIATION
ADDITIONAL (DEPRECIATION) ON TOTAL
COMMON PAID-IN RETAINED SECURITIES SHAREHOLDERS'
STOCK CAPITAL EARNINGS AVAILABLE-FOR-SALE EQUITY
--------------------------------------------------------------
Balance, December 31, 1995 12,713,390 4,453,353 10,762,498 2,458,255 29,684,804
Net income for the three months ended
March 31, 1996 982,428 982,428
Dividends declared and paid (279,736) (279,736)
Net change in unrealized gain on marketable
equity securities (684,274) (684,274)
Stock options exercised 1,890 (630) 1,260
---------------------------------------------------------------
Balance, March 31, 1996 12,715,280 4,452,723 10,762,498 1,773,981 29,704,482
===============================================================
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT
OF CASH FLOWS
FOR THE QUARTERS ENDED MARCH 31, 1996 AND MARCH 31, 1995
MARCH 31, MARCH 31,
1996 1995
----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $982,427 $793,334
Adjustments to reconcile net income to net cash
provided by operating actvities
Depreciation 101,162 84,446
Provision for loan losses 420,000 100,005
Amortization of investment security premiums 4,607 13,709
Accretion of investment security discounts (13,981) (20,598)
Securities gains (36,477) (282,866)
Increase in all other assets (282,990) (566,887)
Increase (decrease) in all other liabilities 183,339 551,049
----------------------
Net cash provided by operating activities 1,358,087 672,192
----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities available-for-sale (10,658,639)(7,983,095)
Proceeds from sale of securities available-for-sale 644,559 9,623,662
Purchase of securities held-to-maturity (493,895) (25,000)
Proceeds from calls and maturities of securities
held-to-maturity 509,685 3,435,049
Net decrease in loans 1,939,549 (991,720)
Decrease in foreclosed assets 290,093 (9,441)
Acquisition of bank premises and equipment (134,348) (47,897)
----------------------
Net cash provided by (used in) investing
activities (7,902,996) 4,001,558
----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in interest-bearing deposits 2,448,458 3,287,479
Net (decrease) in noninterest-bearing deposits (50,993) 1,767,909
Net increase in sec. sold under repurch. agree. 48,455 (1,059,506)
Increase (decrease) in other borrowed funds 0 (7,170,000)
Dividends paid (279,736) (222,486)
Stock options exercised 1,261 37,883
----------------------
Net cash (used in) provided by financing
activities 2,167,445 (3,358,721)
----------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,377,464) 1,315,029
CASH AND CASH EQUIVALENTS, BEGINNING 14,853,649 12,025,441
----------------------
CASH AND CASH EQUIVALENTS, ENDING 10,476,185 13,340,470
======================
The interim financial statements are unaudited
but, in the opinion of management, reflect all
adjustments necessary for the fair presentation
of results for such periods. The results of
operations for any interim period are not
necessarily indicative of results for the full
year. These financial statements should be read
in conjunction with financial statements and
notes thereto contained in the Company's annual
report for the year ended December 31, 1995.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EARNINGS SUMMARY
Interest Income
For the three months ended March 31, 1996,
total interest income increased by $231,139
or 5.08% compared to the same period in 1995.
This increase is due to a slight increase
of $86,780 in interest and fees on loans,
an increase in total interest and dividends
on investments of $121,687 and a $22,672
increase in income in federal funds sold.
The slight increase in interest and fees on
loans of $86,780 was primarily due to an
increase in loan volume during this period
of $2,293,561. The increase in interest on
federal funds sold of $22,672 was due to an
increase in the amount of funds sold.
Interest and dividends on investments
increased primarily due to an increase in
taxable interest of $110,130 and a slight
decrease in nontaxable interest on
investments of $20,582. In addition, there
was an increase in dividend income of
$32,139 due to an increase of holdings in
the equity portfolio.
Interest Expense
For the three months ended March 31, 1996,
total interest expense increased $89,179 or
4.74% over the same period in 1995. This
increase can be attributed to the interest paid
on interest-bearing deposits due to the
$2,448,458 increase in volume.
Provision for Loan Losses
The provision for losses for the three
months ended March 31, 1996 decreased
$58,005 from the corresponding period in
1995. This decrease reflects a decline in
anticipated losses on small business loans
for the first three months of 1996 and the
fiscal year.
