UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, DC. 20549
FORM 10-K
x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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For the fiscal year ended December 31, 2008
OR
o
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE
REQUIRED)
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Commission file number 0-17077
PENNS
WOODS BANCORP, INC.
(Exact name of registrant
as specified in its charter)
Pennsylvania
State or other
jurisdiction of
incorporation or
organization
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23-2226454
(I.R.S.
Employer 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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Registrants telephone number, including area code (
570)
322-1111
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Securities registered pursuant to
Section 12(b) of the Act:
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Title of each class
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Name of each exchange which registered
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Common
Stock, par value $8.33 per share
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The NASDAQ
Stock Market LLC
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Securities to be registered pursuant to Section 12(g) of
the Act:
None
(Title of Class)
Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
o
Yes
x
No
Indicate by check mark if the registrant is
not required to file reports pursuant to Section 13 or Section 15(d) of
the Act.
o
Yes
x
No
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
x
No
o
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K.
x
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a nonaccelerated filer, or a smaller reporting
company. See the definition of large accelerated filer, accelerated filer, and smaller reporting
company in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
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Accelerated filer
x
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
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Smaller reporting company
o
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Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
o
Yes
x
No
State the aggregate market value of the voting stock held by
non-affiliates of the registrant
$119,734,375 at June 30,
2008.
Indicate the number of shares outstanding of each of the issuers
classes of common stock, as of the latest practicable date.
Class
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Outstanding at March 3, 2009
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Common
Stock, $8.33 Par Value
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3,831,989
Shares
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DOCUMENTS INCORPORATED BY
REFERENCE
Portions of the registrants definitive proxy statement prepared in
connection with its annual meeting of shareholders to be held on April 29,
2009 are incorporated by reference in Part III hereof.
PART I
ITEM 1 BUSINESS
A. General Development of
Business and History
On January 7, 1983, Penns Woods Bancorp, Inc.
(the Company) was incorporated under the laws of the Commonwealth of
Pennsylvania as a bank holding company. The Jersey Shore State Bank, a
Pennsylvania state-charted bank, (the Bank) became a wholly owned subsidiary
of the Company, and each outstanding share of Bank common stock was converted
into one share of Company common stock.
This transaction was approved by the shareholders of the Bank on April 11,
1983 and was effective on July 12, 1983.
The Companys two other wholly-owned subsidiaries are Woods Real Estate
Development Company, Inc. and Woods Investment Company, Inc. The Companys business has consisted
primarily of managing and supervising the Bank, and its principal source of
income has been dividends paid by the Bank and Woods Investment Company, Inc.
The Bank is engaged in commercial and retail
banking which includes the acceptance of time, savings, and demand deposits,
the funding of commercial, consumer, and mortgage loans, and safe deposit
services. Utilizing a thirteen branch
office network, ATMs, internet, and telephone banking delivery channels, the
Bank delivers its products and services to the communities it resides in.
In October 2000, the Bank acquired The M
Group, Inc. D/B/A The Comprehensive Financial Group (The M Group). The M
Group, which operates as a subsidiary of the Bank, offers insurance and
securities brokerage services. Securities are offered by The M Group through
ING Financial Partners, Inc., a registered broker-dealer.
Neither the Company nor the Bank anticipates
that compliance with environmental laws and regulations will have any material
effect on capital expenditures, earnings, or on its competitive position. The Bank is not dependent on a single
customer or a few customers, the loss of whom would have a material effect on
the business of the Bank.
The Bank employed 192 persons as of December 31,
2008 in either a full-time or part-time capacity. The Company does not have any employees. The principal officers of the Bank also serve
as officers of the Company.
Woods Investment Company, Inc., a
Delaware holding company, maintains an investment portfolio that is managed for
total return and to fund dividend payments to the Company.
Woods Real Estate Development Company, Inc.
serves the Company through its acquisition and ownership of certain properties
utilized by the Bank.
A copy of the Code of Ethics and Code of
Conduct for the Corporation can be requested from Brian Knepp, Chief Financial
Officer, at 300 Market Street, Williamsport, PA 17701. A link with access to
the Corporations SEC filings, annual reports, and quarterly filings can be
found at www.jssb.com.
B. Regulation and Supervision
The Company is also subject to the provisions
of the Bank Holding Company Act of 1956, as amended (the BHCA) and to
supervision and examination by the Board of Governors of the Federal Reserve
System (the FRB). The Bank is subject
to the supervision and examination by the Federal Deposit Insurance Corporation
(the FDIC), as its primary federal regulator and as the insurer of the Banks
deposits. The Bank is also regulated and
examined by the Pennsylvania Department of Banking (the Department).
The insurance activities of The M Group are
subject to regulation by the insurance departments of the various states in
which The M Group conducts business including principally the Pennsylvania
Department of Insurance. The securities brokerage activities of The M Group are
subject to regulation by federal and state securities commissions.
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The FRB has issued regulations under the BHCA
that require a bank holding company to serve as a source of financial and
managerial strength to its subsidiary banks.
As a result, the FRB, pursuant to such regulations, may require the
Company to stand ready to use its resources to provide adequate capital funds
to the Bank during periods of financial stress or adversity. The BHCA requires the Company to secure the
prior approval of the FRB before it can acquire all or substantially all of the
assets of any bank, or acquire ownership or control of 5% or more of any voting
shares of any bank. Such a transaction
would also require approval of the Department.
A bank holding company is prohibited under
the BHCA from engaging in, or acquiring direct or indirect control of, more
than 5% of the voting shares of any company engaged in non-banking activities
unless the FRB, by order or regulation, has found such activities to be so
closely related to banking or managing or controlling banks as to be a proper
incident thereto. Under the BHCA, the
FRB has the authority to require a bank holding company to terminate any
activity or relinquish control of a non-bank subsidiary (other than a non-bank
subsidiary of a bank) upon the FRBs determination that such activity or
control constitutes a serious risk to the financial soundness and stability of
any bank subsidiary of the bank holding company.
Bank holding companies are required to comply
with the FRBs 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. Currently, the required minimum
ratio of total capital to risk-weighted assets (including certain off-balance
sheet activities, such as standby letters of credit) is 8%. At least half of the total capital is
required to be Tier 1 capital, consisting principally of common shareholders
equity, less certain intangible assets. The remainder (Tier 2 capital) may
consist of certain preferred stock, a limited amount of subordinated debt,
certain hybrid capital instruments and other debt securities, 45% of net
unrealized gains on marketable equity securities, and a limited amount of the
general loan loss allowance. The
risk-based capital guidelines are required to take adequate account of interest
rate risk, concentration of credit risk, and risks of nontraditional
activities.
In addition to the risk-based capital
guidelines, the FRB requires each bank holding company to comply with the
leverage ratio, under which the bank holding company must maintain a minimum
level of Tier 1 capital to average total consolidated assets of 3% for those
bank holding companies which have the highest regulatory examination ratings
and are not contemplating or experiencing significant growth or expansion. All other bank holding companies are expected
to maintain a leverage ratio of at least 4% to 5%. The Bank is subject to similar
capital requirements adopted by the FDIC.
Dividends
Federal and state law impose limitations on
the payment of dividends by the Bank.
The Pennsylvania Banking Code restricts the availability of capital
funds for payment of dividends by the Bank to its additional paid-in capital.
In addition to the dividend restrictions
described above, the banking regulators have the authority to prohibit or to
limit the payment of dividends by the Bank if, in the banking regulators
opinion, payment of a dividend would constitute an unsafe or unsound practice
in light of the financial condition of the Bank.
Under Pennsylvania law, the Company may not
pay a dividend, if, after giving effect thereto, it would be unable to pay its
debts as they become due in the usual course of business and, after giving effect
to the dividend, the total assets of the Company would be less than the sum of
its total liabilities plus the amount that would be needed, if the Company were
to be dissolved at the time of distribution, to satisfy the preferential rights
upon dissolution of shareholders whose rights are superior to those receiving
the dividend.
It is also the policy of the FRB that a bank
holding company generally only pay dividends on common stock out of net income
available to common shareholders over the past year and only if the prospective
rate of earnings retention appears consistent with a bank holding companys
capital needs, asset quality, and overall
3
financial condition. In the current financial and economic
environment, the FRB has indicated that bank holding companies should carefully
review their dividend policy and has discouraged dividend pay-out ratios at the
100% level unless both asset quality and capital are very strong. A bank holding company also should not
maintain a dividend level that places undue pressure on the capital of such
institutions subsidiaries, or that may undermine the bank holding companys
ability to serve as a source of strength for such subsidiaries.
C. Regulation of the Bank
From time to time, various types of federal
and state legislation have been proposed that could result in additional
regulation of, and restrictions of, the business of the Bank. It cannot be
predicted whether any such legislation will be adopted or how such legislation
would affect the business of the Bank.
As a consequence of the extensive regulation of commercial banking
activities in the United States, the Banks business is particularly
susceptible to being affected by federal legislation and regulations that may
increase the costs of doing business.
Prompt Corrective Action
The FDIC has specified the levels at which an
insured institution will be considered well-capitalized, adequately
capitalized, undercapitalized, and critically undercapitalized. In the
event an institutions capital deteriorates to the undercapitalized category
or below, the Federal Deposit Insurance Act (the FDIA) and FDIC regulations
prescribe an increasing amount of regulatory intervention, including: (1) the
institution of a capital restoration plan by a bank and a guarantee of the plan
by a parent institution and liability for civil money damages for failure to
fulfill its commitment on that guarantee; and (2) the placement of a hold
on increases in assets, number of branches, or lines of business. If capital has reached the significantly or
critically undercapitalized levels, further material restrictions can be
imposed, including restrictions on interest payable on accounts, dismissal of
management and (in critically undercapitalized situations) appointment of a
receiver. For well-capitalized
institutions, the FDIA provides authority for regulatory intervention where the
institution is deemed to be engaging in unsafe or unsound practices or receives
a less than satisfactory examination report rating for asset quality,
management, earnings or liquidity.
Deposit Insurance
The enactment of the Emergency Economic
Stabilization Act of 2008 (EESA) temporarily raised the limit on federal
deposit insurance coverage from $100,000 to $250,000 per depositor. The limits are scheduled to return to
$100,000 on January 1, 2010. Additionally, the Bank has chosen to
participate in the FDICs Temporary Liquidity Guarantee Program (TLGP) as it
applies to the FDIC guarantee of noninterest-bearing transaction account
deposits of the Bank. In return for these guarantees, the FDIC is paid a fee
based on the amount of the deposit. Under the transaction account guarantee
component of the TLGP, all noninterest-bearing transaction accounts maintained
at the Bank are insured in full by the FDIC until December 31, 2009,
regardless of the standard maximum deposit insurance amount.
On February 27, 2009, the FDIC Board of
Directors took further action to strengthen the Deposit Insurance Fund (DIF)
by adopting an interim rule imposing a special assessment on insured
institutions of 20 basis points with the option of imposing an emergency
special assessment after June 30, 2009 of up to 10 basis points, adopting
a final rule implementing changes to the risk-based assessment system, and
setting assessment rates beginning with the second quarter of 2009. The ultimate goal of these FDIC is to restore
the DIF reserve ratio to 1.15% within the next seven years. The FDIC increased the DIF reserve ratio
restoration period from five to seven years due to recent economic pressures
impacting banks and the financial system.
Assessment rates beginning April 1, 2009
will increase. Banks in the top tier
risk category currently pay any where from 12 cents per $100 of deposits to 14
cents per $100 of deposits for FDIC insurance. FDIC insurance assessment rates
for these banks will increase and will now include an initial base rate of
between 12 cents per $100 of deposits to 16 cents per $100 of deposits with
higher assessment rates for those institutions that rely significantly on
secured borrowings and brokered deposits.
The FDIC will reduce assessment rates for smaller banks, banks with high
levels of tier 1 capital and banks that hold long-term unsecured debt.
4
The Bank continues to be required to make
payments for the servicing of obligations of the Financing Corporation (FICO)
that were issued in connection with the resolution of savings and loan associations,
so long as such obligations remain outstanding.
Federal Home Loan Bank System
The Bank is a member of the Federal Home Loan
Bank of Pittsburgh (the FHLB), which is one of 12 regional Federal Home Loan
Banks. Each Federal Home Loan Bank serves as a reserve or central bank for its
members within its assigned region. It
is funded primarily from funds deposited by member institutions and proceeds
from the sale of consolidated obligations of the Federal Home Loan Bank System.
It makes loans to members (i.e., advances) in accordance with policies and
procedures established by the board of directors of the Federal Home Loan
Bank. At December 31, 2008, the
Bank had $147,791,000 in FHLB advances.
As a member, the Bank is required to purchase
and maintain stock in the FHLB in an amount equal to the greater of 1% of its
aggregate unpaid residential mortgage loans, home purchase contracts or similar
obligations at the beginning of each year or 5% of its outstanding advances
from the FHLB. At December 31, 2008,
the Bank had $7,101,000 million in stock of the FHLB which was in compliance
with this requirement.
Emergency Economic Stabilization
Act of 2008, Financial Stability Plan, American Recovery and Reinvestment Act
of 2009, Homeowner Affordability and Stability Plan, and Other Regulatory
Developments
Emergency Economic Stabilization
Act of 2008
On October 3, 2008, EESA was
enacted. EESA enables the federal
government, under terms and conditions to be developed by the Secretary of the
Treasury, to insure troubled assets, including mortgage-backed securities, and
collect premiums from participating financial institutions. EESA includes, among other provisions: (a) the
$700 billion Troubled Assets Relief Program (TARP), under which the Secretary
of the Treasury is authorized to purchase, insure, hold, and sell a wide
variety of financial instruments, particularly those that are based on or
related to residential or commercial mortgages originated or issued on or
before March 14, 2008; and (b) an increase in the amount of deposit
insurance provided by the FDIC.
Financial Stability Plan
On February 10, 2009, the Financial
Stability Plan (FSP) was announced by the U.S. Treasury Department. The FSP is a comprehensive set of measures
intended to shore up the financial system.
The core elements of the plan include making bank capital injections,
creating a public-private investment fund to buy troubled assets, establishing
guidelines for loan modification programs and expanding the Federal Reserve
lending program. The U.S. Treasury
Department has indicated more details regarding the FSP are to be announced on
a newly created government website, FinancialStability.gov, in the next several
weeks. We continue to monitor these
developments and assess their potential impact on our business.
American Recovery and
Reinvestment Act of 2009
On February 17, 2009, the American
Recovery and Reinvestment Act of 2009 (ARRA) was enacted. ARRA is intended to provide a stimulus to the
U.S. economy in the wake of the economic downturn brought about by the subprime
mortgage crisis and the resulting credit crunch. The bill includes federal tax cuts, expansion
of unemployment benefits and other social welfare provisions, and domestic
spending in education, healthcare, and infrastructure, including the energy
structure. The new law also includes
numerous non-economic recovery related items, including a limitation on
executive compensation in federally aided banks.
Homeowner Affordability and
Stability Plan
On February 18, 2009, the Homeowner
Affordability and Stability Plan (HASP) was announced by the President of the
United States. HASP is intended to support a recovery in the housing market and
ensure that workers can continue to pay off their mortgages through the
following elements:
·
Provide
access to low-cost refinancing for responsible homeowners suffering from
falling home prices.
5
·
A
$75 billion homeowner stability initiative to prevent foreclosure and help
responsible families stay in their homes.
·
Support
low mortgage rates by strengthening confidence in Fannie Mae and Freddie Mac.
More details regarding HASP are expected to
be announced. We continue to monitor
these developments and assess their potential impact on our business.
Other Legislation
The Fair and Accurate Credit Transactions Act
(FACT) was signed into law on December 4, 2003. This law extends the previously existing Fair
Credit Reporting Act. New provisions
added by FACT address the growing problem of identity theft. Consumers will be
able to initiate a fraud alert when they are victims of identity theft, and
credit reporting agencies will have additional duties. Consumers will also be
entitled to obtain free credit reports through the credit bureaus, and will be
granted certain additional privacy rights.
The Sarbanes-Oxley Act of 2002 was enacted to
enhance penalties for accounting and auditing improprieties at publicly traded
companies and to protect investors by improving the accuracy and reliability of
corporate disclosures under the federal securities laws. The Sarbanes-Oxley Act generally applies to
all companies, including the Company, that file or are required to file
periodic reports with the Securities and Exchange Commission under the
Securities Exchange Act of 1934, or the Exchange Act. The legislation includes provisions, among
other things, governing the services that can be provided by a public companys
independent auditors and the procedures for approving such services, requiring
the chief executive officer and principal accounting officer to certify certain
matters relating to the companys periodic filings under the Exchange Act,
requiring expedited filings of reports by insiders of their securities
transactions and containing other provisions relating to insider conflicts of
interest, increasing disclosure requirements relating to critical financial
accounting policies and their application, increasing penalties for securities
law violations, and creating a new public accounting oversight board, a
regulatory body subject to SEC jurisdiction with broad powers to set auditing,
quality control, and ethics standards for accounting firms. In response to the legislation, the national
securities exchanges and NASDAQ have adopted new rules relating to certain
matters, including the independence of members of a companys audit committee
as a condition to listing or continued listing.
In addition, Congress is often considering
some financial industry legislation. The Company cannot predict how any new
legislation, or new rules adopted by the federal banking agencies, may
affect its business in the future.
In addition to federal banking law, the Bank
is subject to the Pennsylvania Banking Code. The Banking Code was amended in
late 2000 to provide more complete parity in the powers of state-chartered
institutions compared to national banks and federal savings banks doing
business in Pennsylvania. Pennsylvania banks have the same ability to form
financial subsidiaries authorized by the Gramm-Leach-Bliley Act, as do national
banks.
Environmental Laws
Environmentally related hazards have become a
source of high risk and potential liability for financial institutions relating
to their loans. Environmentally contaminated properties owned by an institutions
borrowers may result in a drastic reduction in the value
of the collateral securing the institutions
loans to such borrowers, high environmental clean up costs to the borrower
affecting its ability to repay the loans, the subordination of any lien in
favor of the institution to a state or federal lien securing clean up costs,
and liability to the institution for clean up costs if it forecloses on the contaminated
property or becomes involved in the management of the borrower. The Company is
not aware of any borrower who is currently subject to any environmental
investigation or clean up proceeding which is likely to have a material adverse
effect on the financial condition or results of operations of the Company.
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Effect of Government Monetary
Policies
The earnings of the Company are and will be
affected by domestic economic conditions and the monetary and fiscal policies
of the United States Government and its agencies. The monetary policies of the FRB have had,
and will likely continue to have, an important impact on the operating results
of commercial banks through its power to implement national monetary policy in
order, among other things, to curb inflation or combat a recession. The FRB has
a major effect upon the levels of bank loans, investments, and deposits through
its open market operations in the United States Government securities and
through its regulation of, among other things, the discount rate on borrowing
of member banks and the reserve requirements against member bank deposits. It is not possible to predict the nature and
impact of future changes in monetary and fiscal policies.
DESCRIPTION OF BANK
History and Business
Jersey Shore State Bank (Bank) was
incorporated under the laws of the Commonwealth of Pennsylvania as a state bank
in 1934 and became a wholly owned subsidiary of the Company on July 12,
1983.
As of December 31, 2008, the Bank had
total assets of $643,302,000; total shareholders equity of $49,327,000 and
total deposits of $423,411,000. The Banks deposits are insured by the Federal
Deposit Insurance Corporation for the maximum amount provided under current
law.
The Bank engages in business as a commercial
bank, doing business at several locations in Lycoming, Clinton, and Centre
Counties, Pennsylvania. The Bank offers
insurance, securities brokerage services, annuity and mutual fund investment
products, and financial planning through its wholly owned subsidiary, The M
Group, Inc. D/B/A The Comprehensive Financial Group.
Services offered by the Bank include
accepting time, demand and savings deposits including Super NOW accounts,
statement savings accounts, money market accounts, fixed rate certificates of
deposit, and club accounts. Its services
also include making secured and unsecured business and consumer loans that
include financing commercial transactions as well as construction and
residential mortgage loans and revolving credit loans with overdraft
protection.
The Banks loan portfolio mix can be
classified into four principal categories.
These are real estate, agricultural, commercial, and consumer. Real estate loans can be further segmented
into construction and land development, farmland, one-to-four family
residential, multi-family, and commercial or industrial. Qualified borrowers are defined by policy and
our underwriting standards. Owner provided equity requirements range from 20%
to 30% with a first lien status required.
Terms are generally restricted to between 10 and 20 years with the
exception of construction and land development, which are limited to one to
five years. Real estate appraisals,
property construction verifications, and site visitations comply with policy
and industry regulatory standards.
Prospective residential mortgage customers
repayment ability is determined from information contained in the application
and recent income tax returns. Emphasis
is on credit, employment, income, and residency verification. Broad hazard insurance is always required and
flood insurance where applicable. In the
case of construction mortgages, builders risk insurance is requested.
Agricultural loans for the purchase or
improvement of real estate must meet the Banks real estate underwriting
criteria. The only permissible exception
is when a Farmers Home Loan Administration guaranty is obtained. Agricultural loans made for the purchase of
equipment are usually payable in five years, but never more than seven,
depending upon the useful life of the purchased asset. Minimum borrower equity
ranges from 20% to 30%. Livestock
financing criteria depends upon the nature of the operation. Agricultural loans
are also made for crop production purposes.
Such loans are structured to repay within the production cycle and not
carried over into a subsequent year.
Commercial loans are made for the acquisition
and improvement of real estate, purchase of equipment, and for working capital
purposes on a seasonal or revolving basis.
General purpose working capital loans are also
7
available with repayment expected within one
year. Equipment loans are generally
amortized over three to seven years, with an owner equity contribution required
of at least 20% of the purchase price. Insurance coverage with the Bank as loss
payee is required, especially in the case where the equipment is rolling stock.
It is also a general policy to collateralize non-real estate loans with the
asset purchased and, dependant upon loan terms, junior liens are filed on other
available assets. Financial information
required on all commercial mortgages includes the most current three years
balance sheets and income statements and projections on income to be developed
through the project. In the case of corporations and partnerships, the
principals are often asked to indebt themselves personally as well.
Seasonal and revolving lines of credit are
offered for working capital purposes.
Collateral for such a loan includes the pledge of inventory and/or
receivables. Drawing availability is
usually 50% of inventory and 75% of eligible receivables. Eligible receivables are defined as invoices
less than 90 days delinquent. Exclusive
reliance is very seldom placed on such collateral; therefore, other lienable
assets are also taken into the collateral pool.
Where reliance is placed on inventory and accounts receivable, the
applicant must provide financial information including agings on a monthly
basis. In addition, the guaranty of the
principals is usually obtained.
Letter of Credit availability is limited to
standbys where the customer is well known to the Bank. Credit criteria is the same as that utilized
in making a direct loan. Collateral is obtained in most cases, and whenever the
expiration date is beyond one year.
Consumer loan products include second
mortgages, automobile financing, small loan requests, overdraft check lines,
and PHEAA referral loans. Our policy
includes standards used in the industry on debt service ratios and terms are
consistent with prudent underwriting standards and the use of proceeds.
Verifications are made of employment and residency, along with credit history.
Second mortgages are confined to equity
borrowing and home improvements. Terms
are generally ten years or less and rates are fixed. Loan to collateral value criteria is 80% or
less and verifications are made to determine values. Automobile financing is generally restricted
to five years and done on a direct basis.
The Bank, as a practice, does not floor plan and therefore does not
discount dealer paper. Small loan
requests are to accommodate personal needs such as the purchase of small
appliances or for the payment of taxes.
Overdraft check lines are limited to $5,000 or less.
The Banks investment portfolio is analyzed
and priced on a monthly basis. Investments are made in U.S. Treasuries, U.S.
Agency issues, bank qualified municipal bonds, corporate bonds, and corporate
stocks which consist of Pennsylvania bank stocks. Bonds with BAA or better ratings are used,
unless a local issue is purchased that has a lesser or no rating. Factors taken into consideration when
investments are purchased include liquidity, the Companys tax position, tax
equivalent yield, third party investment ratings, and the policies of the
Asset/Liability Committee.
The banking environment in Lycoming, Clinton,
and Centre Counties, Pennsylvania is highly competitive. The Bank operates thirteen full service
offices in these markets and competes for loans and deposits with numerous
commercial banks, savings and loan associations, and other financial
institutions. The economic base of the region is developed around small
business, health care, educational facilities (college and public schools),
light manufacturing industries, and agriculture.
The Bank has a relatively stable deposit base
and no material amount of deposits is obtained from a single depositor or group
of depositors, excluding public entities that account for approximately 10% of
total deposits. Although the Bank has
regular opportunities to bid on pools of funds of $100,000 or more in the hands
of municipalities, hospitals, and others, it does not rely on these monies to
fund loans or intermediate or longer-term investments.
The Bank has not experienced any significant
seasonal fluctuations in the amount of its deposits.
8
Supervision and Regulation
The earnings of the Bank are affected by the
policies of regulatory authorities including the FDIC and the FRB. An important
function of the FRB is to regulate the money supply and interest rates. Among the instruments used to implement these
objectives are open market operations in U.S. Government Securities, changes in
reserve requirements against member bank deposits, and limitations on interest
rates that member banks may pay on time and savings deposits. These instruments are used in varying
combinations to influence overall growth and distribution of bank loans,
investments on deposits, and their use may also affect interest rates charged
on loans or paid for deposits.
