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 March 31, 2008.
|
|
|
o
|
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
|
|
17701-0967
|
(Address of
principal executive offices)
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|
(Zip Code)
|
(570)
322-1111
Registrants
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 the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days.
YES
x
NO
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definition of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated filer
o
|
|
Accelerated filer
x
|
|
|
|
Non-accelerated filer
o
|
|
Small reporting company
¨
|
Do not check if a smaller reporting company
|
|
|
Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
YES
o
NO
x
On May 1, 2008 there
were 3,867,722 shares of the Registrants common stock outstanding.
PENNS WOODS BANCORP, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
2
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
PENNS
WOODS BANCORP, INC.
CONSOLIDATED
BALANCE SHEET
(UNAUDITED)
|
|
March 31,
|
|
December 31,
|
|
(In Thousands, Except Share Data)
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
Noninterest-bearing
balances
|
|
$
|
16,440
|
|
$
|
15,417
|
|
Interest-bearing
deposits in other financial institutions
|
|
12
|
|
16
|
|
Total cash and
cash equivalents
|
|
16,452
|
|
15,433
|
|
|
|
|
|
|
|
Investment
securities, available for sale, at fair value
|
|
207,777
|
|
214,455
|
|
Investment
securities held to maturity (fair value of $281 and $279)
|
|
279
|
|
277
|
|
Loans held for
sale
|
|
3,254
|
|
4,214
|
|
Loans
|
|
357,609
|
|
360,478
|
|
Less: Allowance
for loan losses
|
|
4,154
|
|
4,130
|
|
Loans, net
|
|
353,455
|
|
356,348
|
|
Premises and
equipment, net
|
|
7,381
|
|
6,774
|
|
Accrued interest
receivable
|
|
3,122
|
|
3,343
|
|
Bank-owned life
insurance
|
|
13,209
|
|
12,375
|
|
Investment in
limited partnerships
|
|
5,261
|
|
5,439
|
|
Goodwill
|
|
3,032
|
|
3,032
|
|
Other assets
|
|
17,794
|
|
6,448
|
|
TOTAL ASSETS
|
|
$
|
631,016
|
|
$
|
628,138
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
Interest-bearing
deposits
|
|
$
|
324,463
|
|
$
|
314,351
|
|
Noninterest-bearing
deposits
|
|
71,662
|
|
74,671
|
|
Total deposits
|
|
396,125
|
|
389,022
|
|
|
|
|
|
|
|
Short-term
borrowings
|
|
61,766
|
|
55,315
|
|
Long-term
borrowings, Federal Home Loan Bank (FHLB)
|
|
96,778
|
|
106,378
|
|
Accrued interest
payable
|
|
1,626
|
|
1,744
|
|
Other
liabilities
|
|
5,567
|
|
5,120
|
|
TOTAL
LIABILITIES
|
|
561,862
|
|
557,579
|
|
|
|
|
|
|
|
SHAREHOLDERS
EQUITY
|
|
|
|
|
|
Common stock,
par value $8.33, 10,000,000 shares authorized; 4,007,652 and 4,006,934 shares
issued
|
|
33,397
|
|
33,391
|
|
Additional
paid-in capital
|
|
17,904
|
|
17,888
|
|
Retained
earnings
|
|
27,620
|
|
27,707
|
|
Accumulated
other comprehensive loss:
|
|
|
|
|
|
Net unrealized
loss on available for sale securities
|
|
(3,366
|
)
|
(2,159
|
)
|
Defined benefit
plan
|
|
(1,375
|
)
|
(1,375
|
)
|
Less: Treasury
stock at cost, 135,599 and 131,302 shares
|
|
(5,026
|
)
|
(4,893
|
)
|
TOTAL
SHAREHOLDERS EQUITY
|
|
69,154
|
|
70,559
|
|
TOTAL
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
$
|
631,016
|
|
$
|
628,138
|
|
See accompanying
notes to the unaudited consolidated financial statements.
3
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF
INCOME
(UNAUDITED)
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(In Thousands, Except Per Share Data)
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
INTEREST AND
DIVIDEND INCOME
|
|
|
|
|
|
Loans including
fees
|
|
$
|
6,380
|
|
$
|
6,423
|
|
Investment
Securities:
|
|
|
|
|
|
Taxable
|
|
1,190
|
|
823
|
|
Tax-exempt
|
|
1,226
|
|
1,111
|
|
Dividend and
other interest income
|
|
252
|
|
322
|
|
TOTAL INTEREST
AND DIVIDEND INCOME
|
|
9,048
|
|
8,679
|
|
|
|
|
|
|
|
INTEREST EXPENSE
|
|
|
|
|
|
Deposits
|
|
2,541
|
|
2,512
|
|
Short-term
borrowings
|
|
429
|
|
505
|
|
Long-term
borrowings, FHLB
|
|
1,197
|
|
922
|
|
TOTAL INTEREST
EXPENSE
|
|
4,167
|
|
3,939
|
|
|
|
|
|
|
|
NET INTEREST
INCOME
|
|
4,881
|
|
4,740
|
|
|
|
|
|
|
|
PROVISION FOR
LOAN LOSSES
|
|
60
|
|
40
|
|
|
|
|
|
|
|
NET INTEREST
INCOME AFTER PROVISION FOR LOAN LOSSES
|
|
4,821
|
|
4,700
|
|
|
|
|
|
|
|
NON-INTEREST
INCOME
|
|
|
|
|
|
Deposit service
charges
|
|
570
|
|
541
|
|
Securities
gains, net
|
|
38
|
|
326
|
|
Bank-owned life
insurance
|
|
155
|
|
115
|
|
Gain on sale of
loans
|
|
152
|
|
138
|
|
Insurance
commissions
|
|
580
|
|
438
|
|
Other
|
|
419
|
|
416
|
|
TOTAL
NON-INTEREST INCOME
|
|
1,914
|
|
1,974
|
|
|
|
|
|
|
|
NON-INTEREST
EXPENSE
|
|
|
|
|
|
Salaries and
employee benefits
|
|
2,451
|
|
2,281
|
|
Occupancy, net
|
|
338
|
|
331
|
|
Furniture and
equipment
|
|
285
|
|
286
|
|
Pennsylvania
shares tax
|
|
105
|
|
161
|
|
Other
|
|
1,266
|
|
1,069
|
|
TOTAL
NON-INTEREST EXPENSE
|
|
4,445
|
|
4,128
|
|
|
|
|
|
|
|
INCOME BEFORE
INCOME TAX PROVISION
|
|
2,290
|
|
2,546
|
|
INCOME TAX
PROVISION
|
|
159
|
|
265
|
|
NET INCOME
|
|
$
|
2,131
|
|
$
|
2,281
|
|
|
|
|
|
|
|
EARNINGS PER
SHARE - BASIC
|
|
$
|
0.55
|
|
$
|
0.59
|
|
|
|
|
|
|
|
EARNINGS PER
SHARE - DILUTED
|
|
$
|
0.55
|
|
$
|
0.59
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE
SHARES OUTSTANDING - BASIC
|
|
3,874,741
|
|
3,897,480
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE
SHARES OUTSTANDING - DILUTED
|
|
3,874,931
|
|
3,897,818
|
|
|
|
|
|
|
|
DIVIDENDS PER
SHARE
|
|
$
|
0.46
|
|
$
|
0.44
|
|
See accompanying
notes to the unaudited consolidated financial statements.
4
PENNS
WOODS BANCORP, INC.