As of the first quarter of 1996, recoveries
exceeded charge offs by $24,000 compared to
the first quarter of 1995 when charge offs
exceeded recoveries by $97,000. Provisions
to date total $42,000 as compared to
provisions through March 31, 1995 of
$100,005.
Senior Management utilizes several
different methods to determine the adequacy
of the loan loss allowance and to establish
quarterly provisions. Among these methods
is the analysis of the most recent five
year average loss history, the coverage of
non-performing loans provided by the
allowance, an estimate of potential loss in
homogeneous pools of loans and the internal
credit rating assigned to watch and problem
loans.
In addition to the preceding, senior
management also reviews macro portfolio
risks such as the absence of
concentrations, absence of foreign credit
exposure and growth objectives in further
tuning the allowance and provisions.
The ratio of non-accruing loans and those
accruing but delinquent more than 90 days
(collectively called "non-performing"
loans) to the allowance for loan losses
stood at .89 times at March 31, 1996 a
decrease in coverage from the .76 times at
December 31, 1995. All of the increase in
non-performing loans occurred in the residential
real estate portfolio. Based upon this analysis
as well as the others noted above, senior
management has concluded that the allowance
for loan losses is adequate.
Other Operating Income
Other operating income for the three months
ended March 31, 1996 decreased $221,106 or
42.51% from the same time period in 1995.
This decrease is due to the net effect of
an increase in service charges collected of
$30,478, a decrease in securities gains
f $246,389 and a decrease in
other income of $5,195.
The increase in service charges, which was
a result of an increase in service charges
collected on deposit accounts. As compared
to the first quarter of 1995, there were no gains
taken on sales of foreclosed assets during
the first three months of 1996, resulting in the
slight decrease in other income. The
primary decrease in other operating income
was due to the decline in securities gains
recognized of $246,389. Realized gains
were on partial sales of equity securities
that have been in the portfolio long-term
that had reached what management had
determined to be their maximum potential.
Other Operating Expense
For the three months ended March 31, 1996
total operating expenses increased $247,487
or 12.33% over the same period in 1995.
Expenses included under the other expenses heading
are such items as: advertising, postage,
maintenance, FDIC, SAIF and other
insurance, Pennsylvania State shares tax,
legal and professional fees, telephone,
printing and supplies and other general and
administrative expenses. Decreases in
other expenses totalled $119,926. During the
first quarter of 1995, expenses were incurred
that related to the acquisition of Lock Haven
Savings Bank. These expenses were non-
recurring, and therefore, did not reocurr during
the first quarter of 1996. This reduction in other
operating expense coupled with an increase
in ORE expenses and bookkeeping and data
processing expense incurred relating to a
platform automation system that will be
installed in the near future, are the primary
factors contributing to the $119,926 decrease
in other expense.
In addition, employee salaries and benefits
decreased $103,885. When comparing the
amount of salaries and employee benefits
expense incurred during the first three months
of 1996 to the same period in 1995, it should
be noted that in 1995, salaries and employee
benefits was charged to satisfy the terms of
two Lock Haven Savings Bank executives'
employment agreements in connection with
the merger. This expense did not reocurr
in 1996, therefore, this reduction, netted with
increases in salary levels, accounts for the
overall $103,885 decrease in salaries and
employee benefits.
Occupancy expense and furniture and
equipment expense decreased slightly by
$5,338 and $18,338, respectively. These
decreases can be attributed to the closing of
two branch offices after the merger with Lock
Haven Savings Bank in April of 1995.
Provision for Income Taxes
Provision for income taxes for the three
months ended March 31, 1996 resulted in an
effective income tax rate of 24.93%
compared to 26.71% for the corresponding
period in 1995. The decrease noted is
primarily a result of a decrease in
security gains for the March 31, 1996
period compared to March 31, 1995.
ASSET/LIABILITY MANAGEMENT
Assets
At March 31, 1996, cash, federal funds sold,
and investment securities totalled
$87,622,962, or a net increase of $4,629,898
over the corresponding balance at December
31, 1995. Investment securities increased,
$9,007,362, while cash and federal funds
sold decreased $3,807,464 and $570,000.
During this period, net loans decreased by
$2,359,549 to $148,927,612.
The purchase of agency securities accounts
for the increase in investment securities from
December 31, 1995 to March 31, 1996.