The policies and regulations of the FRB have
had and will probably continue to have a significant effect on the Banks
deposits, loans and investment growth, as well as the rate of interest earned
and paid, and are expected to affect the Banks operation in the future. The
effect of such policies and regulations upon the future business and earnings
of the Bank cannot accurately be predicted.
ITEM 1A RISK FACTORS
The following sets forth several risk factors
that are unique to the Company.
Changes in interest rates could
reduce our income, cash flows and asset values.
Our income and cash flows and the value of
our assets depend to a great extent on the difference between the interest
rates we earn on interest-earning assets, such as loans and investment
securities, and the interest rates we pay on interest-bearing liabilities such
as deposits and borrowings. These rates
are highly sensitive to many factors which are beyond our control, including
general economic conditions and policies of various governmental and regulatory
agencies and, in particular, the Board of Governors of the Federal Reserve
System. Changes in monetary policy, including changes in interest rates, will
influence not only the interest we receive on our loans and investment
securities and the amount of interest we pay on deposits and borrowings but
will also affect our ability to originate loans and obtain deposits and the
value of our investment portfolio. If
the rate of interest we pay on our deposits and other borrowings increases more
than the rate of interest we earn on our loans and other investments, our net
interest income, and therefore our earnings, could be adversely affected. Our earnings also could be adversely affected
if the rates on our loans and other investments fall more quickly than those on
our deposits and other borrowings.
Economic conditions either
nationally or locally in areas in which our operations are concentrated may
adversely affect our business.
Deterioration in local, regional, national or
global economic conditions could cause us to experience a reduction in deposits
and new loans, an increase in the number of borrowers who default on their
loans and a reduction in the value of the collateral securing their loans, all
of which could adversely affect our performance and financial condition. Unlike
larger banks that are more geographically diversified, we provide banking and
financial services locally. Therefore, we are particularly vulnerable to
adverse local economic conditions.
Our financial condition and
results of operations would be adversely affected if our allowance for loan
losses is not sufficient to absorb actual losses or if we are required to increase
our allowance.
Despite our underwriting criteria, we may
experience loan delinquencies and losses.
In order to absorb losses associated with nonperforming loans, we
maintain an allowance for loan losses based on, among other things, historical
experience, an evaluation of economic conditions, and regular reviews of
delinquencies and loan portfolio quality.
Determination of the allowance inherently involves a high degree of
subjectivity and requires us to make significant estimates of current credit
risks and future trends, all of which may undergo material changes. At any time there are likely to be loans in
our portfolio that will result in losses but that have not been identified as
nonperforming or potential problem credits. We cannot be sure that we will be
able to identify deteriorating credits before they become nonperforming assets
or that we will be able to limit losses on those loans that are identified. We
may be required to increase our allowance for loan losses for any of several
reasons. Federal regulators, in
reviewing our loan portfolio as part of a regulatory examination, may request
that we increase our allowance for loan losses.
Changes in economic conditions affecting borrowers, new
9
information regarding existing loans,
identification of additional problem loans and other factors, both within and
outside of our control, may require an increase in our allowance. In addition, if charge-offs in future periods
exceed our allowance for loan losses, we will need additional increases in our
allowance for loan losses. Any increases
in our allowance for loan losses will result in a decrease in our net income
and, possibly, our capital, and may materially affect our results of operations
in the period in which the allowance is increased.
Many of our loans are secured, in
whole or in part, with real estate collateral which is subject to declines in
value.
In addition to considering the financial
strength and cash flow characteristics of a borrower, we often secure our loans
with real estate collateral. Real estate values and the real estate market are
generally affected by, among other things, changes in local, regional or
national economic conditions, fluctuations in interest rates and the
availability of loans to potential purchasers, changes in tax laws and other
governmental statutes, regulations and policies, and acts of nature. The real estate collateral provides an
alternate source of repayment in the event of default by the borrower. If real estate prices in our markets decline,
the value of the real estate collateral securing our loans could be reduced. If
we are required to liquidate real estate collateral securing loans during a
period of reduced real estate values to satisfy the debt, our earnings and
capital could be adversely affected.
Competition may decrease our
growth or profits.
We face substantial competition in all phases
of our operations from a variety of different competitors, including commercial
banks, savings and loan associations, mutual savings banks, credit unions,
consumer finance companies, factoring companies, leasing companies, insurance
companies, and money market mutual funds.
There is very strong competition among financial services providers in
our principal service area. Our
competitors may have greater resources, higher lending limits, or larger branch
systems than we do. Accordingly, they
may be able to offer a broader range of products and services as well as better
pricing for those products and services than we can.
In addition, some of the financial services
organizations with which we compete are not subject to the same degree of
regulation as is imposed on federally insured financial institutions. As a result, those nonbank competitors may be
able to access funding and provide various services more easily or at less cost
than we can, adversely affecting our ability to compete effectively.
The value of certain investment
securities is volatile and future declines or other-than-temporary impairments
could materially adversely affect our future earnings and regulatory capital.
Continued volatility in the market value for
certain of our investment securities, whether caused by changes in market
perceptions of credit risk, as reflected in the expected market yield of the
security, or actual defaults in the portfolio could result in significant
fluctuations in the value of the securities. This could have a material adverse
impact on our accumulated other comprehensive loss and shareholders equity depending
on the direction of the fluctuations. Furthermore, future downgrades or
defaults in these securities could result in future classifications of
investment securities as other than temporarily impaired. This could have a
material impact on our future earnings, although the impact on shareholders
equity will be offset by any amount already included in other comprehensive
income for securities where we have recorded temporary impairment.
We may be adversely affected by
government regulation.
The banking industry is heavily regulated.
Banking regulations are primarily intended to protect the federal deposit
insurance funds and depositors, not shareholders. Changes in the laws,
regulations, and regulatory practices affecting the banking industry may increase
our costs of doing business or otherwise adversely affect us and create
competitive advantages for others. Regulations affecting banks and financial
services companies undergo continuous change, and we cannot predict the
ultimate effect of these changes, which could have a material adverse effect on
our profitability or financial condition.
10
We rely on our management and
other key personnel, and the loss of any of them may adversely affect our
operations.
We are and will continue to be dependent upon
the services of our executive management team. In addition, we will continue to
depend on our ability to retain and recruit key commercial loan officers. The
unexpected loss of services of any key management personnel or commercial loan
officers could have an adverse effect on our business and financial condition
because of their skills, knowledge of our market, years of industry experience,
and the difficulty of promptly finding qualified replacement personnel.
Environmental liability
associated with lending activities could result in losses.
In the course of our business, we may
foreclose on and take title to properties securing our loans. If hazardous substances were discovered on
any of these properties, we could be liable to governmental entities or third
parties for the costs of remediation of the hazard, as well as for personal
injury and property damage. Many
environmental laws can impose liability regardless of whether we knew of, or
were responsible for, the contamination.
In addition, if we arrange for the disposal of hazardous or toxic
substances at another site, we may be liable for the costs of cleaning up and
removing those substances from the site even if we neither own nor operate the
disposal site. Environmental laws may
require us to incur substantial expenses and may materially limit use of
properties we acquire through foreclosure, reduce their value or limit our
ability to sell them in the event of a default on the loans they secure. In addition, future laws or more stringent
interpretations or enforcement policies with respect to existing laws may
increase our exposure to environmental liability.
Failure to implement new
technologies in our operations may adversely affect our growth or profits.
The market for financial services, including
banking services and consumer finance services is increasingly affected by
advances in technology, including developments in telecommunications, data
processing, computers, automation, Internet-based banking, and telebanking. Our
ability to compete successfully in our markets may depend on the extent to
which we are able to exploit such technological changes. However, we can
provide no assurance that we will be able to properly or timely anticipate or
implement such technologies or properly train our staff to use such
technologies. Any failure to adapt to
new technologies could adversely affect our business, financial condition or
operating results.
An investment in our common stock
is not an insured deposit.
Our common stock is not a bank deposit and,
therefore, is not insured against loss by the Federal Deposit Insurance
Corporation, commonly referred to as the FDIC, any other deposit insurance fund
or by any other public or private entity.
Investment in our common stock is subject to the same market forces that
affect the price of common stock in any company.
ITEM 1B UNRESOLVED STAFF COMMENTS
None.
ITEM 2 PROPERTIES
The Company owns and leases its
properties. Listed herewith are the
locations of properties owned or leased as of December 31, 2008, in which
the banking offices are located; all properties are in good condition and adequate
for the Banks purposes:
Office
|
|
Address
|
|
Ownership
|
Main
|
|
115 South Main Street
|
|
Owned
|
|
|
P.O. Box 5098
|
|
|
|
|
Jersey Shore, Pennsylvania 17740
|
|
|
|
|
|
|
|
Bridge Street
|
|
112 Bridge Street
|
|
Owned
|
|
|
Jersey Shore, Pennsylvania 17740
|
|
|
|
|
|
|
|
DuBoistown
|
|
2675 Euclid Avenue
|
|
Owned
|
|
|
Williamsport, Pennsylvania 17702
|
|
|
11
Williamsport
|
|
300 Market Street
|
|
Owned
|
|
|
P.O. Box 967
|
|
|
|
|
Williamsport, Pennsylvania 17703-0967
|
|
|
|
|
|
|
|
Montgomery
|
|
9094 Rt. 405 Highway
|
|
Owned
|
|
|
Montgomery, Pennsylvania 17752
|
|
|
|
|
|
|
|
Lock Haven
|
|
4 West Main Street
|
|
Owned
|
|
|
Lock Haven, Pennsylvania 17745
|
|
|
|
|
|
|
|
Mill Hall
|
|
(Inside Wal-Mart), 173 Hogan Boulevard
|
|
Under Lease
|
|
|
Mill Hall, Pennsylvania 17751
|
|
|
|
|
|
|
|
Spring Mills
|
|
3635 Penns Valley Road, P.O. Box 66
|
|
Owned
|
|
|
Spring Mills, Pennsylvania 16875
|
|
|
|
|
|
|
|
Centre Hall
|
|
2842 Earlystown Road
|
|
Land Under Lease
|
|
|
Centre Hall, Pennsylvania 16828
|
|
|
|
|
|
|
|
Zion
|
|
100 Cobblestone Road
|
|
Under Lease
|
|
|
Bellefonte, Pennsylvania 16823
|
|
|
|
|
|
|
|
State College
|
|
(Inside Wal-Mart), 1665 North Atherton Place
|
|
Under Lease
|
|
|
State College, Pennsylvania 16803
|
|
|
|
|
|
|
|
State College
|
|
2050 North Atherton
Street
|
|
Land Under Lease
|
|
|
State College, Pennsylvania 16803
|
|
|
|
|
|
|
|
Montoursville
|
|
820 Broad Street
|
|
Under Lease
|
|
|
Montoursville, Pennsylvania 17754
|
|
|
|
|
|
|
|
The M Group, Inc.
|
|
705 Washington Boulevard
|
|
Under Lease
|
D/B/A The
|
|
Williamsport, Pennsylvania 17701
|
|
|
Comprehensive
|
|
|
|
|
Financial Group
|
|
|
|
|
ITEM 3 LEGAL
PROCEEDINGS
The Company is subject to lawsuits and claims
arising out of its business. In the
opinion of management, after review and consultation with counsel, any
proceedings that may be assessed will not have a material adverse effect on the
consolidated financial position of the Company.
ITEM 4 SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of
security holders during the fourth quarter of 2008.
12
PART II
ITEM 5
|
|
MARKET FOR THE REGISTRANTS COMMON STOCK,
RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
|
The Common Stock is listed on the NASDAQ Global Select Market under the
symbol PWOD. The following table sets
forth (1) the quarterly high and low close prices for a share of the
Companys Common Stock during the periods indicated, and (2) quarterly
dividends on a share of the Common Stock with respect to each quarter since January 1,
2006. The following quotations represent
prices between buyers and sellers and do not include retail markup, markdown or
commission. They may not necessarily
represent actual transactions.
|
|
|
|
|
|
Dividends
|
|
|
|
High
|
|
Low
|
|
Declared
|
|
2006
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
38.75
|
|
$
|
37.75
|
|
$
|
0.42
|
|
Second quarter
|
|
39.50
|
|
36.50
|
|
0.43
|
|
Third quarter
|
|
38.48
|
|
37.02
|
|
0.44
|
|
Fourth quarter
|
|
38.59
|
|
36.20
|
|
0.44
|
|
2007
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
37.75
|
|
$
|
35.00
|
|
$
|
0.44
|
|
Second quarter
|
|
35.00
|
|
33.86
|
|
0.44
|
|
Third quarter
|
|
35.00
|
|
30.80
|
|
0.45
|
|
Fourth quarter
|
|
32.50
|
|
30.33
|
|
0.46
|
|
2008
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
33.47
|
|
$
|
29.66
|
|
$
|
0.46
|
|
Second quarter
|
|
33.15
|
|
33.01
|
|
0.46
|
|
Third quarter
|
|
35.00
|
|
29.00
|
|
0.46
|
|
Fourth quarter
|
|
30.40
|
|
23.00
|
|
0.46
|
|
The Bank has paid cash dividends since 1941. The Company has paid dividends since the
effective date of its formation as a bank holding company. It is the present intention of the Registrants
Board of Directors to continue the dividend payment policy; however, further
dividends must necessarily depend upon earnings, financial condition,
appropriate legal restrictions, and other factors relevant at the time the
Board of Directors of the Company considers dividend policy. Cash available for dividend distributions to
shareholders of the Company primarily comes from dividends paid by the Bank to
the Company. Therefore, the restrictions on the Banks dividend payments are
directly applicable to the Company. See
also the information appearing in Note 18 to Notes to Consolidated Financial
Statements included in the Annual Report on Form 10-K for additional
information related to dividend restrictions.
Under the Pennsylvania Business Corporation Law of 1988 a corporation
may not pay a dividend, if after giving effect thereto, the corporation would
be unable to pay its debts as they become due in the usual course of business
and after giving effect thereto the total assets of the corporation would be
less than the sum of its total liabilities plus the amount that would be
needed, if the corporation were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of the
shareholders whose preferential rights are superior to those receiving the
dividend.
As of March 3, 2009, the Company had approximately 1,261
shareholders of record.
13
Following is a schedule of the shares of the Companys common stock
purchased by the Company during the fourth quarter of 2008.
|
|
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 (October
1 -
|
|
|
|
|
|
|
|
|
|
October 31,
2008)
|
|
5,000
|
|
$
|
25.55
|
|
5,000
|
|
93,344
|
|
|
|
|
|
|
|
|
|
|
|
Month#2
(November 1 -
|
|
|
|
|
|
|
|
|
|
November 30,
2008)
|
|
10,000
|
|
25.60
|
|
10,000
|
|
83,344
|
|
|
|
|
|
|
|
|
|
|
|
Month#3
(December 1, -
|
|
|
|
|
|
|
|
|
|
December 31,
2008)
|
|
5,000
|
|
25.25
|
|
5,000
|
|
78,344
|
|
|
|
|
|
|
|
|
|
|
|
|
Set forth below is a line graph comparing the yearly dollar changes in
the cumulative shareholder return on the Companys common stock against the
cumulative total return of the S&P 500 Stock Index, NASDAQ Bank Index, and
NASDAQ Composite for the period of five fiscal years assuming the investment of
$100.00 on December 31, 2003 and assuming the reinvestment of dividends.
The shareholder return shown on the graph below is not necessarily indicative
of future performance.
14
|
|
Period Ending
|
|
Index
|
|
12/31/03
|
|
12/31/04
|
|
12/31/05
|
|
12/31/06
|
|
12/31/07
|
|
12/31/08
|
|
Penns Woods
Bancorp, Inc.
|
|
100.00
|
|
107.34
|
|
108.19
|
|
110.08
|
|
99.89
|
|
75.28
|
|
S&P 500
|
|
100.00
|
|
110.88
|
|
116.33
|
|
134.70
|
|
142.10
|
|
89.53
|
|
NASDAQ Composite
|
|
100.00
|
|
108.59
|
|
110.08
|
|
120.56
|
|
132.39
|
|
78.72
|
|
NASDAQ Bank
Index
|
|
100.00
|
|
110.99
|
|
106.18
|
|
117.87
|
|
91.85
|
|
69.88
|
|
ITEM 6
SELECTED FINANCIAL DATA
The following table sets forth certain financial data as of and for
each of the years in the five-year period ended December 31, 2008.
(In Thousands, Except Per Share Amounts)
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Statement of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
36,108
|
|
$
|
35,949
|
|
$
|
33,753
|
|
$
|
30,903
|
|
$
|
29,845
|
|
Interest expense
|
|
14,832
|
|
16,447
|
|
14,210
|
|
10,381
|
|
8,768
|
|
Net interest
income
|
|
21,276
|
|
19,502
|
|
19,543
|
|
20,522
|
|
21,077
|
|
Provision for
loan losses
|
|
375
|
|
150
|
|
635
|
|
720
|
|
465
|
|
Net interest
income after provision for loan losses
|
|
20,901
|
|
19,352
|
|
18,908
|
|
19,802
|
|
20,612
|
|
Noninterest
income
|
|
5,456
|
|
7,478
|
|
9,029
|
|
9,431
|
|
8,918
|
|
Noninterest
expense
|
|
17,949
|
|
17,316
|
|
16,329
|
|
15,108
|
|
14,184
|
|
Income before
income taxes
|
|
8,408
|
|
9,514
|
|
11,608
|
|
14,125
|
|
15,346
|
|
Applicable
income taxes
|
|
405
|
|
637
|
|
1,961
|
|
3,224
|
|
4,263
|
|
Net Income
|
|
$
|
8,003
|
|
$
|
8,877
|
|
$
|
9,647
|
|
$
|
10,901
|
|
$
|
11,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Balance Sheet at End of Period:
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
652,803
|
|
$
|
628,138
|
|
$
|
592,285
|
|
$
|
568,668
|
|
$
|
546,703
|
|
Loans
|
|
381,478
|
|
360,478
|
|
360,384
|
|
338,438
|
|
324,505
|
|
Allowance for
loan losses
|
|
(4,356
|
)
|
(4,130
|
)
|
(4,185
|
)
|
(3,679
|
)
|
(3,338
|
)
|
Deposits
|
|
421,368
|
|
389,022
|
|
395,191
|
|
352,529
|
|
356,836
|
|
Long-term debt
other
|
|
86,778
|
|
106,378
|
|
82,878
|
|
84,478
|
|
75,878
|
|
Shareholders
equity
|
|
61,027
|
|
70,559
|
|
74,594
|
|
73,919
|
|
73,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per
share - Basic
|
|
$
|
2.07
|
|
$
|
2.28
|
|
$
|
2.45
|
|
$
|
2.75
|
|
$
|
2.78
|
|
Earnings per
share - Diluted
|
|
2.07
|
|
2.28
|
|
2.45
|
|
2.74
|
|
2.78
|
|
Cash dividends
declared
|
|
1.84
|
|
1.79
|
|
1.73
|
|
1.56
|
|
1.47
|
|
Book value
|
|
15.93
|
|
18.21
|
|
19.12
|
|
18.59
|
|
18.36
|
|
Number of shares
outstanding, at end of period
|
|
3,831,500
|
|
3,875,632
|
|
3,900,742
|
|
3,975,787
|
|
3,985,832
|
|
Average number
of shares outstanding-basic
|
|
3,859,724
|
|
3,886,277
|
|
3,934,138
|
|
3,971,926
|
|
3,990,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
financial ratios:
|
|
|
|
|
|
|
|
|
|
|
|
Return on
average shareholders equity
|
|
12.02
|
%
|
12.14
|
%
|
12.93
|
%
|
14.54
|
%
|
15.49
|
%
|
Return on
average total assets
|
|
1.27
|
%
|
1.49
|
%
|
1.67
|
%
|
1.97
|
%
|
2.06
|
%
|
Net interest
income to average interest earning assets
|
|
4.14
|
%
|
3.95
|
%
|
4.06
|
%
|
4.29
|
%
|
4.32
|
%
|
Dividend payout
ratio
|
|
88.67
|
%
|
78.33
|
%
|
70.51
|
%
|
57.10
|
%
|
52.72
|
%
|
Average
shareholders equity to average total assets
|
|
10.53
|
%
|
12.23
|
%
|
12.92
|
%
|
13.56
|
%
|
13.30
|
%
|
Loans to
deposits, at end of period
|
|
90.53
|
%
|
92.66
|
%
|
91.19
|
%
|
96.00
|
%
|
90.94
|
%
|
Per share data and number
of shares outstanding have been adjusted to give retroactive effect to a six
for five stock split issued November 18, 2005.
15
ITEM 7
MANAGEMENTS DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income is
determined by calculating the difference between the yields earned on
interest-earning assets and the rates paid on interest-bearing liabilities. To
compare the tax-exempt asset yields to taxable yields, amounts are adjusted to
taxable equivalents based on the marginal corporate federal tax rate of
34%. The tax equivalent adjustments to
net interest income for 2008, 2007, and 2006 were $2,714,000, $2,410,000, and
$2,245,000, respectively.
2008 vs
2007
Reported net interest
income increased $1,774,000 or 9.10% to $21,276,000 for the year ended December 31,
2008 compared to the year ended December 31, 2007, although the yield on
earning assets decreased to 6.68% from 6.91%, respectively. On a tax equivalent basis the change in net
interest income was an increase of $2,078,000 or 9.48% to $23,990,000 for the
year ended December 31, 2008 compared to the year ended December 31,
2007. Total interest income increased
$159,000 primarily due to growth in the average balance of the loan and
securities portfolios. The increase in
earning asset volume compensated for the negative impact on earning asset yields
caused by the rate reductions enacted by the Federal Open Markets Committee (FOMC).
Interest income recognized on the loan portfolio decreased $871,000 as a
portion of the portfolio repriced downward due to the FOMC actions that lowered
the prime rate from 7.25% at December 31, 2007 to 3.25% at December 31,
2008 coupled with the market dictating that new loan generation occurred at
lower rates than during 2007. Interest
and dividend income generated from the investment portfolio and interest
bearing cash deposits increased $1,030,000.
The increase was the result of the yield on the investment portfolio
increasing 12 basis points (bp) while the average balance of the investment
portfolio increased by $17,067,000. The majority of the increase in the securities
portfolio was from a leverage strategy undertaken during the second half of
2007.
Interest expense
decreased $1,615,000 to $14,832,000 for the year ended December 31, 2008
as compared to 2007. Leading the
decrease in interest expense was a decline of 11.70% or $1,281,000 related to
deposits. The FOMC actions noted
previously together with a strategic shortening of the duration of the
portfolio led to an 81 bp decline in the rate paid on time deposits from 4.73%
for the year ended December 31, 2007 to 3.92% for the year ended December 31,
2008 resulting in a $1,502,000 decline in expense. The economic turmoil experienced over the
past year has led to a significant decline in short-term interest rates which
has allowed for a 214 bp decline in the rate paid on short-term
borrowings. Several long-term debt
maturities paved the way for a decline in the rate paid on long-term borrowings
of 23 bp to 4.39% for the year ended December 31, 2008 versus 4.62% for
the year ended December 31, 2007.
2007 vs
2006
Reported net
interest income decreased $41,000 or 0.21% to $19,502,000 for the year ended December 31,
2007 as compared to the year ended December 31, 2006 although the yield on
earning assets increased to 6.91% from 6.70%, respectively. On a tax equivalent basis the change in net
interest income was an increase of $124,000, which is primarily the result of
the yield on investment securities increasing to 6.25% at December 31,
2007 from 5.93% at December 31, 2006.
Total interest income increased 6.5% or $2,196,000 primarily due to
growth in the average balance of the loan portfolio of $8,688,000 coupled with
an increase in the loan yield to 7.27% at December 31, 2007 from 7.10% at December 31,
2006. Interest and dividend income generated from the investment portfolio and
interest bearing cash deposits increased $975,000. The increase was the result of the yield on
the investment portfolio increasing 32 basis points while the average balance
of the investment portfolio increased by $8,749,000.
Interest expense
increased $2,237,000 to $16,447,000 for the year ended December 31, 2007
as compared to 2006. The majority of the
increase, 91% or $2,043,000, is related to increased levels of average deposits
and increased
16
rates being paid on
deposit accounts, which had an average rate paid of 3.35% and 2.88% for the
years ended December 31, 2007 and 2006, respectively. The increases were driven by market
competition and rate increases enacted throughout 2006 by the FOMC resulting in
a higher average prime rate during 2007 than 2006. Interest expense related to time deposits
increased $2,121,000 as the average rate paid on time deposits increased to
4.73% from 4.11% for the year ended December 31, 2006. The increase in time deposit rates was the
result of competitive pressure, FOMC rate increases, rate specials related to
the opening of a new branch and the one year anniversary of a second, and
incentive to customers to invest in short-term time deposits. In addition, the average balance in time
deposits increased $21,508,000 due to the before mentioned rate specials,
transfer of dollars from transaction accounts due to the increasing rate
disparity between products, and the use of brokered deposits to limit the
reliance on short-term FHLB funding.
The rate paid on
borrowings increased to 4.57% from 4.50% for the year ended December 31,
2007. The increase in rate resulted in
interest expense on borrowings increasing $194,000 with the majority of the increase
occurring in the short-term borrowing category. The short-term borrowing rate
increased 11 basis points to 4.45% due to the FOMC rate increases since the
start of 2006. Interest expense associated with long-term borrowings increased
$58,000 due to the average balance of long-term FHLB borrowings increasing
$253,000 and a weighted average interest rate on the long-term debt increase of
6 basis points to 4.62% at December 31, 2007.