CONSOLIDATED
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
ACCUMULATED
|
|
|
|
|
|
|
|
COMMON
|
|
ADDITIONAL
|
|
|
|
OTHER
|
|
|
|
TOTAL
|
|
|
|
STOCK
|
|
PAID-IN
|
|
RETAINED
|
|
COMPREHENSIVE
|
|
TREASURY
|
|
SHAREHOLDERS'
|
|
(In Thousands Except Per Share Data)
|
|
SHARES
|
|
AMOUNT
|
|
CAPITAL
|
|
EARNINGS
|
|
INCOME (LOSS)
|
|
STOCK
|
|
EQUITY
|
|
Balance, December
31, 2007
|
|
4,006,934
|
|
$
|
33,391
|
|
$
|
17,888
|
|
$
|
27,707
|
|
$
|
(3,534
|
)
|
$
|
(4,893
|
)
|
$
|
70,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
2,131
|
|
|
|
|
|
2,131
|
|
Unrealized loss
on investments available for sale, net of reclassification adjustment, net of
income tax benefit of $622
|
|
|
|
|
|
|
|
|
|
(1,207
|
)
|
|
|
(1,207
|
)
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
924
|
|
Dividends
declared, ($0.46 per share)
|
|
|
|
|
|
|
|
(1,781
|
)
|
|
|
|
|
(1,781
|
)
|
Purchase of
treasury stock (4,297 shares)
|
|
|
|
|
|
|
|
|
|
|
|
(133
|
)
|
(133
|
)
|
Cumulative effect
of change in accounting for postretirement benefits
|
|
|
|
|
|
|
|
(437
|
)
|
|
|
|
|
(437
|
)
|
Common shares
issued for employee stock purchase plan
|
|
718
|
|
6
|
|
16
|
|
|
|
|
|
|
|
22
|
|
Balance, March
31, 2008
|
|
4,007,652
|
|
$
|
33,397
|
|
$
|
17,904
|
|
$
|
27,620
|
|
$
|
(4,741
|
)
|
$
|
(5,026
|
)
|
$
|
69,154
|
|
|
|
|
|
|
|
|
|
|
|
ACCUMULATED
|
|
|
|
|
|
|
|
COMMON
|
|
ADDITIONAL
|
|
|
|
OTHER
|
|
|
|
TOTAL
|
|
|
|
STOCK
|
|
PAID-IN
|
|
RETAINED
|
|
COMPREHENSIVE
|
|
TREASURY
|
|
SHAREHOLDERS'
|
|
(In Thousands Except Per Share Data)
|
|
SHARES
|
|
AMOUNT
|
|
CAPITAL
|
|
EARNINGS
|
|
INCOME (LOSS)
|
|
STOCK
|
|
EQUITY
|
|
Balance, December
31, 2006
|
|
4,003,514
|
|
$
|
33,362
|
|
$
|
17,810
|
|
$
|
25,783
|
|
$
|
1,560
|
|
$
|
(3,921
|
)
|
$
|
74,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
2,281
|
|
|
|
|
|
2,281
|
|
Unrealized loss
on investments available for sale, net of reclassification adjustment, net of
income tax benefit of $337
|
|
|
|
|
|
|
|
|
|
(653
|
)
|
|
|
(653
|
)
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,628
|
|
Dividends
declared, ($0.44 per share)
|
|
|
|
|
|
|
|
(1,714
|
)
|
|
|
|
|
(1,714
|
)
|
Purchase of
treasury stock (10,030 shares)
|
|
|
|
|
|
|
|
|
|
|
|
(357
|
)
|
(357
|
)
|
Stock options
exercised
|
|
330
|
|
3
|
|
5
|
|
|
|
|
|
|
|
8
|
|
Common shares
issued for employee stock purchase plan
|
|
672
|
|
6
|
|
17
|
|
|
|
|
|
|
|
23
|
|
Balance, March
31, 2007
|
|
4,004,516
|
|
$
|
33,371
|
|
$
|
17,832
|
|
$
|
26,350
|
|
$
|
907
|
|
$
|
(4,278
|
)
|
$
|
74,182
|
|
See accompanying
notes to the unaudited consolidated financial statements.
PENNS
WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
|
|
Three Months Ended March 31,
|
|
(In Thousands)
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
2,131
|
|
$
|
2,281
|
|
Other
comprehensive loss:
|
|
|
|
|
|
Change in net
unrealized losses on available for sale securities
|
|
(1,791
|
)
|
(664
|
)
|
Less:
Reclassification adjustment for net gains included in net income
|
|
38
|
|
326
|
|
Other
comprehensive loss before tax
|
|
(1,829
|
)
|
(990
|
)
|
Income tax
benefit related to other comprehensive loss
|
|
(622
|
)
|
(337
|
)
|
Other
comprehensive loss, net of tax
|
|
(1,207
|
)
|
(653
|
)
|
Comprehensive
income
|
|
$
|
924
|
|
$
|
1,628
|
|
See accompanying
notes to the unaudited consolidated financial statements.
5
PENNS
WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(In Thousands)
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
Net Income
|
|
$
|
2,131
|
|
$
|
2,281
|
|
Adjustments to
reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
Depreciation and
amortization
|
|
157
|
|
179
|
|
Provision for
loan losses
|
|
60
|
|
40
|
|
Accretion and
amortization of investment security discounts and premiums
|
|
(284
|
)
|
(232
|
)
|
Securities
gains, net
|
|
(38
|
)
|
(326
|
)
|
Originations of
loans held for sale
|
|
(6,400
|
)
|
(5,289
|
)
|
Proceeds of
loans held for sale
|
|
7,512
|
|
6,147
|
|
Gain on sale of
loans
|
|
(152
|
)
|
(138
|
)
|
Increases in
bank-owned life insurance
|
|
(155
|
)
|
(440
|
)
|
Other, net
|
|
(702
|
)
|
(64
|
)
|
Net cash
provided by operating activities
|
|
2,129
|
|
2,158
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
Investment
securities available for sale:
|
|
|
|
|
|
Proceeds from
sales
|
|
17,737
|
|
13,110
|
|
Proceeds from
calls and maturities
|
|
1,887
|
|
1,769
|
|
Purchases
|
|
(23,912
|
)
|
(13,277
|
)
|
Net decrease in
loans
|
|
2,833
|
|
2,786
|
|
Acquisition of
bank premises and equipment
|
|
(764
|
)
|
(184
|
)
|
Proceeds from
the sale of foreclosed assets
|
|
11
|
|
|
|
Purchase of
bank-owned life insurance
|
|
(679
|
)
|
(325
|
)
|
Proceeds from
redemption of regulatory stock
|
|
1,161
|
|
132
|
|
Purchases of
regulatory stock
|
|
(1,446
|
)
|
(881
|
)
|
Net cash (used
for) provided by investing activities
|
|
(3,172
|
)
|
3,130
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
Net increase
(decrease) in interest-bearing deposits
|
|
10,112
|
|
(8,110
|
)
|
Net decrease in
noninterest-bearing deposits
|
|
(3,009
|
)
|
(2,232
|
)
|
Proceeds of
long-term borrowings, FHLB
|
|
|
|
10,000
|
|
Repayment of
long-term borrowings, FHLB
|
|
(9,600
|
)
|
(11,500
|
)
|
Net increase in
short-term borrowings
|
|
6,451
|
|
6,476
|
|
Dividends paid
|
|
(1,781
|
)
|
(1,714
|
)
|
Issuance of
common stock
|
|
22
|
|
23
|
|
Stock options
exercised
|
|
|
|
8
|
|
Purchase of treasury
stock
|
|
(133
|
)
|
(357
|
)
|
Net cash
provided by (used for) financing activities
|
|
2,062
|
|
(7,406
|
)
|
NET INCREASE
(DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
1,019
|
|
(2,118
|
)
|
CASH AND CASH
EQUIVALENTS, BEGINNING
|
|
15,433
|
|
15,373
|
|
CASH AND CASH
EQUIVALENTS, ENDING
|
|
$
|
16,452
|
|
$
|
13,255
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
4,285
|
|
$
|
4,099
|
|
Income taxes
paid
|
|
150
|
|
200
|
|
Transfer of
loans to foreclosed real estate
|
|
|
|
|
|
See accompanying
notes to the unaudited consolidated financial statements.
6
PENNS WOODS BANCORP, INC. AND SUBSIDIARIES
NOTES TO
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, Inc., Woods
Real Estate Development Company, Inc., 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. 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
Companys Annual Report on Form 10-K for the year ended December 31,
2007.
The
accounting policies followed in the presentation of interim financial results
are the same as those followed on an annual basis. These policies are
presented on pages 41 through 47 of the Annual Report on Form 10-K
for the year ended December 31, 2007.
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.
Note 2. Recent
Accounting Pronouncements
In December 2007, the
FASB issued FAS No. 141 (revised 2007), Business Combinations (FAS 141(R)),
which establishes principles and requirements for how an acquirer recognizes
and measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in an acquiree, including
the recognition and measurement of goodwill acquired in a business
combination. FAS 141(R) is effective for fiscal years beginning on
or after December 15, 2008. Earlier adoption is prohibited.
The adoption of this standard is not expected to have a material effect on the
Companys results of operations or financial position.
In September 2006, the FASB issued FAS No. 157,
Fair Value Measurements (FAS 157), which provides enhanced guidance for using
fair value to measure assets and liabilities.
The standard applies whenever other standards require or permit assets
or liabilities to be measured at fair value.
The Standard does not expand the use of fair value in any new
circumstances. FAS 157 is effective
for financial statements issued for fiscal years beginning after November 15,
2007 and interim periods within those fiscal years. In February 2008, the FASB issued Staff
Position No. 157-1, Application of FASB Statement 157 to FASB Statement No. 13
7
and Other Accounting Pronouncements That Address Fair
Value Measurements for Purposes of Lease Classification or Measurement under
Statement 13, which removed leasing transactions accounted for under FAS No. 13
and related guidance from the scope of FAS 157.