Management evaluates credit risk,
anticipated economic conditions and other
relevant factors impacting the quality of
the loan portfolio in order to establish an
adequate loan-loss allowance. An internal
credit review committee monitors loans in
accordance with Federal supervisory
standards. Furthermore, results of
examination and appraisal of the coverage of
the loan-loss allowance by the committee,
Federal regulators and independent
accountants are frequently reviewed by
management.
Accordingly, on a quarterly basis,
management determines an appropriate
provision for possible loan losses from
earnings in order to maintain allowance
coverage relative to potential losses.
The allowance for loan losses totalled
$2,419,312 at March 31, 1996, an increase of
$65,988 over the balance at December 31,
1995. For the three months ended March 31,
1996, the provision for loan losses totalled
$42,000. As a percent of loans, the
allowance for loan losses at March 31, 1996
totalled 1.60% versus 1.53% at December 31,
1995.
Loans accounted for on a non-accrual basis
totalled $1,056,000 and $1,009,000 at March
31, 1996 and December 31, 1995 respectively.
Accruing loans, contractually delinquent 90
days or more were $1,087,000 at March 31,
1996 and $791,000 at December 31, 1995.
These loans are predominately secured by
first lien mortgages on residential real
estate where appraisal values mitigate any
potential loss of interest and principal.
The ratio of non-accruing loans and those
accruing but delinquent more than 90 days to
the allowance for loan losses stood at .89
times at March 31, 1996 and .76 times at
December 31, 1995. Presently the portfolio
has no loans that meet the definition of
"trouble debt restructurings" under FAS 15.
A watch list of potential problem loans is
maintained and updated quarterly by an
internal credit review committee. At this
time there are no credits of substance that
have the potential to become more than 90
days delinquent.
The Bank has not had nor presently has any
foreign outstandings. In addition, no known
concentrations of credit presently exist.
At March 31, 1996, the balance of other real
estate was $653,015 compared to $943,108 at
December 31, 1995. During the first quarter
of 1996, two properties were transferred into
the account. In addition, one property that was
on the books at December 31, 1995, was sold
during the first quarter.
Deposits
At March 31, 1996 total deposits amounted to
$204,655,066 representing an increase of
$2,397,465 or a 1.19% increase over total
deposits at December 31, 1995.
Other Liabilities
At March 31, 1996, other liabilities
totalled $3,721,002 or a $297,785 increase
over the balance at December 31, 1995. This
increase is primarily due to an increase in
accrued taxes.
Capital
The adequacy of the Company's capital is
reviewed on an ongoing basis with reference
to the size, composition and quality of the
Company's resources and regulatory
guidelines. Management seeks to maintain a
level of capital sufficient to support
existing assets and anticipated asset
growth, maintain favorable access to capital
markets and preserve high quality credit
ratings. The capital requirements of the
Pennsylvania Department of Banking are 6%.
The capital requirements of the Federal
Deposit Insurance Corporation are:
1. Regulatory capital to total assets 6%.
2. Primary capital to total assets 5 1/2%.
At March 31, 1996, regulatory capital to
total assets was 12.11% compared to 12.23%
at December 31, 1995. Primary capital to
total assets at March 31, 1996 was 13.10%
compared to 13.20% at December 31, 1995.
The Federal Reserve Board, the FDIC and the
OCC have issued certain risk-based capital
guidelines, which supplement existing
capital requirements. The guidelines
require all United States banks and bank
holding companies to maintain a minimum
risk-based capital ratio of 8.00% (of which
at least 4.00% must be in the form of common
stockholders' equity). Assets are assigned
to five risk categories, with higher levels
of capital being required for the categories
perceived as representing greater risk. The
required capital will represent equity and
(to the extent permitted) nonequity capital
as a percentage of total risk-weighted
assets. The risk-based capital rules are
designed to make regulatory capital
requirements more sensitive to differences
in risk profiles among banks and bank
holding companies and to minimize
disincentives for holding liquid assets
Capital is being maintained in compliance
with the new risk-based capital guidelines.
The Company's Tier 1 Capital to total risk
weighted assets ratio is 19.68% and the
total capital ratio to total risk weighted
assets ratio is 20.93%.
