Table
of Contents
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 June 30, 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
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|
23-2226454
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(State or other
jurisdiction of
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(I.R.S. Employer
|
incorporation or
organization)
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|
Identification No.)
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|
|
|
300 Market Street, P.O. Box 967
Williamsport, Pennsylvania
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17703-0967
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(Address of principal
executive offices)
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|
(Zip Code)
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(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.
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 definitions of
large accelerated filer, accelerated filer, and smaller reporting company
in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
o
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Accelerated filer
x
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|
|
|
Non-accelerated filer
o
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|
Smaller reporting
company
o
|
(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).
On July 28, 2008 there were 3,859,015 shares of the Registrants
common stock outstanding.
Table of Contents
Part I. FINANCIAL
INFORMATION
Item 1. Financial Statements
PENNS
WOODS BANCORP, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
|
|
June 30,
|
|
December 31,
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|
(In Thousands, Except Share Data)
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
Noninterest-bearing
balances
|
|
$
|
17,193
|
|
$
|
15,417
|
|
Interest-bearing
deposits in other financial institutions
|
|
16
|
|
16
|
|
Total cash and
cash equivalents
|
|
17,209
|
|
15,433
|
|
|
|
|
|
|
|
Investment
securities, available for sale, at fair value
|
|
209,284
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|
214,455
|
|
Investment
securities held to maturity (fair value of $161 and $279)
|
|
160
|
|
277
|
|
Loans held for
sale
|
|
3,590
|
|
4,214
|
|
Loans
|
|
365,955
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|
360,478
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|
Less: Allowance
for loan losses
|
|
4,207
|
|
4,130
|
|
Loans, net
|
|
361,748
|
|
356,348
|
|
Premises and
equipment, net
|
|
7,449
|
|
6,774
|
|
Accrued interest
receivable
|
|
3,322
|
|
3,343
|
|
Bank-owned life
insurance
|
|
13,319
|
|
12,375
|
|
Investment in
limited partnerships
|
|
5,083
|
|
5,439
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|
Goodwill
|
|
3,032
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|
3,032
|
|
Other assets
|
|
10,308
|
|
6,448
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|
TOTAL ASSETS
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|
$
|
634,504
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|
$
|
628,138
|
|
|
|
|
|
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LIABILITIES
|
|
|
|
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|
Interest-bearing
deposits
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|
$
|
358,013
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|
$
|
314,351
|
|
Noninterest-bearing
deposits
|
|
79,908
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|
74,671
|
|
Total deposits
|
|
437,921
|
|
389,022
|
|
|
|
|
|
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|
Short-term
borrowings
|
|
48,081
|
|
55,315
|
|
Long-term
borrowings, Federal Home Loan Bank (FHLB)
|
|
76,778
|
|
106,378
|
|
Accrued interest
payable
|
|
1,463
|
|
1,744
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|
Other
liabilities
|
|
5,739
|
|
5,120
|
|
TOTAL
LIABILITIES
|
|
569,982
|
|
557,579
|
|
|
|
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SHAREHOLDERS'
EQUITY
|
|
|
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Common stock,
par value $8.33, 10,000,000 shares authorized; 4,008,833 and 4,006,934 shares
issued
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33,407
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|
33,391
|
|
Additional
paid-in capital
|
|
17,930
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|
17,888
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|
Retained
earnings
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|
27,898
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|
27,707
|
|
Accumulated
other comprehensive loss:
|
|
|
|
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|
Net unrealized
loss on available for sale securities
|
|
(7,860
|
)
|
(2,159
|
)
|
Defined benefit
plan
|
|
(1,375
|
)
|
(1,375
|
)
|
Less: Treasury
stock at cost, 149,818 and 131,302 shares
|
|
(5,478
|
)
|
(4,893
|
)
|
TOTAL
SHAREHOLDERS' EQUITY
|
|
64,522
|
|
70,559
|
|
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
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|
$
|
634,504
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|
$
|
628,138
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|
See accompanying notes to
the unaudited consolidated financial statements.
3
Table
of Contents
PENNS WOODS BANCORP, INC.
CONSOLIDATED
STATEMENT OF INCOME
(UNAUDITED)
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|
Three Months Ended
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|
Six Months Ended
|
|
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|
June 30,
|
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June 30,
|
|
(In Thousands, Except Per Share Data)
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
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INTEREST AND
DIVIDEND INCOME
|
|
|
|
|
|
|
|
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Loans including
fees
|
|
$
|
6,246
|
|
$
|
6,516
|
|
$
|
12,625
|
|
$
|
12,939
|
|
Investment
Securities:
|
|
|
|
|
|
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|
Taxable
|
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1,276
|
|
924
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|
2,466
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|
1,747
|
|
Tax-exempt
|
|
1,210
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|
1,052
|
|
2,436
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|
2,163
|
|
Dividend and
other interest income
|
|
204
|
|
301
|
|
457
|
|
623
|
|
TOTAL INTEREST
AND DIVIDEND INCOME
|
|
8,936
|
|
8,793
|
|
17,984
|
|
17,472
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|
|
|
|
|
|
|
|
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|
INTEREST EXPENSE
|
|
|
|
|
|
|
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|
Deposits
|
|
2,551
|
|
2,868
|
|
5,092
|
|
5,380
|
|
Short-term
borrowings
|
|
257
|
|
227
|
|
686
|
|
732
|
|
Long-term
borrowings, FHLB
|
|
972
|
|
904
|
|
2,169
|
|
1,826
|
|
TOTAL INTEREST
EXPENSE
|
|
3,780
|
|
3,999
|
|
7,947
|
|
7,938
|
|
|
|
|
|
|
|
|
|
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|
NET INTEREST
INCOME
|
|
5,156
|
|
4,794
|
|
10,037
|
|
9,534
|
|
|
|
|
|
|
|
|
|
|
|
PROVISION FOR
LOAN LOSSES
|
|
60
|
|
10
|
|
120
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST
INCOME AFTER PROVISION FOR LOAN LOSSES
|
|
5,096
|
|
4,784
|
|
9,917
|
|
9,484
|
|
|
|
|
|
|
|
|
|
|
|
NON-INTEREST
INCOME
|
|
|
|
|
|
|
|
|
|
Service charges
|
|
540
|
|
567
|
|
1,110
|
|
1,108
|
|
Securities
(losses) gains, net
|
|
(251
|
)
|
293
|
|
(213
|
)
|
619
|
|
Bank-owned life
insurance
|
|
91
|
|
86
|
|
246
|
|
201
|
|
Gain on sale of
loans
|
|
212
|
|
234
|
|
364
|
|
372
|
|
Insurance
commissions
|
|
486
|
|
550
|
|
1,066
|
|
988
|
|
Other
|
|
543
|
|
456
|
|
962
|
|
872
|
|
TOTAL
NON-INTEREST INCOME
|
|
1,621
|
|
2,186
|
|
3,535
|
|
4,160
|
|
|
|
|
|
|
|
|
|
|
|
NON-INTEREST
EXPENSE
|
|
|
|
|
|
|
|
|
|
Salaries and
employee benefits
|
|
2,469
|
|
2,301
|
|
4,920
|
|
4,582
|
|
Occupancy, net
|
|
314
|
|
337
|
|
652
|
|
668
|
|
Furniture and
equipment
|
|
287
|
|
297
|
|
572
|
|
583
|
|
Pennsylvania
shares tax
|
|
105
|
|
161
|
|
210
|
|
322
|
|
Amortization of
investment in limited partnerships
|
|
178
|
|
142
|
|
356
|
|
283
|
|
Other
|
|
1,158
|
|
1,102
|
|
2,246
|
|
2,030
|
|
TOTAL
NON-INTEREST EXPENSE
|
|
4,511
|
|
4,340
|
|
8,956
|
|
8,468
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE
INCOME TAX PROVISION
|
|
2,206
|
|
2,630
|
|
4,496
|
|
5,176
|
|
INCOME TAX
PROVISION
|
|
149
|
|
295
|
|
308
|
|
560
|
|
NET INCOME
|
|
$
|
2,057
|
|
$
|
2,335
|
|
$
|
4,188
|
|
$
|
4,616
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER
SHARE - BASIC
|
|
$
|
0.53
|
|
$
|
0.60
|
|
$
|
1.08
|
|
$
|
1.19
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER
SHARE - DILUTED
|
|
$
|
0.53
|
|
$
|
0.60
|
|
$
|
1.08
|
|
$
|
1.19
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE
SHARES OUTSTANDING - BASIC
|
|
3,865,977
|
|
3,889,139
|
|
3,870,359
|
|
3,893,286
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE
SHARES OUTSTANDING - DILUTED
|
|
3,866,115
|
|
3,889,401
|
|
3,870,523
|
|
3,893,586
|
|
|
|
|
|
|
|
|
|
|
|
DIVIDENDS PER
SHARE
|
|
$
|
0.46
|
|
$
|
0.44
|
|
$
|
0.92
|
|
$
|
0.88
|
|
See accompanying notes to
the unaudited consolidated financial statements.