Also in February 2008, the FASB issued Staff Position No.157-2,
Partial Deferral of the Effective Date of Statement 157, which deferred the
effective date of FAS No. 157 for all nonfinancial assets and nonfinancial
liabilities to fiscal years beginning after November 15, 2008. On January 1, 2008, the Company adopted
FAS 157 which did not have a material effect on the Companys results of
operations or financial position, see Note 8.
In February 2007, the
FASB issued FAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities Including an Amendment of FASB Statement No. 115(FAS
159), which provides all entities with an option to report selected financial
assets and liabilities at fair value. The objective of the FAS 159 is to
improve financial reporting by providing entities with the opportunity to
mitigate volatility in earnings caused by measuring related assets and
liabilities differently without having to apply the complex provisions of hedge
accounting. FAS 159 is effective as of
the beginning of an entitys first fiscal year beginning after November 15,
2007. Early adoption is permitted as of
the beginning of a fiscal year that begins on or before November 15, 2007
provided the entity also elects to apply the provisions of FAS 157. On January 1, 2008, the Company adopted
FAS 159 which did not have a material effect on the Companys results of
operations or financial position.
In December 2007, the
FASB issued FAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements an Amendment of ARB No. 51(FAS 160). FAS 160 amends ARB No. 51 to establish
accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. It clarifies that
a noncontrolling interest in a subsidiary, which is sometimes referred to as
minority interest, is an ownership interest in the consolidated entity that
should be reported as equity in the consolidated financial statements.
Among other requirements, this statement requires consolidated net income to be
reported at amounts that include the amounts attributable to both the parent
and the noncontrolling interest. It also requires disclosure, on the face
of the consolidated income statement, of the amounts of consolidated net income
attributable to the parent and to the noncontrolling interest. FAS
160 is effective for fiscal years beginning on or after December 15,
2008. Earlier adoption is prohibited.
The adoption of this standard is not expected to have a material effect on the
Companys results of operations or financial position.
In September 2006, the
FASB reached consensus on the guidance provided by Emerging Issues Task Force
Issue 06-4 (EITF 06-4), Accounting for Deferred Compensation and
Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements. The guidance is applicable
to endorsement split-dollar life insurance arrangements, whereby the employer
owns and controls the insurance policy, that are associated with a
postretirement benefit. EITF 06-4
requires that, for a split-dollar life insurance arrangement within the scope
of the Issue, an employer should recognize a liability for future benefits in
accordance with FAS No. 106 (if, in substance, a postretirement benefit
plan exists) or Accounting Principles Board Opinion No. 12 (if the
arrangement is, in substance, an individual deferred compensation contract)
based on the substantive agreement with the employee. EITF 06-4 is effective for fiscal years
beginning after December 15, 2007.
On January 1, 2008, the Company adopted
8
EITF 06-04 which resulted in
an adjustment to retained earnings and an associated liability in the amount of
$437,000.
In March 2007, the FASB
ratified Emerging Issues Task Force Issue No. 06-10 (EITF 06-10),
Accounting for Collateral Assignment Split-Dollar Life Insurance Agreements.
EITF 06-10 provides guidance for determining a liability for the postretirement
benefit obligation as well as recognition and measurement of the associated
asset on the basis of the terms of the collateral assignment agreement. EITF
06-10 is effective for fiscal years beginning after December 15, 2007. On January 1,
2008, the Company adopted EITF 06-10 which did not have a material effect on
the Companys results of operations or financial position.
In June 2007, the FASB
ratified Emerging Issues Task Force Issue No. 06-11 (EITF 06-11),
Accounting for Income Tax Benefits of Dividends on Share-Based Payment
Awards. EITF 06-11 applies to
share-based payment arrangements with dividend protection features that entitle
employees to receive (a) dividends on equity-classified nonvested shares, (b) dividend
equivalents on equity-classified nonvested share units, or (c) payments
equal to the dividends paid on the underlying shares while an equity-classified
share option is outstanding, when those dividends or dividend equivalents are
charged to retained earnings under FAS No. 123R, Share-Based Payment, and
result in an income tax deduction for the employer. A consensus was reached
that a realized income tax benefit from dividends or dividend equivalents that
are charged to retained earnings and are paid to employees for
equity-classified nonvested equity shares, nonvested equity share units, and
outstanding equity share options should be recognized as an increase in
additional paid-in capital. EITF 06-11
is effective for fiscal years beginning after December 15, 2007, and
interim periods within those fiscal years.
On January 1, 2008, the Company adopted EITF 06-11 which did not
have a material effect on the Companys results of operations or financial
position.
In March 2008, the FASB
issued FAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities (FAS 161), to require enhanced disclosures about derivative
instruments and hedging activities. The new standard has revised financial
reporting for derivative instruments and hedging activities by requiring more
transparency about how and why an entity uses derivative instruments, how
derivative instruments and related hedged items are accounted for under FAS No. 133,
Accounting for Derivative Instruments and Hedging Activities; and how derivative
instruments and related hedged items affect an entitys financial position,
financial performance, and cash flows.
FAS 161 requires disclosure of the fair values of derivative instruments
and their gains and losses in a tabular format. It also requires entities to
provide more information about their liquidity by requiring disclosure of
derivative features that are credit risk-related. Further, it requires
cross-referencing within footnotes to enable financial statement users to
locate important information about derivative instruments. FAS 161 is effective for financial statements
issued for fiscal years and interim periods beginning after November 15,
2008, with early application encouraged.
The adoption of this standard is not expected to have a material effect
on the Companys results of operations or financial position.
Note 3. Per Share Data
The following table sets forth the composition of the
weighted average common shares (denominator) used in the basic and dilutive per
share computation. There are no
convertible
9
securities which would affect the numerator in
calculating basic and diluted earnings per share; therefore, net income as
presented on the consolidated statement of income will be used as the
numerator.
|
|
Three
Months Ended March 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Weighted average
common shares outstanding
|
|
4,007,176
|
|
4,003,936
|
|
|
|
|
|
|
|
Average treasury
stock shares
|
|
(132,435
|
)
|
(106,456
|
)
|
|
|
|
|
|
|
Weighted average
common shares and common stock equivalents used to calculate basic earnings
per share
|
|
3,874,741
|
|
3,897,480
|
|
|
|
|
|
|
|
Additional
common stock equivalents (stock options) used to calculate diluted earnings
per share
|
|
190
|
|
338
|
|
|
|
|
|
|
|
Weighted average
common shares and common stock equivalents used to calculate diluted earnings
per share
|
|
3,874,931
|
|
3,897,818
|
|
Options to purchase 8,273 shares of common stock at the
price of $40.29 were outstanding during the three months ended March 31,
2008 and 2007, respectively, but were not included in the computation of
diluted earnings per share as they were anti-dilutive due to the strike price
being greater than the market price as of March 31, 2008 and 2007,
respectively.
Note 4.
Net
Periodic Benefit Cost-Defined Benefit Plans
For a detailed disclosure on the Companys pension and
employee benefits plans, please refer to Note 11 of the Companys Consolidated
Financial Statements included in the Annual Report on Form 10-K for the
year ended December 31, 2007.
The following sets forth the components of the net
periodic benefit cost of the domestic non-contributory defined benefit plan for
the three months ended March 31, 2008 and 2007, respectively:
10
|
|
Three Months Ended
March 31,
|
|
(In Thousands)
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
137
|
|
$
|
117
|
|
Interest cost
|
|
152
|
|
121
|
|
Expected return
on plan assets
|
|
(157
|
)
|
(140
|
)
|
Amortization of
transition
|
|
(1
|
)
|
(1
|
)
|
Amortization of
prior service cost
|
|
6
|
|
6
|
|
Amortization of
net loss
|
|
14
|
|
|
|
Net periodic
cost
|
|
$
|
151
|
|
$
|
103
|
|
Employer Contributions
The Company previously disclosed in its consolidated
financial statements, included in the Annual Report on Form 10-K for the
year ended December 31, 2007, that it expected to contribute $450,000 to
its defined benefit plan in 2008. As of March 31, 2008, there were
no contributions made to the plan.
Note
5. Off Balance Sheet Risk
The Company is a party to financial instruments
with off-balance sheet risk in the normal course of business to meet the
financing needs of its customers. These
financial instruments are primarily comprised of commitments to extend credit
and standby letters of credit. These instruments
involve, to varying degrees, elements of credit, interest rate, or liquidity
risk in excess of the amount recognized in the consolidated balance sheet. The contract amounts of these instruments
express the extent of involvement the Company has in particular classes of
financial instruments.
The Companys exposure to credit loss from
nonperformance by the other party to the financial instruments for commitments
to extend credit and standby letters of credit is represented by the
contractual amount of these instruments.