17
AVERAGE BALANCES AND
INTEREST RATES
The
following tables set forth certain information relating to the Companys
average balance sheet and reflect the average yield on assets and average cost
of liabilities for the periods indicated and the average yields earned and
rates paid. Such yields and costs are
derived by dividing income or expense by the average balance of assets or
liabilities, respectively, for the periods presented.
(Dollars In
Thousands)
|
|
2008
|
|
|
|
Average Balance
|
|
Interest
|
|
Average Rate
|
|
ASSETS:
|
|
|
|
|
|
|
|
Tax-exempt loans
|
|
$
|
9,230
|
|
$
|
603
|
|
6.53
|
%
|
All other loans
|
|
361,945
|
|
24,830
|
|
6.86
|
%
|
Total loans
|
|
371,175
|
|
25,433
|
|
6.85
|
%
|
|
|
|
|
|
|
|
|
Taxable
securities
|
|
104,245
|
|
6,008
|
|
5.76
|
%
|
Tax-exempt
securities
|
|
106,030
|
|
7,380
|
|
6.96
|
%
|
Total securities
|
|
210,275
|
|
13,388
|
|
6.37
|
%
|
|
|
|
|
|
|
|
|
Interest-bearing
deposits
|
|
10
|
|
1
|
|
10.00
|
%
|
|
|
|
|
|
|
|
|
Total
interest-earning assets
|
|
581,460
|
|
38,822
|
|
6.68
|
%
|
|
|
|
|
|
|
|
|
Other assets
|
|
50,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
632,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
Savings
|
|
$
|
60,324
|
|
443
|
|
0.73
|
%
|
Super Now
deposits
|
|
52,117
|
|
658
|
|
1.26
|
%
|
Money market
deposits
|
|
30,921
|
|
699
|
|
2.26
|
%
|
Time deposits
|
|
200,572
|
|
7,870
|
|
3.92
|
%
|
Total deposits
|
|
343,934
|
|
9,670
|
|
2.81
|
%
|
|
|
|
|
|
|
|
|
Short-term
borrowings
|
|
50,545
|
|
1,181
|
|
2.31
|
%
|
Long-term
borrowings
|
|
89,256
|
|
3,981
|
|
4.39
|
%
|
Total borrowings
|
|
139,801
|
|
5,162
|
|
3.64
|
%
|
|
|
|
|
|
|
|
|
Total
interest-bearing liabilities
|
|
483,735
|
|
14,832
|
|
3.05
|
%
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
73,618
|
|
|
|
|
|
Other liabilities
|
|
8,282
|
|
|
|
|
|
Shareholders
equity
|
|
66,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
$
|
632,239
|
|
|
|
|
|
Interest rate
spread
|
|
|
|
|
|
3.63
|
%
|
Net interest
income/margin
|
|
|
|
$
|
23,990
|
|
4.14
|
%
|
·
Fees on loans are included with
interest on loans. Loan fees are included in interest income as follows:
2008-$472,000, 2007-$453,000, 2006-$478,000.
·
Information on this table has
been calculated using average daily balance sheets to obtain average balances.
·
Nonaccrual loans have been included
with loans for the purpose of analyzing net interest earnings.
·
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.
18
|
|
2007
|
|
2006
|
|
|
|
Average Balance
|
|
Interest
|
|
Average Rate
|
|
Average Balance
|
|
Interest
|
|
Average Rate
|
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt loans
|
|
$
|
7,857
|
|
$
|
485
|
|
6.17
|
%
|
$
|
8,173
|
|
$
|
503
|
|
6.15
|
%
|
All other loans
|
|
353,528
|
|
25,779
|
|
7.29
|
%
|
344,524
|
|
24,545
|
|
7.12
|
%
|
Total loans
|
|
361,385
|
|
26,264
|
|
7.27
|
%
|
352,697
|
|
25,048
|
|
7.10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
securities
|
|
93,480
|
|
5,474
|
|
5.86
|
%
|
91,767
|
|
4,837
|
|
5.27
|
%
|
Tax-exempt
securities
|
|
99,728
|
|
6,602
|
|
6.62
|
%
|
92,692
|
|
6,102
|
|
6.58
|
%
|
Total securities
|
|
193,208
|
|
12,076
|
|
6.25
|
%
|
184,459
|
|
10,939
|
|
5.93
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
deposits
|
|
345
|
|
19
|
|
5.51
|
%
|
152
|
|
11
|
|
7.24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning
assets
|
|
554,938
|
|
38,359
|
|
6.91
|
%
|
537,308
|
|
35,998
|
|
6.70
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
42,602
|
|
|
|
|
|
40,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
597,540
|
|
|
|
|
|
$
|
577,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
$
|
58,710
|
|
428
|
|
0.73
|
%
|
$
|
61,958
|
|
509
|
|
0.82
|
%
|
Super Now
deposits
|
|
46,596
|
|
611
|
|
1.31
|
%
|
47,294
|
|
655
|
|
1.38
|
%
|
Money market
deposits
|
|
23,920
|
|
540
|
|
2.26
|
%
|
23,905
|
|
493
|
|
2.06
|
%
|
Time deposits
|
|
198,029
|
|
9,372
|
|
4.73
|
%
|
176,521
|
|
7,251
|
|
4.11
|
%
|
Total deposits
|
|
327,255
|
|
10,951
|
|
3.35
|
%
|
309,678
|
|
8,908
|
|
2.88
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
borrowings
|
|
36,816
|
|
1,639
|
|
4.45
|
%
|
34,612
|
|
1,503
|
|
4.34
|
%
|
Long-term
borrowings
|
|
83,490
|
|
3,857
|
|
4.62
|
%
|
83,237
|
|
3,799
|
|
4.56
|
%
|
Total borrowings
|
|
120,306
|
|
5,496
|
|
4.57
|
%
|
117,849
|
|
5,302
|
|
4.50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest-bearing liabilities
|
|
447,561
|
|
16,447
|
|
3.67
|
%
|
427,527
|
|
14,210
|
|
3.32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
69,953
|
|
|
|
|
|
69,668
|
|
|
|
|
|
Other
liabilities
|
|
6,924
|
|
|
|
|
|
5,899
|
|
|
|
|
|
Shareholders
equity
|
|
73,102
|
|
|
|
|
|
74,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
$
|
597,540
|
|
|
|
|
|
$
|
577,721
|
|
|
|
|
|
Interest rate
spread
|
|
|
|
|
|
3.24
|
%
|
|
|
|
|
3.38
|
%
|
Net interest
income/margin
|
|
|
|
$
|
21,912
|
|
3.95
|
%
|
|
|
$
|
21,788
|
|
4.06
|
%
|
Reconcilement
of Taxable Equivalent Net Interest Income
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Total interest
income
|
|
$
|
36,108
|
|
$
|
35,949
|
|
$
|
33,753
|
|
Total interest
expense
|
|
14,832
|
|
16,447
|
|
14,210
|
|
|
|
|
|
|
|
|
|
Net interest
income
|
|
21,276
|
|
19,502
|
|
19,543
|
|
Tax equivalent
adjustment
|
|
2,714
|
|
2,410
|
|
2,245
|
|
|
|
|
|
|
|
|
|
Net interest
income
|
|
|
|
|
|
|
|
(fully taxable
equivalent)
|
|
$
|
23,990
|
|
$
|
21,912
|
|
$
|
21,788
|
|
Rate/Volume Analysis
The
table below sets forth certain information regarding changes in our interest
income and interest expense for the periods indicated. For interest-earning
assets and interest-bearing liabilities, information is provided on changes
19
attributable
to (i) changes in volume (changes in average volume multiplied by old
rate) and (ii) changes in rates (changes in rate multiplied by old average
volume). Increases and decreases due to both interest rate and volume, which
cannot be separated, have been allocated proportionally to the change due to
volume and the change due to interest rate.
Income and interest rates are on a taxable equivalent basis.
(In Thousands)
|
|
Year Ended December 31,
|
|
|
|
2008 vs 2007
|
|
2007 vs 2006
|
|
|
|
Increase (Decrease)
|
|
Increase (Decrease)
|
|
|
|
Due to
|
|
Due to
|
|
|
|
Volume
|
|
Rate
|
|
Net
|
|
Volume
|
|
Rate
|
|
Net
|
|
Interest
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans,
tax-exempt
|
|
$
|
92
|
|
$
|
26
|
|
$
|
118
|
|
$
|
(20
|
)
|
$
|
2
|
|
$
|
(18
|
)
|
Loans
|
|
638
|
|
(1,587
|
)
|
(949
|
)
|
650
|
|
584
|
|
1,234
|
|
Taxable
investment securities
|
|
621
|
|
(87
|
)
|
534
|
|
88
|
|
549
|
|
637
|
|
Tax-exempt
investment securities
|
|
532
|
|
246
|
|
778
|
|
466
|
|
34
|
|
500
|
|
Interest-bearing
deposits
|
|
(27
|
)
|
9
|
|
(18
|
)
|
12
|
|
(4
|
)
|
8
|
|
Total
interest-earning assets
|
|
1,856
|
|
(1,393
|
)
|
463
|
|
1,196
|
|
1,165
|
|
2,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits
|
|
12
|
|
3
|
|
15
|
|
(30
|
)
|
(51
|
)
|
(81
|
)
|
Super Now
deposits
|
|
71
|
|
(24
|
)
|
47
|
|
(10
|
)
|
(34
|
)
|
(44
|
)
|
Money market
deposits
|
|
158
|
|
1
|
|
159
|
|
|
|
47
|
|
47
|
|
Time deposits
|
|
119
|
|
(1,621
|
)
|
(1,502
|
)
|
344
|
|
1,777
|
|
2,121
|
|
Short-term
borrowings
|
|
484
|
|
(942
|
)
|
(458
|
)
|
100
|
|
36
|
|
136
|
|
Long-term
borrowings
|
|
260
|
|
(136
|
)
|
124
|
|
12
|
|
46
|
|
58
|
|
Total
interest-bearing liabilities
|
|
1,104
|
|
(2,719
|
)
|
(1,615
|
)
|
416
|
|
1,821
|
|
2,237
|
|
Change in net
interest income
|
|
$
|
752
|
|
$
|
1,326
|
|
2,078
|
|
$
|
780
|
|
$
|
(656
|
)
|
$
|
124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROVISION FOR LOAN LOSSES
2008 vs 2007
The
provision for loan losses is based upon managements quarterly review of the
loan portfolio. The purpose of the
review is to assess loan quality, identify impaired loans, analyze
delinquencies, ascertain loan growth, evaluate potential charge-offs and
recoveries, and assess general economic conditions in the markets served. An external independent loan review is also
performed annually for the Bank.
Management remains committed to an aggressive program of problem loan
identification and resolution.
The
allowance is calculated by applying loss factors to outstanding loans by type,
excluding loans for which a specific allowance has been determined. Loss factors are based on 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 nonperforming loans and its knowledge and
experience with specific lending segments.
Although
management believes that it uses the best information available to make such
determinations and that the allowance for loan losses is adequate at December 31,
2008, future adjustments could be necessary if circumstances or economic
conditions differ substantially from the assumptions used in making the initial
determinations. A downturn in the local
economy or employment and delays in receiving financial information from
borrowers could result in increased levels of nonperforming assets and
charge-offs, increased loan loss provisions and reductions in interest
income. Additionally, as an integral
part of the examination process, bank regulatory agencies periodically review
the Banks loan loss allowance adequacy. The banking regulators 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.
The
allowance for
loan
losses increased from $4,130,000 at December 31, 2007 to $4,356,000 at December 31,
2008. At December 31, 2008,
allowance for loan losses was 1.14% of total loans compared to 1.15% of total
loans at December 31, 2007.
The
provision for loan losses totaled $375,000 for the year ended December 31,
2008 compared to $150,000 for the year ended December 31, 2007. Management
concluded that the increase of the provision was appropriate when considering
20
the
gross loan growth experienced during 2008 of $21,000,000 coupled with net
charge-offs to average loans for the year ended December 31, 2008 of
0.04%. Utilizing both internal and external resources, as noted, senior
management has concluded that the allowance for loan losses remains at a level
adequate to provide for probable losses inherent in the loan portfolio.
2007 vs 2006
The
allowance for loan losses decreased 1.31% or $55,000 from December 31,
2006 after net charge-offs of $205,000 contributed to a year-end 2007 allowance
for loan losses of $4,130,000 or 1.15%
of total loans. Based upon this analysis, as well as the others noted above,
senior management concluded that the allowance for loan losses was at a level
adequate to provide for probable losses inherent in the loan portfolio at December 31,
2007.
Following is a table showing the changes in the
allowance for loan losses for the years ended December 31, 2008, 2007,
2006, 2005, and 2004:
(In
Thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
Balance at
beginning of period
|
|
$
|
4,130
|
|
$
|
4,185
|
|
$
|
3,679
|
|
$
|
3,338
|
|
$
|
3,069
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
48
|
|
|
|
50
|
|
132
|
|
121
|
|
Commercial and
industrial
|
|
51
|
|
103
|
|
28
|
|
206
|
|
50
|
|
Installment
loans to individuals
|
|
214
|
|
201
|
|
249
|
|
108
|
|
112
|
|
Total charge-offs
|
|
313
|
|
304
|
|
327
|
|
446
|
|
283
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
17
|
|
13
|
|
68
|
|
45
|
|
50
|
|
Commercial and
industrial
|
|
60
|
|
1
|
|
40
|
|
8
|
|
4
|
|
Installment
loans to individuals
|
|
87
|
|
85
|
|
90
|
|
14
|
|
33
|
|
Total recoveries
|
|
164
|
|
99
|
|
198
|
|
67
|
|
87
|
|
Net charge-offs
|
|
149
|
|
205
|
|
129
|
|
379
|
|
196
|
|
Additions
charged to operations
|
|
375
|
|
150
|
|
635
|
|
720
|
|
465
|
|
Balance at end
of period
|
|
$
|
4,356
|
|
$
|
4,130
|
|
$
|
4,185
|
|
$
|
3,679
|
|
$
|
3,338
|
|
Ratio of net
charge-offs during the period to average loans outstanding during the period
|
|
0.04
|
%
|
0.06
|
%
|
0.04
|
%
|
0.11
|
%
|
0.06
|
%
|
NON-INTEREST INCOME
2008 vs 2007
Total
non-interest income decreased $2,022,000 from the year ended December 31,
2007 to 2008. Excluding security losses,
non-interest income decreased $45,000. Service charges increased as overdraft
protection fees increased $100,000 and offset customer migrations to checking
accounts having reduced or no service charges.
Earnings on bank-owned life insurance increased as additional policies
were purchased. Insurance commissions decreased due to the general economic
downturn, which has led to a decrease in volume of sales. Management of The M Group continues to pursue
new and build upon current relationships.
However, the sales cycle for insurance and investment products can take
typically from six months to one year or more to complete. The increase in
other income was primarily due to increases in revenues from debit card
transactions, merchant card commissions, and title insurance.
(In
Thousands)
|
|
2008
|
|
2007
|
|
Change
|
|
|
|
Amount
|
|
% Total
|
|
Amount
|
|
% Total
|
|
Amount
|
|
%
|
|
Deposit service
charges
|
|
$
|
2,289
|
|
41.95
|
%
|
$
|
2,246
|
|
30.03
|
%
|
$
|
43
|
|
1.91
|
%
|
Securities
(losses) gains, net
|
|
(2,031
|
)
|
(37.23
|
)
|
(54
|
)
|
(0.72
|
)
|
(1,977
|
)
|
3,661.11
|
|
Bank-owned life
insurance
|
|
472
|
|
8.65
|
|
410
|
|
5.48
|
|
62
|
|
15.12
|
|
Gain on sale of
loans
|
|
882
|
|
16.17
|
|
921
|
|
12.32
|
|
(39
|
)
|
(4.23
|
)
|
Insurance
commissions
|
|
1,928
|
|
35.34
|
|
2,222
|
|
29.72
|
|
(294
|
)
|
(13.23
|
)
|
Other income
|
|
1,916
|
|
35.12
|
|
1,733
|
|
23.17
|
|
183
|
|
10.56
|
|
Total non-interest
income
|
|
$
|
5,456
|
|
100.00
|
%
|
$
|
7,478
|
|
100.00
|
%
|
$
|
(2,022
|
)
|
(27.04
|
)%
|
21
2007 vs 2006
Total non-interest income decreased $1,551,000
from the year ended December 31, 2007 to 2006. Excluding security (losses) gains and the
gain on sale of loans, non-interest income increased $114,000. Service charges
decreased $120,000 as overdraft protection fees declined and customers migrated
to new checking accounts having reduced or no service charges. Earnings on bank-owned life insurance
increased $36,000. Insurance commissions decreased $59,000 due to a reduction
in the overall commission from the underwriter that The M Group receives on
each insurance contract written. The
increase in other income was primarily due to increases in revenues from debit
card transactions, merchant card commissions,
and commissions generated by The M Group for securities transactions.
(In Thousands)
|
|
2007
|
|
2006
|
|
Change
|
|
|
|
Amount
|
|
% Total
|
|
Amount
|
|
% Total
|
|
Amount
|
|
%
|
|
Deposit service
charges
|
|
$
|
2,246
|
|
30.03
|
%
|
$
|
2,366
|
|
26.20
|
%
|
$
|
(120
|
)
|
(5.07
|
)%
|
Securities
(losses) gains, net
|
|
(54
|
)
|
(0.72
|
)
|
1,679
|
|
18.60
|
|
(1,733
|
)
|
(103.22
|
)
|
Bank-owned life
insurance
|
|
410
|
|
5.48
|
|
374
|
|
4.14
|
|
36
|
|
9.63
|
|
Gain on sale of
loans
|
|
921
|
|
12.32
|
|
853
|
|
9.45
|
|
68
|
|
7.97
|
|
Insurance
commissions
|
|
2,222
|
|
29.72
|
|
2,281
|
|
25.26
|
|
(59
|
)
|
(2.59
|
)
|
Other income
|
|
1,733
|
|
23.17
|
|
1,476
|
|
16.35
|
|
257
|
|
17.41
|
|
Total
non-interest income
|
|
$
|
7,478
|
|
100.00
|
%
|
$
|
9,029
|
|
100.00
|
%
|
$
|
(1,551
|
)
|
(17.18
|
)%
|
NON-INTEREST
EXPENSE
2008 vs 2007
Total non-interest expenses increased $633,000 from the year ended December 31,
2007 to December 31, 2008. Salaries and employee benefits increased due to
several factors including standard cost of living wage adjustments for
employees, increased benefit costs, and expenses associated with the
post-retirement segment of split-dollar bank owned life insurance. Pennsylvania shares tax decreased due to tax
credits associated with an investment in low income housing within the Lycoming
County market. Other expenses increased primarily due to increases in legal and
insurance costs coupled with our continued emphasis on giving back to the
communities that we serve resulting in a doubling of donations during 2008
compared to 2007.
(In Thousands)
|
|
2008
|
|
2007
|
|
Change
|
|
|
|
Amount
|
|
% Total
|
|
Amount
|
|
% Total
|
|
Amount
|
|
%
|
|
Salaries and
employee benefits
|
|
$
|
9,634
|
|
53.67
|
%
|
$
|
9,078
|
|
52.43
|
%
|
$
|
556
|
|
6.12
|
%
|
Occupancy, net
|
|
1,288
|
|
7.18
|
|
1,306
|
|
7.54
|
|
(18
|
)
|
(1.38
|
)
|
Furniture and
equipment
|
|
1,182
|
|
6.59
|
|
1,126
|
|
6.50
|
|
56
|
|
4.97
|
|
Pennsylvania
shares tax
|
|
421
|
|
2.35
|
|
643
|
|
3.71
|
|
(222
|
)
|
(34.53
|
)
|
Amortization of
investment in limited partnership
|
|
712
|
|
3.97
|
|
761
|
|
4.39
|
|
(49
|
)
|
(6.44
|
)
|
Other expenses
|
|
4,712
|
|
26.24
|
|
4,402
|
|
25.43
|
|
310
|
|
7.04
|
|
Total
non-interest expense
|
|
$
|
17,949
|
|
100.00
|
%
|
$
|
17,316
|
|
100.00
|
%
|
$
|
633
|
|
3.66
|
%
|
2007 vs 2006
Total non-interest expenses increased $987,000 from the year ended December 31,
2006 to December 31, 2007. Salaries and employee benefits increased by
$245,000 and were attributed to several factors including standard cost of
living wage adjustments for employees, full year impact of the Montoursville
branch, and increased benefit costs. Occupancy expense increased due to the new
branch in Montoursville, which opened in the third quarter of 2006, and
increased cost of maintenance and property taxes. Amortization increase attributed
to low income housing partnership that began operation during the fourth
quarter of 2006.
22
(In Thousands)
|
|
2007
|
|
2006
|
|
Change
|
|
|
|
Amount
|
|
% Total
|
|
Amount
|
|
% Total
|
|
Amount
|
|
%
|
|
Salaries and
employee benefits
|
|
$
|
9,078
|
|
52.43
|
%
|
$
|
8,833
|
|
54.09
|
%
|
$
|
245
|
|
2.77
|
%
|
Occupancy, net
|
|
1,306
|
|
7.54
|
|
1,137
|
|
6.96
|
|
169
|
|
14.86
|
|
Furniture and
equipment
|
|
1,126
|
|
6.50
|
|
1,201
|
|
7.36
|
|
(75
|
)
|
(6.24
|
)
|
Pennsylvania
shares tax
|
|
643
|
|
3.71
|
|
598
|
|
3.66
|
|
45
|
|
7.53
|
|
Amortization of
investment in limited partnership
|
|
761
|
|
4.39
|
|
245
|
|
1.50
|
|
516
|
|
210.61
|
|
Other expenses
|
|
4,402
|
|
25.43
|
|
4,315
|
|
26.43
|
|
87
|
|
2.02
|
|
Total
non-interest expense
|
|
$
|
17,316
|
|
100.00
|
%
|
$
|
16,329
|
|
100.00
|
%
|
$
|
987
|
|
6.04
|
%
|
INCOME
TAXES
2008 vs 2007
The provision for income taxes for the year ended December 31,
2008 resulted in an effective income tax rate of 4.8% compared to 6.7% for
2007. This decrease is the result of the continued shift in the investment
portfolio from taxable mortgage-backed bonds to tax-exempt municipal bonds
coupled with the recognition of tax credits related to low income housing
partnerships investments.
2007 vs 2006
The provision for income taxes for the year ended December 31,
2007 resulted in an effective income tax rate of 6.7% compared to 16.9% for
2006. This decrease is the result of a shift in the investment portfolio from
taxable mortgage-backed bonds to tax-exempt municipal bonds coupled with the
receipt of tax credits related to low income housing partnerships investments.
FINANCIAL
CONDITION
INVESTMENTS
2008
The estimated fair value of the investment portfolio decreased
$6,346,000 or 2.96% from December 31, 2007 to 2008, while the amortized
cost increased $3,241,000 over the same period.
The majority of the changes in value occurred within the state and
municipal segment of the portfolio. The
amortized cost position in state and political securities increased $22,607,000
as the Bank continued 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. The amortized cost position
of U.S. Government and agency securities decreased $15,934,000 due to the focus
on building the municipal bond segment of the portfolio. The increased level of unrealized losses,
which offset the increase in amortized cost, was the result of changes in the
yield curve and illiquid markets, not credit quality, as the credit quality of
the portfolio remained sound.
2007
The estimated fair value of the investment portfolio increased
$29,429,000 or 15.77% from December 31, 2006 to 2007, while the amortized
cost increased $35,762,000 over the same period. The majority of the changes in value occurred
within the state and municipal segment of the portfolio. The amortized cost position in state and
political securities increased $14,993,000 as the Bank continued 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. The amortized cost position of other debt
securities increased $13,919,000 as the Bank began a new leverage transaction
to enhance net interest income, return on average assets, and return on average
equity. The increased level of
unrealized losses, which offset the increase in amortized cost, was the result
of changes in the yield curve, not credit quality, as the credit quality of the
portfolio remained sound.