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, less than 70%
2. Net Loans to Total Deposits, less than 80%
3. Net Loans to Core Deposits, less than 85%
4. Investments to Total Assets, less than 40%
5. Investments to Total Deposits, less 50%
6. Net Primary Liquid Assets to Total
Assets, greater than 10%
7. Net Primary Liquid Assets to Total
Liabilities, greater than 10%
8. Total Liquid Assets to Total Assets,
greater than 25%
9. Total Liquid Assets to Total
Liabilities, greater than 25%
The Bank has maintained a liquidity level at or above the
guidelines of the FDIC and the Pennsylvania Department
of Banking. The Bank has available to it Federal Funds
lines of credit totalling $15,510 from correspondent banks
should the need for short-term funds arise.
The following table sets forth the Bank's interest rate
sensitivity as of March 31, 1996:
AFTER ONE AFTER FIVE AFTER
WITHIN BUT WITHIN BUT WITHIN TEN
ONE YEAR FIVE YEARS TEN YEARS YEARS
---------------------------------------------
Earning Assets (1) (2) $69,716 $30,479 $28,491 $98,751
Interest-bearing 113,931 64,212 5,692 85
liabilities (3) ----------------------------------------------
Gap:
By period (44,215) (33,733) 22,799 98,666
By cumulative (44,215) (77,948) (55,149) 43,517
----------------------------------------------
Earning assets:
Investments (1) 18,833 3,292 4,986 50,036
Loans (2) 50,883 27,187 23,505 48,715
Interest-bearing
liabilities: (3)
Interest-bearing
deposits $110,202 $61,548 $5,692 $85
Long-term borrowings 0 0 0 0
<FN>
(1) Investment balances include annual repayment
assumptions of 6%. Mortgage backed securities
and certain other securities include repayment
assumptions based on the terms of the securities.
(2) Loan balances include annual repayment
assumptions based on the projected cash flow from
the loan portfolio. The cash flow projections
are based on the terms of the credit facilities.
No assumptions are made regarding prepayment of
loans. Loans are presented net of deferred loan
fees and include loans held for resale and
allowance for loan losses.
(3) The Corporation considers one-half of
its regular saving deposits to be stable core
deposits, and accordingly has classified 50%
of such deposits in the "Within One Year
category" and 50 % in the "After One but
Within Five years" category. All other
interest-bearing demand deposits are
classified in the "Within One Year" category
and time deposits are categorized according
to scheduled maturity.
</FN>
In reference to the attached financial statements, all
adjustments are of a normal recurring nature pursuant
to Rule 10-01 (b) (8) of Regulation S-X.
Part II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K.
a. Exhibits:
Number Description
- -------------------------
(11) Statement Regarding Computation of Per Share Earnings
(27) Financial Data Schedule
b. No reports on Form 8-K were filed in the first quarter of 1996.
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: /s/ Theodore H. Reich
-----------------------------------
Theodore H. Reich, President
Date: /s/ Sonya E, Hartranft
-----------------------------------
Sonya E. Hartranft, Controller
EXHIBIT INDEX
Number Description
- -------------------------
(11) Statement Regarding Computation of Per Share Earnings
(27) Financial Data Schedule
EXHIBIT 11
STATEMENT OF COMPUTATION OF EARNING PER SHARE
FOR THE PERIOD ENDED 3/31/96
LESS FRACTION
DATE SHARES FRACTIONAL OF WEIGHTED
OUTSTANDING RESTATEMENT SHARES YEAR SHARES
- -----------------------------------------------------------------------
1/01/95-1/03 1,271,339 - - 3/91 41,912
1/04/96-3/31 1,271,528 - - 88/91 1,229,610
-----------
WEIGHTED SHARES OUTSTANDING 3/31/96 1,271,522
===========
NET INCOME 3/31/96 982,428
WEIGHTED SHARES OUTSTANDING 3/31/96 1,271,522
EARNINGS PER SHARE 3/31/96 $0.77
===========
STATEMENT OF COMPUTATION OF EARNING PER SHARE
FOR THE PERIOD ENDED 3/31/95
LESS FRACTION
DATE SHARES FRACTIONAL OF WEIGHTED
OUTSTANDING RESTATEMENT SHARES YEAR SHARES
- -----------------------------------------------------------------------
1/01/95-3/31 844,612 1.5 40 90/90 1,266,878
===========
NET INCOME 3/31/95 793,334
WEIGHTED SHARES OUTSTANDING 3/31/95 1,266,878
EARNINGS PER SHARE 3/31/95 $0.63
===========