4
Table of Contents
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
|
|
|
|
|
|
|
|
4,188
|
|
|
|
|
|
4,188
|
|
Unrealized loss
on investments available for sale, net of reclassification adjustment, net of
income tax benefit of $2,938
|
|
|
|
|
|
|
|
|
|
(5,701
|
)
|
|
|
(5,701
|
)
|
Total
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,513
|
)
|
Dividends
declared, ($0.92 per share)
|
|
|
|
|
|
|
|
(3,560
|
)
|
|
|
|
|
(3,560
|
)
|
Purchase of
treasury stock (18,516 shares)
|
|
|
|
|
|
|
|
|
|
|
|
(585
|
)
|
(585
|
)
|
Cumulative effect
of change in accounting for postretirement benefits
|
|
|
|
|
|
|
|
(437
|
)
|
|
|
|
|
(437
|
)
|
Stock options
exercised
|
|
330
|
|
3
|
|
8
|
|
|
|
|
|
|
|
11
|
|
Common shares
issued for employee stock purchase plan
|
|
1,569
|
|
13
|
|
34
|
|
|
|
|
|
|
|
47
|
|
Balance, June 30,
2008
|
|
4,008,833
|
|
$
|
33,407
|
|
$
|
17,930
|
|
$
|
27,898
|
|
$
|
(9,235
|
)
|
$
|
(5,478
|
)
|
$
|
64,522
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
4,616
|
|
|
|
|
|
4,616
|
|
Unrealized loss
on investments available for sale, net of reclassification adjustment, net of
income tax benefit of $2,882
|
|
|
|
|
|
|
|
|
|
(5,594
|
)
|
|
|
(5,594
|
)
|
Total
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(978
|
)
|
Dividends
declared, ($0.88 per share)
|
|
|
|
|
|
|
|
(3,425
|
)
|
|
|
|
|
(3,425
|
)
|
Purchase of
treasury stock (15,030 shares)
|
|
|
|
|
|
|
|
|
|
|
|
(529
|
)
|
(529
|
)
|
Stock options
exercised
|
|
330
|
|
3
|
|
5
|
|
|
|
|
|
|
|
8
|
|
Common shares
issued for employee stock purchase plan
|
|
1,498
|
|
13
|
|
37
|
|
|
|
|
|
|
|
50
|
|
Balance, June 30,
2007
|
|
4,005,342
|
|
$
|
33,378
|
|
$
|
17,852
|
|
$
|
26,974
|
|
$
|
(4,034
|
)
|
$
|
(4,450
|
)
|
$
|
69,720
|
|
PENNS
WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
(In Thousands)
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
$
|
2,057
|
|
|
|
$
|
2,335
|
|
|
|
$
|
4,188
|
|
|
|
$
|
4,616
|
|
Other
comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net
unrealized losses on available for sale securities
|
|
(7,061
|
)
|
|
|
(7,194
|
)
|
|
|
(8,852
|
)
|
|
|
(7,857
|
)
|
|
|
Less:
Reclassification adjustment for net (losses)gains included in net income
|
|
(251
|
)
|
|
|
293
|
|
|
|
(213
|
)
|
|
|
619
|
|
|
|
Other
comprehensive loss before tax
|
|
|
|
(6,810
|
)
|
|
|
(7,487
|
)
|
|
|
(8,639
|
)
|
|
|
(8,476
|
)
|
Income tax
benefit related to other comprehensive loss
|
|
|
|
(2,315
|
)
|
|
|
(2,546
|
)
|
|
|
(2,938
|
)
|
|
|
(2,882
|
)
|
Other
comprehensive loss, net of tax
|
|
|
|
(4,495
|
)
|
|
|
(4,941
|
)
|
|
|
(5,701
|
)
|
|
|
(5,594
|
)
|
Comprehensive
loss
|
|
|
|
$
|
(2,438
|
)
|
|
|
$
|
(2,606
|
)
|
|
|
$
|
(1,513
|
)
|
|
|
$
|
(978
|
)
|
See accompanying notes to the unaudited consolidated
financial statements.
5
Table of Contents
PENNS
WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
(In Thousands)
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
Net Income
|
|
$
|
4,188
|
|
$
|
4,616
|
|
Adjustments to
reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
Depreciation and
amortization
|
|
323
|
|
366
|
|
Provision for
loan losses
|
|
120
|
|
50
|
|
Accretion and
amortization of investment security discounts and premiums
|
|
(636
|
)
|
(479
|
)
|
Securities
losses (gains), net
|
|
213
|
|
(619
|
)
|
Originations of
loans held for sale
|
|
(16,137
|
)
|
(19,875
|
)
|
Proceeds of
loans held for sale
|
|
17,125
|
|
18,618
|
|
Gain on sale of
loans
|
|
(364
|
)
|
(372
|
)
|
Increases in
bank-owned life insurance
|
|
(246
|
)
|
(201
|
)
|
Other, net
|
|
(1,465
|
)
|
207
|
|
Net cash
provided by operating activities
|
|
3,121
|
|
2,311
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
Investment
securities available for sale:
|
|
|
|
|
|
Proceeds from
sales
|
|
36,098
|
|
39,212
|
|
Proceeds from
calls and maturities
|
|
5,139
|
|
3,165
|
|
Purchases
|
|
(45,132
|
)
|
(46,179
|
)
|
Investment
securities held to maturity:
|
|
|
|
|
|
Proceeds from
calls and maturities
|
|
154
|
|
11
|
|
Net (increase)
decrease in loans
|
|
(5,520
|
)
|
4,136
|
|
Acquisition of
bank premises and equipment
|
|
(998
|
)
|
(593
|
)
|
Proceeds from
the sale of foreclosed assets
|
|
70
|
|
66
|
|
Purchase of
bank-owned life insurance
|
|
(698
|
)
|
(602
|
)
|
Proceeds from
redemption of regulatory stock
|
|
3,560
|
|
2,550
|
|
Purchases of
regulatory stock
|
|
(1,996
|
)
|
(2,097
|
)
|
Net cash used
for investing activities
|
|
(9,323
|
)
|
(331
|
)
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
Net increase in
interest-bearing deposits
|
|
43,662
|
|
13,872
|
|
Net increase
(decrease) in noninterest-bearing deposits
|
|
5,237
|
|
(3,160
|
)
|
Proceeds of
long-term borrowings, FHLB
|
|
|
|
10,000
|
|
Repayment of
long-term borrowings, FHLB
|
|
(29,600
|
)
|
(16,500
|
)
|
Net decrease in
short-term borrowings
|
|
(7,234
|
)
|
(6,338
|
)
|
Dividends paid
|
|
(3,560
|
)
|
(3,425
|
)
|
Issuance of
common stock
|
|
47
|
|
50
|
|
Stock options
exercised
|
|
11
|
|
8
|
|
Purchase of
treasury stock
|
|
(585
|
)
|
(529
|
)
|
Net cash
provided by (used for) financing activities
|
|
7,978
|
|
(6,022
|
)
|
NET INCREASE
(DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
1,776
|
|
(4,042
|
)
|
CASH AND CASH
EQUIVALENTS, BEGINNING
|
|
15,433
|
|
15,373
|
|
CASH AND CASH
EQUIVALENTS, ENDING
|
|
$
|
17,209
|
|
$
|
11,331
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
8,228
|
|
$
|
7,823
|
|
Income taxes
paid
|
|
1,075
|
|
1,185
|
|
See accompanying notes to
the unaudited consolidated financial statements.