The Company uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments. The Company may require collateral or other
security to support financial instruments with off-balance sheet credit risk.
Outstanding financial instruments with off balance
sheet risk are as follows:
|
|
March 31,
|
|
December 31,
|
|
(In Thousands)
|
|
2008
|
|
2007
|
|
Commitments to
extend credit
|
|
$
|
69,402
|
|
$
|
74,349
|
|
Standby letters
of credit
|
|
975
|
|
974
|
|
|
|
|
|
|
|
|
|
11
Note 6. Reclassification of Comparative Amounts
Certain comparative
amounts for the prior period have been reclassified to conform to current
period presentations. Such reclassifications had no effect on net income or
shareholders equity.
Note 7. Employee Stock Purchase Plan
The
Company issues shares under the Penns Woods Bancorp, Inc. 2006 Employee
Stock Purchase Plan (Plan) which is intended to encourage employee
participation in the ownership and economic progress of the Company. The Plan allows for up to 1,000,000 shares to
be purchased by employees. The purchase
price of the shares is 95% of market value with an employee eligible to
purchase up to the lesser of 15% of base compensation or $12,000 in market
value annually. During the three months
ended March 31, 2008 and 2007, there were 718 and 672 shares issued under
the plan, respectively.
Note 8. Fair Value Measurements
Effective
January 1, 2008, the Company adopted FAS 157, which, among other things,
requires enhanced disclosures about assets and liabilities carried at fair
value. FAS 157 establishes a hierarchal disclosure framework associated with
the level of pricing observability utilized in measuring assets and liabilities
at fair value. The three broad levels defined by FAS 157 hierarchy are as follows:
Level I:
|
|
Quoted prices are available in active markets for
identical assets or liabilities as of the reported date.
|
|
|
|
Level II:
|
|
Pricing inputs are other than quoted prices in
active markets, which are either directly or indirectly observable as of the
reported date. The nature of these assets and liabilities include items for
which quoted prices are available but traded less frequently, and items that
are fair valued using other financial instruments, the parameters of which
can be directly observed.
|
|
|
|
Level III:
|
|
Assets and liabilities that have little to no
pricing observability as of the reported date. These items do not have
two-way markets and are measured using managements best estimate of fair
value, where the inputs into the determination of fair value require
significant management judgment or estimation.
|
The
following table presents the assets and liabilities reported on the
consolidated statements of financial condition at their fair value as of March 31,
2008 by level within the fair value hierarchy. As required by FAS 157,
financial assets and liabilities are classified in their entirety based on the
lowest level of input that is significant to the fair value measurement.
|
|
March 31, 2008
|
|
(In Thousands)
|
|
Level I
|
|
Level II
|
|
Level III
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Investment
Securities, available-for-sale
|
|
$
|
|
|
$
|
207,777
|
|
$
|
|
|
$
|
207,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
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 Companys actual results and could cause the Companys
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, with 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 Companys
organization, compensation and benefit plans; (iii) the effect on the
Companys 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 non-bank
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.
13
Item
2. Managements Discussion and Analysis
of Financial Condition and Results of Operation
EARNINGS SUMMARY
Comparison
of the Three Months Ended March 31, 2008 and 2007
Summary
Results
Net
income for the three months ended March 31, 2008 was $2,131,000 compared
to $2,281,000 for the same period of 2007.
Basic and diluted earnings per share for the three months ended March 31,
2008 were $0.55 as compared to $0.59 for the three months ended March 31,
2007. Return on average assets and
return on average equity were 1.36% and 12.01% for the three months ended March 31,
2008 as compared to 1.56% and 12.13% for the corresponding period of 2007. Net income from core operations (operating
earnings), which excludes after-tax securities gains of $25,000 and $215,000
for the three months ended March 31, 2008 and 2007, increased $40,000 to
$2,106,000 for the three months ended March 31, 2008 as compared to
$2,066,000 for the same period of 2007.
Operating earnings per share for the three months ended March 31,
2008 increased to $0.54 basic and dilutive as compared to $0.53 for the three
months ended March 31, 2007.
(Management uses the
non-GAAP measure of net income from core operations in its analysis of the
Companys performance. This measure, as
used by the Company, adjusts net income by significant gains or losses that are
unusual in nature. Because certain of
these items and their impact on the Companys performance are difficult to
predict, management believes the presentation of financial measures excluding
the impact of such items provides useful supplemental information in evaluating
the operating results of the Companys core businesses. For purposes of this Quarterly Report on Form 10-Q,
net income from core operations means net income adjusted to exclude after-tax
net securities gains. These disclosures
should not be viewed as a substitute for net income determined in accordance
with GAAP, nor are they necessarily comparable to non-GAAP performance measures
that may be presented by other companies.)
Interest
And Dividend Income
Interest
and dividend income for the three months ended March 31, 2008 increased
$369,000 to $9,048,000 as compared to $8,679,000 for the same period of
2007. The increase in interest income
was primarily the result of growth in average taxable investment securities of
$18,158,000 coupled with a 19 basis point (bp) increase in the related
security yields for the three months ended March 31, 2008 over the same
period of 2007. The combination of
taxable investment security growth and yield increases resulted in a $367,000
increase in taxable interest income. Over the same time frame, the average
balance of tax-exempt investment securities increased $11,804,000 with the
portfolio yield decreasing 7 bp resulting in a $115,000 increase in tax-exempt
interest income. On a taxable equivalent
basis, the interest income from the investment portfolio increased $472,000 due
to the investment portfolio being strategically
14
shifted
toward tax-exempt instruments. The
decrease in dividends received is the result of a decrease in equity
investments.
Interest
and dividend income composition for the three months ended March 31, 2008
and 2007 was as follows:
|
|
For The Three Months Ended
|
|
|
|
March 31, 2008
|
|
March 31, 2007
|
|
Change
|
|
(In Thousands)
|
|
Amount
|
|
% Total
|
|
Amount
|
|
% Total
|
|
Amount
|
|
%
|
|
Loans including fees
|
|
$
|
6,380
|
|
70.5
|
%
|
$
|
6,423
|
|
74.0
|
%
|
$
|
(43
|
)
|
(0.7
|
)%
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
1,190
|
|
13.2
|
|
823
|
|
9.5
|
|
367
|
|
44.6
|
|
Tax-exempt
|
|
1,226
|
|
13.5
|
|
1,111
|
|
12.8
|
|
115
|
|
10.4
|
|
Dividend and other interest income
|
|
252
|
|
2.8
|
|
322
|
|
3.7
|
|
(70
|
)
|
(21.7
|
)
|
Total interest and dividend income
|
|
$
|
9,048
|
|
100.0
|
%
|
$
|
8,679
|
|
100.0
|
%
|
$
|
369
|
|
4.3
|
%
|
Interest
Expense
Interest
expense for the three months ended March 31, 2008 increased $228,000 to
$4,167,000 as compared to $3,939,000 for the same period of 2007. The increased expense associated with
deposits is primarily the result of growth in the average time deposit
portfolio of $5,166,000 for the three month period ended March 31, 2008 as
compared to 2007, offset by a reduction in rate paid of 14 basis points over
the same time period. Factors that led
to the rate decreases include, but are not limited to, Federal Open Market
Committee (FOMC) actions over the past year, campaigns conducted to attract 8
to 12 month maturity CDs that have resulted in an increased repricing
frequency, and decreased average utilization of $9,305,000 in brokered
CDs. Short-term borrowings interest
expense decreased $76,000 as the rate paid decreased 150 bp due to the FOMC
rate actions over the past year.
Long-term borrowings interest expense increased $275,000 as the average
balance of such borrowings increased $24,812,000 for the three months ended March 31,
2008 as compared to the same period of 2007, while the average rate decreased
14 bp to 4.49% for the 2008 period.