The carrying amounts of investment securities at the dates indicated
are summarized as follows for the years ended
23
December 31, 2008, 2007, and 2006:
(In Thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
Balance
|
|
% Portfolio
|
|
Balance
|
|
% Portfolio
|
|
Balance
|
|
% Portfolio
|
|
U.S. Government
agencies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity
|
|
$
|
10
|
|
0.00
|
%
|
$
|
14
|
|
0.01
|
%
|
$
|
26
|
|
0.01
|
%
|
Available for
Sale
|
|
47,586
|
|
22.84
|
%
|
62,904
|
|
29.29
|
%
|
54,152
|
|
29.20
|
%
|
State and political
subdivisions (tax-exempt):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for
Sale
|
|
103,173
|
|
49.51
|
%
|
107,314
|
|
49.98
|
%
|
103,057
|
|
55.56
|
%
|
State and
political subdivisions (taxable):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for
Sale
|
|
28,668
|
|
13.76
|
%
|
10,501
|
|
4.89
|
%
|
2,889
|
|
1.56
|
%
|
Other bonds,
notes and debentures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity
|
|
125
|
|
0.06
|
%
|
263
|
|
0.12
|
%
|
257
|
|
0.14
|
%
|
Available for
Sale
|
|
15,554
|
|
7.46
|
%
|
15,767
|
|
7.34
|
%
|
2,024
|
|
1.09
|
%
|
Total bonds,
notes and debentures
|
|
195,116
|
|
93.63
|
%
|
196,763
|
|
91.63
|
%
|
162,405
|
|
87.56
|
%
|
Corporate stock
- Available for Sale
|
|
13,270
|
|
6.37
|
%
|
17,969
|
|
8.37
|
%
|
23,078
|
|
12.44
|
%
|
Total
|
|
$
|
208,386
|
|
100.00
|
%
|
$
|
214,732
|
|
100.00
|
%
|
$
|
185,483
|
|
100.00
|
%
|
The following table shows the maturities and repricing of investment
securities, at amortized cost and the weighted average yields (for tax-exempt
obligations on a fully taxable basis assuming a 34% tax rate) of such at December 31,
2008:
(In Thousands)
|
|
Within
|
|
After One
|
|
After Five
|
|
After
|
|
Amortized
|
|
|
|
One
|
|
But Within
|
|
But Within
|
|
Ten
|
|
Cost
|
|
|
|
Year
|
|
Five Years
|
|
Ten Years
|
|
Years
|
|
Total
|
|
U.S. Government
agencies:
|
|
|
|
|
|
|
|
|
|
|
|
HTM Amount
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
10
|
|
$
|
10
|
|
Yield
|
|
|
|
|
|
|
|
8.95
|
%
|
8.95
|
%
|
AFS Amount
|
|
|
|
|
|
|
|
46,452
|
|
46,452
|
|
Yield
|
|
|
|
|
|
|
|
5.79
|
%
|
5.79
|
%
|
State and
political subdivisions (tax-exempt):
|
|
|
|
|
|
|
|
|
|
|
|
HTM Amount
|
|
|
|
|
|
|
|
|
|
|
|
Yield
|
|
|
|
|
|
|
|
|
|
|
|
AFS Amount
|
|
|
|
|
|
416
|
|
110,654
|
|
111,070
|
|
Yield
|
|
|
|
|
|
8.95
|
%
|
6.61
|
%
|
6.62
|
%
|
State and
political subdivisions (taxable):
|
|
|
|
|
|
|
|
|
|
|
|
HTM Amount
|
|
|
|
|
|
|
|
|
|
|
|
Yield
|
|
|
|
|
|
|
|
|
|
|
|
AFS Amount
|
|
|
|
|
|
|
|
31,188
|
|
31,188
|
|
Yield
|
|
|
|
|
|
|
|
5.94
|
%
|
5.94
|
%
|
Other bonds,
notes and debentures:
|
|
|
|
|
|
|
|
|
|
|
|
HTM Amount
|
|
25
|
|
100
|
|
|
|
|
|
125
|
|
Yield
|
|
5.55
|
%
|
6.55
|
%
|
|
|
|
|
6.35
|
%
|
AFS Amount
|
|
|
|
75
|
|
2
|
|
16,339
|
|
16,416
|
|
Yield
|
|
|
|
2.89
|
%
|
2.37
|
%
|
6.26
|
%
|
6.24
|
%
|
Total Amount
|
|
$
|
25
|
|
$
|
175
|
|
$
|
418
|
|
$
|
204,643
|
|
$
|
205,261
|
|
Total Yield
|
|
5.55
|
%
|
4.98
|
%
|
8.92
|
%
|
6.29
|
%
|
6.30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
Securities
|
|
|
|
|
|
|
|
|
|
$
|
16,429
|
|
Total Investment
Portfolio Value
|
|
|
|
|
|
|
|
|
|
$
|
221,690
|
|
Total Investment
Portfolio Yield
|
|
|
|
|
|
|
|
|
|
5.83
|
%
|
All yields represent weighted average yields expressed on a tax
equivalent basis. They are calculated on
the basis of the cost, adjusted for amortization of premium and accretion of
discount, and effective yields weighted for the scheduled maturity of each
security. The taxable equivalent
adjustment represents the difference between annual income from tax-exempt
24
obligations and the taxable equivalent of such income at the standard
34% tax rate (derived by dividing tax-exempt interest by 66%).
LOAN PORTFOLIO
2008
Gross loans of $381,478,000 at December 31, 2008 represented an
increase of $21,000,000 from December 31, 2007. The continued emphasis on
well collateralized real estate loans resulted in real estate secured loans
increasing $17,039,000 from December 31, 2007 to 2008. The success in
carrying out this long term strategy has played a significant role in limiting
net chargeoffs for 2008 to 0.04% of average loans. Despite the softening economy, the Bank has
increased outstanding loans while maintaining its lending practices and is
capitalizing on opportunities because larger regional banks have withdrawn, in
part, from select market segments.
2007
Gross loans of $360,478,000 at December 31, 2007 represented an
increase of $94,000 from December 31, 2006. The continued emphasis on well
collateralized real estate loans resulted in real estate secured loans
increasing $1,991,000 from December 31, 2006 to 2007. The success in
carrying out this long term strategy has played a significant role in limiting
net charge-offs for 2007 to 0.06% of average loans. Commercial and agricultural loans declined
due to the before mentioned emphasis on real estate secured loans versus
equipment, receivables, or inventory secured loans.
The amounts of loans outstanding at the
indicted dates are shown in the following table according to type of loan at December 31,
2008. 2007, 2006, 2005, and 2004:
(In Thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
Commercial and
agricultural
|
|
$
|
40,602
|
|
$
|
35,739
|
|
$
|
36,995
|
|
$
|
37,553
|
|
$
|
31,100
|
|
Real estate
mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
177,406
|
|
163,268
|
|
158,219
|
|
150,000
|
|
147,461
|
|
Commercial
|
|
136,158
|
|
132,943
|
|
135,404
|
|
127,131
|
|
123,757
|
|
Construction
|
|
15,838
|
|
16,152
|
|
16,749
|
|
10,681
|
|
8,365
|
|
Installment
loans to individuals
|
|
12,487
|
|
13,317
|
|
14,035
|
|
14,135
|
|
14,918
|
|
Less: Net
deferred loan fees
|
|
1,013
|
|
941
|
|
1,018
|
|
1,062
|
|
1,096
|
|
Gross loans
|
|
$
|
381,478
|
|
$
|
360,478
|
|
$
|
360,384
|
|
$
|
338,438
|
|
$
|
324,505
|
|
The amounts of domestic loans at December 31, 2008 are presented
below by category and maturity:
(In Thousands)
|
|
|
|
Commercial
|
|
Installment
|
|
|
|
|
|
|
|
and
|
|
Loans to
|
|
|
|
|
|
Real Estate
|
|
Other
|
|
Individuals
|
|
Total
|
|
Loans with
floating interest rates:
|
|
|
|
|
|
|
|
|
|
1 year or less
|
|
$
|
18,770
|
|
$
|
9,022
|
|
$
|
2,317
|
|
$
|
30,109
|
|
1 through 5
years
|
|
11,593
|
|
1,686
|
|
35
|
|
13,314
|
|
5 through 10
years
|
|
27,411
|
|
3,814
|
|
6
|
|
31,231
|
|
After 10 years
|
|
217,414
|
|
8,472
|
|
678
|
|
226,564
|
|
Total floating
interest rate loans
|
|
275,188
|
|
22,994
|
|
3,036
|
|
301,218
|
|
Loans with
predetermined interest rates:
|
|
|
|
|
|
|
|
|
|
1 year or less
|
|
5,747
|
|
1,329
|
|
761
|
|
7,837
|
|
1 through 5
years
|
|
13,705
|
|
12,196
|
|
8,018
|
|
33,919
|
|
5 through 10
years
|
|
21,897
|
|
3,692
|
|
718
|
|
26,307
|
|
After 10 years
|
|
11,545
|
|
621
|
|
31
|
|
12,197
|
|
Total
predetermined interest rate loans
|
|
52,894
|
|
17,838
|
|
9,528
|
|
80,260
|
|
Total
|
|
$
|
328,082
|
|
$
|
40,832
|
|
$
|
12,564
|
|
$
|
381,478
|
|
·
The loan
maturity information is based upon original loan terms and is not adjusted for rollovers. In the ordinary course of business, loans
maturing within one year may be renewed, in whole or in part, at interest rates
prevailing at the date of renewal.
25
·
Scheduled
repayments are reported in maturity categories in which the payment is due.
The Bank does not make loans that provide for negative amortization nor
do any loans contain conversion features. The Bank does not have any foreign
loans outstanding at December 31, 2008.
ALLOWANCE FOR LOAN LOSSES
2008
The allowance for loan losses represents the
amount which management estimates is adequate to provide for probable losses
inherent in its loan portfolio, as of the consolidated balance sheet date. All loan losses are charged to the allowance
and all recoveries are credited to it per the allowance method of providing for
loan losses. The allowance for loan
losses is established through a provision for loan losses charged to
operations. The provision for loan
losses is based upon managements quarterly review of the loan portfolio. The purpose of the review is to assess loan
quality, identify impaired loans, analyze delinquencies, ascertain loan growth,
evaluate potential charge-offs and recoveries, and assess general economic
conditions in the markets served. An external independent loan review is also
performed annually for the Bank.
Management remains committed to an aggressive program of problem loan
identification and resolution.
The allowance is calculated by applying loss factors to outstanding
loans by type, excluding loans for which a specific allowance has been
determined. Loss factors are based on
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 nonperforming loans and its knowledge and
experience with specific lending segments.
Although management believes that it uses the best information
available to make such determinations and that the allowance for loan losses is
adequate at December 31, 2008, future adjustments could be necessary if
circumstances or economic conditions differ substantially from the assumptions
used in making the initial determinations.
A downturn in the local economy or employment, and delays in receiving
financial information from borrowers could result in increased levels of nonperforming
assets and charge-offs, increased loan loss provisions and reductions in
interest income. Additionally, as an
integral part of the examination process, bank regulatory agencies periodically
review the Banks allowance for loan losses.
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.
The allowance for loan losses increased from $4,130,000 at December 31,
2007 to $4,356,000 at December 31, 2008.
At December 31, 2008, allowance for loan losses was 1.14% of total
loans compared to 1.15% of total loans at December 31, 2007. This
percentage is consistent with the Banks historical experience and peer
banks. Managements conclusion is that
the allowance for loan losses is adequate to provide for probable losses
inherent in its loan portfolio as of the balance sheet date.
Based on managements loan-by-loan review, the past performance of the
borrowers, and current economic conditions, including recent business closures
and bankruptcy levels, management does not anticipate any current losses
related to nonaccrual, nonperforming, or classified loans above those that have
already been considered in its overall judgment of the adequacy of the reserve.
2007
At December 31, 2007, the allowance for loan losses as a percent
of total loans decreased to 1.15% from 1.16% at December 31, 2006. An
increase in gross loans of $94,000 from $360,384,000 at December 31, 2006
to $360,478,000 at December 31, 2007 coupled with net charge-offs of
$205,000 led to the slight decline in the allowance for loan losses as a
percent of total loans.
NONPERFORMING LOANS
Nonaccrual loans increased $541,000 to $1,496,000 at December 31,
2008 as several commercial real estate relationships deteriorated in quality.
Overall nonperforming loans increased $435,000 to $1,755,000 from fiscal year
end 2007.
The following table presents information concerning nonperforming
loans. The accrual of interest will be
discontinued when the principal or interest of a loan is in default for 90 days
or more, or as soon as payment is questionable, unless the loan is well secured
and in the process of collection. Consumer loans and residential real estate
loans secured by 1 to 4 family dwellings are not ordinarily subject to those
guidelines. The reversal of previously
accrued but uncollected interest applicable to any loan placed in a nonaccrual
status and the treatment of subsequent payments of either principal or interest
will be handled in accordance with U.S. generally accepted accounting
principles. These principles do not
require a write-off of previously accrued interest if principal and interest
are ultimately protected by sound collateral values. A nonperforming loan may be restored to
accruing status when:
26
1.
Principal and
interest is no longer due and unpaid;
2.
It becomes well
secured and in the process of collection;
3.
Prospects for
future contractual payments are no longer in doubt;
(In Thousands)
|
|
Total Nonperforming Loans
|
|
|
|
|
|
90 Days
|
|
|
|
|
|
Nonaccrual
|
|
Past Due
|
|
Total
|
|
2008
|
|
$
|
1,476
|
|
$
|
259
|
|
$
|
1,735
|
|
2007
|
|
955
|
|
365
|
|
1,320
|
|
2006
|
|
370
|
|
119
|
|
489
|
|
2005
|
|
540
|
|
63
|
|
603
|
|
2004
|
|
1,381
|
|
345
|
|
1,726
|
|
2003
|
|
827
|
|
429
|
|
1,256
|
|
|
|
|
|
|
|
|
|
|
|
|
The level of nonaccruing loans continues to fluctuate annually and is
attributed to the various economic factors experienced both regionally and
nationally. Overall; the portfolio is
well secured with a majority of the balance making regular payments or
scheduled to be satisfied in the near future.
Presently, there are no significant amounts of loans where serious
doubts exist as to the ability of the borrower to comply with the current loan
payment terms which are not included in the nonperforming categories as
indicated above.
Managements judgment in determining the amount of the additions to the
allowance charged to operating expense considers the following factors:
1.
Economic conditions
and the impact on the loan portfolio.
2.
Analysis of past
loan charge-offs experienced by category and comparison to outstanding loans.
3.
Problem loans on
overall portfolio quality.
4.
Reports of
examination of the loan portfolio by the Pennsylvania State Department of
Banking and the FDIC.
27
Allocation In The Allowance For Loan Losses
(In Thousands)
|
|
|
|
Percent Of
|
|
|
|
|
|
Loan In
|
|
|
|
|
|
Each
|
|
|
|
|
|
Category To
|
|
|
|
Amount
|
|
Total Loans
|
|
December 31,
2008:
|
|
|
|
|
|
Balance at end
of period applicable to:
|
|
|
|
|
|
Commercial and
agricultural
|
|
$
|
580
|
|
10.6
|
%
|
Real estate
mortgage:
|
|
|
|
|
|
Residential
|
|
659
|
|
46.4
|
%
|
Commercial
|
|
1,326
|
|
35.6
|
%
|
Construction
|
|
1,471
|
|
4.1
|
%
|
Installment
loans to individuals
|
|
250
|
|
3.3
|
%
|
Unallocated
|
|
70
|
|
|
|
Total
|
|
$
|
4,356
|
|
100.0
|
%
|
December 31,
2007:
|
|
|
|
|
|
Balance at end
of period applicable to:
|
|
|
|
|
|
Commercial and
agricultural
|
|
$
|
823
|
|
9.9
|
%
|
Real estate
mortgage:
|
|
|
|
|
|
Residential
|
|
1,031
|
|
45.1
|
%
|
Commercial
|
|
1,634
|
|
36.8
|
%
|
Construction
|
|
112
|
|
4.5
|
%
|
Installment
loans to individuals
|
|
228
|
|
3.7
|
%
|
Unallocated
|
|
302
|
|
|
|
Total
|
|
$
|
4,130
|
|
100.0
|
%
|
December 31,
2006:
|
|
|
|
|
|
Balance at end
of period applicable to:
|
|
|
|
|
|
Commercial and
agricultural
|
|
$
|
679
|
|
10.2
|
%
|
Real estate
mortgage:
|
|
|
|
|
|
Residential
|
|
951
|
|
43.8
|
%
|
Commercial
|
|
1,972
|
|
37.5
|
%
|
Construction
|
|
108
|
|
4.6
|
%
|
Installment
loans to individuals
|
|
295
|
|
3.9
|
%
|
Unallocated
|
|
180
|
|
|
|
Total
|
|
$
|
4,185
|
|
100.0
|
%
|
December 31,
2005:
|
|
|
|
|
|
Balance at end
of period applicable to:
|
|
|
|
|
|
Commercial and
agricultural
|
|
$
|
582
|
|
10.1
|
%
|
Real estate
mortgage:
|
|
|
|
|
|
Residential
|
|
1,107
|
|
44.2
|
%
|
Commercial
|
|
1,482
|
|
37.5
|
%
|
Construction
|
|
79
|
|
3.1
|
%
|
Installment
loans to individuals
|
|
192
|
|
5.1
|
%
|
Unallocated
|
|
237
|
|
|
|
Total
|
|
$
|
3,679
|
|
100.0
|
%
|
December 31,
2004:
|
|
|
|
|
|
Balance at end
of period applicable to:
|
|
|
|
|
|
Commercial and
agricultural
|
|
$
|
361
|
|
9.1
|
%
|
Real estate
mortgage:
|
|
|
|
|
|
Residential
|
|
1,280
|
|
46.1
|
%
|
Commercial
|
|
1,399
|
|
37.5
|
%
|
Construction
|
|
75
|
|
2.5
|
%
|
Installment
loans to individuals
|
|
207
|
|
4.8
|
%
|
Unallocated
|
|
16
|
|
|
|
Total
|
|
$
|
3,338
|
|
100.0
|
%
|
DEPOSITS
2008 vs 2007
Total
average deposits were $417,552,000 for 2008, an increase of $20,344,000 or
5.12% from 2007. Core deposits,
28
which
excludes time deposits, increased due to renewed focus on deposit gathering
efforts and the impact of natural gas exploration through out our market
footprint. Time deposits remained stable
as the Bank focused on service rather than attracting deposits purely on rate. In addition, the Bank has been able to
capitalize on its reputation of safety and soundness during the events of 2008
that unsettled consumer confidence. Additionally, the FDIC temporarily raised
the limit on federal deposit insurance from $100,000 to $250,000. The Bank has
also chosen to participate in an FDIC program pursuant to which all
noninterest-bearing transaction accounts are guaranteed in full by the FDIC
until December 31, 2009, regardless of the standard maximum deposit
insurance amount.
2007 vs 2006
Total
average deposits were $397,208,000 for 2007, an increase of $17,862,000 or
4.71% from 2006. Noninterest-bearing
deposits increased slightly to $69,953,000.
Time deposits increased $21,508,000 or 12.19% as deposits shifted from
transaction accounts to time deposits, due to the continued rate disparity
between time deposits and other deposit types.
The rate on time deposits increased due to the actions taken by the FOMC
during 2006, which increased the overall rate paid on time deposits. In addition, the Bank utilized brokered time
deposits to supplement market area deposit funding with the level of brokered
deposits decreasing $16,197,000 to $8,831,000 at December 31, 2007.
The average amount and the average rate paid on
deposits are summarized below for the years ended December 31, 2008, 2007,
and 2006:
(In Thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
|
|
Amount
|
|
Rate
|
|
Amount
|
|
Rate
|
|
Amount
|
|
Rate
|
|
Noninterest-bearing
|
|
$
|
73,618
|
|
0.00
|
%
|
$
|
69,953
|
|
0.00
|
%
|
$
|
69,668
|
|
0.00
|
%
|
Savings
|
|
60,324
|
|
0.73
|
%
|
58,710
|
|
0.73
|
%
|
61,958
|
|
0.82
|
%
|
Super Now
|
|
52,117
|
|
1.26
|
%
|
46,596
|
|
1.31
|
%
|
47,294
|
|
1.38
|
%
|
Money Market
|
|
30,921
|
|
2.26
|
%
|
23,920
|
|
2.26
|
%
|
23,905
|
|
2.06
|
%
|
Time
|
|
200,572
|
|
3.92
|
%
|
198,029
|
|
4.73
|
%
|
176,521
|
|
4.11
|
%
|
Total average
deposits
|
|
$
|
417,552
|
|
2.31
|
%
|
$
|
397,208
|
|
2.76
|
%
|
$
|
379,346
|
|
2.35
|
%
|
SHAREHOLDERS EQUITY
2008
Shareholders
equity decreased $9,532,000 to $61,027,000 at December 31, 2008 as
accumulated comprehensive loss increased $6,327,000, and $1,371,000 in common
stock was strategically repurchased as part of the previously announced stock
buyback plan, while net income outpaced dividends paid. The decrease in accumulated other
comprehensive income is a result of a decline in the market value of certain
securities held in the investment portfolio at December 31, 2008 compared
to December 31, 2007, resulting in a net unrealized loss of $8,486,000 at December 31,
2008 compared to a net unrealized loss of $2,159,000 at December 31, 2007.
In addition, the net excess of the projected benefit obligation over the market
value of the plan assets of the defined benefit pension plan increased
$2,405,000 due to a decline in the market value of the plan assets caused by
the significant downturn in the stock and bond markets over the past year. The current level of shareholders equity
equates to a book value per share of $15.93 at December 31, 2008 compared
to $18.21 at December 31, 2007 and an equity to asset ratio of 9.35% at December 31,
2008. Book value per share, excluding accumulated other comprehensive loss, was
$19.13 at December 31, 2008 compared to $19.12 at December 31, 2007.
During the three and twelve months ended December 31, 2008 cash dividends
of $0.46 and $1.84 per share were paid to shareholders compared to $0.46 and
$1.79 for the comparable periods of 2007.
2007
Shareholders
equity decreased $4,035,000 to $70,559,000 at December 31, 2007 as net
income outpaced dividends paid, accumulated comprehensive income decreased
$5,094,000, and $972,000 in treasury stock was strategically purchased as part
of the previously announced stock buyback plan.
The decrease in accumulated comprehensive income is the result of a
decrease in market value, or net unrealized loss, of the investment portfolio
at December 31, 2007 as compared to December 31, 2006, and the net
excess of the projected benefit obligation over the market value of the plan
assets of the defined benefit pension plan.
The current level of shareholders equity equates to a book value per
share of $19.12 at December 31, 2007 as compared to $18.21 at December 31,
2006 and an equity to asset ratio of 11.23% at December 31,
29
2007.
During the twelve months ended December 31, 2007 cash dividends of $1.79
per share were paid to shareholders. The
dividends represented a 3% increase or $0.06 per share over the dividends paid
during the comparable period of 2006.
Bank
regulators have risk based capital guidelines.
Under these guidelines the Company and Bank are required to maintain
minimum ratios of core capital and total qualifying capital as a percentage of
risk weighted assets and certain off-balance sheet items. At December 31,
2008, both the Companys and Banks required ratios were well above the minimum
ratios as follows:
|
|
|
|
|
|
Minimum
|
|
|
|
Company
|
|
Bank
|
|
Standards
|
|
Tier 1 capital
ratio
|
|
9.7
|
%
|
8.3
|
%
|
4.0
|
%
|
Total capital
ratio
|
|
16.0
|
%
|
13.9
|
%
|
8.0
|
%
|
For
a more comprehensive discussion of these requirements, see Regulations and
Supervision in Item 1 of the Annual Report on Form 10-K. Management believes that the Company will
continue to exceed regulatory capital requirements.
RETURN ON EQUITY AND ASSETS
The
ratio of net income to average total assets and average shareholders equity
and other certain equity ratios are presented as follows:
|
|
2008
|
|
2007
|
|
2006
|
|
Percentage of
net income to:
|
|
|
|
|
|
|
|
Average total
assets
|
|
1.27
|
%
|
1.49
|
%
|
1.67
|
%
|
Average
shareholders equity
|
|
12.02
|
%
|
12.14
|
%
|
12.93
|
%
|
Percentage of
dividends declared to net income
|
|
88.67
|
%
|
78.33
|
%
|
70.51
|
%
|
Percentage of
average shareholders equity to average total assets
|
|
10.53
|
%
|
12.23
|
%
|
12.92
|
%
|
LIQUIDITY, INTEREST RATE SENSITIVITY, AND MARKET
RISK
Fundamental
objectives of the Companys asset/liability management process are to maintain
adequate liquidity while minimizing interest rate risk. The maintenance of
adequate liquidity 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
Company, like other financial institutions, must have sufficient funds
available to meet its liquidity needs for deposit withdrawals, loan
commitments, and expenses. In order to
control cash flow, the bank estimates future flows of cash from deposits and
loan payments. The primary sources of
funds are deposits, principal and interest payments on loans and
mortgage-backed securities, as well as FHLB borrowings. Funds generated are used principally to fund
loans and purchase investment securities. Management believes the Company 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 $213,839,000 with
$147,791,000 utilized, leaving $66,048,000 available. In addition to this credit arrangement, the
Company has additional lines of credit with correspondent banks of $13,845,000.
The Companys management believes that it has sufficient liquidity to satisfy
estimated short-term and long-term funding needs.
30
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.
INTEREST RATE SENSITIVITY
In
this analysis the Company examines the result of a 100 and 200 basis point
change in market interest rates and the effect on net interest income. It is
assumed that the change is instantaneous and that all rates move in a parallel
manner. Assumptions are also made
concerning prepayment speeds on mortgage loans and mortgage securities.
The
following is a rate shock forecast for the twelve month period ended December 31,
2009 assuming a static balance sheet as of December 31, 2008.
(In Thousands)
|
|
Parallel Rate Shock in Basis Points
|
|
|
|
-200
|
|
-100
|
|
Static
|
|
+100
|
|
+200
|
|
Net interest
income
|
|
$
|
23,038
|
|
$
|
22,336
|
|
$
|
21,287
|
|
$
|
20,344
|
|
$
|
19,333
|
|
Change from
static
|
|
1,751
|
|
1,049
|
|
|
|
(943
|
)
|
(1,954
|
)
|
Percent change
from static
|
|
8.23
|
%
|
4.93
|
%
|
|
|
-2.63
|
%
|
-6.33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
model utilized to create the report presented above makes various estimates at
each level of interest rate change regarding cash flow from principal repayment
on loans and mortgage-backed securities and or call activity on investment
securities. Actual results could differ
significantly from these estimates which would result in significant differences
in the calculated projected change. In
addition, the limits stated above do not necessarily represent the level of
change under which management would undertake specific measures to realign its
portfolio in order to reduce the projected level of change. Generally, management believes the Company is
well positioned to respond expeditiously when the market interest rate outlook
changes.