6
Table
of Contents
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 No. 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, 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 No. 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 No. 157 to FASB
Statement No. 13 and Other
7
Table
of Contents
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 No. 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 No. 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,
which provides all entities with an option to report selected financial assets
and liabilities at fair value. The objective of the FAS No. 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 No. 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 No. 157,
Fair Value Measurements. On January 31,
2008, the Company adopted FAS No. 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 No. 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 No. 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
Table of
Contents
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, 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 No. 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 No. 161 is effective for financial
statements issued for fiscal years and interim periods beginning after November 15,
2008, with early application encourage.
The adoption of this standard is not expected to have a material effect
on the Companys results of operations or financial position.
9
Table of
Contents
In May 2008, the FASB issued FAS No. 162, The
Hierarchy of Generally Accepted Accounting Principles. FAS No. 162
identifies the sources of accounting principles and the framework for selecting
the principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally
accepted accounting principles (the GAAP hierarchy). FAS No. 162 will
become effective 60 days following the SECs approval of the Public
Company Accounting Oversight Board amendments to AU Section 411, The
Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles. The Company does not expect the adoption of FAS No. 162 to
have a material effect on its results of operations and financial position.
In April 2008, the FASB issued FASB Staff Position No. 142-3,
Determination of the Useful Life of Intangible Assets (FSP 142-3). FSP 142-3
amends the factors that should be considered in developing assumptions about
renewal or extension used in estimating the useful life of a recognized
intangible asset under FAS No. 142, Goodwill and Other Intangible Assets.
This standard is intended to improve the consistency between the useful life of
a recognized intangible asset under FAS No. 142 and the period of expected
cash flows used to measure the fair value of the asset under FAS No. 141R and
other GAAP. FSP 142-3 is effective for financial statements issued for fiscal
years beginning after December 15, 2008. The measurement provisions of
this standard will apply only to intangible assets of the Company acquired
after the effective date.
In June 2008, the FASB issued FASB Staff Position (FSP) No. EITF
03-6-1, Determining Whether Instruments Granted in Share-Based Payment
Transactions Are Participating Securities, to clarify that instruments granted
in share-based payment transactions can be participating securities prior to
the requisite service having been rendered.
A basic principle of the FSP is that unvested share-based payment awards
that contain nonforfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are participating securities and are to be included in
the computation of EPS pursuant to the two-class method.
The provisions of this FSP are effective for
financial statements issued for fiscal years beginning after December 15,
2008, and interim periods within those years. All prior-period EPS data
presented (including interim financial statements, summaries of earnings, and
selected financial data) are required to be adjusted retrospectively to conform
with the provisions of the FSP. The adoption of this FSP 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 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.
10
Table
of Contents
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
common shares
outstanding
|
|
4,008,030
|
|
4,004,798
|
|
4,007,603
|
|
4,004,369
|
|
|
|
|
|
|
|
|
|
|
|
Average treasury
stock shares
|
|
(142,053
|
)
|
(115,659
|
)
|
(137,244
|
)
|
(111,083
|
)
|
|
|
|
|
|
|
|
|
|
|
Weighted average
common shares and
common
stock equivalents used to calculate basic earnings per share
|
|
3,865,977
|
|
3,889,139
|
|
3,870,359
|
|
3,893,286
|
|
|
|
|
|
|
|
|
|
|
|
Additional
common stock equivalents
(stock options) used to calculate diluted earnings per share
|
|
138
|
|
262
|
|
164
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
common shares and
common
stock equivalents used to calculate diluted earnings per share
|
|
3,866,115
|
|
3,889,401
|
|
3,870,523
|
|
3,893,586
|
|
Options to purchase
8,273 and 9,923 shares of common stock during the three and six months ended June 30,
2008 were outstanding but were not included in the computation of diluted
earnings per share as they were anti-dilutive due to the strike prices of
$40.29 and $31.82 being greater than the market price of $31.25 at June 30,
2008. Options to purchase 8,276 and
9,002 shares of common stock during the three and six months ended June 30,
2007 were outstanding but were not included in the computation of diluted
earnings per share as they were anti-dilutive due to the strike price of $40.29
being greater than the market price of $34.24 at June 30, 2007.
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 and six months ended June 30, 2008 and 2007, respectively:
11
Table
of Contents
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
(In Thousands)
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
136
|
|
$
|
117
|
|
$
|
273
|
|
$
|
233
|
|
Interest cost
|
|
152
|
|
121
|
|
304
|
|
243
|
|
Expected return
on plan assets
|
|
(163
|
)
|
(140
|
)
|
(320
|
)
|
(281
|
)
|
Amortization of
transition obligation
|
|
|
|
(1
|
)
|
(1
|
)
|
(1
|
)
|
Amortization of
prior service cost
|
|
7
|
|
6
|
|
13
|
|
13
|
|
Amortization of
net loss
|
|
14
|
|
|
|
28
|
|
|
|
Net periodic
cost
|
|
$
|
146
|
|
$
|
103
|
|
$
|
297
|
|
$
|
207
|
|
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 June 30, 2008, a
contribution in the amount of $500,000 was made for the 2007 plan year with no
additional contributions anticipated during 2008.
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:
|
|
June 30,
|
|
December 31,
|
|
(In Thousands)
|
|
2008
|
|
2007
|
|
Commitments to
extend credit
|
|
$
|
74,746
|
|
$
|
74,349
|
|
Standby letters
of credit
|
|
928
|
|
974
|
|
|
|
|
|
|
|
|
|
12
Table
of Contents
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 six months ended June 30,
2008 and 2007, there were 1,569 and 1,498 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 June 30, 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.
|
|
June 30, 2008
|
|
(In Thousands)
|
|
Level I
|
|
Level II
|
|
Level III
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Investment
Securities, available-for-sale
|
|
$
|
|
|
$
|
209,284
|
|
$
|
|
|
$
|
209,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
Table
of Contents
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.
14
Table
of Contents
Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operation
EARNINGS SUMMARY
Comparison of the Three and Six
Months Ended June 30, 2008 and 2007
Summary Results
Net income for the three months ended June 30,
2008 was $2,057,000 compared to $2,335,000 for the same period of 2007 as
after-tax securities gains decreased $359,000 (from $193,000 to a loss of
$166,000). The decrease in security
gains is the result of a write down in value of certain equity holdings that
have been deemed other than temporarily impaired. Basic and diluted earnings
per share for the three months ended June 30, 2008 were $0.53 compared to
$0.60 for the three months ended June 30, 2007. Return on average assets and return on
average equity were 1.30% and 11.73% for the three months ended June 30,
2008 compared to 1.58% and 12.57% for the corresponding period of 2007. Net income from core operations (operating
earnings) increased 3.8% to $2,223,000 for the three months ended June 30,
2008 compared to $2,142,000 for the same period of 2007 Operating earnings per share for the three
months ended June 30, 2008 increased to $0.58 basic and $0.57 dilutive compared
to $0.55 basic and dilutive for the three months ended June 30, 2007.
The six months ended June 30, 2008 generated net income of
$4,188,000 compared to $4,616,000 for the same period of 2007 due to a decline
in after-tax securities gains of $550,000 (from $409,000 to a loss of
$141,000). Earnings per share, basic and diluted, for the six months ended June 30,
2008 were $1.08 as compared to $1.19 for the comparable period of 2007. Return on average assets and return on
average equity were 1.33% and 11.87% for the six months ended June 30,
2007 as compared to 1.57% and 12.35% for the corresponding period of 2007
.
Operating earnings increased 2.9% to $4,329,000 for the six months ended
June 30, 2008 compared to $4,207,000 for the comparable period of 2007
resulting in basic and dilutive operating earnings per share of $1.12 and $1.08
for the six month periods ended June 30, 2008 and 2007, respectively.
(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 or
losses. 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.)
15
Table
of Contents
Interest And Dividend Income
Interest and dividend income for the three
months ended June 30, 2008 increased $143,000 to $8,936,000 compared to
$8,793,000 for the same period of 2007.