Interest
expense composition for the three months ended March 31, 2008 and 2007 was
as follows:
|
|
For The Three Months Ended
|
|
|
|
March 31, 2008
|
|
March 31, 2007
|
|
Change
|
|
(In Thousands)
|
|
Amount
|
|
% Total
|
|
Amount
|
|
% Total
|
|
Amount
|
|
%
|
|
Deposits
|
|
$
|
2,541
|
|
61.0
|
%
|
$
|
2,512
|
|
63.8
|
%
|
$
|
29
|
|
1.2
|
%
|
Short-term borrowings
|
|
429
|
|
10.3
|
|
505
|
|
12.8
|
|
(76
|
)
|
(15.0
|
)
|
Long-term borrowings, FHLB
|
|
1,197
|
|
28.7
|
|
922
|
|
23.4
|
|
275
|
|
29.8
|
|
Total interest expense
|
|
$
|
4,167
|
|
100.0
|
%
|
$
|
3,939
|
|
100.0
|
%
|
$
|
228
|
|
5.8
|
%
|
Net Interest Margin
The
net interest margin (NIM) for the three months ended March 31, 2008 was
3.87% as compared to 3.95% for the corresponding period of 2007. The minimal decrease in the NIM was due to
the investment portfolio growth that occurred during the second half of
2007. Despite this
15
growth
being accretive to earnings, return on average assets, and return on average
equity, it lowered the net interest margin due to the spread between the yield
on assets purchased and the associated funding cost being less than historical
levels resulting in a 12 bp decrease in the yield on earning assets. The yield on total loans decreased to 7.12%
from 7.27% due to the impact of the FOMC rate decreases over the past
year. The average investment securities
portfolio increased by $29,962,000, as the tax-exempt segment increased to
$114,590,000 at March 31, 2008 as compared to $102,786,000 at March 31,
2007. The growth in the investment
portfolio was driven by a strategic initiative in the second half of 2007 to
increase tax equivalent net interest income by purchasing fixed rate
instruments in anticipation of the decreasing rate environment that is
continuing into 2008. The decrease in
the cost of interest bearing liabilities to 3.50% from 3.66% was driven
primarily by the FOMC rate actions over the past year that resulted in lower
borrowing costs and rates paid on time deposits. In addition, the shortening of the time
deposit portfolio initiated in the early stages of 2007 has resulted in an
increasing repricing frequency during this period of decreasing rates.
Following
is a schedule of average balances and associated yields for the three month
periods ended March 31, 2008 and 2007:
|
|
AVERAGE BALANCES AND INTEREST RATES
|
|
|
|
Three Months Ended
March 31, 2008
|
|
Three Months Ended
March 31, 2007
|
|
(In Thousands)
|
|
Average Balance
|
|
Interest
|
|
Average Rate
|
|
Average Balance
|
|
Interest
|
|
Average Rate
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt loans
|
|
$
|
8,013
|
|
$
|
126
|
|
6.32
|
%
|
$
|
8,266
|
|
$
|
127
|
|
6.23
|
%
|
All other loans
|
|
354,715
|
|
6,297
|
|
7.14
|
%
|
352,599
|
|
6,339
|
|
7.29
|
%
|
Total loans
|
|
362,728
|
|
6,423
|
|
7.12
|
%
|
360,865
|
|
6,466
|
|
7.27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable investment securities
|
|
100,730
|
|
1,442
|
|
5.73
|
%
|
82,572
|
|
1,144
|
|
5.54
|
%
|
Tax-exempt investment securities
|
|
114,590
|
|
1,857
|
|
6.48
|
%
|
102,786
|
|
1,683
|
|
6.55
|
%
|
Total securities
|
|
215,320
|
|
3,299
|
|
6.13
|
%
|
185,358
|
|
2,827
|
|
6.10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits
|
|
38
|
|
|
|
0.00
|
%
|
21
|
|
1
|
|
19.31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
578,086
|
|
9,722
|
|
6.75
|
%
|
546,244
|
|
9,294
|
|
6.87
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
48,692
|
|
|
|
|
|
39,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
626,778
|
|
|
|
|
|
$
|
586,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
$
|
58,561
|
|
109
|
|
0.75
|
%
|
$
|
58,997
|
|
105
|
|
0.72
|
%
|
Super Now deposits
|
|
46,367
|
|
155
|
|
1.34
|
%
|
44,847
|
|
149
|
|
1.35
|
%
|
Money market deposits
|
|
23,324
|
|
127
|
|
2.18
|
%
|
23,562
|
|
125
|
|
2.15
|
%
|
Time deposits
|
|
190,927
|
|
2,150
|
|
4.52
|
%
|
185,761
|
|
2,133
|
|
4.66
|
%
|
Total deposits
|
|
319,179
|
|
2,541
|
|
3.20
|
%
|
313,167
|
|
2,512
|
|
3.25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
51,113
|
|
429
|
|
3.34
|
%
|
42,283
|
|
505
|
|
4.84
|
%
|
Long-term borrowings, FHLB
|
|
105,534
|
|
1,197
|
|
4.49
|
%
|
80,722
|
|
922
|
|
4.63
|
%
|
Total borrowings
|
|
156,647
|
|
1,626
|
|
4.11
|
%
|
123,005
|
|
1,427
|
|
4.70
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
475,826
|
|
4,167
|
|
3.50
|
%
|
436,172
|
|
3,939
|
|
3.66
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
70,243
|
|
|
|
|
|
68,222
|
|
|
|
|
|
Other liabilities
|
|
9,726
|
|
|
|
|
|
6,459
|
|
|
|
|
|
Shareholders equity
|
|
70,983
|
|
|
|
|
|
75,233
|
|
|
|
|
|
Total liabilities and shareholders' equity
|
|
$
|
626,778
|
|
|
|
|
|
$
|
586,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread
|
|
|
|
|
|
3.25
|
%
|
|
|
|
|
3.21
|
%
|
Net interest income/margin
|
|
|
|
$
|
5,555
|
|
3.87
|
%
|
|
|
$
|
5,355
|
|
3.95
|
%
|
1.
Information
on this table has been calculated using average daily balance sheets to obtain
average balances.
2.
Nonaccrual
loans have been included with loans for the purpose of analyzing net interest
earnings.
3.
Income
and rates on a fully taxable equivalent basis include an adjustment for the
difference between annual income from tax-exempt obligations and the taxable
equivalent of such income at the standard 34% tax rate.
16
The
following table presents the adjustment to convert net interest income to net interest
income on a fully taxable equivalent basis for the three month periods ended March 31,
2008 and 2007.
|
|
For the Three Months Ended
March 31,
|
|
(In Thousands)
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Total interest income
|
|
$
|
9,048
|
|
$
|
8,679
|
|
Total interest expense
|
|
4,167
|
|
3,939
|
|
|
|
|
|
|
|
Net interest income
|
|
4,881
|
|
4,740
|
|
Tax equivalent adjustment
|
|
674
|
|
615
|
|
|
|
|
|
|
|
Net interest income (fully taxable equivalent)
|
|
$
|
5,555
|
|
$
|
5,355
|
|
The
following table sets forth the respective impact that both volume and rate
changes have had on net interest income on a fully taxable equivalent basis for
the three month periods ended March 31, 2008 and 2007:
17
|
|
Three Months Ended March 31,
|
|
|
|
2008 vs 2007
|
|
|
|
Increase (Decrease)
Due to
|
|
(In Thousands)
|
|
Volume
|
|
Rate
|
|
Net
|
|
Interest income:
|
|
|
|
|
|
|
|
Loans, tax-exempt
|
|
$
|
(4
|
)
|
$
|
3
|
|
$
|
(1
|
)
|
Loans
|
|
17
|
|
(59
|
)
|
(42
|
)
|
Taxable investment securities
|
|
259
|
|
39
|
|
298
|
|
Tax-exempt investment securities
|
|
191
|
|
(17
|
)
|
174
|
|
Interest bearing deposits
|
|
1
|
|
(2
|
)
|
(1
|
)
|
Total interest-earning assets
|
|
464
|
|
(36
|
)
|
428
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
Savings deposits
|
|
(1
|
)
|
5
|
|
4
|
|
Super Now deposits
|
|
7
|
|
(1
|
)
|
6
|
|
Money market deposits
|
|
(2
|
)
|
4
|
|
2
|
|
Time deposits
|
|
138
|
|
(121
|
)
|
17
|
|
Short-term borrowings
|
|
141
|
|
(217
|
)
|
(76
|
)
|
Long-term borrowings, FHLB
|
|
306
|
|
(31
|
)
|
275
|
|
Total interest-bearing liabilities
|
|
589
|
|
(361
|
)
|
228
|
|
Change in net interest income
|
|
$
|
(125
|
)
|
$
|
325
|
|
$
|
200
|
|
Provision for Loan Losses
The provision for loan losses is based upon managements 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 for loan
losses is determined by applying loss factors to outstanding loans by type,
excluding loans for which a specific allowance has been determined. Loss factors are based on managements
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 non-performing loans and its knowledge and
experience with specific lending segments.
Although management
believes it uses the best information available to make such determinations and
that the allowance for loan losses is adequate at March 31, 2008, 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,
18
employment, and delays in
receiving financial information from borrowers could result in increased levels
of nonperforming assets, charge-offs, loan loss provisions, and reductions in
income. Additionally, as an integral
part of the examination process, bank regulatory agencies periodically review
the Banks loan loss allowance. The
banking agencies could require the recognition of additions to the loan loss
allowance based on their judgment of information available to them at the time
of their examination.
While determining the
appropriate allowance level, management has attributed the allowance for loan
losses to various portfolio segments; however, the allowance is available for
the entire portfolio as needed.