INFLATION
The
asset and liability structure of a financial institution is primarily monetary
in nature; therefore, interest rates rather than inflation have a more
significant impact on the 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 that are not
measured by a price index.
CRITICAL ACCOUNTING POLICIES
The
Companys accounting policies are integral to understanding the results
reported. The accounting policies are
described in detail in Note 1 of the consolidated financial statements. Our most complex accounting policies require
managements judgment to ascertain the valuation of assets, liabilities,
commitments, and contingencies. We have
established detailed policies and control procedures that are intended to
ensure valuation methods are well controlled and applied consistently from
period to period. In addition, the
policies and procedures are intended to ensure that the process for changing
methodologies occurs in an appropriate manner.
The following is a brief description of our current accounting policies
involving significant management valuation judgments.
Other Than Temporary Impairment
of Debt and Equity Securities
Debt
and Equity securities are evaluated periodically to determine whether a decline
in their value is other than temporary. Management utilizes criteria such as
the magnitude and duration of the decline, in addition to the reason underlying
the
31
decline,
to determine whether the loss in value is other than temporary. The term other
than temporary is not intended to indicate that the decline is permanent. It indicates that the prospects for a near
term recovery of value are not necessarily favorable, or that there is a lack
of evidence to support fair values equal to, or greater than, the carrying
value of the investment. Once a decline
in value is determined to be other than temporary, the value of the security is
reduced and a corresponding charge to earnings is recognized. For a full
discussion of the Companys methodology of assessing impairment, refer to Note
3 of Notes and Consolidated Financial Statements of the Annual Report on Form 10-K.
Allowance for Loan Losses
Arriving
at an appropriate level of allowance for loan losses involves a high degree of
judgment. The Companys allowance for
loan losses provides for probable losses based upon evaluations of known and
inherent risks in the loan portfolio.
Management
uses historical information to assess the adequacy of the allowance for loan
losses as well as the prevailing business environment; as it is affected by
changing economic conditions and various external factors, which may impact the
portfolio in ways currently unforeseen.
The allowance is increased by provisions for loan losses and by
recoveries of loans previously charged-off and reduced by loans
charged-off. For a full discussion of
the Companys methodology of assessing the adequacy of the reserve for loan
losses, refer to Note 1 of Notes and Consolidated Financial Statements of the
Annual Report of Form 10-K.
Goodwill and Other Intangible
Assets
As
discussed in Note 6 of the Notes to Consolidated Financial Statements of the
Annual Report on Form 10-K, the Company must assess goodwill and other
intangible assets each year for impairment.
This assessment involves estimating cash flows for future periods. If
the future cash flows were less than the recorded goodwill and other intangible
assets balances, we would be required to take a charge against earnings to write
down the assets to the lower value.
Deferred Tax Assets
We
use an estimate of future earnings to support our position that the benefit of
our deferred tax assets will be realized.
If future income should prove non-existent or less than the amount of the
deferred tax assets within the tax years to which they may be applied, the
asset may not be realized and our net income will be reduced. Our deferred tax assets are described further
in Note 10 of Notes to Consolidated Financial Statements of the Annual Report on Form 10-K.
Pension Benefits
Pension
costs and liabilities are dependent on assumptions used in calculating such
amounts. These assumptions include
discount rates, benefits earned, interest costs, expected return on plan
assets, mortality rates, and other factors.
In accordance with generally accepted accounting principles, actual
results that differ from the assumptions are accumulated and amortized over
future periods and, therefore, generally affect recognized expense and the
recorded obligation of future periods.
While management believes that the assumptions used are appropriate,
differences in actual experience or changes in assumptions may affect the
Companys pension obligations and future expense. Our pension benefits are described further in
Note 11 of Notes to Consolidated Financial Statements of the Annual Report on
Form 10-K.
CONTRACTUAL OBLIGATIONS
The Company has various financial obligations,
including contractual obligations which may require future cash payments. The following
table presents, as of December 31, 2008, significant fixed and
determinable contractual obligations to third parties by payment date. Further discussion of the nature of each
obligation is included in Notes to the Consolidated Financial Statements of
the Annual Report on Form 10-K.
(In Thousands)
|
|
Payments Due In
|
|
|
|
|
|
One to
|
|
Three to
|
|
Over
|
|
|
|
|
|
One Year
|
|
Three
|
|
Five
|
|
Five
|
|
|
|
|
|
or Less
|
|
Years
|
|
Years
|
|
Years
|
|
Total
|
|
Deposits without
a stated maturity
|
|
$
|
224,373
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
224,373
|
|
Time Deposits
|
|
158,473
|
|
33,913
|
|
3,832
|
|
778
|
|
196,996
|
|
Repurchase
agreements
|
|
12,933
|
|
|
|
|
|
|
|
12,933
|
|
Short-term
borrowings, FHLB
|
|
61,013
|
|
|
|
|
|
|
|
61,013
|
|
Long-term
borrowings, FHLB
|
|
|
|
25,500
|
|
20,528
|
|
40,750
|
|
86,778
|
|
Operating leases
|
|
387
|
|
700
|
|
523
|
|
1,703
|
|
3,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Corporations operating lease obligations
represent short and long-term lease and rental payments for branch facilities.
32
The Bank leases certain facilities under
operating leases which expire on various dates through 2024. Renewal options are available on the majority
of these leases.
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.
ITEM 7A
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk for
the Company is comprised primarily from 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 internally. Additional information and details are provided
in the Interest Sensitivity section of Item 7 Managements Discussion and
Analysis of Financial Condition and Results of Operations.
Generally,
management believes the Company is well positioned to respond expeditiously
when the market interest rate outlook changes.
ITEM 8 FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
Board
of Directors and Shareholders
Penns
Woods Bancorp, Inc.
We
have audited the accompanying consolidated balance sheets of Penns Woods
Bancorp, Inc. (the Company) and subsidiaries as of December 31,
2008 and 2007, and the related consolidated statements of income, comprehensive
income, stockholders equity, and cash flows for each of the three years in the
period ended December 31, 2008. These financial statements are the
responsibility of the Companys management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits
provide a reasonable basis for our opinion.
In
our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company and
subsidiaries as of December 31, 2008 and 2007, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2008, in conformity with U.S. generally accepted accounting
principles.
As
discussed in Note 1 to the consolidated financial statements, effective January 1,
2008, the Company adopted Emerging Issues Task Force No. 06-4,
Accounting for Deferred Compensation and
Post-retirement Benefit Aspects of Endorsement Split Dollar Life Insurance
Arrangements
. Also, as discussed in Note 19 to the consolidated
financial statements, effective January 1, 2008, the Company adopted
Statement of Financial Accounting Standards No. 157,
Fair Value Measurements
.
We
have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the Companys and subsidiaries
internal control over financial reporting as of December 31, 2008, based
on criteria established in
Internal Control
Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission, and our report dated March 10,
2009 expressed an unqualified opinion on the effectiveness of the Companys
internal control over financial reporting.
/s/ S.R. Snodgrass, A.C.
|
|
|
|
Wexford, PA
|
|
March 10, 2009
|
|
33
PENNS
WOODS BANCORP, INC.
CONSOLIDATED
BALANCE SHEET
(In Thousands, Except Share Data)
|
|
December 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
ASSETS:
|
|
|
|
|
|
Noninterest-bearing
balances
|
|
$
|
16,563
|
|
$
|
15,417
|
|
Interest-bearing
deposits in other financial institutions
|
|
18
|
|
16
|
|
Total cash and
cash equivalents
|
|
16,581
|
|
15,433
|
|
|
|
|
|
|
|
Investment
securities, available for sale, at fair value
|
|
208,251
|
|
214,455
|
|
Investment
securities, held to maturity, (fair value of $136 and $279)
|
|
135
|
|
277
|
|
Loans held for
sale
|
|
3,622
|
|
4,214
|
|
|
|
|
|
|
|
Loans
|
|
381,478
|
|
360,478
|
|
Less: Allowance
for loan losses
|
|
4,356
|
|
4,130
|
|
Loans, net
|
|
377,122
|
|
356,348
|
|
|
|
|
|
|
|
Premises and
equipment, net
|
|
7,865
|
|
6,774
|
|
Accrued interest
receivable
|
|
3,614
|
|
3,343
|
|
Bank-owned life
insurance
|
|
14,546
|
|
12,375
|
|
Investment in
limited partnerships
|
|
4,727
|
|
5,439
|
|
Goodwill
|
|
3,032
|
|
3,032
|
|
Other assets
|
|
13,308
|
|
6,448
|
|
TOTAL
ASSETS
|
|
$
|
652,803
|
|
$
|
628,138
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
Interest-bearing
deposits
|
|
$
|
345,333
|
|
$
|
314,351
|
|
Noninterest-bearing
deposits
|
|
76,035
|
|
74,671
|
|
Total deposits
|
|
421,368
|
|
389,022
|
|
|
|
|
|
|
|
Short-term
borrowings
|
|
73,946
|
|
55,315
|
|
Long-term
borrowings, Federal Home Loan Bank (FHLB)
|
|
86,778
|
|
106,378
|
|
Accrued interest
payable
|
|
1,317
|
|
1,744
|
|
Other
liabilities
|
|
8,367
|
|
5,120
|
|
TOTAL
LIABILITIES
|
|
591,776
|
|
557,579
|
|
|
|
|
|
|
|
SHAREHOLDERS
EQUITY:
|
|
|
|
|
|
Common stock,
par value $8.33, 10,000,000 shares authorized; 4,010,528 and 4,006,934 shares
issued
|
|
33,421
|
|
33,391
|
|
Additional paid-in
capital
|
|
17,959
|
|
17,888
|
|
Retained
earnings
|
|
28,177
|
|
27,707
|
|
Accumulated
other comprehensive loss:
|
|
|
|
|
|
Net unrealized
loss on available for sale securities
|
|
(8,486
|
)
|
(2,159
|
)
|
Defined benefit
plan
|
|
(3,780
|
)
|
(1,375
|
)
|
Less: Treasury
stock at cost, 179,028 and 131,302 shares
|
|
(6,264
|
)
|
(4,893
|
)
|
TOTAL
SHAREHOLDERS EQUITY
|
|
61,027
|
|
70,559
|
|
TOTAL
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
$
|
652,803
|
|
$
|
628,138
|
|
See Accompanying Notes to
the Consolidated Financial Statements
34
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME
(In Thousands, Except Per Share Data)
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
INTEREST
AND DIVIDEND INCOME:
|
|
|
|
|
|
|
|
Loans including
fees
|
|
$
|
25,228
|
|
$
|
26,099
|
|
$
|
24,878
|
|
Investment
securities:
|
|
|
|
|
|
|
|
Taxable
|
|
5,241
|
|
4,098
|
|
3,577
|
|
Tax-exempt
|
|
4,871
|
|
4,357
|
|
4,027
|
|
Dividend and
other interest income
|
|
768
|
|
1,395
|
|
1,271
|
|
|
|
|
|
|
|
|
|
TOTAL INTEREST
AND DIVIDEND INCOME
|
|
36,108
|
|
35,949
|
|
33,753
|
|
|
|
|
|
|
|
|
|
INTEREST
EXPENSE:
|
|
|
|
|
|
|
|
Deposits
|
|
9,670
|
|
10,951
|
|
8,908
|
|
Short-term
borrowings
|
|
1,181
|
|
1,639
|
|
1,503
|
|
Long-term
borrowings
|
|
3,981
|
|
3,857
|
|
3,799
|
|
|
|
|
|
|
|
|
|
TOTAL INTEREST
EXPENSE
|
|
14,832
|
|
16,447
|
|
14,210
|
|
|
|
|
|
|
|
|
|
NET
INTEREST INCOME
|
|
21,276
|
|
19,502
|
|
19,543
|
|
|
|
|
|
|
|
|
|
PROVISION FOR
LOAN LOSSES
|
|
375
|
|
150
|
|
635
|
|
|
|
|
|
|
|
|
|
NET
INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
|
|
20,901
|
|
19,352
|
|
18,908
|
|
|
|
|
|
|
|
|
|
NON-INTEREST
INCOME:
|
|
|
|
|
|
|
|
Service charges
|
|
2,289
|
|
2,246
|
|
2,366
|
|
Securities
(losses) gains, net
|
|
(2,031
|
)
|
(54
|
)
|
1,679
|
|
Bank-owned life
insurance
|
|
472
|
|
410
|
|
374
|
|
Gain on sale of
loans
|
|
882
|
|
921
|
|
853
|
|
Insurance
commissions
|
|
1,928
|
|
2,222
|
|
2,281
|
|
Other income
|
|
1,916
|
|
1,733
|
|
1,476
|
|
|
|
|
|
|
|
|
|
TOTAL
NON-INTEREST INCOME
|
|
5,456
|
|
7,478
|
|
9,029
|
|
|
|
|
|
|
|
|
|
NON-INTEREST
EXPENSE:
|
|
|
|
|
|
|
|
Salaries and
employee benefits
|
|
9,634
|
|
9,078
|
|
8,833
|
|
Occupancy
expense, net
|
|
1,288
|
|
1,306
|
|
1,137
|
|
Furniture and
equipment expense
|
|
1,182
|
|
1,126
|
|
1,201
|
|
Pennsylvania
shares tax expense
|
|
421
|
|
643
|
|
598
|
|
Amortization of
investment in limited partnerships
|
|
712
|
|
761
|
|
245
|
|
Other expenses
|
|
4,712
|
|
4,402
|
|
4,315
|
|
|
|
|
|
|
|
|
|
TOTAL
NON-INTEREST EXPENSE
|
|
17,949
|
|
17,316
|
|
16,329
|
|
|
|
|
|
|
|
|
|
INCOME
BEFORE INCOME TAX PROVISION
|
|
8,408
|
|
9,514
|
|
11,608
|
|
|
|
|
|
|
|
|
|
INCOME TAX
PROVISION
|
|
405
|
|
637
|
|
1,961
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
$
|
8,003
|
|
$
|
8,877
|
|
$
|
9,647
|
|
|
|
|
|
|
|
|
|
NET
INCOME PER SHARE - BASIC
|
|
$
|
2.07
|
|
$
|
2.28
|
|
$
|
2.45
|
|
|
|
|
|
|
|
|
|
NET
INCOME PER SHARE - DILUTED
|
|
$
|
2.07
|
|
$
|
2.28
|
|
$
|
2.45
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE SHARES OUTSTANDING - BASIC
|
|
3,859,724
|
|
3,886,277
|
|
3,934,138
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE SHARES OUTSTANDING - DILUTED
|
|
3,859,833
|
|
3,886,514
|
|
3,934,617
|
|
See Accompanying Notes to
the Consolidated Financial Statements.
35
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
(In
Thousands, Except Per Share Data)
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
Other
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
Paid-in
|
|
Retained
|
|
Comprehensive
|
|
Treasury
|
|
Shareholders
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Earnings
|
|
Income (Loss)
|
|
Stock
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2005
|
|
4,002,159
|
|
$
|
33,351
|
|
$
|
17,772
|
|
$
|
22,938
|
|
$
|
850
|
|
$
|
(992
|
)
|
$
|
73,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
effect of change in accounting for pension obligations, net of tax benefit of
$298
|
|
|
|
|
|
|
|
|
|
(579
|
)
|
|
|
(579
|
)
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
9,647
|
|
|
|
|
|
9,647
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
1,289
|
|
|
|
1,289
|
|
Dividends
declared ($1.73 per share)
|
|
|
|
|
|
|
|
(6,802
|
)
|
|
|
|
|
(6,802
|
)
|
Common shares
issued for employee stock purchase plan
|
|
1,355
|
|
11
|
|
38
|
|
|
|
|
|
|
|
49
|
|
Purchase of
treasury stock (76,400 shares)
|
|
|
|
|
|
|
|
|
|
|
|
(2,929
|
)
|
(2,929
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
4,003,514
|
|
33,362
|
|
17,810
|
|
25,783
|
|
1,560
|
|
(3,921
|
)
|
74,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
8,877
|
|
|
|
|
|
8,877
|
|
Other
comprehensive loss
|
|
|
|
|
|
|
|
|
|
(5,094
|
)
|
|
|
(5,094
|
)
|
Dividends
declared ($1.79 per share)
|
|
|
|
|
|
|
|
(6,953
|
)
|
|
|
|
|
(6,953
|
)
|
Stock options
exercised
|
|
330
|
|
3
|
|
5
|
|
|
|
|
|
|
|
8
|
|
Common shares
issued for employee stock purchase plan
|
|
3,090
|
|
26
|
|
73
|
|
|
|
|
|
|
|
99
|
|
Purchase of
treasury stock (28,530 shares)
|
|
|
|
|
|
|
|
|
|
|
|
(972
|
)
|
(972
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007
|
|
4,006,934
|
|
33,391
|
|
17,888
|
|
27,707
|
|
(3,534
|
)
|
(4,893
|
)
|
70,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
effect of change in accounting for endorsement split-dollar life insurance
arrangements
|
|
|
|
|
|
|
|
(437
|
)
|
|
|
|
|
(437
|
)
|
Comprehensive
loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
8,003
|
|
|
|
|
|
8,003
|
|
Other comprehensive
loss
|
|
|
|
|
|
|
|
|
|
(8,732
|
)
|
|
|
(8,732
|
)
|
Dividends
declared ($1.84 per share)
|
|
|
|
|
|
|
|
(7,096
|
)
|
|
|
|
|
(7,096
|
)
|
Stock options
exercised
|
|
330
|
|
3
|
|
8
|
|
|
|
|
|
|
|
11
|
|
Common shares
issued for employee stock purchase plan
|
|
3,264
|
|
27
|
|
63
|
|
|
|
|
|
|
|
90
|
|
Purchase of
treasury stock (47,726 shares)
|
|
|
|
|
|
|
|
|
|
|
|
(1,371
|
)
|
(1,371
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2008
|
|
4,010,528
|
|
$
|
33,421
|
|
$
|
17,959
|
|
$
|
28,177
|
|
$
|
(12,266
|
)
|
$
|
(6,264
|
)
|
$
|
61,027
|
|
PENNS
WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(LOSS)
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
$
|
8,003
|
|
|
|
$
|
8,877
|
|
|
|
$
|
9,647
|
|
Other
Comprehensive (loss) income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
unrealized (loss) gain on available for sale securities
|
|
(7,667
|
)
|
|
|
(4,334
|
)
|
|
|
2,397
|
|
|
|
Net realized
loss (gain) included in net income, net of (benefit) taxes of $(691), $(18),
and $571
|
|
1,340
|
|
|
|
36
|
|
|
|
(1,108
|
)
|
|
|
|
|
(6,327
|
)
|
|
|
(4,298
|
)
|
|
|
1,289
|
|
|
|
Defined benefit
pension plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net transition
asset
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
Prior service
cost
|
|
17
|
|
|
|
17
|
|
|
|
|
|
|
|
Net loss
|
|
(2,420
|
)
|
|
|
(811
|
)
|
|
|
|
|
|
|
Other
comprehensive (loss) income, net of tax
|
|
|
|
(8,732
|
)
|
|
|
(5,094
|
)
|
|
|
1,289
|
|
Comprehensive
(loss) income
|
|
|
|
$
|
(729
|
)
|
|
|
$
|
3,783
|
|
|
|
$
|
10,936
|
|
See Accompanying
Notes to the Consolidated Financial Statements
36
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF
CASH FLOWS
(In Thousands)
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
|
Net income
|
|
$
|
8,003
|
|
$
|
8,877
|
|
$
|
9,647
|
|
Adjustments to
reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
663
|
|
680
|
|
744
|
|
Provision for
loan losses
|
|
375
|
|
150
|
|
635
|
|
Accretion and
amortization of investment security discounts and premiums, net
|
|
(1,361
|
)
|
(1,011
|
)
|
(784
|
)
|
Securities
losses (gains), net
|
|
2,031
|
|
54
|
|
(1,679
|
)
|
Originations of
loans held for sale
|
|
(39,456
|
)
|
(43,783
|
)
|
(37,192
|
)
|
Proceeds of
loans held for sale
|
|
40,930
|
|
44,206
|
|
37,874
|
|
Gain on sale of
loans
|
|
(882
|
)
|
(921
|
)
|
(853
|
)
|
Increases in
bank-owned life insurance
|
|
(472
|
)
|
(410
|
)
|
(374
|
)
|
Other, net
|
|
(2,830
|
)
|
(214
|
)
|
(29
|
)
|
|
|
|
|
|
|
|
|
Net cash
provided by operating activities
|
|
7,001
|
|
7,628
|
|
7,989
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
Investment
securities available for sale:
|
|
|
|
|
|
|
|
Proceeds from
sales
|
|
40,169
|
|
60,485
|
|
76,249
|
|
Proceeds from
calls and maturities
|
|
6,759
|
|
5,233
|
|
7,477
|
|
Purchases
|
|
(50,995
|
)
|
(98,799
|
)
|
(78,241
|
)
|
Investment
securities held to maturity:
|
|
|
|
|
|
|
|
Proceeds from
calls and maturities
|
|
4
|
|
12
|
|
25
|
|
Purchases
|
|
176
|
|
|
|
(25
|
)
|
Net increase in
loans
|
|
(21,613
|
)
|
(374
|
)
|
(22,353
|
)
|
Acquisition of
bank premises and equipment, net
|
|
(1,754
|
)
|
(717
|
)
|
(1,072
|
)
|
Proceeds from
the sale of foreclosed assets
|
|
112
|
|
65
|
|
329
|
|
Purchase of
bank-owned life insurance
|
|
(1,699
|
)
|
(619
|
)
|
(254
|
)
|
Investment in
limited partnership
|
|
|
|
(1,250
|
)
|
(1,646
|
)
|
Proceeds from
redemption of regulatory stock
|
|
(4,629
|
)
|
5,081
|
|
3,630
|
|
Purchases of
regulatory stock
|
|
4,606
|
|
(6,816
|
)
|
(2,899
|
)
|
|
|
|
|
|
|
|
|
Net cash used
for investing activities
|
|
(28,864
|
)
|
(37,699
|
)
|
(18,780
|
)
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
Net increase
(decrease) in interest-bearing deposits
|
|
30,982
|
|
(7,680
|
)
|
40,881
|
|
Net increase in
noninterest-bearing deposits
|
|
1,364
|
|
1,511
|
|
1,781
|
|
Net increase
(decrease) in short-term borrowings
|
|
18,631
|
|
20,618
|
|
(19,306
|
)
|
Proceeds from
long-term borrowings, FHLB
|
|
10,000
|
|
40,000
|
|
|
|
Repayment of
long-term borrowings, FHLB
|
|
(29,600
|
)
|
(16,500
|
)
|
(1,600
|
)
|
Dividends paid
|
|
(7,096
|
)
|
(6,953
|
)
|
(6,802
|
)
|
Issuance of
common stock
|
|
90
|
|
99
|
|
49
|
|
Stock options
exercised
|
|
11
|
|
8
|
|
|
|
Purchase of
treasury stock
|
|
(1,371
|
)
|
(972
|
)
|
(2,929
|
)
|
|
|
|
|
|
|
|
|
Net cash
provided by financing activities
|
|
23,011
|
|
30,131
|
|
12,074
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN
CASH AND CASH EQUIVALENTS
|
|
1,148
|
|
60
|
|
1,283
|
|
|
|
|
|
|
|
|
|
CASH AND CASH
EQUIVALENTS, BEGINNING
|
|
15,433
|
|
15,373
|
|
14,090
|
|
|
|
|
|
|
|
|
|
CASH AND CASH
EQUIVALENTS, ENDING
|
|
$
|
16,581
|
|
$
|
15,433
|
|
$
|
15,373
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
15,259
|
|
$
|
16,235
|
|
$
|
13,786
|
|
Income taxes
paid
|
|
2,085
|
|
1,610
|
|
2,645
|
|
Transfer of
loans to foreclosed real estate
|
|
464
|
|
75
|
|
278
|
|
See Accompanying Notes to the Consolidated Financial Statements.
37
PENNS WOODS BANCORP,
INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 OPERATIONS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Principles of
Consolidation
The
accompanying consolidated financial statements include the accounts of Penns
Woods Bancorp, Inc. and its wholly owned subsidiaries, Jersey Shore State
Bank (the Bank), Woods Real Estate Development Co., Inc., Woods
Investment Company, Inc., and The M Group Inc. D/B/A The Comprehensive
Financial Group (The M Group), a wholly owned subsidiary of the Bank
(collectively, the Company). All significant intercompany balances and
transactions have been eliminated.
Nature of Business
The
Bank engages in a full-service commercial banking business, making available to
the community a wide range of financial services including, but not limited to,
installment loans, credit cards, mortgage and home equity loans, lines of
credit, construction financing, farm loans, community development loans, loans
to non-profit entities and local government, and various types of time and
demand deposits including, but not limited to, checking accounts, savings
accounts, clubs, money market deposit accounts, certificates of deposit, and
IRAs. Deposits are insured by the Federal Deposit Insurance Corporation (FDIC)
to the extent provided by law.
The
financial services are provided by the Bank to individuals, partnerships,
non-profit organizations, and corporations through its thirteen offices located
in Clinton, Lycoming, and Centre Counties, Pennsylvania.
Woods
Real Estate Development Co., Inc. engages in real estate transactions on
behalf of Penns Woods Bancorp, Inc. and the Bank.
Woods
Investment Company, Inc., a Delaware holding company, is engaged in
investing activities.
The
M Group engages in securities brokerage and financial planning services, which
include the sale of life insurance products, annuities, and estate planning
services.