The increase in interest income was primarily the result of growth in
average taxable investment securities of $21,967,000 offset by an 18 basis
point (bp) decrease in the related security yields for the three months ended
June 30, 2008 over the same period of 2007. The combination of taxable investment
security growth and slight yield decrease resulted in a $352,000 increase in
taxable interest income. Over the same time frame, the average balance of
tax-exempt investment securities increased $8,267,000 with the portfolio yield
increasing 40 bp resulting in a $158,000 increase in tax-exempt interest
income. On a taxable equivalent basis,
the interest income from the investment portfolio increased $510,000 due to the
investment portfolio being strategically shifted toward tax-exempt
instruments. The decrease in dividends
received is the result of a decrease in equity investments coupled with a
general decline in the dividends per share received from the equity
holdings. Interest and fee income from
the loan portfolio decreased $270,000 as the actions of the FOMC served as the foundation
for the 48 bp decline in loan portfolio yield.
During the six months ended June 30,
2008, interest and dividend income was $17,984,000, an increase of $512,000
over the same period in 2007. The
reasons for the 2.9% growth in interest income for the six month period are
identical to those for the three month period ending June 30, 2008
discussed above. The growth in average
loans of $4,256,000 coupled with a 28 bp decrease in the loan portfolio yield
due to the decreasing prime rate resulted in a decrease of $314,000 in loan
interest and fee income. Average
investment securities and interest bearing deposit income increased $826,000
due to an increase in average balance of $29,493,000 and a 6 bp increase in
yield. The increase in yield was due to
an increase in yield on tax-exempt securities as portfolio cash flow was
reinvested into higher yielding bonds over the past year. The asset allocation between loans and the
investment portfolio composition resulted in taxable equivalent interest income
increasing $659,000 for the six months ended June 30, 2008 compared to the
same period of 2007.
Interest and dividend income composition for
the three and six months ended June 30, 2008 and 2007 was as follows:
16
Table
of Contents
|
|
For The Three Months Ended
|
|
|
|
June 30, 2008
|
|
June 30, 2007
|
|
Change
|
|
(In Thousands)
|
|
Amount
|
|
% Total
|
|
Amount
|
|
% Total
|
|
Amount
|
|
%
|
|
Loans including
fees
|
|
$
|
6,246
|
|
69.9
|
%
|
$
|
6,516
|
|
74.1
|
%
|
$
|
(270
|
)
|
(4.1
|
)%
|
Investment
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
1,276
|
|
14.3
|
|
924
|
|
10.5
|
|
352
|
|
38.1
|
|
Tax-exempt
|
|
1,210
|
|
13.5
|
|
1,052
|
|
12.0
|
|
158
|
|
15.0
|
|
Dividend and
other interest income
|
|
204
|
|
2.3
|
|
301
|
|
3.4
|
|
(97
|
)
|
(32.2
|
)
|
Total interest
and dividend income
|
|
$
|
8,936
|
|
100.0
|
%
|
$
|
8,793
|
|
100.0
|
%
|
$
|
143
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Six Months Ended
|
|
|
|
June 30, 2008
|
|
June 30, 2007
|
|
Change
|
|
(In Thousands)
|
|
Amount
|
|
% Total
|
|
Amount
|
|
% Total
|
|
Amount
|
|
%
|
|
Loans including
fees
|
|
$
|
12,625
|
|
70.2
|
%
|
$
|
12,939
|
|
74.0
|
%
|
$
|
(314
|
)
|
(2.4
|
)%
|
Investment
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
2,466
|
|
13.7
|
|
1,747
|
|
10.0
|
|
719
|
|
41.2
|
|
Tax-exempt
|
|
2,436
|
|
13.6
|
|
2,163
|
|
12.4
|
|
273
|
|
12.6
|
|
Dividend and
other interest income
|
|
457
|
|
2.5
|
|
623
|
|
3.6
|
|
(166
|
)
|
(26.6
|
)
|
Total interest
and dividend income
|
|
$
|
17,984
|
|
100.0
|
%
|
$
|
17,472
|
|
100.0
|
%
|
$
|
512
|
|
2.9
|
%
|
Interest Expense
Interest expense for the three months ended June 30,
2008 decreased $219,000 to $3,780,000
compared to $3,999,000 for the same period of 2007. The decreased expense associated with
deposits is primarily the result of a reduction in rate paid of 77 bp on time
deposits. 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 $9,000,000 in brokered CDs. Short-term borrowings interest expense
increased $30,000 as the increase in average balance of $19,080,000 countered a
decrease in the rate paid of 164 bp due to the FOMC rate actions over the past
year. Long-term borrowings interest
expense increased $68,000 as the average balance of such borrowings increased
$7,818,000 for the three months ended June 30, 2008 compared to the same
period of 2007, while the average rate decreased 22 bp to 4.43% for the 2008
period.
Interest expense for the six months ended June 30,
2008 remained stable at $7,947,000 compared to $7,938,000 for the same period
of 2007. Interest on deposits decreased
$288,000 due to the reasons noted in the above three month analysis. Borrowing costs increased primarily due to
the addition of $30,000,000 in borrowings during the latter portion of 2007 as
part of a program to increase net interest income through the purchase of fixed
rate investment securities.
Interest expense composition for the three
and six months ended June 30, 2008 and 2007 was as follows:
17
Table
of Contents
|
|
For The Three Months Ended
|
|
|
|
June 30, 2008
|
|
June 30, 2007
|
|
Change
|
|
(In Thousands)
|
|
Amount
|
|
% Total
|
|
Amount
|
|
% Total
|
|
Amount
|
|
%
|
|
Deposits
|
|
$
|
2,551
|
|
67.5
|
%
|
$
|
2,868
|
|
71.7
|
%
|
$
|
(317
|
)
|
(11.1
|
)%
|
Short-term
borrowings
|
|
257
|
|
6.8
|
|
227
|
|
5.7
|
|
30
|
|
13.2
|
|
Long-term
borrowings, FHLB
|
|
972
|
|
25.7
|
|
904
|
|
22.6
|
|
68
|
|
7.5
|
|
Total interest
expense
|
|
$
|
3,780
|
|
100.0
|
%
|
$
|
3,999
|
|
100.0
|
%
|
$
|
(219
|
)
|
(5.5
|
)%
|
|
|
For The Six Months Ended
|
|
|
|
June 30, 2008
|
|
June 30, 2007
|
|
Change
|
|
(In Thousands)
|
|
Amount
|
|
%
Total
|
|
Amount
|
|
% Total
|
|
Amount
|
|
%
|
|
Deposits
|
|
$
|
5,092
|
|
64.1
|
%
|
$
|
5,380
|
|
67.8
|
%
|
$
|
(288
|
)
|
(5.4
|
)%
|
Short-term
borrowings
|
|
686
|
|
8.6
|
|
732
|
|
9.2
|
|
(46
|
)
|
(6.3
|
)
|
Long-term
borrowings, FHLB
|
|
2,169
|
|
27.3
|
|
1,826
|
|
23.0
|
|
343
|
|
18.8
|
|
Total interest
expense
|
|
$
|
7,947
|
|
100.0
|
%
|
$
|
7,938
|
|
100.0
|
%
|
$
|
9
|
|
0.1
|
%
|
Net Interest Margin
The net interest margin (NIM) for the three
months ended June 30, 2008 was 4.01% compared to 3.95% for the
corresponding period of 2007. The
increase in the NIM was driven by a 53 bp decline in the rate paid on interest
bearing liabilities that more than compensated for a 30 bp decline in the yield
on earning assets. The decrease in
earning asset yield is due to the impact on the loan portfolio of the FOMC rate
decreases over the past year coupled with the investment portfolio growth that
occurred during the second half of 2007.
Despite this investment 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. 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 3.12% from 3.65% was driven primarily by a reduction in the rate
paid on time deposits of 77 bp. The
reduction was the result of a shortening of the time deposit portfolio initiated
in the early stages of 2007 that has resulted in an increasing repricing
frequency during this period of decreasing rates.