The allowance for loan
losses increased from $4,130,000 at December 31, 2007 to $4,154,000 at March 31,
2008. At March 31, 2008, the
allowance for loan losses was 1.16% of total loans compared to 1.15% of total
loans at December 31, 2007.
Managements conclusion is that the allowance for loan losses is
adequate
to provide for
possible losses inherent in the loan portfolio as of the balance sheet date.
The provision for loan
losses totaled $60,000 for the three months ended March 31, 2008, as
compared to $40,000 for the same period in 2007. The stability of the provision was the result
of several continuing positive factors, including but not limited to, a ratio
of annualized net charge offs to average loans of 0.04%, a ratio of
nonperforming loans to total loans of 0.40%, and a ratio of the allowance for
loan losses to nonperforming loans of 291.10% at March 31, 2008. In addition, gross loans have declined
$2,869,000 since December 31, 2007 due to a softening of the loan market
and the payoff of several commercial loans.
Based upon this analysis,
as well as the others noted above, management has concluded that the allowance
for loan losses remains at a level adequate to provide for probable losses
inherent in its loan portfolio.
Non-interest
Income
Total
non-interest income for the three months ended March 31, 2008 compared to
the same period in 2007 decreased $60,000 to $1,914,000 due to a $288,000
decrease in net securities gains realized when comparing the three month
periods ended March 31, 2008 and 2007.
Excluding net securities gains, non-interest income for the first
quarter of 2008 would have increased $228,000 as compared to the 2007 period. Deposit service charges increased $29,000 as
the Company implemented a new fee schedule effective for the first quarter of
2008. Earnings on bank owned life
insurance increased $40,000 as a result of increased holdings as of March 31,
2008 as compared to the 2007 period.
Insurance
commissions for the three months ended March 31, 2008 increased $142,000
as compared to the same period in 2007 due to a shift in product mix. Management of The M Group continues to pursue
new and build upon current relationships.
The sales call program continues to expand to other financial
institutions, which results in additional revenue for The M Group. However, the addition of another sales outlet
for The M-Group can take up to a year or more to be completed.
19
Non-interest income
composition for the three months ended March 31, 2008 and 2007 were as
follows:
|
|
For The Three Months Ended
|
|
|
|
March 31, 2008
|
|
March 31, 2007
|
|
Change
|
|
(In Thousands)
|
|
Amount
|
|
% Total
|
|
Amount
|
|
% Total
|
|
Amount
|
|
%
|
|
Deposit
service charges
|
|
$
|
570
|
|
29.8
|
%
|
$
|
541
|
|
27.4
|
%
|
$
|
29
|
|
5.4
|
%
|
Securities
gains, net
|
|
38
|
|
2.0
|
|
326
|
|
16.5
|
|
(288
|
)
|
(88.3
|
)
|
Bank
owned life insurance
|
|
155
|
|
8.1
|
|
115
|
|
5.8
|
|
40
|
|
34.8
|
|
Gain
on sale of loans
|
|
152
|
|
7.9
|
|
138
|
|
7.0
|
|
14
|
|
10.1
|
|
Insurance
commissions
|
|
580
|
|
30.3
|
|
438
|
|
22.2
|
|
142
|
|
32.4
|
|
Other
|
|
419
|
|
21.9
|
|
416
|
|
21.1
|
|
3
|
|
0.6
|
|
Total
non-interest income
|
|
$
|
1,914
|
|
100.0
|
%
|
$
|
1,974
|
|
100.0
|
%
|
$
|
(60
|
)
|
(3.0
|
)%
|
Non-interest
Expense
Total
non-interest expense increased $317,000 for the three months ended March 31,
2008 compared to the same period of 2007.
The increase in salaries and employee benefits was attributable to
several items including standard cost of living wage adjustments for employees,
increased pension expense, and other benefit costs. Occupancy expense increased due to increased
cost of utilities, maintenance and property taxes. Pennsylvania shares tax
decreased $56,000 due to the use of Pennsylvania Enterprise Zone tax credits
from a low income housing partnership committed to during 2007. Other expenses increased primarily due to
normal anticipated inflationary adjustments to ongoing business operating costs
and the amortization related to the before mentioned low income housing.
Non-interest
expense composition for the three months ended March 31, 2008 and 2007
were as follows:
|
|
For The Three Months Ended
|
|
|
|
March 31, 2008
|
|
March 31, 2007
|
|
Change
|
|
(In Thousands)
|
|
Amount
|
|
% Total
|
|
Amount
|
|
% Total
|
|
Amount
|
|
%
|
|
Salaries
and employee benefits
|
|
$
|
2,451
|
|
55.1
|
%
|
$
|
2,281
|
|
55.3
|
%
|
$
|
170
|
|
7.5
|
%
|
Occupancy,
net
|
|
338
|
|
7.6
|
|
331
|
|
8.0
|
|
7
|
|
2.1
|
|
Furniture
and equipment
|
|
285
|
|
6.4
|
|
286
|
|
6.9
|
|
(1
|
)
|
(0.3
|
)
|
Pennsylvania
shares tax
|
|
105
|
|
2.4
|
|
161
|
|
3.9
|
|
(56
|
)
|
(34.8
|
)
|
Other
|
|
1,226
|
|
28.5
|
|
1,069
|
|
25.9
|
|
197
|
|
18.4
|
|
Total
non-interest expense
|
|
$
|
4,445
|
|
100.0
|
%
|
$
|
4,128
|
|
100.0
|
%
|
$
|
317
|
|
7.7
|
%
|
Provision
for Income Taxes
Income
taxes decreased $106,000 for the three month period ended March 31, 2008
compared to the same period of 2007. The
effective tax rate for the three months ended March 31, 2008 was
20
6.94%
as compared to 10.41% for the same period of 2007. The decline in the effective tax rate is
consistent with managements repositioning of the investment portfolio from taxable
investment securities to tax-exempt investment securities, and the elimination
of the allowance for loan loss recapture.
The current effective tax rate has resulted in a deferred tax asset due
to the low income housing tax credits.
Management has reviewed the deferred tax asset and has determined that
the asset will be utilized within the appropriate carry forward period and
therefore does not require a valuation allowance.
ASSET/LIABILITY
MANAGEMENT
Cash
and Cash Equivalents
Cash and cash equivalents
increased $1,019,000 from $15,433,000 at December 31, 2007 to $16,452,000
at March 31, 2008 primarily as a result of the following activities during
the three months ended March 31, 2008.
Loans
Held for Sale
Activity regarding loans
held for sale resulted in sale proceeds exceeding loan originations, less
$152,000 in realized gains, by $960,000 for the three months ended March 31,
2008.
Loans
Gross loans decreased
$2,869,000 since December 31, 2007 due to the early payoff of several
large commercial loans coupled with increased competition for commercial loans
and a softening of the market.
The allocation of the loan portfolio, by category,
as of March 31, 2008 and December 31, 2007 is presented below:
|
|
March 31,
|
|
December 31,
|
|
Change
|
|
(In Thousands)
|
|
2008
|
|
2007
|
|
Amount
|
|
%
|
|
Commercial,
financial and agricultural
|
|
$
|
35,557
|
|
$
|
35,739
|
|
$
|
(182
|
)
|
(0.5
|
)%
|
Real
estate mortgage:
|
|
|
|
|
|
|
|
|
|
Residential
|
|
167,103
|
|
163,268
|
|
3,835
|
|
2.3
|
|
Commercial
|
|
126,154
|
|
132,943
|
|
(6,789
|
)
|
(5.1
|
)
|
Construction
|
|
16,770
|
|
16,152
|
|
618
|
|
3.8
|
|
Installment
loans to individuals
|
|
12,959
|
|
13,317
|
|
(358
|
)
|
(2.7
|
)
|
Less:
Net deferred loan fees
|
|
934
|
|
941
|
|
(7
|
)
|
(0.7
|
)
|
Gross
loans
|
|
$
|
357,609
|
|
$
|
360,478
|
|
$
|
(2,869
|
)
|
(0.8
|
)%
|
The recorded investment in loans for which impairment has been
recognized in accordance with Statement of Financial Accounting Standards No. 114,
Accounting by Creditors for Impairment of a Loan
,
amounted to $1,671,000 at March 31, 2008, as compared to $1,477,000 at December
21
31, 2007. The valuation
allowance related to impaired loans amounted to $76,000 at March 31, 2008
and $102,000 at December 31, 2007.
The increase in impaired loans is from a few commercial relationships,
while the decrease in valuation allowance is the result of the charge off of a
commercial relationship that had a specific collateral weakness.
A loan is considered impaired, based on current information and events,
if it is probable that the Bank will be unable to collect the scheduled
payments of principal or interest when due according to the contractual terms
of the loan agreement. The measurement of impaired loans is generally based on
the present value of expected future cash flows discounted at the historical
effective interest rate, except that all collateral-dependent loans are
measured for impairment based on the fair value of the collateral.