Operations
are managed and financial performance is evaluated on a corporate-wide basis. Accordingly,
all financial service operations are considered by management to be aggregated
in one reportable operating segment.
Use of Estimates
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
Material estimates that are particularly susceptible to significant
change relate to the determination of the allowance for loan losses, deferred
tax assets and liabilities, and the valuation of real estate acquired through,
or in lieu of, foreclosure on settlement of debt.
Cash and Cash Equivalents
Cash
equivalents include cash on hand and in banks and interest-earning deposits. Interest-earning
deposits mature within one year and are carried at cost. Net cash flows are
reported for loan, deposit, and short-term borrowing transactions.
Restrictions on Cash and Cash
Equivalents
Based
on deposit levels, the Company must maintain cash and other reserves with the
Federal Reserve Bank of Philadelphia (FRB).
Investment Securities
Investment
securities are classified at the time of purchase, based on managements
intention and ability, as securities held to maturity or securities available
for sale. Debt securities acquired with the intent and ability to hold to
maturity are stated at cost, adjusted for amortization of premium and accretion
of discount, which are computed using the interest method and recognized as
adjustments of interest income. Certain other debt securities have been
classified as available for sale to serve principally as a source of liquidity.
Unrealized holding gains and losses for available for sale securities are
reported as a separate component of stockholders equity, net of tax, until
realized. Realized security gains and losses are computed using the specific
identification method for debt securities and the average cost method for
marketable equity securities. Interest and dividends on investment securities
are recognized as income when earned.
Securities
are periodically reviewed for other-than-temporary impairment based upon a
number of factors, including, but not limited to, the length of time and extent
to which the market value has been less than cost, the financial condition of
the underlying issuer, the ability of the issuer to meet contractual
obligations, the likelihood of the securitys ability to recover any decline in
its market value, and managements intent and ability to hold the security for
a period of time
38
sufficient
to allow for a recovery in market value. Among the factors that are considered
in determining managements intent and ability is a review of the Companys
capital adequacy, interest rate risk position, and liquidity. The assessment of
a securitys ability to recover any decline in market value, the ability of the
issuer to meet contractual obligations, and managements intent and ability
requires considerable judgment. A decline in value that is considered to be
other-than-temporary is recorded as a loss within noninterest income in the
Consolidated Statement of Income.
Investment
securities fair values are based on observed market prices. Certain investment
securities do not have observed bid prices and their fair value is based on
instruments with similar risk elements. Since regulatory stock is redeemable at
par, the Company carries it at cost.
Loans
Loans
are stated at the principal amount outstanding, net of deferred fees,
unamortized loan fees and costs, and the allowance for loan losses. Interest on
loans is recognized as income when earned on the accrual method. The Companys
general policy has been to stop accruing interest on loans when it is
determined a reasonable doubt exists as to the collectability of additional
interest. Income is subsequently recognized only to the extent that cash
payments are received provided the loan is not delinquent in payment and, in
managements judgment, the borrower has the ability and intent to make future
principal payments.
Loan origination and commitment
fees as well as certain direct loan origination costs are being deferred and
amortized as an adjustment to the related loans yield over the contractual
lives of the related loans.
Allowance for
Loan Losses
The allowance for loan losses
represents the amount which management estimates is adequate to provide for
probable losses inherent in its loan portfolio, as of the balance sheet date. The
allowance method is used in providing for loan losses. Accordingly, all loan
losses are charged to the allowance and all recoveries are credited to it. The
allowance for loan losses is established through a provision for loan losses
charged to operations. The provision for loan losses is based upon managements
quarterly review of the loan portfolio. The purpose of the review is to assess
loan quality, identify impaired loans, analyze delinquencies, ascertain loan
growth, evaluate potential charge-offs and recoveries, and assess general
economic conditions in the markets served. An external independent loan review
is also performed annually for the Bank. Management remains committed to an
aggressive program of problem loan identification and resolution.
The
allowance is calculated by applying loss factors to outstanding loans by type,
excluding loans for which a specific allowance has been determined. Loss
factors are based on managements consideration of the nature of the portfolio
segments, changes in mix and volume of the loan portfolio, historical loan loss
experience, and general economic conditions. In addition, management considers
industry standards and trends with respect to nonperforming loans and its
knowledge and experience with specific lending segments.
Although
management believes that it uses the best information available to make such
determinations and that the allowance for loan losses is adequate at December 31,
2008, future adjustments could be necessary if circumstances or economic
conditions differ substantially from the assumptions used in making the initial
determinations. A downturn in the local economy, rising unemployment, or
negative performance trends in financial information from borrowers could be
indicators of subsequent increased levels of nonperforming assets and possible
charge-offs, which would normally require increased loan loss provisions. An
integral part of the periodic regulatory examination process is the review of
the adequacy of the Banks loan loss allowance. The regulatory agencies could
require the Bank, based on their evaluation of information available at the
time of their examination, to provide additional loan loss provisions to
further supplement the allowance.
Impaired
loans are commercial and commercial real estate loans for which it is probable
the Bank will not be able to collect all amounts due according to the contractual
terms of the loan agreement. The Bank individually evaluates such loans for
impairment and does not aggregate loans by major risk classifications. The
definition of impaired loans is not the same as the definition of nonaccrual
loans, although the two categories overlap. The Bank may choose to place a
loan on nonaccrual status due to payment delinquency or uncertain
collectability, while not classifying the loan as impaired if the loan is not a
commercial or commercial real estate loan. Factors considered by management in
determining impairment include payment status and collateral value. The amount
of impairment for these types of loans is determined by the difference between
the present value of the expected cash flows related to the loan, using the
original interest rate, and its recorded value, or as a practical expedient in
the case of collateralized loans, the difference between the fair value of the
collateral and the recorded amount of the loans. When foreclosure is probable,
impairment is measured based on the fair value of the collateral.
Mortgage
loans on one-to-four family properties and all consumer loans are large groups
of smaller-balance homogeneous loans and are measured for impairment
collectively. Loans that experience insignificant payment delays, which are
defined as 90 days or less, generally are not classified as impaired. Management
determines the significance of payment delays on
39
a
case-by-case basis taking into consideration all circumstances surrounding the
loan and the borrower including the length of the delay, the borrowers prior
payment record, and the amount of shortfall in relation to the principal and
interest owed.
Loans Held for Sale
In
general, fixed rate residential mortgage loans originated by the Bank are held
for sale and are carried at cost due to their short holding period, which can
range from less than two weeks to a maximum of thirty days. Sold loans are not
serviced by the Bank. Proceeds from the sale of loans in excess of the carrying
value are accounted for as a gain. Total gains on the sale of loans are shown
as a component of non-interest income within the consolidated statement of
income.
Foreclosed Assets Held for Sale
Foreclosed
assets held for sale are carried at the lower of cost or fair value less
estimated selling costs. Prior to foreclosure, the value of the underlying loan
is written down to the fair value of the real estate to be acquired by a charge
to the allowance for loan losses, if necessary. Any subsequent write-downs are
charged against operating expenses. Net operating expenses and gains and losses
realized from disposition are included in non-interest expense and income,
respectively.
Premises and Equipment
Premises
and equipment are stated at cost less accumulated depreciation. Depreciation is
computed using straight-line and accelerated methods over the estimated useful
lives of the related assets, which range from five to ten years for furniture,
fixtures, and equipment and fifteen to forty years for buildings and
improvements. Costs incurred for routine maintenance and repairs are charged to
operations as incurred. Costs of major additions and improvements are
capitalized.
Bank-Owned Life Insurance
The
Company has purchased life insurance policies on certain officers and
directors. Bank-owned life insurance is recorded at its cash surrender value,
or the amount that can be realized. Increases in the cash surrender value are
recognized as a component of non-interest income within the consolidated
statement of income.
Endorsement
Split-Dollar Life Insurance Arrangements
On
January 1, 2008, the Company changed its accounting policy and recognized
a cumulative-effect adjustment to retained earnings totaling $437,000 related
to account for certain endorsement split-dollar life insurance arrangements in
connection with the adoption of Emerging Issues Task Force Issue No. 06-4,
Accounting for Deferred Compensation and
Postretirement Benefit Aspects of Endorsement Split Dollar Life Insurance
Arrangements
.
Goodwill
The
Company accounts for goodwill in accordance with Statement of Financial
Accounting Standards (FAS) No. 142,
Goodwill
and Other Intangible Assets
. This statement, among other things,
requires a two-step process for testing the impairment of goodwill on at least
an annual basis. This approach could cause more volatility in the Companys
reported net income because impairment losses, if any, could occur irregularly
and in varying amounts. The Company performs an annual impairment analysis of
goodwill for its purchased subsidiary, The M Group. Based on the fair value of
this reporting unit, estimated using the expected present value of future cash
flows, no impairment of goodwill was recognized in 2008 and 2007.
Investments in Limited
Partnerships
The
Company is a limited partner in four partnerships at December 31, 2008
that provide low income elderly housing in the Companys geographic market
area. The carrying value of the Companys investments in limited partnerships
was $4,727,000 at December 31, 2008 and $5,439,000 at December 31,
2007. The Company is fully amortizing the investment in the partnership entered
into prior to 2005 over the fifteen-year holding period. The partnerships
entered into after 2004 are being fully amortized over the ten-year tax credit
receipt period utilizing the straight-line method. The partnerships began being
amortized once the projects reached the level of occupancy needed to begin the
ten year tax credit recognition period. Amortization of limited partnership
investments amounted to $712,000 in 2008, $761,000 in 2007, and $245,000 in
2006.
Off-Balance Sheet Financial
Instruments
In
the ordinary course of business, the Company enters into off-balance sheet
financial instruments. Those instruments consist of commitments to extend
credit and standby letters of credit. When those instruments are funded or
become payable, the Company reports the amounts in its financial statements.
Advertising Cost
Advertising
costs are generally expensed as incurred.
Income Taxes
The Company adopted the
provisions of FIN No. 48,
Accounting
for Uncertainty in Income Taxes, an interpretation of FASB Statement 109
,
effective January 1, 2007. FIN No. 48 prescribes a recognition
threshold and a measurement
40
attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. Benefits from tax positions should be recognized in the
financial statements only when it is more likely than not that the tax position
will be sustained upon examination by the appropriate taxing authority that
would have full knowledge of all relevant information. A tax position that
meets the more-likely-than-not recognition threshold is measured at the largest
amount of benefit that is greater than fifty percent likely of being realized
upon ultimate settlement. Tax positions that previously failed to meet the
more-likely-than-not recognition threshold should be recognized in the first
subsequent financial reporting period in which that threshold is met.
Previously recognized tax positions that no longer meet the
more-likely-than-not recognition threshold should be derecognized in the first
subsequent financial reporting period in which that threshold is no longer met.
FIN No. 48 also provides guidance on the accounting for and disclosure of
unrecognized tax benefits, interest and penalties. Adoption of FIN No. 48
did not have a significant impact on the Companys financial statements.
Deferred
tax assets and liabilities result from temporary differences in financial and
income tax methods of accounting, and are reflected at currently enacted income
tax rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes.
Earnings Per Share
The
Company provides dual presentation of basic and diluted earnings per share. Basic
earnings per share is calculated utilizing net income as reported in the
numerator and weighted average shares outstanding in the denominator. The
computation of diluted earnings per share differs in that the dilutive effects
of any stock options are adjusted in the denominator.
Employee Benefits
Pension
and employee benefits include contributions, determined actuarially, to a
defined benefit retirement plan covering the eligible employees of the Bank. The
plan is funded on a current basis to the extent that it is deductible under
existing federal tax regulations. Pension and other employee benefits also
include contributions to a defined contribution Section 401(k) plan
covering eligible employees. Contributions matching those made by eligible
employees are funded throughout the year. In addition, an elective contribution
is made annually at the discretion of the Board of Directors.
The M Group Products and Income
Recognition
The
M Group product line is comprised primarily of annuities, life insurance, and
mutual funds. The revenues generated from life insurance sales are commission
only, as The M Group does not underwrite the policies. Life insurance sales
include permanent and term policies with the majority of the policies written
being permanent. Term life insurance policies are written for 10, 15, 20, and
30 year terms with the majority of the policies being written for 20 years. None
of these products are offered as an integral part of lending activities.
Commissions
from the sale of annuities are recognized at the time notice is received from
the third party broker/dealer or an insurance company that the transaction has
been accepted and approved, which is also the time when commission income is
received.
Life
insurance commissions are recognized at varying points based on the payment
option chosen by the customer. Commissions from monthly and annual payment
plans are recognized at the start of each annual period for the life insurance,
while quarterly and semi-annual premium payments are recognized quarterly and
semi-annually when the earnings process is complete. For example, semi-annual
payments on the first of January and July would result in commission
income recognition on the first of January and July, while payments on the
first of January, April, July, and October would result in commission
income recognition on those dates. The potential for chargebacks only exists
for those policies on a monthly payment plan since income is recognized at the
beginning of the annual coverage period versus at the time of each monthly
payment. No liability is maintained for chargebacks as these are removed from
income at the time of the occurrence.
Stock Options
The
Company maintains a stock option plan for directors and certain officers and employees
with the last option grant being in 2000. All options were granted when the
exercise price of the Companys stock options was greater than or equal to the
market price of the underlying stock on the date of the grant, therefore, no
compensation expense was recognized in the Companys financial statements.
Accumulated Other Comprehensive
Income
The
Company is required to present accumulated other comprehensive income in a full
set of general-purpose financial statements for all periods presented. Accumulated
other comprehensive income is comprised of unrealized holding gains (losses) on
the available for sale securities portfolio and the unrecognized components of
net periodic benefit costs of the defined benefit pension plan.
41
Segment
Reporting
FAS No. 131, Disclosure
about Segments of an Enterprise and Related Information, requires that public
business enterprises report financial and descriptive information about their
reportable operating segments. Based on the guidance provided by the Statement,
the Company has determined that its only reportable segment is Community
Banking.
Reclassification of Comparative
Amounts
Certain
items previously reported have been reclassified to conform to the current years
reporting format. Such reclassifications did not affect net income or
shareholders equity.
Recent Accounting
Pronouncements
In
December 2007, the FASB issued FAS No. 141 (revised 2007),
Business Combinations
, 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
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. The
adoption of this standard has not and 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. 158,
EmployersAccounting for Defined Benefit Pension and
Other Post Retirement Plans, an amendment of FASB Statements No. 87, 88,
106 and 132(R)
. This Statement requires that employers measure plan
assets and obligations as of the balance sheet date. This requirement is
effective for fiscal years ending after December 15, 2008. The other
provisions of the Statement were effective as of the end of the fiscal year
ending after December 15, 2006, for public companies. The adoption of this
standard has not and is not expected to 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 will not have an effect
on the Companys results of operations or financial position as there are no
noncontrolling interests.
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 encouraged. The
adoption of this standard is not expected to
42
have
a material effect on the Companys results of operations or financial position.
In
June 2008, the FASB ratified EITF Issue No. 08-4,
Accounting for Convertible Securities with Beneficial
Conversion Features or Contingently Adjusted Conversion Ratios
. This
Issue provides transition guidance for conforming changes made to EITF Issue No. 98-5,
Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjusted Conversion Ratios
,
that resulted from EITF Issue No. 00-27,
Application
of Issue No. 98-5 to Certain Convertible Instruments, and FAS No. 150,
Accounting for Certain Financial Instruments with Characteristics of both
Liability and Equity
. The conforming changes are effective for
financial statements issued for fiscal years ending after December 15,
2008, with earlier application permitted. The adoption of this FSP has not and
is not expected to have a material effect on the Companys results of
operations or financial position.
In
February 2007, the FASB issued FSP No. FAS 158-1,
Conforming Amendments to the Illustrations in FASB
Statements No. 87, No. 88, and No. 106 and to the Related Staff
Implementation Guides
. This FSP provides conforming amendments to
the illustrations in FAS Statements No. 87, 88, and 106 and to related
staff implementation guides as a result of the issuance of FAS Statement No. 158.
The conforming amendments made by this FSP are effective as of the effective
dates of Statement No. 158. The unaffected guidance that this FSP codifies
into Statements No. 87, 88, and 106 does not contain new requirements and
therefore does not require a separate effective date or transition method. The
adoption of this FSP is not expected to have a material effect on the Companys
results of operations or financial position.
In February 2008, the FASB
issued FSP No.
FAS 140-3, Accounting for
Transfers of Financial Assets and
Repurchase
Financing Transactions
. This FSP concludes that a transferor and
transferee should not separately account for a transfer of a financial asset
and a related repurchase financing unless (a) the two transactions have a
valid and distinct business or economic purpose for being entered into
separately and (b) the repurchase financing does not result in the initial
transferor regaining control over the financial asset. The FSP is effective for
financial statements issued for fiscal years beginning on or after November 15,
2008, and interim periods within those fiscal years. The adoption of this FSP
is not expected to have a material effect on the Companys results of
operations or financial position.
In
April 2008, the FASB issued FSP No. 142-3,
Determination of the Useful Life of Intangible Assets
. 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. The adoption of this
FSP is not expected to have a material effect on the Companys results of
operations or financial position.
In
May 2008, the FASB issued FSP No. APB 14-1,
Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash Settlement)
.
This FSP provides guidance on the accounting for certain types of convertible
debt instruments that may be settled in cash upon conversion. Additionally,
this FSP specifies that issuers of such instruments should separately account
for the liability and equity components in a manner that will reflect the
entitys nonconvertible debt borrowing rate when interest cost is recognized in
subsequent periods. The FSP is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within
those fiscal years. The adoption of this FSP is not expected to have a material
effect on the Companys results of operations or financial position.
In
June 2008, the FASB issued 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.
In
December 2008, the FASB issued FSP No. FAS 132(R)-1,
Employers Disclosures about Postretirement Benefit
Plan Assets
. This FSP amends FASB Statement No. 132 (revised
2003),
Employers Disclosures about Pensions
and Other Postretirement Benefits
, to improve an employers
disclosures about plan assets of a defined benefit pension or other
postretirement plan. The disclosures about plan assets required by the FSP are
to be provided for fiscal years ending after December 15, 2009. The
adoption of this FSP is not expected to have a material effect on the Companys
results of
43
operations
or financial position.
NOTE 2 - PER SHARE DATA
There are no convertible securities which would affect the denominator
in calculating basic and dilutive earnings per share; therefore, net income as
presented on the consolidated statement of income will be used as the
numerator. The following table sets forth the composition of the weighted
average common shares (denominator) used in the basic and dilutive per share
computation.
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Weighted average
common shares outstanding
|
|
4,008,553
|
|
4,005,181
|
|
4,002,416
|
|
|
|
|
|
|
|
|
|
Weighted Average
treasury stock shares
|
|
(148,829
|
)
|
(118,904
|
)
|
(68,278
|
)
|
|
|
|
|
|
|
|
|
Weighted average
common shares and common stock equivalents used to calculate basic earnings
per share
|
|
3,859,724
|
|
3,886,277
|
|
3,934,138
|
|
|
|
|
|
|
|
|
|
Additional
common stock equivalents (stock options) used to calculate diluted earnings
per share
|
|
109
|
|
237
|
|
479
|
|
|
|
|
|
|
|
|
|
Weighted average
common shares and common stock equivalents used to calculate diluted earnings
per share
|
|
3,859,833
|
|
3,886,514
|
|
3,934,617
|
|
Options to purchase 1,980, 10,913, and 11,972
shares of common stock at a range in price of $24.72 to $40.29 were outstanding
at December 31, 2008, 2007, and 2006, respectively. The options were
included in the computation of diluted earnings per share on a weighted average
basis determined by the length of time during each period that the market value
exceeded the strike price.
44
NOTE 3 - INVESTMENT SECURITIES
The amortized cost
and estimated fair values of investment securities at December 31, 2008
and 2007 are as follows:
(In Thousands)
|
|
2008
|
|
|
|
|
|
Gross
|
|
Gross
|
|
Estimated
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
Available for
sale (AFS)
|
|
|
|
|
|
|
|
|
|
U.S. Government
and agency securities
|
|
$
|
46,452
|
|
$
|
1,134
|
|
$
|
|
|
$
|
47,586
|
|
State and
political securities
|
|
142,258
|
|
348
|
|
(10,764
|
)
|
131,842
|
|
Other debt
securities
|
|
15,970
|
|
649
|
|
(1,065
|
)
|
15,554
|
|
Total debt
securities
|
|
204,680
|
|
2,131
|
|
(11,829
|
)
|
194,982
|
|
Equity
securities
|
|
16,429
|
|
225
|
|
(3,385
|
)
|
13,269
|
|
Total investment
securities AFS
|
|
$
|
221,109
|
|
$
|
2,356
|
|
$
|
(15,214
|
)
|
$
|
208,251
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity
(HTM)
|
|
|
|
|
|
|
|
|
|
U.S. Government
and agency securities
|
|
$
|
10
|
|
$
|
1
|
|
$
|
|
|
$
|
11
|
|
Other debt
securities
|
|
125
|
|
|
|
|
|
125
|
|
Total investment
securities HTM
|
|
$
|
135
|
|
$
|
1
|
|
$
|
|
|
$
|
136
|
|
(In Thousands)
|
|
2007
|
|
|
|
|
|
Gross
|
|
Gross
|
|
Estimated
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
|
|
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
|
|
The following tables
show the Companys gross unrealized losses and estimated fair value, aggregated
by investment category and length of time, that the individual securities have
been in a continuous unrealized loss position, at December 31, 2008 and
2007.
45
(In Thousands)
|
|
2008
|
|
|
|
Less than Twelve Months
|
|
Twelve Months or Greater
|
|
Total
|
|
|
|
Estimated
|
|
Gross
|
|
Estimated
|
|
Gross
|
|
Estimated
|
|
Gross
|
|
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government
and agency securities
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
State and
political securities
|
|
48,388
|
|
4,378
|
|
67,412
|
|
6,386
|
|
115,800
|
|
10,764
|
|
Other debt
securities
|
|
6,341
|
|
451
|
|
2,012
|
|
614
|
|
8,353
|
|
1,065
|
|
Total debt
securities
|
|
54,729
|
|
4,829
|
|
69,424
|
|
7,000
|
|
124,153
|
|
11,829
|
|
Equity
securities
|
|
164
|
|
80
|
|
5,364
|
|
3,305
|
|
5,528
|
|
3,385
|
|
Total
|
|
$
|
54,893
|
|
$
|
4,909
|
|
$
|
74,788
|
|
$
|
10,305
|
|
$
|
129,681
|
|
$
|
15,214
|
|
(In Thousands)
|
|
2007
|
|
|
|
Less than Twelve Months
|
|
Twelve Months or Greater
|
|
Total
|
|
|
|
Estimated
|
|
Gross
|
|
Estimated
|
|
Gross
|
|
Estimated
|
|
Gross
|
|
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government
and agency securities
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
State and
political securities
|
|
60,002
|
|
1,705
|
|
21,830
|
|
712
|
|
81,832
|
|
2,417
|
|
Other debt
securities
|
|
2,521
|
|
357
|
|
388
|
|
83
|
|
2,909
|
|
440
|
|
Total debt
securities
|
|
62,523
|
|
2,062
|
|
22,218
|
|
795
|
|
84,741
|
|
2,857
|
|
Equity
securities
|
|
8,200
|
|
1,837
|
|
996
|
|
466
|
|
9,196
|
|
2,303
|
|
Total
|
|
$
|
70,723
|
|
$
|
3,899
|
|
$
|
23,214
|
|
$
|
1,261
|
|
$
|
93,937
|
|
$
|
5,160
|
|
At December 31,
2008 there were a total of 95 and 184 individual securities that were in a
continuous unrealized loss position for less than twelve months and greater
than twelve months, respectively.
The Company reviews its
position quarterly and has asserted that at December 31, 2008, the
declines outlined in the above table represent temporary declines and the Company
does have the intent and ability either to hold those securities to maturity or
to allow a market recovery. There were
279 positions that were temporarily impaired at December 31, 2008. The Company has concluded that the unrealized
losses disclosed above are not other than temporary but are the result of
interest rate changes, sector credit ratings changes, or Company-specific
ratings changes that are not expected to result in the non-collection of
principal and interest during the period.
The amortized cost and
estimated fair value of debt securities at December 31, 2008, by
contractual maturity, are shown below. Expected maturities may differ from
contractual maturities since borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
(In Thousands)
|
|
Available for Sale
|
|
Held to Maturity
|
|
|
|
Amortized
|
|
Estimated
|
|
Amortized
|
|
Estimated
|
|
|
|
Cost
|
|
Fair Value
|
|
Cost
|
|
Fair Value
|
|
Due in one year
or less
|
|
$
|
|
|
$
|
|
|
$
|
25
|
|
$
|
25
|
|
Due after one
year to five years
|
|
75
|
|
75
|
|
100
|
|
100
|
|
Due after five
years to ten years
|
|
418
|
|
445
|
|
|
|
|
|
Due after ten
years
|
|
204,187
|
|
194,462
|
|
10
|
|
11
|
|
Total
|
|
$
|
204,680
|
|
$
|
194,982
|
|
$
|
135
|
|
$
|
136
|
|
46
Total gross proceeds from sales of securities available for sale were
$40,169,000, $60,485,000, and $76,249,000 for 2008, 2007, and 2006,
respectively. The following table
represents gross realized gains and losses on those transactions:
(In Thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
Gross realized
gains:
|
|
|
|
|
|
|
|
U.S. Government
and agency securities
|
|
$
|
253
|
|
$
|
68
|
|
$
|
|
|
State and
political securities
|
|
236
|
|
840
|
|
1,248
|
|
Other debt
securities
|
|
6
|
|
2
|
|
|
|
Equity
securities
|
|
539
|
|
772
|
|
1,655
|
|
Total gross
realized gains
|
|
$
|
1,034
|
|
$
|
1,682
|
|
$
|
2,903
|
|
|
|
|
|
|
|
|
|
Gross realized
losses:
|
|
|
|
|
|
|
|
U.S. Government
and agency securities
|
|
$
|
36
|
|
$
|
902
|
|
$
|
913
|
|
State and
political securities
|
|
204
|
|
|
|
302
|
|
Other debt
securities
|
|
510
|
|
|
|
|
|
Equity
securities
|
|
2,315
|
|
834
|
|
9
|
|
Total gross
realized losses
|
|
$
|
3,065
|
|
$
|
1,736
|
|
$
|
1,224
|
|
Gross realized losses for the equity securities portfolio include
impairment charges of $2,797,000 and $834,000 for the years ended December 31,
2008 and 2007, respectively.