The NIM for the six months ended June 30,
2008 and 2007 was 3.95%. The impact of
the items mentioned in the three month discussion also applies to for the six
month period. A 44 bp decline in the
rate paid on time deposits served as the foundation for a 27 `bp decline in
rate paid on deposits, while the FOMC actions steered the yield on earning
assets and cost of borrowings.
18
Table
of Contents
Following is a schedule of average balances
and associated yields for the three and six month periods ended June 30,
2008 and 2007:
|
|
AVERAGE BALANCES AND INTEREST RATES
|
|
|
|
Three Months Ended
|
|
Three Months Ended
|
|
|
|
June 30, 2008
|
|
June 30, 2007
|
|
(In Thousands)
|
|
Average Balance
|
|
Interest
|
|
Average Rate
|
|
Average Balance
|
|
Interest
|
|
Average Rate
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt loans
|
|
$
|
8,506
|
|
$
|
135
|
|
6.31
|
%
|
$
|
7,819
|
|
$
|
120
|
|
6.16
|
%
|
All other loans
|
|
358,980
|
|
6,157
|
|
6.82
|
%
|
353,019
|
|
6,437
|
|
7.31
|
%
|
Total loans
|
|
367,486
|
|
6,292
|
|
6.81
|
%
|
360,838
|
|
6,557
|
|
7.29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
investment securities
|
|
105,295
|
|
1,480
|
|
5.62
|
%
|
83,328
|
|
1,209
|
|
5.80
|
%
|
Tax-exempt
investment securities
|
|
108,670
|
|
1,833
|
|
6.75
|
%
|
100,403
|
|
1,594
|
|
6.35
|
%
|
Total securities
|
|
213,965
|
|
3,313
|
|
6.19
|
%
|
183,731
|
|
2,803
|
|
6.10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing
deposits
|
|
34
|
|
|
|
0.00
|
%
|
1,230
|
|
16
|
|
5.22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest-earning assets
|
|
581,485
|
|
9,605
|
|
6.58
|
%
|
545,799
|
|
9,376
|
|
6.88
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
50,186
|
|
|
|
|
|
43,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
631,671
|
|
|
|
|
|
$
|
589,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
$
|
61,197
|
|
115
|
|
0.75
|
%
|
$
|
59,906
|
|
110
|
|
0.74
|
%
|
Super Now
deposits
|
|
54,327
|
|
183
|
|
1.34
|
%
|
47,531
|
|
153
|
|
1.29
|
%
|
Money market
deposits
|
|
26,803
|
|
146
|
|
2.17
|
%
|
26,346
|
|
158
|
|
2.41
|
%
|
Time deposits
|
|
209,539
|
|
2,107
|
|
4.00
|
%
|
205,554
|
|
2,447
|
|
4.77
|
%
|
Total deposits
|
|
351,866
|
|
2,551
|
|
2.88
|
%
|
339,337
|
|
2,868
|
|
3.39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
borrowings
|
|
41,319
|
|
257
|
|
2.45
|
%
|
22,239
|
|
227
|
|
4.09
|
%
|
Long-term
borrowings, FHLB
|
|
85,789
|
|
972
|
|
4.43
|
%
|
77,971
|
|
904
|
|
4.65
|
%
|
Total borrowings
|
|
127,108
|
|
1,229
|
|
3.79
|
%
|
100,210
|
|
1,131
|
|
4.53
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest-bearing liabilities
|
|
478,974
|
|
3,780
|
|
3.12
|
%
|
439,547
|
|
3,999
|
|
3.65
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
73,485
|
|
|
|
|
|
68,677
|
|
|
|
|
|
Other liabilities
|
|
9,095
|
|
|
|
|
|
6,888
|
|
|
|
|
|
Shareholders
equity
|
|
70,117
|
|
|
|
|
|
74,281
|
|
|
|
|
|
Total
liabilities and shareholders equity
|
|
$
|
631,671
|
|
|
|
|
|
$
|
589,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate
spread
|
|
|
|
|
|
3.46
|
%
|
|
|
|
|
3.23
|
%
|
Net interest
income/margin
|
|
|
|
$
|
5,825
|
|
4.01
|
%
|
|
|
$
|
5,377
|
|
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.
19
Table
of Contents
|
|
AVERAGE BALANCES AND INTEREST RATES
|
|
|
|
Six Months Ended
|
|
Six Months Ended
|
|
|
|
June 30, 2008
|
|
June 30, 2007
|
|
(In Thousands)
|
|
Average Balance
|
|
Interest
|
|
Average Rate
|
|
Average Balance
|
|
Interest
|
|
Average Rate
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt loans
|
|
$
|
8,277
|
|
$
|
262
|
|
6.37
|
%
|
$
|
8,022
|
|
$
|
247
|
|
6.21
|
%
|
All other loans
|
|
356,830
|
|
12,453
|
|
7.02
|
%
|
352,829
|
|
12,776
|
|
7.30
|
%
|
Total loans
|
|
365,107
|
|
12,715
|
|
7.00
|
%
|
360,851
|
|
13,023
|
|
7.28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
securities
|
|
103,013
|
|
2,923
|
|
5.68
|
%
|
82,952
|
|
2,353
|
|
5.67
|
%
|
Tax-exempt
securities
|
|
111,630
|
|
3,691
|
|
6.61
|
%
|
101,588
|
|
3,277
|
|
6.45
|
%
|
Total securities
|
|
214,643
|
|
6,614
|
|
6.16
|
%
|
184,540
|
|
5,630
|
|
6.10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing
deposits
|
|
19
|
|
|
|
0.00
|
%
|
629
|
|
17
|
|
5.45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest-earning assets
|
|
579,769
|
|
19,329
|
|
6.69
|
%
|
546,020
|
|
18,670
|
|
6.88
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
49,325
|
|
|
|
|
|
41,723
|
|
|
|
|
|
Total assets
|
|
$
|
629,094
|
|
|
|
|
|
$
|
587,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
$
|
59,880
|
|
224
|
|
0.75
|
%
|
$
|
59,454
|
|
215
|
|
0.73
|
%
|
Super Now
deposits
|
|
50,347
|
|
338
|
|
1.35
|
%
|
46,196
|
|
302
|
|
1.32
|
%
|
Money market
deposits
|
|
25,064
|
|
273
|
|
2.19
|
%
|
24,962
|
|
283
|
|
2.29
|
%
|
Time deposits
|
|
200,233
|
|
4,257
|
|
4.28
|
%
|
195,712
|
|
4,580
|
|
4.72
|
%
|
Total Deposits
|
|
335,524
|
|
5,092
|
|
3.05
|
%
|
326,324
|
|
5,380
|
|
3.32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
borrowings
|
|
46,216
|
|
686
|
|
2.95
|
%
|
32,206
|
|
732
|
|
4.58
|
%
|
Other borrowings
|
|
95,661
|
|
2,169
|
|
4.48
|
%
|
79,339
|
|
1,826
|
|
4.64
|
%
|
Total borrowings
|
|
141,877
|
|
2,855
|
|
3.99
|
%
|
111,545
|
|
2,558
|
|
4.62
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest-bearing liabilities
|
|
477,401
|
|
7,947
|
|
3.33
|
%
|
437,869
|
|
7,938
|
|
3.66
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
71,864
|
|
|
|
|
|
68,446
|
|
|
|
|
|
Other
liabilities
|
|
9,280
|
|
|
|
|
|
6,673
|
|
|
|
|
|
Shareholders
equity
|
|
70,459
|
|
|
|
|
|
74,755
|
|
|
|
|
|
|
|
$
|
629,004
|
|
|
|
|
|
$
|
587,743
|
|
|
|
|
|
Interest rate
spread
|
|
|
|
|
|
3.36
|
%
|
|
|
|
|
3.22
|
%
|
Net interest
income/margin
|
|
|
|
$
|
11,382
|
|
3.95
|
%
|
|
|
$
|
10,732
|
|
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.