Investments
The
estimated fair value of the investment securities portfolio in total has
decreased $6,676,000 since December 31, 2007, while the amortized cost
decreased $4,839,000. The majority of
the changes in value occurred within the agency securities and state and
municipal segments of the portfolio. The
amortized cost position in state and political securities increased $10,307,000
as the Bank continued its strategy to build call protection, maintain taxable
equivalent yields, reduce the effective federal income tax rate, and invest in
communities across the Commonwealth of Pennsylvania and the country. Over the same time period, the above strategy
resulted in the amortized cost position of U.S. Government and agency
securities to decrease by $16,437,000. The increased level of unrealized
losses, which offset the increase in amortized cost, was the result of changes
in the yield curve, not credit quality, as the credit quality of the portfolio
remains sound.
The
amortized cost of investment securities and their estimated fair values are as
follows:
22
|
|
March 31, 2008
|
|
|
|
|
|
Gross
|
|
Gross
|
|
Estimated
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
(In Thousands)
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
Available for sale
(AFS)
U.S. Government and agency securities
|
|
$
|
45,945
|
|
$
|
848
|
|
$
|
(1
|
)
|
$
|
46,792
|
|
State
and political securities
|
|
129,958
|
|
554
|
|
(4,025
|
)
|
126,487
|
|
Other
debt securities
|
|
16,286
|
|
130
|
|
(444
|
)
|
15,972
|
|
Total
debt securities
|
|
192,189
|
|
1,532
|
|
(4,470
|
)
|
189,251
|
|
Equity
securities
|
|
20,689
|
|
486
|
|
(2,649
|
)
|
18,526
|
|
Total
investment securities AFS
|
|
$
|
212,878
|
|
$
|
2,018
|
|
$
|
(7,119
|
)
|
$
|
207,777
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity (HTM)
|
|
|
|
|
|
|
|
|
|
U.S. Government and
agency securities
|
|
$
|
14
|
|
$
|
1
|
|
$
|
|
|
$
|
15
|
|
Other
debt securities
|
|
265
|
|
1
|
|
|
|
266
|
|
Total
investment securities HTM
|
|
$
|
279
|
|
$
|
2
|
|
$
|
|
|
$
|
281
|
|
|
|
December
31, 2007
|
|
|
|
|
|
Gross
|
|
Gross
|
|
Estimated
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
(In Thousands)
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
Available for sale
(AFS)
U.S. Government and agency securities
|
|
$
|
62,382
|
|
$
|
522
|
|
$
|
|
|
$
|
62,904
|
|
State
and political securities
|
|
119,651
|
|
581
|
|
(2,417
|
)
|
117,815
|
|
Other
debt securities
|
|
15,917
|
|
290
|
|
(440
|
)
|
15,767
|
|
Total
debt securities
|
|
197,950
|
|
1,393
|
|
(2,857
|
)
|
196,486
|
|
Equity
securities
|
|
19,776
|
|
496
|
|
(2,303
|
)
|
17,969
|
|
Total
investment securities AFS
|
|
$
|
217,726
|
|
$
|
1,889
|
|
$
|
(5,160
|
)
|
$
|
214,455
|
|
|
|
|
|
|
|
|
|
|
|
Held
to maturity (HTM)
|
|
|
|
|
|
|
|
|
|
U.S.
Government and agency securities
|
|
$
|
14
|
|
$
|
1
|
|
$
|
|
|
$
|
15
|
|
Other
debt securities
|
|
263
|
|
1
|
|
|
|
264
|
|
Total
investment securities HTM
|
|
$
|
277
|
|
$
|
2
|
|
$
|
|
|
$
|
279
|
|
23
Financing Activities
Deposits
Total
deposits increased 1.8% or $7,103,000 from December 31, 2007 to March 31,
2008. The growth was led by a 19.4% or
$4,081,000 increase in money market accounts coupled with growth in savings
deposits of 5.7% or $3,228,000 from December 31, 2007 to March 31,
2008. In addition, time deposit growth
of $6,205,000 offset a reduction of $2,712,000 in brokered time deposits. The utilization of brokered deposits has been
lessened due to the ability to attract market area deposits at more favorable
terms through the first three months of 2008.
Deposit balances and their changes
for the periods being discussed follow:
|
|
March 31, 2008
|
|
December 31, 2007
|
|
Change
|
|
(In
Thousands)
|
|
Amount
|
|
% Total
|
|
Amount
|
|
% Total
|
|
Amount
|
|
%
|
|
Demand
deposits
|
|
$
|
71,662
|
|
18.1
|
%
|
$
|
74,671
|
|
19.2
|
%
|
$
|
(3,009
|
)
|
(4.0
|
)%
|
NOW
accounts
|
|
50,193
|
|
12.7
|
|
50,883
|
|
13.1
|
|
(690
|
)
|
(1.4
|
)
|
Money
market deposits
|
|
25,110
|
|
6.3
|
|
21,029
|
|
5.4
|
|
4,081
|
|
19.4
|
|
Savings
deposits
|
|
59,985
|
|
15.1
|
|
56,757
|
|
14.6
|
|
3,228
|
|
5.7
|
|
Time
deposits
|
|
183,056
|
|
46.3
|
|
176,851
|
|
45.4
|
|
6,205
|
|
3.5
|
|
Time
deposits - brokered
|
|
6,119
|
|
1.5
|
|
8,831
|
|
2.3
|
|
(2,712
|
)
|
(30.7
|
)
|
Total
deposits
|
|
$
|
396,125
|
|
100.0
|
%
|
$
|
389,022
|
|
100.0
|
%
|
$
|
7,103
|
|
1.8
|
%
|
Borrowed Funds
Total borrowed funds
decreased 1.9% to $158,544,000 at March 31, 2008 as compared to
$161,693,000 at December 31, 2007.
The decrease in borrowed funds is primarily the result of the previously
discussed time deposit gathering campaigns that were utilized to provide funds
to reduce the level of higher cost short-term borrowings and to assist in
replacing long-term borrowing maturities.
Short-term borrowings increased and long-term borrowings decreased due
to the maturity of a borrowing totaling $9,600,000 that carried an average rate
of 3.14% offset by a new $10,000,000 FHLB borrowing that matures in April 2008
and carries a rate of 2.05%.
|
|
March 31, 2008
|
|
December 31, 2007
|
|
Change
|
|
(In Thousands)
|
|
Amount
|
|
% Total
|
|
Amount
|
|
% Total
|
|
Amount
|
|
%
|
|
Short-term
borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB
repurchase agreements
|
|
$
|
37,980
|
|
24.0
|
%
|
$
|
38,160
|
|
23.6
|
%
|
$
|
(180
|
)
|
(0.5
|
)%
|
Short-term
borrowings, FHLB
|
|
10,000
|
|
6.3
|
|
|
|
|
|
10,000
|
|
|
|
Securities
sold under agreement to repurchase
|
|
13,786
|
|
8.7
|
|
17,155
|
|
10.6
|
|
(3,369
|
)
|
(19.6
|
)
|
Total
short-term borrowings
|
|
61,766
|
|
39.0
|
%
|
55,315
|
|
34.2
|
%
|
6,451
|
|
11.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
borrowings, FHLB
|
|
96,778
|
|
61.0
|
|
106,378
|
|
65.8
|
|
(9,600
|
)
|
(9.0
|
)
|
Total
borrowed funds
|
|
$
|
158,544
|
|
100.0
|
%
|
$
|
161,693
|
|
100.0
|
%
|
$
|
(3,149
|
)
|
(1.9
|
)%
|
24
Capital
The adequacy of the
Companys capital is reviewed on an ongoing basis with reference to the size,
composition, and quality of the Companys 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 Boards 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.