Investment securities with a carrying value of approximately
$102,362,000 and $97,647,000 at December 31, 2008 and 2007, respectively,
were pledged to secure certain deposits, repurchase agreements, and for other
purposes as required by law.
There is no concentration of investments that exceed ten percent of
shareholders equity for any individual issuer, excluding those guaranteed by
the U.S. Government.
47
NOTE 4 LOANS
Major loan classifications as of December 31, 2008 and 2007 are
summarized as follows:
(In Thousands)
|
|
2008
|
|
|
|
|
|
|
|
Past Due
|
|
|
|
|
|
|
|
|
|
|
|
90 Days
|
|
|
|
|
|
|
|
|
|
Past Due
|
|
Or More
|
|
|
|
|
|
|
|
|
|
30 To 90
|
|
& Still
|
|
Non-
|
|
|
|
|
|
Current
|
|
Days
|
|
Accruing
|
|
Accrual
|
|
Total
|
|
Commercial and
agricultural
|
|
$
|
40,006
|
|
$
|
517
|
|
$
|
|
|
$
|
79
|
|
$
|
40,602
|
|
Real estate
mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
170,011
|
|
6,582
|
|
223
|
|
590
|
|
177,406
|
|
Commercial
|
|
134,647
|
|
775
|
|
|
|
736
|
|
136,158
|
|
Construction
|
|
15,652
|
|
167
|
|
|
|
19
|
|
15,838
|
|
Installment
loans to individuals
|
|
12,053
|
|
346
|
|
36
|
|
52
|
|
12,487
|
|
|
|
372,369
|
|
$
|
8,387
|
|
$
|
259
|
|
$
|
1,476
|
|
382,491
|
|
Less: Net
deferred loan fees
|
|
1,013
|
|
|
|
|
|
|
|
1,013
|
|
Allowance for loan
losses
|
|
4,356
|
|
|
|
|
|
|
|
4,356
|
|
Loans, net
|
|
$
|
367,000
|
|
|
|
|
|
|
|
$
|
377,122
|
|
(In Thousands)
|
|
2007
|
|
|
|
|
|
|
|
Past Due
|
|
|
|
|
|
|
|
|
|
|
|
90 Days
|
|
|
|
|
|
|
|
|
|
Past Due
|
|
Or More
|
|
|
|
|
|
|
|
|
|
30 To 90
|
|
& Still
|
|
Non-
|
|
|
|
|
|
Current
|
|
Days
|
|
Accruing
|
|
Accrual
|
|
Total
|
|
Commercial and
agricultural
|
|
$
|
35,316
|
|
$
|
236
|
|
$
|
147
|
|
$
|
40
|
|
$
|
35,739
|
|
Real estate
mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
158,424
|
|
4,573
|
|
110
|
|
161
|
|
163,268
|
|
Commercial
|
|
130,692
|
|
1,409
|
|
88
|
|
754
|
|
132,943
|
|
Construction
|
|
16,113
|
|
39
|
|
|
|
|
|
16,152
|
|
Installment
loans to individuals
|
|
12,838
|
|
459
|
|
20
|
|
|
|
13,317
|
|
|
|
353,383
|
|
$
|
6,716
|
|
$
|
365
|
|
$
|
955
|
|
361,419
|
|
Less: Net
deferred loan fees
|
|
941
|
|
|
|
|
|
|
|
941
|
|
Allowance for loan
losses
|
|
4,130
|
|
|
|
|
|
|
|
4,130
|
|
Loans, net
|
|
$
|
348,312
|
|
|
|
|
|
|
|
$
|
356,348
|
|
Impaired loans totaled $5,042,000 and $1,477,000 at December 31,
2008 and 2007, respectively. The portion
of the allowance for loan losses allocated for impaired loans was $166,000 and
$102,000 at December 31, 2008 and 2007, respectively. The average recorded
investment in impaired loans during the years ended December 31, 2008 and
2007 was approximately $3,410,000 and $1,130,000, respectively.
The Company recognized interest income on impaired loans in the amount
of $123,000 and $42,000 for the years ended December 31, 2008 and 2007,
respectively. On a cash basis, interest income on impaired loans amounted to
$7,000 and $29,000 for the years ended December 31, 2008 and 2007,
respectively.
No additional funds are committed to be advanced in connection with
impaired loans.
Loans on which the accrual of interest has been discontinued or
reduced, exclusive of impaired loans,
amounted to approximately $1,476,000 and $955,000 at December 31,
2008 and 2007, respectively. If interest
had been recorded based on the original loan agreement terms and rate of
interest for those loans, income would have approximated $72,000, $87,000, and
$23,000 for the years ended December 31, 2008, 2007, and 2006,
respectively. Interest income on such
loans, is recorded as received and amounted to approximately $9,000, $17,000,
and $15,000 for the years ended December 31, 2008, 2007, and 2006,
respectively.
Changes in the allowance for loan losses for the years ended December 31,
2008, 2007, and 2006 are as follows:
48
(In Thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of year
|
|
$
|
4,130
|
|
$
|
4,185
|
|
$
|
3,679
|
|
Provision
charged to operations
|
|
375
|
|
150
|
|
635
|
|
Loans charged
off
|
|
(313
|
)
|
(304
|
)
|
(327
|
)
|
Recoveries
|
|
164
|
|
99
|
|
198
|
|
Balance, end of
year
|
|
$
|
4,356
|
|
$
|
4,130
|
|
$
|
4,185
|
|
The Company has a concentration of loans to both owners of commercial
and residential rental properties at December 31, 2008 and 2007 of 15.07%
and 14.43% and 14.67% and 14.56% of total loans, respectively.
The Company grants commercial, industrial, residential, and installment
loans to customers throughout north-central Pennsylvania. Although the Company
has a diversified loan portfolio at December 31, 2008 and 2007, a
substantial portion of its debtors ability to honor their contracts is
dependent on the economic conditions within this region.
NOTE 5 - PREMISES AND EQUIPMENT
Major classifications of premises and equipment are summarized as
follows at December 31, 2008 and 2007:
(In Thousands)
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
1,480
|
|
$
|
1,391
|
|
|
|
Premises
|
|
6,929
|
|
6,218
|
|
|
|
Furniture and
equipment
|
|
6,067
|
|
5,356
|
|
|
|
Leasehold
improvements
|
|
871
|
|
815
|
|
|
|
Total
|
|
15,347
|
|
13,780
|
|
|
|
Less accumulated
depreciation and amortization
|
|
7,482
|
|
7,006
|
|
|
|
Net premises and
equipment
|
|
$
|
7,865
|
|
$
|
6,774
|
|
|
|
Depreciation and amortization charged to operations for the years ended
2008, 2007, and 2006 was $663,000, $680,000, and $744,000, respectively.
NOTE 6 - GOODWILL
As of December 31, 2008, 2007, and 2006
goodwill had a gross carrying value of $3,308,000 and accumulated amortization
of $276,000 resulting in a net carrying amount of $3,032,000.
The gross carrying amount of goodwill is
tested for impairment in the third quarter of each fiscal year. Based on fair value of the reporting unit,
estimated using the expected present value of future cash flows, there was no
evidence of impairment of the carrying amount at December 31, 2008 and
2007, respectively.
NOTE 7 - TIME DEPOSITS
Time deposits of $100,000 or more totaled
approximately $67,356,000 on December 31, 2008 and $59,424,000 on December 31,
2007. Interest expense related to such deposits was approximately $2,894,000,
$3,216,000, and $1,873,000, for the years ended December 31, 2008, 2007,
and 2006, respectively.
49
At December 31, 2008, the scheduled
maturities on time deposits of $100,000 or more are as follows:
(In Thousands)
|
|
2008
|
|
|
|
|
|
Three months or
less
|
|
$
|
23,520
|
|
Three months to
six months
|
|
12,785
|
|
Six months to
twelve months
|
|
19,261
|
|
Over twelve months
|
|
11,790
|
|
Total
|
|
$
|
67,356
|
|
Total time deposit maturities are as follows at December 31, 2008:
(In Thousands)
|
|
2008
|
|
|
|
|
|
2009
|
|
$
|
158,473
|
|
2010
|
|
22,199
|
|
2011
|
|
11,714
|
|
2012
|
|
3,212
|
|
2013
|
|
620
|
|
Thereafter
|
|
778
|
|
Total
|
|
$
|
196,996
|
|
NOTE 8 - SHORT-TERM BORROWINGS
Short-term borrowings consist of securities
sold under agreements to repurchase and primarily Federal Home Loan Bank (FHLB)
advances which generally represent overnight or less than six month
borrowings. In addition to the
outstanding balances noted below, the Bank also had additional lines of credit
totaling $13,845,000 available from correspondent banks other than the
FHLB. The outstanding balances and
related information for short-term borrowings are summarized as follows at December 31,
2008, 2007, and 2006:
50
(In Thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
Repurchase
Agreements:
|
|
|
|
|
|
|
|
Balance at year
end
|
|
$
|
12,933
|
|
$
|
17,155
|
|
$
|
15,991
|
|
Maximum amount
outstanding at any month end
|
|
18,839
|
|
19,058
|
|
19,916
|
|
Average balance
outstanding during the year
|
|
15,840
|
|
16,746
|
|
16,028
|
|
Weighted-average
interest rate:
|
|
|
|
|
|
|
|
At year end
|
|
2.83
|
%
|
3.37
|
%
|
3.96
|
%
|
Paid during the
year
|
|
2.83
|
%
|
3.69
|
%
|
3.55
|
%
|
|
|
|
|
|
|
|
|
Open
Repo Plus:
|
|
|
|
|
|
|
|
Balance at year
end
|
|
$
|
61,013
|
|
$
|
38,160
|
|
$
|
18,706
|
|
Maximum amount
outstanding at any month end
|
|
61,013
|
|
38,895
|
|
43,040
|
|
Average balance
outstanding during the year
|
|
31,495
|
|
19,299
|
|
15,301
|
|
Weighted-average
interest rate:
|
|
|
|
|
|
|
|
At year end
|
|
0.59
|
%
|
4.32
|
%
|
5.40
|
%
|
Paid during the
year
|
|
2.04
|
%
|
5.09
|
%
|
5.07
|
%
|
|
|
|
|
|
|
|
|
Short-Term
FHLB:
|
|
|
|
|
|
|
|
Balance at year
end
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Maximum amount
outstanding at any month end
|
|
10,000
|
|
15,000
|
|
|
|
Average balance
outstanding during the year
|
|
3,210
|
|
771
|
|
3,283
|
|
Weighted-average
interest rate:
|
|
|
|
|
|
|
|
At year end
|
|
|
|
|
|
|
|
Paid during the
year
|
|
2.58
|
%
|
5.06
|
%
|
4.82
|
%
|
NOTE 9 LONG TERM BORROWINGS
The
following represents outstanding long-term borrowings with the FHLB by
contractual maturities at December 31, 2008 and 2007:
(In Thousands)
|
|
|
|
Weighted-
|
|
Weighted-
|
|
Stated Interest
|
|
|
|
|
|
|
|
|
|
Average Interest
|
|
Average Interest
|
|
Rate Range
|
|
|
|
|
|
Description
|
|
Maturity
|
|
Rate 2008
|
|
Rate 2007
|
|
From
|
|
To
|
|
2008
|
|
2007
|
|
Variable
|
|
2008
|
|
|
|
4.77
|
%
|
3.14
|
%
|
5.56
|
%
|
$
|
|
|
$
|
29,600
|
|
Variable
|
|
2010
|
|
4.87
|
%
|
4.87
|
%
|
3.98
|
%
|
6.65
|
%
|
15,000
|
|
15,000
|
|
Variable
|
|
2011
|
|
4.49
|
%
|
4.49
|
%
|
4.25
|
%
|
4.72
|
%
|
10,000
|
|
10,000
|
|
Variable
|
|
2012
|
|
4.18
|
%
|
4.18
|
%
|
3.68
|
%
|
4.43
|
%
|
15,000
|
|
15,000
|
|
Variable
|
|
2013
|
|
3.74
|
%
|
3.74
|
%
|
3.74
|
%
|
3.74
|
%
|
5,000
|
|
5,000
|
|
Variable
|
|
2015
|
|
3.97
|
%
|
3.97
|
%
|
3.97
|
%
|
3.97
|
%
|
10,000
|
|
10,000
|
|
Variable
|
|
2017
|
|
4.22
|
%
|
4.22
|
%
|
4.15
|
%
|
4.28
|
%
|
20,000
|
|
20,000
|
|
Variable
|
|
2018
|
|
3.18
|
%
|
|
|
3.18
|
%
|
3.18
|
%
|
10,000
|
|
|
|
Total
Variable
|
|
|
|
4.18
|
%
|
4.44
|
%
|
|
|
|
|
85,000
|
|
104,600
|
|
Fixed
|
|
2011
|
|
6.92
|
%
|
6.92
|
%
|
6.92
|
%
|
6.92
|
%
|
500
|
|
500
|
|
Fixed
|
|
2013
|
|
5.87
|
%
|
5.87
|
%
|
5.87
|
%
|
5.87
|
%
|
528
|
|
528
|
|
Fixed
|
|
2015
|
|
6.92
|
%
|
6.92
|
%
|
6.92
|
%
|
6.92
|
%
|
750
|
|
750
|
|
Total
Fixed
|
|
|
|
6.61
|
%
|
6.61
|
%
|
|
|
|
|
1,778
|
|
1,778
|
|
Total
|
|
|
|
4.23
|
%
|
4.48
|
%
|
|
|
|
|
$
|
86,778
|
|
$
|
106,378
|
|
51
(In Thousands)
Year Ending
|
|
|
|
Weighted-
|
|
December 31,
|
|
Amount
|
|
Average Rate
|
|
2009
|
|
$
|
|
|
|
|
2010
|
|
15,000
|
|
4.87
|
%
|
2011
|
|
10,500
|
|
4.60
|
%
|
2012
|
|
15,000
|
|
4.18
|
%
|
2013 and after
|
|
46,278
|
|
3.95
|
%
|
|
|
$
|
86,778
|
|
4.23
|
%
|
The terms of the convertible borrowings allow the FHLB to convert the
interest rate to an adjustable rate based on the three month London Interbank
Offered Rate (LIBOR) at a predetermined anniversary date of the borrowings
origination, ranging from three months to five years. If the FHLB converts the interest rate on one
of the predetermined dates, the Bank has the ability to payoff the debt on the
conversion date and quarterly thereafter without incurring the customary
pre-payment penalty.
The Bank maintains a credit arrangement which includes a revolving line
of credit with the FHLB. Under this
credit arrangement, the Bank has a remaining borrowing capacity of $66,048,000
at December 31, 2008, which is subject to annual renewal, and typically
incurs no service charges. Under terms
of a blanket agreement, collateral for the FHLB borrowings must be secured by
certain qualifying assets of the Bank which consist principally of first
mortgage loans and mortgage-backed securities.
NOTE 10 - INCOME TAXES
The following temporary differences gave rise
to the net deferred tax asset position at December 31, 2008 and 2007:
(In Thousands)
|
|
2008
|
|
2007
|
|
Deferred tax
assets:
|
|
|
|
|
|
Allowance for
loan losses
|
|
$
|
1,481
|
|
$
|
1,404
|
|
Deferred
compensation
|
|
402
|
|
408
|
|
Pension
|
|
2,014
|
|
870
|
|
Loan fees and
costs
|
|
344
|
|
320
|
|
Investment
securities allowance
|
|
548
|
|
278
|
|
Unrealized loss
on available for sale securities
|
|
4,372
|
|
1,112
|
|
Low income
housing credit carryforward
|
|
1,571
|
|
827
|
|
Capital loss
|
|
503
|
|
|
|
Other
|
|
373
|
|
212
|
|
Total
|
|
11,608
|
|
5,431
|
|
|
|
|
|
|
|
Deferred tax
liabilities:
|
|
|
|
|
|
Bond accretion
|
|
61
|
|
44
|
|
Depreciation
|
|
141
|
|
117
|
|
Amortization
|
|
526
|
|
451
|
|
Total
|
|
728
|
|
612
|
|
|
|
|
|
|
|
Deferred tax
asset, net
|
|
$
|
10,880
|
|
$
|
4,819
|
|
52
No valuation allowance was established at December 31, 2008 and
2007, in view of the Companys ability to carry back capital losses to recover
taxes paid in previous years and certain tax strategies, together with the
anticipated future taxable income as evidenced by the Companys earning
potential.
The provision for income taxes is comprised of the following for the
year ended December 31, 2008, 2007, and 2006:
(In Thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Currently
payable
|
|
$
|
1,967
|
|
$
|
1,758
|
|
$
|
2,112
|
|
Deferred benefit
|
|
(1,562
|
)
|
(1,121
|
)
|
(151
|
)
|
|
|
|
|
|
|
|
|
Total provision
|
|
$
|
405
|
|
$
|
637
|
|
$
|
1,961
|
|
A reconciliation between the expected income tax and the effective
income tax rate on income before income tax provision follows for the year
ended December 31, 2008, 2007, and 2006:
(In Thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision at
expected rate
|
|
$
|
2,859
|
|
34.0
|
%
|
$
|
3,235
|
|
34.0
|
%
|
$
|
3,947
|
|
34.0
|
%
|
Decrease in tax
resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt
income
|
|
(1,757
|
)
|
(20.9
|
)
|
(1,512
|
)
|
(15.9
|
)
|
(1,425
|
)
|
(12.3
|
)
|
Tax credits
|
|
(601
|
)
|
(7.2
|
)
|
(1,048
|
)
|
(11.0
|
)
|
(363
|
)
|
(3.1
|
)
|
Other, net
|
|
(96
|
)
|
(1.1
|
)
|
(38
|
)
|
(0.4
|
)
|
(198
|
)
|
(1.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income
tax and rate
|
|
$
|
405
|
|
4.8
|
%
|
$
|
637
|
|
6.7
|
%
|
$
|
1,961
|
|
16.9
|
%
|
NOTE 11 - EMPLOYEE BENEFIT PLANS
Defined Benefit Pension Plan
The Company has a noncontributory defined benefit pension plan (the Plan)
for all employees meeting certain age and length of service requirements that
were hired prior to January 1, 2004, at which time entrance into the Plan
was frozen. Benefits are based primarily
on years of service and the average annual compensation during the highest five
consecutive years within the final ten years of employment.
The following table sets forth the obligation and funded status as of December 31,
2008 and 2007:
(In Thousands)
|
|
2008
|
|
2007
|
|
Change
in benefit obligation:
|
|
|
|
|
|
Benefit
obligation at beginning of year
|
|
$
|
10,450
|
|
$
|
8,510
|
|
Service cost
|
|
546
|
|
466
|
|
Interest cost
|
|
609
|
|
486
|
|
Actuarial (gain)
loss
|
|
(166
|
)
|
80
|
|
Benefits paid
|
|
(210
|
)
|
(210
|
)
|
Other, change in
actuarial assumptions
|
|
758
|
|
1,118
|
|
Benefit
obligation at end of year
|
|
11,987
|
|
10,450
|
|
|
|
|
|
|
|
Change
in plan assets:
|
|
|
|
|
|
Fair value of
plan assets at beginning of year
|
|
7,891
|
|
6,990
|
|
Actual return on
plan assets
|
|
(2,504
|
)
|
531
|
|
Employer
contribution
|
|
875
|
|
580
|
|
Benefits paid
|
|
(210
|
)
|
(210
|
)
|
Adjustment to
fair value of plan assets
|
|
13
|
|
|
|
Fair value of
plan assets at end of year
|
|
6,065
|
|
7,891
|
|
Funded status
|
|
$
|
(5,922
|
)
|
$
|
(2,559
|
)
|
|
|
|
|
|
|
Accounts
recognized on balance sheet as:
|
|
|
|
|
|
Total
liabilities
|
|
$
|
(5,922
|
)
|
$
|
(2,559
|
)
|
Amounts not yet recognized as a component of net
|
|
|
|
|
|
periodic pension cost:
|
|
|
|
|
|
Amounts
recognized in accumulated other comprehensive income (loss) consist of:
|
|
|
|
|
|
Net transition
asset
|
|
$
|
(9
|
)
|
$
|
(12
|
)
|
Prior service
cost
|
|
127
|
|
153
|
|
Net loss
|
|
5,609
|
|
1,942
|
|
Total
|
|
$
|
5,727
|
|
$
|
2,083
|
|
The accumulated benefit obligation for the Plan was $9,410,000 and
$7,835,000 at December 31, 2008 and 2007, respectively.
53
Components of Net Periodic Cost and Other Amounts Recognized in other
Comprehensive Income as of December 31, 2008, 2007, and 2006 are as
follows:
(In Thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
Net periodic
pension cost:
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
546
|
|
$
|
467
|
|
$
|
467
|
|
Interest cost
|
|
609
|
|
486
|
|
434
|
|
Expected return
on plan assets
|
|
(641
|
)
|
(562
|
)
|
(485
|
)
|
Amortization of
transition asset
|
|
(3
|
)
|
(3
|
)
|
(3
|
)
|
Amortization of
prior service cost
|
|
25
|
|
26
|
|
26
|
|
Amortization of
unrecognized net loss
|
|
57
|
|
|
|
22
|
|
Net periodic
benefit cost
|
|
$
|
593
|
|
$
|
414
|
|
$
|
461
|
|
The estimated net transition asset and prior service cost for the
defined benefit pension plan that will be amortized from accumulated other
comprehensive income (loss) into net periodic benefit cost over the next fiscal
year are $3,000 and $25,000, respectively.
Assumptions
Weighted-average assumptions used to determine benefit obligations at December 31,
2008, 2007, and 2006:
|
|
2008
|
|
2007
|
|
2006
|
|
Discount rate
|
|
5.75
|
%
|
6.00
|
%
|
5.75
|
%
|
Rate of
compensation increase
|
|
4.75
|
%
|
5.00
|
%
|
4.75
|
%
|
Weighted-average assumptions used to determine net periodic cost for
years ended December 31, 2008, 2007, and 2006:
|
|
2008
|
|
2007
|
|
2006
|
|
Discount rate
|
|
6.00
|
%
|
5.75
|
%
|
5.50
|
%
|
Expected
long-term return on plan assets
|
|
8.00
|
%
|
8.00
|
%
|
8.00
|
%
|
Rate of
compensation increase
|
|
5.00
|
%
|
4.75
|
%
|
4.50
|
%
|
The expected long-term rate of return was estimated using market
benchmarks by which the plan assets would outperform the market value in the
future, based on historical experience adjusted for changes in asset allocation
and expectations for overall lower future returns on similar investments
compared to past periods.
Plan Assets
The Plans weighted-average asset allocations at December 31, 2008
and 2007 by asset category are as follows:
Asset Category
|
|
2008
|
|
2007
|
|
Cash
|
|
0.3
|
%
|
0.2
|
%
|
Fixed income
securities
|
|
39.2
|
%
|
39.6
|
%
|
Equity
|
|
60.5
|
%
|
60.2
|
%
|
Total
|
|
100.0
|
%
|
100.0
|
%
|
The investment objective for the Plan is to maximize total return with
tolerance for slightly above average risk, meaning the fund is able to tolerate
short-term volatility to achieve above-average returns over the long term.
Asset allocation favors equities, with target allocation of
approximately 60% equity securities, 37.5% fixed income securities and 2.5%
cash. Due to volatility in the market, the target allocation is not always
desirable and asset allocations will fluctuate between the acceptable
ranges. The equity portfolios exposure
is primarily in mid and large capitalization
54
domestic equities with limited exposure to small capitalization and
international stocks.
It is managements intent to give the investment managers flexibility,
within the overall guidelines, with respect to investment decisions and their
timing. However, certain investments require specific review and approval by
management. Management is also informed
of anticipated, significant modifications of any previously approved
investment, or anticipated use of derivatives to execute investment strategies.
The following benefit payments that reflect expected future service, as
appropriate, are expected to be paid:
Estimated future benefit payments (in thousands):
2009
|
|
$
|
309
|
|
2010
|
|
330
|
|
2011
|
|
357
|
|
2012
|
|
528
|
|
2013
|
|
555
|
|
2014-2018
|
|
3,278
|
|
|
|
|
|
|
|
$
|
5,357
|
|
The company expects to contribute a minimum of $325,000 to its Pension
Plan in 2009.
401(k) Savings Plan
The Company also offers a 401(k) savings plan in which eligible
participating employees may elect to contribute up to a maximum percentage
allowable not to exceed the limits of Code Sections 401(k), 404, and 415. The Company may make matching contributions
equal to a discretionary percentage that is determined by the Board of
Directors. Participants are at all times
fully vested in their contributions and vest over a period of five years
regarding the employer contribution.