20
Table
of Contents
The following table presents the
adjustment to convert net interest income to net interest income on a fully
taxable equivalent basis for the three and six month periods ended June 30,
2008 and 2007.
|
|
For the Three Months Ended
|
|
For the Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
(In Thousands)
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Total interest
income
|
|
$
|
8,936
|
|
$
|
8,793
|
|
$
|
17,984
|
|
$
|
17,472
|
|
Total interest
expense
|
|
3,780
|
|
3,999
|
|
7,947
|
|
7,938
|
|
|
|
|
|
|
|
|
|
|
|
Net interest
income
|
|
5,156
|
|
4,794
|
|
10,037
|
|
9,534
|
|
Tax equivalent
adjustment
|
|
669
|
|
583
|
|
1,345
|
|
1,198
|
|
|
|
|
|
|
|
|
|
|
|
Net interest
income (fully taxable equivalent)
|
|
$
|
5,825
|
|
$
|
5,377
|
|
$
|
11,382
|
|
$
|
10,732
|
|
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 and six month periods
ended June 30, 2008 and 2007:
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2008 vs 2007
|
|
2008 vs 2007
|
|
|
|
Increase (Decrease)
|
|
Increase (Decrease)
|
|
|
|
Due to
|
|
Due to
|
|
(In Thousands)
|
|
Volume
|
|
Rate
|
|
Net
|
|
Volume
|
|
Rate
|
|
Net
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans,
tax-exempt
|
|
$
|
11
|
|
$
|
4
|
|
$
|
15
|
|
$
|
12
|
|
$
|
3
|
|
$
|
15
|
|
Loans
|
|
117
|
|
(397
|
)
|
(280
|
)
|
150
|
|
(473
|
)
|
(323
|
)
|
Taxable
investment securities
|
|
310
|
|
(39
|
)
|
271
|
|
569
|
|
1
|
|
570
|
|
Tax-exempt
investment securities
|
|
166
|
|
73
|
|
239
|
|
335
|
|
79
|
|
414
|
|
Interest bearing
deposits
|
|
(16
|
)
|
|
|
(16
|
)
|
(17
|
)
|
|
|
(17
|
)
|
Total
interest-earning assets
|
|
588
|
|
(359
|
)
|
229
|
|
1,049
|
|
(390
|
)
|
659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits
|
|
3
|
|
2
|
|
5
|
|
2
|
|
7
|
|
9
|
|
Super Now
deposits
|
|
25
|
|
5
|
|
30
|
|
30
|
|
6
|
|
36
|
|
Money market
deposits
|
|
3
|
|
(15
|
)
|
(12
|
)
|
1
|
|
(11
|
)
|
(10
|
)
|
Time deposits
|
|
48
|
|
(388
|
)
|
(340
|
)
|
107
|
|
(430
|
)
|
(323
|
)
|
Short-term
borrowings
|
|
145
|
|
(115
|
)
|
30
|
|
262
|
|
(308
|
)
|
(46
|
)
|
Long-term
borrowings, FHLB
|
|
105
|
|
(37
|
)
|
68
|
|
403
|
|
(60
|
)
|
343
|
|
Total
interest-bearing liabilities
|
|
329
|
|
(548
|
)
|
(219
|
)
|
805
|
|
(796
|
)
|
9
|
|
Change in net
interest income
|
|
$
|
259
|
|
$
|
189
|
|
$
|
448
|
|
$
|
244
|
|
$
|
406
|
|
$
|
650
|
|
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
21
Table
of Contents
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 June 30,
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, 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 $4,207,000 at June 30, 2008.
At June 30, 2008 and December 31, 2007, the allowance for loan
losses was 1.15%. 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 and $120,000 for the
three and six months ended June 30, 2008, as compared to $10,000 and
$50,000 for the same periods in 2007.
The size of the increase in the provision was the result of several
continuing positive factors, including but not limited to, an increase in gross
loans of $5,477,000 since December 31, 2007, a ratio of annualized net
charge offs to average loans of 0.01%, a ratio of nonperforming loans to total
loans of 0.25%, and a ratio of the allowance for loan losses to nonperforming
loans of 462.82% at June 30, 2008.
Non-interest Income
Total non-interest income for the three
months ended June 30, 2008 compared to the same period in 2007 decreased
$565,000 to $1,621,000 due to a $544,000 decrease in net securities gains and
losses realized when comparing the three month periods ended June 30, 2008
and 2007. Excluding net securities gains
and losses, non-interest income for the second quarter of 2008 would have
decreased $21,000 as compared to the 2007 period. Deposit service charges decreased $27,000 as
customers migrated to no service charge checking accounts that were
22
Table
of Contents
introduced as part of a customer obtainment
and retention program. Earnings on bank
owned life insurance increased $5,000 as a result of increased holdings as of June 30,
2008 as compared to the 2007 period.
Insurance commissions for the three months
ended June 30, 2008 decreased $64,000
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.
Total non-interest income for the six months
ended June 30, 2008 compared to the same period in 2007 decreased
$625,000. Excluding net securities
gains, non-interest income would have increased $207,000 as compared to the
2007 period. The increase in
non-interest income for the six month period is the result of the same items
noted in the three month discussion.
Non-interest income composition for the three
and six months ended June 30, 2008 and 2007 was as follows:
|
|
For The Three Months Ended
|
|
|
|
June 30, 2008
|
|
June 30, 2007
|
|
Change
|
|
(In Thousands)
|
|
Amount
|
|
% Total
|
|
Amount
|
|
% Total
|
|
Amount
|
|
%
|
|
Deposit service
charges
|
|
$
|
540
|
|
33.3
|
%
|
$
|
567
|
|
25.9
|
%
|
$
|
(27
|
)
|
(4.8
|
)%
|
Securities
(losses) gains, net
|
|
(251
|
)
|
(15.5
|
)
|
293
|
|
13.4
|
|
(544
|
)
|
(185.7
|
)
|
Bank owned life
insurance
|
|
91
|
|
5.6
|
|
86
|
|
3.9
|
|
5
|
|
5.8
|
|
Gain on sale of
loans
|
|
212
|
|
13.1
|
|
234
|
|
10.7
|
|
(22
|
)
|
(9.4
|
)
|
Insurance
commissions
|
|
486
|
|
30.0
|
|
550
|
|
25.2
|
|
(64
|
)
|
(11.6
|
)
|
Other
|
|
543
|
|
33.5
|
|
456
|
|
20.9
|
|
87
|
|
19.0
|
|
Total
non-interest income
|
|
$
|
1,621
|
|
100.0
|
%
|
$
|
2,186
|
|
100.0
|
%
|
$
|
(565
|
)
|
(25.8
|
)%
|
|
|
For The Six Months Ended
|
|
|
|
June 30, 2008
|
|
June 30, 2007
|
|
Change
|
|
(In Thousands)
|
|
Amount
|
|
% Total
|
|
Amount
|
|
% Total
|
|
Amount
|
|
%
|
|
Deposit service
charges
|
|
$
|
1,110
|
|
31.4
|
%
|
$
|
1,108
|
|
26.6
|
%
|
$
|
2
|
|
0.2
|
%
|
Securities
(losses) gains, net
|
|
(213
|
)
|
(6.0
|
)
|
619
|
|
14.9
|
|
(832
|
)
|
(134.4
|
)
|
Bank owned life
insurance
|
|
246
|
|
7.0
|
|
201
|
|
4.8
|
|
45
|
|
22.4
|
|
Gain on sale of
loans
|
|
364
|
|
10.3
|
|
372
|
|
8.9
|
|
(8
|
)
|
(2.2
|
)
|
Insurance
commissions
|
|
1,066
|
|
30.1
|
|
988
|
|
23.8
|
|
78
|
|
7.9
|
|
Other
|
|
962
|
|
27.2
|
|
872
|
|
21.0
|
|
90
|
|
10.3
|
|
Total
non-interest income
|
|
$
|
3,535
|
|
100.0
|
%
|
$
|
4,160
|
|
100.0
|
%
|
$
|
(625
|
)
|
(15.0
|
)%
|
Non-interest Expense
Total non-interest expense increased $171,000
for the three months ended June 30, 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,
23
Table
of Contents
increased pension expense, and other benefit
costs. Occupancy expense decreased due
to decreased 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.
Total non-interest expenses increased
$488,000 for the six months ended June 30, 2008 compared to the same period of 2007. As noted above in the three month discussion,
normal increases in general business expenses and the amortization of a low
income housing partnership, impacted the level of non-interest expenses.