25
Capital
ratios as of March 31, 2008 and December 31, 2007 were as follows:
|
|
2008
|
|
2007
|
|
(In Thousands)
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Total
Capital
(to Risk-weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
$
|
70,290
|
|
17.7
|
%
|
$
|
70,381
|
|
18.0
|
%
|
For
Capital Adequacy Purposes
|
|
31,738
|
|
8.0
|
|
31,280
|
|
8.0
|
|
To
Be Well Capitalized
|
|
39,673
|
|
10.0
|
|
39,100
|
|
10.0
|
|
|
|
|
|
|
|
|
|
|
|
Tier
I Capital
(to Risk-weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
$
|
66,136
|
|
16.7
|
%
|
$
|
66,251
|
|
16.9
|
%
|
For
Capital Adequacy Purposes
|
|
15,869
|
|
4.0
|
|
15,640
|
|
4.0
|
|
To
Be Well Capitalized
|
|
23,804
|
|
6.0
|
|
23,460
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
Tier
I Capital
(to Average Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
$
|
66,136
|
|
10.6
|
%
|
$
|
66,251
|
|
10.8
|
%
|
For
Capital Adequacy Purposes
|
|
24,902
|
|
4.0
|
|
24,664
|
|
4.0
|
|
To
Be Well Capitalized
|
|
31,127
|
|
5.0
|
|
30,830
|
|
5.0
|
|
Liquidity
and Interest Rate Sensitivity
The asset/liability
committee addresses the liquidity needs of the Company to ensure 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 for compliance within the limits cited:
1. Net Loans to Total Assets, 85% maximum
2. Net Loans to Total Deposits, 100% maximum
3. Cumulative 90 day Maturity GAP %, +/- 20%
maximum
4. Cumulative 1 Year Maturity GAP %, +/- 25 maximum
Fundamental
objectives of the Companys asset/liability management process are to maintain
adequate liquidity while minimizing interest rate risk. The maintenance of adequate liquidity
26
provides
the Company with the ability to meet its financial obligations to depositors,
loan customers, and shareholders.
Additionally, it provides funds for normal operating expenditures and
business opportunities as they arise.
The objective of interest rate sensitivity management is to increase net
interest income by managing interest sensitive assets and liabilities in such a
way that they can be repriced in response to changes in market interest rates.
The
Bank, like other financial institutions, must have sufficient funds available
to meet its liquidity needs for deposit withdrawals, loan commitments and
originations, and expenses. In order to
control cash flow, the Bank estimates future flows of cash from deposits, loan
payments, and investment security payments.
The primary sources of funds are deposits, principal and interest
payments on loans and investment securities, FHLB borrowings, and brokered
deposits. Management believes the Bank
has adequate resources to meet its normal funding requirements.
Management
monitors the Companys liquidity on both a long and short-term basis, thereby
providing management necessary information to react to current balance sheet
trends. Cash flow needs are assessed and
sources of funds are determined. Funding
strategies consider both customer needs and economical cost. Both short and long-term funding needs are
addressed by maturities and sales of available for sale investment securities,
loan repayments and maturities, and liquidating money market investments such
as federal funds sold. The use of these
resources, in conjunction with access to credit provides core ingredients to
satisfy depositor, borrower, and creditor needs.
Management
monitors and determines the desirable level of liquidity. Consideration is given to loan demand,
investment opportunities, deposit pricing and growth potential, as well as the
current cost of borrowing funds. The
Company has a current borrowing capacity at the FHLB of
$217,690,000.
In addition to this credit arrangement, the
Company has additional lines of credit with correspondent banks of $29,327,000.
Management believes it has sufficient liquidity to satisfy estimated short-term
and long-term funding needs.
FHLB borrowings totaled
$144,758,000 as of March 31, 2008.
Interest
rate sensitivity, which is closely related to liquidity management, is a
function of the repricing characteristics of the Companys portfolio of assets
and liabilities. Asset/liability
management strives to match maturities and rates between loan and investment
security assets with the deposit liabilities and borrowings that fund
them. Successful asset/liability
management results in a balance sheet structure which can cope effectively with
market rate fluctuations. The matching process is affected by segmenting both
assets and liabilities into future time periods (usually 12 months, or less)
based upon when repricing can be effected.
Repriceable assets are subtracted from repriceable liabilities, for a
specific time period to determine the gap, or difference. Once known, the gap
is managed based on predictions about future market interest rates. Intentional mismatching, or gapping, can
enhance net interest income if market rates move as predicted. However, if market rates behave in a manner
contrary to predictions, net interest income will suffer. Gaps, therefore, contain an element of risk
and must be prudently managed. In
addition to gap management, the Company has an asset/liability management
policy which incorporates a market value at risk calculation which is used to
determine the effects of interest rate movements on shareholders equity and a
simulation analysis to monitor the effects of interest rate changes on the
Companys balance sheet.
27
There
have been no substantial changes in the Companys gap analyses or simulation
analyses compared to the information provided in the Companys Form 10-K
for the year ended December 31, 2007.
Generally,
management believes the Company is well positioned to respond in a timely
manner 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 Companys 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.
Item 3. Quantitative and
Qualitative Disclosures About Market Risk
Market
risk for the Company is comprised primarily of interest rate risk exposure and
liquidity risk. Interest rate risk and
liquidity risk management is performed at the Bank level as well as the Company
level. The Companys interest rate
sensitivity is monitored by management through selected interest rate risk
measures produced by an independent third party. There have been no substantial changes in the
Companys gap analyses or simulation analyses compared to the information
provided in the Annual Report on Form 10-K for the period ended December 31,
2007. Additional information and details
are provided in the Liquidity and Interest Rate Sensitivity section of Item
2. Managements Discussion and Analysis of Financial Condition and Results of
Operations.
Generally,
management believes the Company is well positioned to respond in a timely
manner when the market interest rate outlook changes.
Item 4. Controls and Procedures
An analysis was performed under the supervision and with the
participation of the Companys management, including the Chief Executive
Officer and the Principal Financial Officer, of the effectiveness of the design
and operation of the Companys disclosure controls and procedures. Based on
that evaluation, the Companys Chief Executive Officer and Principal Financial
Officer concluded that the Companys disclosure controls and procedures were
effective as of March 31, 2008.
There were no changes in the Companys internal control over financial
reporting that occurred during the quarter ended March 31, 2008, that have
materially affected, or are reasonably likely to materially affect, the Companys
internal control over financial reporting.
28
Part II. OTHER INFORMATION
Item 1. Legal
Proceedings
None.
Item 1A. Risk Factors
There are no material
changes to the risk factors set forth in Part I, Item 1A, Risk Factors,
of the Companys Annual Report on Form 10-K for the year ended December 31,
2007. Please refer to that section for
disclosures regarding the risks and uncertainties related to the Companys
business.
Item
2. Unregistered Sales of Equity Securities and Use
of Proceeds
Period
|
|
Total
Number of
Shares (or
Units)
Purchased
|
|
Average
Price Paid
per Share
(or Units)
Purchased
|
|
Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs
|
|
Maximum Number (or
Approximate Dollar Value)
of Shares (or Units) that
May Yet Be Purchased
Under the Plans or Programs
|
|
|
|
|
|
|
|
|
|
|
|
Month#1
(January 1- January 31, 2008)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Month#2
(February 1- February 29, 2008)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Month#3
(March 1- March 31, 2008)
|
|
4,297
|
|
$
|
30.97
|
|
4,297
|
|
121,773
|
|
|
|
|
|
|
|
|
|
|
|
|
On April 22, 2008,
the Board of Directors extended the authorization to repurchase up to 197,000
shares, or approximately 5%, of the outstanding shares of the Company for an
additional year to April 30, 2009.
The repurchase plan was originally for a one year period expiring on April 25,
2007. To date, there have been 75,227
shares repurchased under this plan.
Item 3. Defaults
Upon Senior Securities
None
Item 4. Submission
of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
29
Item 6. Exhibits
(3)
(i)
|
|
Articles
of Incorporation of the Registrant, as presently in effect (incorporated by
reference to Exhibit 3(i) of the Registrants Annual Report on
Form 10-K for the year ended December 31, 2007).
|
(3)
(ii)
|
|
Bylaws
of the Registrants as presently in effect (incorporated by reference to
Exhibit 3(ii) of the Registrants Current Report on Form 8-K
filed June 17, 2005).
|
(31)
(i)
|
|
Rule 13a-14(a)/Rule 15d-14(a) Certification
of Chief Executive Officer.
|
(31)
(ii)
|
|
Rule 13a-14(a)/Rule 15d-14(a) Certification
of Principal Financial Officer.
|
(32)
(i)
|
|
Certification
of Chief Executive Officer Section 1350.
|
(32)
(ii)
|
|
Certification
of Principal Financial Officer Section 1350.
|
30
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 9,
2008
|
/s/ Ronald A. Walko
|
|
Ronald A. Walko,
President and Chief Executive Officer
|
|
|
|
|
Date: May 9,
2008
|
/s/ Brian L. Knepp
|
|
Brian L. Knepp, Vice
President of Finance (Principal
Financial Officer)
|
31
EXHIBIT INDEX
|
|
|
|
|
|
Exhibit 31(i)
|
|
Rule 13a-14(a)/Rule 15d-14(a) Certification
of Chief Executive Officer
|
Exhibit 31(ii)
|
|
Rule 13a-14(a)/Rule 15d-14(a) Certification
of Principal Financial Officer
|
Exhibit 32(i)
|
|
Section 1350
Certification of Chief Executive Officer
|
Exhibit 32(ii)
|
|
Section 1350
Certification of Principal Financial Officer
|
32
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