Non-interest expense composition for the
three and six months ended June 30, 2008 and 2007 was as follows:
|
|
For The Three Months Ended
|
|
|
|
June 30, 2008
|
|
June 30, 2007
|
|
Change
|
|
(In Thousands)
|
|
Amount
|
|
% Total
|
|
Amount
|
|
% Total
|
|
Amount
|
|
%
|
|
Salaries and
employee benefits
|
|
$
|
2,469
|
|
54.7
|
%
|
$
|
2,301
|
|
53.0
|
%
|
$
|
168
|
|
7.3
|
%
|
Occupancy, net
|
|
314
|
|
7.0
|
|
337
|
|
7.8
|
|
(23
|
)
|
(6.8
|
)
|
Furniture and
equipment
|
|
287
|
|
6.4
|
|
297
|
|
6.8
|
|
(10
|
)
|
(3.4
|
)
|
Pennsylvania
shares tax
|
|
105
|
|
2.3
|
|
161
|
|
3.7
|
|
(56
|
)
|
(34.8
|
)
|
Amortization of
investment in limited partnerships
|
|
178
|
|
3.9
|
|
142
|
|
3.3
|
|
36
|
|
25.4
|
|
Other
|
|
1,158
|
|
25.7
|
|
1,102
|
|
25.4
|
|
56
|
|
5.1
|
|
Total
non-interest expense
|
|
$
|
4,511
|
|
100.0
|
%
|
$
|
4,340
|
|
100.0
|
%
|
$
|
171
|
|
3.9
|
%
|
|
|
For The Six Months Ended
|
|
|
|
June 30, 2008
|
|
June 30, 2007
|
|
Change
|
|
(In Thousands)
|
|
Amount
|
|
%
Total
|
|
Amount
|
|
% Total
|
|
Amount
|
|
%
|
|
Salaries and
employee benefits
|
|
$
|
4,920
|
|
54.9
|
%
|
$
|
4,582
|
|
54.1
|
%
|
$
|
338
|
|
7.4
|
%
|
Occupancy, net
|
|
652
|
|
7.3
|
|
668
|
|
7.9
|
|
(16
|
)
|
(2.4
|
)
|
Furniture and
equipment
|
|
572
|
|
6.4
|
|
583
|
|
6.9
|
|
(11
|
)
|
(1.9
|
)
|
Pennsylvania
shares tax
|
|
210
|
|
2.3
|
|
322
|
|
3.8
|
|
(112
|
)
|
(34.8
|
)
|
Amortization of
investment in limited partnerships
|
|
356
|
|
4.0
|
|
283
|
|
3.3
|
|
73
|
|
25.8
|
|
Other
|
|
2,246
|
|
25.1
|
|
2,030
|
|
24.0
|
|
216
|
|
10.6
|
|
Total
non-interest expense
|
|
$
|
8,956
|
|
100.0
|
%
|
$
|
8,468
|
|
100.0
|
%
|
$
|
488
|
|
5.8
|
%
|
Provision for Income Taxes
Income taxes decreased $146,000 and $252,000
for the three and six month periods ended June 30, 2008 compared to the
same period of 2007. The effective tax
rate for the three and six months ended June 30, 2008 was 6.75% and 6.85%
as compared to 11.22% and 10.82% for the same periods 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
24
Table
of Contents
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 $1,776,000 from
$15,433,000 at December 31, 2007 to $17,209,000 at June 30, 2008
primarily as a result of the following activities during the six months ended June 30,
2008:
Loans Held for
Sale
Activity regarding loans held for sale resulted in
sale proceeds exceeding loan originations, less $364,000 in realized gains, by
$624,000 for the six months ended June 30, 2008.
Loans
Gross loans increased $5,477,000 since December 31,
2007 due to the increase of residential mortgages coupled with increased
competition for commercial loans and a softening of the market.
The
allocation of the loan portfolio, by category, as of June 30, 2008 and December 31,
2007 is presented below:
|
|
June 30,
|
|
December 31,
|
|
Change
|
|
(In Thousands)
|
|
2008
|
|
2007
|
|
Amount
|
|
%
|
|
Commercial, financial
and agricultural
|
|
$
|
36,266
|
|
$
|
35,739
|
|
$
|
527
|
|
1.5
|
%
|
Real estate
mortgage:
|
|
|
|
|
|
|
|
|
|
Residential
|
|
171,552
|
|
163,268
|
|
8,284
|
|
5.1
|
|
Commercial
|
|
129,498
|
|
132,943
|
|
(3,445
|
)
|
(2.6
|
)
|
Construction
|
|
16,650
|
|
16,152
|
|
498
|
|
3.1
|
|
Installment loans
to individuals
|
|
12,948
|
|
13,317
|
|
(369
|
)
|
(2.8
|
)
|
Less: Net
deferred loan fees
|
|
959
|
|
941
|
|
18
|
|
1.9
|
|
Gross loans
|
|
$
|
365,955
|
|
$
|
360,478
|
|
$
|
5,477
|
|
1.5
|
%
|
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 $4,473,000 at June 30, 2008, compared to $1,477,000 at December 31,
2007. The valuation allowance related to
impaired loans amounted to $49,000 at June 30, 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.
25
Table
of Contents
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 at June 30, 2008 has decreased $5,289,000
since December 31, 2007, while the amortized cost increased
$3,351,000. 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 $19,922,000 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 $15,713,000. The increased level of unrealized losses
within the bond portfolio, 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 equity portfolio continues to feel the
effects of the economic turbulence that is effecting the financial sector. This sector of the portfolio, as of June 30,
2008, held $4,930,000 in unrealized losses on an amortized cost basis of
$18,573,000. The amount of the declines
has caused several of our equity holdings to be deemed other than temporarily
impaired resulting in a write down in value of these holdings of $366,000 and
$574,000 for the three and six months ended June 30, 2008. Certain positions may be liquidated, in whole
or part, through the balance of 2008 so that the losses can be carried back for
tax purposes and offset against gains that have been recognized over the past
several years.
26
Table of Contents
The amortized cost of
investment securities and their estimated fair values are as follows:
|
|
June 30, 2008
|
|
|
|
|
|
Gross
|
|
Gross
|
|
Estimated
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
(In Thousands)
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
Available
for sale (AFS)
|
|
|
|
|
|
|
|
|
|
U.S.
Government and agency
securities
|
|
$
|
46,669
|
|
$
|
95
|
|
$
|
(215
|
)
|
$
|
46,549
|
|
State
and political securities
|
|
139,573
|
|
263
|
|
(6,459
|
)
|
133,377
|
|
Other
debt securities
|
|
16,379
|
|
15
|
|
(926
|
)
|
15,468
|
|
Total
debt securities
|
|
202,621
|
|
373
|
|
(7,600
|
)
|
195,394
|
|
Equity
securities
|
|
18,573
|
|
247
|
|
(4,930
|
)
|
13,890
|
|
Total
investment securities AFS
|
|
$
|
221,194
|
|
$
|
620
|
|
$
|
(12,530
|
)
|
$
|
209,284
|
|
|
|
|
|
|
|
|
|
|
|
Held
to maturity (HTM)
|
|
|
|
|
|
|
|
|
|
U.S.
Government and agency
securities
|
|
$
|
11
|
|
$
|
|
|
$
|
|
|
$
|
11
|
|
Other
debt securities
|
|
149
|
|
1
|
|
|
|
150
|
|
Total
investment securities HTM
|
|
$
|
160
|
|
$
|
1
|
|
$
|
|
|
$
|
161
|
|
|
|
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
|
|
27
Table
of Contents
Financing Activities
Deposits
Total
deposits increased 12.6% or $48,899,000 from December 31, 2007 to June 30,
2008. The growth was led by a 37.2% or
$7,831,000 increase in money market accounts coupled with growth in time
deposits of 17.8% or $31,561,000 from December 31, 2007 to June 30,
2008. In addition, demand deposits have
increased 7.0% or $5,237,000 with NOW and savings accounts increasing
$8,155,000 in aggregate. The increases
in all core deposit categories have allowed for a 44.0% reduction in the
balance of brokered time deposits due to the ability to attract market area
deposits at more favorable terms through the first six months of 2008.
Deposit balances and their changes
for the periods being discussed follow:
|
|
June 30, 2008
|
|
December 31, 2007
|
|
Change
|
|
(In Thousands)
|
|
Amount
|
|
% Total
|
|
Amount
|
|
% Total
|
|
Amount
|
|
%
|
|
Demand
deposits
|
|
$
|
79,908
|
|
18.2
|
%
|
$
|
74,671
|
|
19.2
|
%
|
$
|
5,237
|
|
7.0
|
%
|
NOW
accounts
|
|
52,948
|
|
12.1
|
|
50,883
|
|
13.1
|
|
2,065
|
|
4.1
|
|
Money
market deposits
|
|
28,860
|
|
6.6
|
|
21,029
|
|
5.4
|
|
7,831
|
|
37.2
|
|
Savings
deposits
|
|
62,847
|
|
14.4
|
|
56,757
|
|
14.6
|
|
6,090
|
|
10.7
|
|
Time
deposits
|
|
208,412
|
|
47.6
|
|
176,851
|
|
45.4
|
|
31,561
|
|
17.8
|
|
Time
deposits - brokered
|
|
4,946
|
|
1.1
|
|
8,831
|
|
2.3
|
|
(3,885
|
)
|
(44.0
|
)
|
Total
deposits
|
|
$
|
437,921
|
|
100.0
|
%
|
$
|
389,022
|
|
100.0
|
%
|
$
|
48,899
|
|
12.6
|
%
|
Borrowed Funds
Total borrowed funds decreased
22.8% to $124,859,000 at June 30, 2008 as compared to $161,693,000 at December 31,
2007. The decrease in borrowed funds is
primarily the result of the previously discussed 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. Long-term borrowings
decreased $29,600,000 since December 31, 2007 due to the maturity of
several borrowings that carried rates between 3.14% and 5.56%.
|
|
June 30, 2008
|
|
December 31, 2007
|
|
Change
|
|
(In Thousands)
|
|
Amount
|
|
% Total
|
|
Amount
|
|
% Total
|
|
Amount
|
|
%
|
|
Short-term
borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB
repurchase agreements
|
|
$
|
31,819
|
|
25.5
|
%
|
$
|
38,160
|
|
23.6
|
%
|
$
|
(6,341
|
)
|
(16.6
|
)%
|
Short-term
borrowings, FHLB
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
sold under agreement to repurchase
|
|
16,262
|
|
13.0
|
|
17,155
|
|
10.6
|
|
(893
|
)
|
(5.2
|
)
|
Total
short-term borrowings
|
|
48,081
|
|
38.5
|
%
|
55,315
|
|
34.2
|
%
|
(7,234
|
)
|
(13.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
borrowings, FHLB
|
|
76,778
|
|
61.5
|
|
106,378
|
|
65.8
|
|
(29,600
|
)
|
(27.8
|
)
|
Total
borrowed funds
|
|
$
|
124,859
|
|
100.0
|
%
|
$
|
161,693
|
|
100.0
|
%
|
$
|
(36,834
|
)
|
(22.8
|
)%
|
28
Table
of Contents
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. 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.
29
Table of Contents
Capital
ratios as of June 30, 2008 and December 31, 2007 were as follows:
|
|
2008
|
|
2007
|
|
(In Thousands)
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Total
Capital
|
|
|
|
|
|
|
|
|
|
(to
Risk-weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
$
|
66,597
|
|
16.5
|
%
|
$
|
70,381
|
|
18.0
|
%
|
For
Capital Adequacy Purposes
|
|
32,342
|
|
8.0
|
|
31,280
|
|
8.0
|
|
To
Be Well Capitalized
|
|
40,428
|
|
10.0
|
|
39,100
|
|
10.0
|
|
|
|
|
|
|
|
|
|
|
|
Tier
I Capital
|
|
|
|
|
|
|
|
|
|
(to
Risk-weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
$
|
62,390
|
|
15.4
|
%
|
$
|
66,251
|
|
16.9
|
%
|
For
Capital Adequacy Purposes
|
|
16,171
|
|
4.0
|
|
15,640
|
|
4.0
|
|
To
Be Well Capitalized
|
|
24,257
|
|
6.0
|
|
23,460
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
Tier
I Capital
|
|
|
|
|
|
|
|
|
|
(to
Average Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
$
|
62,390
|
|
10.0
|
%
|
$
|
66,251
|
|
10.8
|
%
|
For
Capital Adequacy Purposes
|
|
25,054
|
|
4.0
|
|
24,664
|
|
4.0
|
|
To
Be Well Capitalized
|
|
31,317
|
|
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
30
Table of Contents
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
$202,644,000.
In
addition to this credit arrangement, the Company has additional lines of credit
with correspondent banks of $28,876,000. Management believes it has sufficient
liquidity to satisfy estimated short-term and long-term funding needs. FHLB borrowings totaled $108,597,000 as of June 30,
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.
31
Table of Contents
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 June 30, 2008.
There were no changes in the Companys internal control over financial
reporting that occurred during the quarter ended June 30, 2008, that have
materially affected, or are reasonably likely to materially affect, the Companys
internal control over financial reporting.
32
Table of Contents
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
|
|
Total
|
|
Average
|
|
Total Number of
|
|
Maximum Number (or
|
|
|
|
Number of
|
|
Price Paid
|
|
Shares (or Units)
|
|
Approximate Dollar Value)
|
|
|
|
Shares (or
|
|
per Share
|
|
Purchased as Part of
|
|
of Shares (or Units) that
|
|
|
|
Units)
|
|
(or Units)
|
|
Publicly Announced
|
|
May Yet Be Purchased
|
|
Period
|
|
Purchased
|
|
Purchased
|
|
Plans or Programs
|
|
Under the Plans or Programs
|
|
|
|
|
|
|
|
|
|
|
|
Month
#1 (April 1 -
April
30, 2008)
|
|
4,569
|
|
$
|
32.44
|
|
4,569
|
|
117,204
|
|
|
|
|
|
|
|
|
|
|
|
Month
#2 (May 1 -
May
31, 2008)
|
|
5,000
|
|
32.16
|
|
5,000
|
|
112,204
|
|
|
|
|
|
|
|
|
|
|
|
Month
#3 (June 1 -
June
30, 2008)
|
|
4,650
|
|
30.55
|
|
4,650
|
|
107,554
|
|
|
|
|
|
|
|
|
|
|
|
|
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 89,446
shares repurchased under this plan.
Item 3.
Defaults
Upon Senior Securities
None
Item 4.
Submission
of Matters to a Vote of Security Holders
Penns Woods Bancorp, Inc.s
annual meeting of the shareholders was held on April 30, 2008. The results of the items voted on are listed
below:
33
Table of Contents
Issue Description
|
|
For
|
|
Withhold
|
|
1.
|
|
Election of Directors
for a Three Year Term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
H.
Thomas Davis, Jr.
|
|
3,001,180
|
|
71,853
|
|
|
|
James
M. Furey, II
|
|
3,003,586
|
|
69,447
|
|
|
|
D.
Michael Hawbaker
|
|
3,003,000
|
|
70,033
|
|
Issue
Description
|
|
For
|
|
Against
|
|
Abstain
|
|
2.
|
|
Ratification of S.R.
Snodgrass, A.C., Certified Public
|
|
|
|
|
|
|
|
|
|
Accountants as
independent auditors
|
|
3,026,116
|
|
24,019
|
|
22,898
|
|
Item 5.
Other Information
None
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)
|
Section 1350
Certification of Chief Executive Officer.
|
(32)
|
(ii)
|
Section 1350
Certification of Principal Financial Officer.
|
34
Table
of Contents
SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
|
|
PENNS WOODS BANCORP,
INC.
|
|
|
(Registrant)
|
|
|
|
|
|
|
Date:
|
August 5, 2008
|
/s/ Ronald A. Walko
|
|
|
Ronald A. Walko,
President and Chief Executive Officer
|
|
|
|
|
|
|
Date:
|
August 5, 2008
|
/s/ Brian L. Knepp
|
|
|
Brian L. Knepp, Chief
Financial Officer (Principal
Financial Officer)
|
35
Table of Contents
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
|
36
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