Contribution expense was approximately $97,000, $97,000, and $96,000 for
the years ended December 31, 2008, 2007, and 2006, respectively.
Deferred Compensation Plan
The Company has a deferred compensation plan whereby participating
directors elect to forego directors fees paid in cash. Under this plan, the Company will make
payments for a ten-year period beginning at age 65 in most cases or at death,
if earlier, at which time payments would be made to their designated
beneficiaries.
To fund benefits under the deferred compensation plan, the Company has
acquired bank-owned life insurance policies on the lives of the participating
directors for which insurance benefits are payable to the Company. The Company
incurred expenses related to the plan of $96,000, $85,000, and $69,000 for the
years ended December 31, 2008, 2007, and 2006, respectively. Benefits paid under the plan were
approximately $180,000, $125,000, and $122,000 in 2008, 2007, and 2006,
respectively.
NOTE 12 - EMPLOYEE STOCK PURCHASE PLAN
Effective April 26, 2006, the Company
implemented the Penns Woods Bancorp, Inc. 2006 Employee Stock Purchase
Plan (Plan). The Plan 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. There were 3,264 and 3,090 shares issued under the plan
for the years ended December 31, 2008 and 2007, respectively.
55
NOTE 13 - STOCK OPTIONS
In 1998, the Company adopted the 1998 Stock
Option Plan (1998 Plan) for key employees and directors. Incentive stock options and nonqualified
stock options may be granted to eligible employees of the Bank and nonqualified
options may be granted to directors of the Company. Incentive nonqualified stock options granted under
the 1998 Plan may be exercised not later than ten years after the date of
grant. Each option granted under the
1998 Plan shall be exercisable only after the expiration of six months
following the date of grant of such options.
A summary of the status of the Companys common stock option plans are
presented below:
|
|
2008
|
|
2007
|
|
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
|
|
Exercise
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
Price
|
|
Shares
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
beginning of year
|
|
10,913
|
|
$
|
37.60
|
|
11,972
|
|
$
|
37.41
|
|
Granted
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
(330
|
)
|
31.82
|
|
(330
|
)
|
24.72
|
|
Forfeited
|
|
(8,603
|
)
|
39.97
|
|
(729
|
)
|
40.29
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end
of year
|
|
1,980
|
|
28.27
|
|
10,913
|
|
37.60
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at year-end
|
|
1,980
|
|
$
|
28.27
|
|
10,913
|
|
$
|
37.60
|
|
The following table summarizes information about nonqualified and
incentive stock options outstanding at December 31, 2008:
|
|
Outstanding
|
|
Exercisable
|
|
|
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
Exercise
|
|
|
|
Exercise
|
|
Exercise Price
|
|
Shares
|
|
Life
|
|
Price
|
|
Shares
|
|
Price
|
|
$
|
31.82
|
|
990
|
|
1
|
|
$
|
31.82
|
|
990
|
|
$
|
31.82
|
|
24.72
|
|
990
|
|
2
|
|
24.72
|
|
990
|
|
24.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 14 - RELATED PARTY TRANSACTIONS
Certain directors and executive officers of
the Company and the Bank, including their immediate families and companies in
which they are principal owners (more than ten percent), are indebted to the
Company. Such indebtedness was incurred
in the ordinary course of business on the same terms and at those rates
prevailing at the time for comparable transactions with others.
A summary of loan activity with executive
officers, directors, principal shareholders, and associates of such persons is
listed below for the years ended December 31, 2008 and 2007:
(In Thousands)
|
|
Beginning
|
|
|
|
|
|
Other
|
|
Ending
|
|
|
|
Balance
|
|
Additions
|
|
Payments
|
|
Changes
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
$
|
9,335
|
|
$
|
1,626
|
|
$
|
1,776
|
|
$
|
243
|
|
$
|
8,942
|
|
2007
|
|
9,742
|
|
1,711
|
|
2,118
|
|
|
|
9,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
from related parties held by the Bank amounted to $7,377,000 at December 31,
2008 and $7,796,000 at December 31, 2007.
56
NOTE 15 - COMMITMENTS AND CONTINGENT LIABILITIES
The following schedule shows future minimum
rental payments under operating leases with noncancellable terms in excess of
one year as of December 31, 2008:
(In thousands)
2009
|
|
$
|
387
|
|
2010
|
|
383
|
|
2011
|
|
317
|
|
2012
|
|
296
|
|
2013
|
|
227
|
|
Thereafter
|
|
1,703
|
|
Total
|
|
$
|
3,313
|
|
The Companys operating lease obligations represent short and long-term
lease and rental payments for facilities.
Total rental expense for all operating leases for the years ended December 31,
2008, 2007, and 2006 were $406,000, $423,000, and $380,000.
The Company is subject to lawsuits and claims arising out of its
business. There are no such legal
proceedings or claims currently pending or threatened other than those
encountered during the normal course of business.
NOTE 16 - 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 include 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.
Financial instruments whose contract amounts represent credit risk are
as follows at December 31, 2008 and 2007:
(In Thousands)
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Commitments to
extend credit
|
|
$
|
85,871
|
|
$
|
74,349
|
|
Standby letters
of credit
|
|
841
|
|
974
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit are legally binding agreements to lend to
customers. Commitments generally have
fixed expiration dates or other termination clauses and may require payment of
fees. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future liquidity requirements. The Company evaluates each customers credit
worthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Company, on an
extension of credit is based on managements credit assessment of the counterparty.
Standby letters of credit represent conditional commitments issued by
the Company to guarantee the performance of a customer to a third party. These instruments are issued primarily to
support bid or performance related contracts.
The
57
coverage period for these instruments is typically a one year period
with an annual renewal option subject to prior approval by management. Fees earned from the issuance of these
letters are recognized upon expiration of the coverage period. For secured letters of credit, the collateral
is typically Bank deposit instruments or customer business assets.
NOTE 17 - CAPITAL REQUIREMENTS
Federal regulations require the Company and
the Bank to maintain minimum amounts of capital. Specifically, each is required to maintain
certain minimum dollar amounts and ratios of Total and Tier 1 capital to risk-weighted
assets and of Tier 1 capital to average total assets.
In addition to the capital requirements, the
Federal Deposit Insurance Corporation Improvement Act (FDICIA) established
five capital categories ranging from well capitalized to critically
undercapitalized. Should any
institution fail to meet the requirements to be considered adequately
capitalized, it would become subject to a series of increasingly restrictive
regulatory actions.
As of December 31, 2008 and 2007, the
Federal Deposit Insurance Corporation (FDIC) categorized the Bank as well
capitalized under the regulatory framework for prompt corrective action. To be classified as a well capitalized
financial institution, Total risk-based, Tier 1 risk-based, and Tier 1 leverage
capital ratios must be at least 10%, 6%, and 5%, respectively.
The Companys and the Banks actual capital
ratios are presented in the following tables, which shows that both met all
regulatory capital requirements.
58
(In Thousands)
|
|
2008
|
|
2007
|
|
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Total Capital
(to Risk-weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
$
|
66,891
|
|
16.0
|
%
|
$
|
70,381
|
|
18.0
|
%
|
For Capital
Adequacy Purposes
|
|
33,410
|
|
8.0
|
|
31,280
|
|
8.0
|
|
To Be Well
Capitalized
|
|
41,763
|
|
10.0
|
|
39,100
|
|
10.0
|
|
|
|
|
|
|
|
|
|
|
|
Tier I Capital
(to Risk-weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
$
|
62,540
|
|
15.0
|
%
|
$
|
66,251
|
|
16.9
|
%
|
For Capital
Adequacy Purposes
|
|
16,705
|
|
4.0
|
|
15,640
|
|
4.0
|
|
To Be Well
Capitalized
|
|
25,058
|
|
6.0
|
|
23,460
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
Tier I Capital
(to Average Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
$
|
62,540
|
|
9.7
|
%
|
$
|
66,251
|
|
10.8
|
%
|
For Capital
Adequacy Purposes
|
|
25,773
|
|
4.0
|
|
24,664
|
|
4.0
|
|
To Be Well
Capitalized
|
|
32,216
|
|
5.0
|
|
30,830
|
|
5.0
|
|
(In Thousands)
|
|
2008
|
|
2007
|
|
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Total Capital
(to Risk-weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
$
|
56,876
|
|
13.9
|
%
|
$
|
57,295
|
|
15.1
|
%
|
For Capital
Adequacy Purposes
|
|
32,799
|
|
8.0
|
|
30,350
|
|
8.0
|
|
To Be Well
Capitalized
|
|
40,998
|
|
10.0
|
|
37,938
|
|
10.0
|
|
|
|
|
|
|
|
|
|
|
|
Tier I Capital
(to Risk-weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
$
|
52,520
|
|
12.8
|
%
|
$
|
53,165
|
|
14.0
|
%
|
For Capital
Adequacy Purposes
|
|
16,399
|
|
4.0
|
|
15,175
|
|
4.0
|
|
To Be Well
Capitalized
|
|
24,599
|
|
6.0
|
|
22,763
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
Tier I Capital
(to Average Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
$
|
52,520
|
|
8.3
|
%
|
$
|
53,165
|
|
8.8
|
%
|
For Capital
Adequacy Purposes
|
|
25,423
|
|
4.0
|
|
24,124
|
|
4.0
|
|
To Be Well Capitalized
|
|
31,778
|
|
5.0
|
|
30,155
|
|
5.0
|
|
NOTE 18 - REGULATORY RESTRICTIONS
The
Pennsylvania Banking Code restricts the availability of capital funds for
payment of dividends by all state-chartered banks to the additional paid in
capital of the Bank. Accordingly, at December 31, 2008, the balance in the
additional paid
59
in
capital account totaling $11,657,000 is unavailable for dividends.
The
Bank is subject to regulatory restrictions, which limit its ability to loan
funds to Penns Woods Bancorp, Inc. At December
31, 2008, the regulatory lending limit amounted to approximately $8,531,000.
Cash and Due from Banks
Included
in cash and due from banks are reserves required by the district Federal Reserve
Bank of $1,046,000 and $1,009,000 at December 31, 2008 and 2007,
respectively. The required reserves are
computed by applying prescribed ratios to the classes of average deposit
balances. These are held in the form of
cash on hand and a balance maintained directly with the Federal Reserve Bank.
NOTE 19 - FAIR VALUE MEASUREMENTS
Effective
January 1, 2008, the Company adopted the provisions of FAS No. 157, Fair Value
Measurements, for financial assets and financial liabilities. FAS No. 157 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. The FASB
issued Staff Position No. 157-1, Application of FASB Statement No. 157 to FASB
Statement No. 13 and Other Accounting Pronouncements That Address Fair Value
Measurements for Purposes of Lease Classification or Measurement under Statement
13, which removed leasing transactions accounted for under FAS No. 13 and
related guidance from the scope of FAS No. 157.
The FASB also 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.
FAS
No. 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 No. 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 the quoted prices in active markets, which
are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities
includes 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 reported on the balance sheet at their fair
value as of December 31, 2008, by level within the fair value hierarchy. As
required by FAS No. 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.
(In Thousands)
|
|
December 31, 2008
|
|
|
|
Level I
|
|
Level II
|
|
Level III
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Investment
securities, available for sale
|
|
$
|
13,269
|
|
$
|
194,982
|
|
$
|
|
|
$
|
208,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 20 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The
Company is required to disclose estimated fair values for its financial
instruments. Fair value estimates are
made at a specific point in time, based on relevant market information and
information about the financial instrument.
These estimates do not reflect any premium or discount that could result
from offering for sale at one time the Companys entire holdings of a
particular financial instrument. Also,
it is the Companys general practice and intention to hold most of its
financial instruments to maturity and not to engage in trading or sales
activities. Because no market exists for
a significant portion of the Companys financial instruments, fair value
estimates are based on judgments regarding future expected loss experience,
current economic conditions, risk characteristics of various financial
instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be
60
determined
with precision. Changes in assumptions
can significantly affect the estimates.
Estimated
fair values have been determined by the Company using historical data and an
estimation methodology suitable for each category of financial instruments. The Companys fair value estimates, methods,
and assumptions are set forth below for the Companys other financial
instruments.
As
certain assets and liabilities, such as deferred tax assets, premises and
equipment, and many other operational elements of the Company, are not
considered financial instruments but have value, this estimated fair value of
financial instruments would not represent the full market value of the Company.
The
estimated fair values of the Companys financial instruments are as follows at December 31,
2008 and 2007:
(In Thousands)
|
|
2008
|
|
2007
|
|
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
|
|
Value
|
|
Value
|
|
Value
|
|
Value
|
|
Financial
assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
16,581
|
|
$
|
16,581
|
|
$
|
15,433
|
|
$
|
15,433
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
Available for
sale
|
|
208,251
|
|
208,251
|
|
214,455
|
|
214,455
|
|
Held to maturity
|
|
135
|
|
136
|
|
277
|
|
279
|
|
Loans held for
sale
|
|
3,622
|
|
3,622
|
|
4,214
|
|
4,214
|
|
Loans, net
|
|
377,122
|
|
380,771
|
|
356,348
|
|
357,628
|
|
Bank-owned life
insurance
|
|
14,546
|
|
14,546
|
|
12,375
|
|
12,375
|
|
Accrued interest
receivable
|
|
3,614
|
|
3,614
|
|
3,343
|
|
3,343
|
|
|
|
|
|
|
|
|
|
|
|
Financial
liabilities:
|
|
|
|
|
|
|
|
|
|
Interest-bearing
deposits
|
|
$
|
345,333
|
|
$
|
347,657
|
|
$
|
314,351
|
|
$
|
314,501
|
|
Noninterest-bearing
deposits
|
|
76,035
|
|
76,035
|
|
74,671
|
|
74,671
|
|
Short-term
borrowings
|
|
73,946
|
|
73,946
|
|
55,315
|
|
55,315
|
|
Long-term
borrowings, FHLB
|
|
86,778
|
|
88,188
|
|
106,378
|
|
106,154
|
|
Accrued interest
payable
|
|
1,317
|
|
1,317
|
|
1,744
|
|
1,744
|
|
Cash and Cash Equivalents,
Loans Held for Sale, Accrued Interest Receivable, Short-term Borrowings, and
Accrued Interest Payable:
The
fair value is equal to the carrying value.
Investment Securities:
The
fair value of investment securities available for sale and held to maturity is
equal to the available quoted market price. If no quoted market price is
available, fair value is estimated using the quoted market price for similar
securities. Regulatory stocks fair
value is equal to the carrying value.
Loans:
Fair
values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by
type such as commercial, commercial real estate, residential real estate,
construction real estate, and other consumer.
Each loan category is further segmented into fixed and adjustable rate
interest terms and by performing and nonperforming categories.
The fair value of performing loans is calculated
by discounting scheduled cash flows through the estimated maturity using
estimated market discount rates that reflect the credit and interest rate risk
inherent in the loan. The estimate of
maturity is based on the Companys historical experience with repayments for
each loan classification, modified, as required, by an estimate of the effect
of current economic and lending conditions.
Fair
value for significant nonperforming loans is based on recent external
appraisals. If appraisals are not
available, estimated cash flows are discounted using a rate commensurate with
the risk associated with the estimated cash flows.
61
Assumptions
regarding credit risk, cash flows, and discounted rates are judgmentally
determined using available market information and specific borrower
information.
Bank-Owned Life Insurance:
The
fair value is equal to the cash surrender value of the life insurance policies.
Deposits:
The
fair value of deposits with no stated maturity, such as noninterest-bearing
demand deposits, savings, NOW, and money market accounts, is equal to the
amount payable on demand as of December 31, 2008 and 2007. The fair value of certificates of deposit is
based on the discounted value of contractual cash flows.
The
fair value estimates above do not include the benefit that results from the
low-cost funding provided by the deposit liabilities compared to the cost of
borrowing funds in the market, commonly referred to as the core deposit
intangible.
Long
Term Borrowings:
The
fair value of long term borrowings is based on the discounted value of
contractual cash flows.
Commitments to Extend Credit,
Standby Letters of Credit, and Financial Guarantees Written:
There is no material difference between the notional amount and the
estimated fair value of off-balance sheet items at December 31, 2008 and
2007. The contractual amounts of
unfunded commitments and letters of credit are presented in Note 16.
NOTE 21- PARENT COMPANY ONLY FINANCIAL STATEMENTS
Condensed financial information for Penns Woods Bancorp, Inc. follows:
CONDENSED BALANCE SHEET, DECEMBER 31,
(In Thousands)
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
ASSETS:
|
|
|
|
|
|
Cash
|
|
$
|
94
|
|
$
|
15
|
|
Investment in
subsidiaries:
|
|
|
|
|
|
Bank
|
|
49,327
|
|
56,971
|
|
Nonbank
|
|
11,463
|
|
13,473
|
|
Other assets
|
|
225
|
|
234
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
61,109
|
|
$
|
70,693
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS
EQUITY:
|
|
|
|
|
|
Other
liabilities
|
|
$
|
82
|
|
$
|
134
|
|
Shareholders
equity
|
|
61,027
|
|
70,559
|
|
|
|
|
|
|
|
Total liability
and shareholders equity
|
|
$
|
61,109
|
|
$
|
70,693
|
|
62
CONDENSED
STATEMENT OF INCOME
FOR THE
YEARS ENDED DECEMBER 31,
(In Thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Operating
income:
|
|
|
|
|
|
|
|
Dividends from
subsidiaries
|
|
$
|
8,763
|
|
$
|
8,039
|
|
$
|
9,890
|
|
Equity in
undistributed net income of subsidiaries
|
|
(485
|
)
|
1,152
|
|
53
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
(275
|
)
|
(314
|
)
|
(296
|
)
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
8,003
|
|
$
|
8,877
|
|
$
|
9,647
|
|
CONDENSED
STATEMENT OF CASH FLOWS
FOR THE
YEARS ENDED DECEMBER 31,
(In Thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
|
Net income
|
|
$
|
8,003
|
|
$
|
8,877
|
|
$
|
9,647
|
|
Adjustments to
reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
Equity in
undistributed net income of subsidiaries
|
|
485
|
|
(1,152
|
)
|
(53
|
)
|
Other, net
|
|
(43
|
)
|
67
|
|
(30
|
)
|
Net cash provided
by operating activities
|
|
8,445
|
|
7,792
|
|
9,564
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
Additional
investment in subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
Dividends paid
|
|
(7,096
|
)
|
(6,953
|
)
|
(6,802
|
)
|
Issuance of common
stock
|
|
90
|
|
99
|
|
49
|
|
Stock options
exercised
|
|
11
|
|
8
|
|
|
|
Purchase of
treasury stock
|
|
(1,371
|
)
|
(972
|
)
|
(2,929
|
)
|
Net cash used
for financing activities
|
|
(8,366
|
)
|
(7,818
|
)
|
(9,682
|
)
|
|
|
|
|
|
|
|
|
NET INCREASE
(DECREASE) IN CASH
|
|
79
|
|
(26
|
)
|
(118
|
)
|
CASH, BEGINNING
OF YEAR
|
|
15
|
|
41
|
|
159
|
|
|
|
|
|
|
|
|
|
CASH, END OF
YEAR
|
|
$
|
94
|
|
$
|
15
|
|
$
|
41
|
|
63
NOTE 22
CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
(In Thousands, Except Per Share Data)
|
|
For The Three Months Ended
|
|
2008
|
|
March 31,
|
|
June 30,
|
|
Sept. 30,
|
|
Dec. 31,
|
|
Interest income
|
|
$
|
9,048
|
|
$
|
8,936
|
|
$
|
9,108
|
|
$
|
9,016
|
|
Interest expense
|
|
4,167
|
|
3,780
|
|
3,595
|
|
3,290
|
|
|
|
|
|
|
|
|
|
|
|
Net interest
income
|
|
4,881
|
|
5,156
|
|
5,513
|
|
5,726
|
|
|
|
|
|
|
|
|
|
|
|
Provision for
loan losses
|
|
60
|
|
60
|
|
110
|
|
145
|
|
Non-interest
income
|
|
1,876
|
|
1,872
|
|
1,976
|
|
1,763
|
|
Securities gains
(losses), net
|
|
38
|
|
(251
|
)
|
(1,504
|
)
|
(314
|
)
|
Non-interest
expense
|
|
4,445
|
|
4,511
|
|
4,451
|
|
4,542
|
|
|
|
|
|
|
|
|
|
|
|
Income before
income tax provision
|
|
2,290
|
|
2,206
|
|
1,424
|
|
2,488
|
|
Income tax
provision (benefit)
|
|
159
|
|
149
|
|
(128
|
)
|
225
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,131
|
|
$
|
2,057
|
|
$
|
1,552
|
|
$
|
2,263
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per
share - basic
|
|
$
|
0.55
|
|
$
|
0.53
|
|
$
|
0.40
|
|
$
|
0.59
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per
share - diluted
|
|
$
|
0.55
|
|
$
|
0.53
|
|
$
|
0.40
|
|
$
|
0.59
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands,
Except Per Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
For The Three Months Ended
|
|
2007
|
|
March 31,
|
|
June 30,
|
|
Sept. 30,
|
|
Dec. 31,
|
|
Interest income
|
|
$
|
8,679
|
|
$
|
8,793
|
|
$
|
8,977
|
|
$
|
9,500
|
|
Interest expense
|
|
3,939
|
|
3,999
|
|
4,112
|
|
4,397
|
|
|
|
|
|
|
|
|
|
|
|
Net interest
income
|
|
4,740
|
|
4,794
|
|
4,865
|
|
5,103
|
|
|
|
|
|
|
|
|
|
|
|
Provision for
loan losses
|
|
40
|
|
10
|
|
10
|
|
90
|
|
Non-interest
income
|
|
1,648
|
|
1,893
|
|
2,006
|
|
1,985
|
|
Securities gains
(losses), net
|
|
326
|
|
293
|
|
|
|
(673
|
)
|
Non-interest
expense
|
|
4,128
|
|
4,340
|
|
4,430
|
|
4,418
|
|
|
|
|
|
|
|
|
|
|
|
Income before
income tax provision
|
|
2,546
|
|
2,630
|
|
2,431
|
|
1,907
|
|
Income tax
provision (benefit)
|
|
265
|
|
295
|
|
109
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,281
|
|
$
|
2,335
|
|
$
|
2,322
|
|
$
|
1,939
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per
share - basic
|
|
$
|
0.59
|
|
$
|
0.60
|
|
$
|
0.59
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per
share - diluted
|
|
$
|
0.59
|
|
$
|
0.60
|
|
$
|
0.59
|
|
$
|
0.50
|
|
64
ITEM 9 CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM
9A CONTROLS AND PROCEDURES
The
Company, under the supervision and with the participation of the Companys
management, including the Companys President and Chief Executive Officer along
with the Companys Chief Financial Officer, conducted an evaluated of the
effectiveness as of December 31, 2008 of the design and operation of the
Companys disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated
under the Securities Exchange Act of 1934, as amended (the Exchange Act). Based upon that evaluation, the Companys
President and Chief Executive Officer along with the Companys Chief Financial
Officer concluded that the Companys disclosure controls and procedures were
effective as of December 31, 2008.
There
have been no material changes in the Companys internal control over financial
reporting during the fourth quarter of 2008 that have materially affected, or
are reasonably likely to materially affect, the Companys internal control over
financial reporting.
Managements Report on Internal Control Over Financial Reporting
Management
of the Company is responsible for establishing and maintaining adequate
internal control over financial reporting as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act. The Companys internal control over
financial reporting is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
A
material weakness is a significant deficiency (as defined in Public Company
Accounting Oversight Board Auditing Standard No. 2), or a combination of
significant deficiencies, that results in there being more than a remote
likelihood that a material misstatement of the annual or interim financial
statements will not be prevented or detected on a timely basis by management or
employees in the normal course of performing their assigned functions.
Management
assessed the effectiveness of the Companys internal control over financial reporting
as of December 31, 2008. Managements assessment did not identify any
material weaknesses in the Companys internal control over financial reporting.
In
making this assessment, management used the criteria set forth by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework. Because there were no material weaknesses
discovered, management believes that, as of December 31, 2008, the Companys
internal control over financial reporting was effective.
S.R.
Snodgrass, A.C. an independent registered public accounting firm, has audited
the consolidated financial statements included in this Annual Report on Form 10-K,
as part of the audit, has issued a report, which appears below, on the effectiveness
of the Companys internal control over financial reporting as of December 31,
2008.
Date:
March 10, 2009
|
/s/
Ronald A. Walko
|
|
/s/
Brian L. Knepp
|
|
Chief
Executive Officer
|
|
Chief
Financial Officer
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Penns Woods Bancorp, Inc.
We have audited Penns Woods Bancorp, Inc. and subsidiaries
internal control over financial reporting as of December 31, 2008, based
on criteria established in Internal Control Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission. Penns Woods Bancorp, Inc. management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Report on Managements Assessment of
Internal Control Over Financial Reporting.
Our responsibility is to express an opinion on the Companys internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in
all material respects. Our audit
included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also
included performing such other procedures as we considered necessary in the
circumstances. We believe that our
audits provide a reasonable basis for our opinion.
A companys internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A companys internal
control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors
of the company; and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, Penns Woods Bancorp, Inc. maintained, in all
material respects, effective internal control over financial reporting as of December 31,
2008, based on criteria established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated balance
sheets of Penns Woods Bancorp, Inc. as of December 31, 2008 and 2007,
and the related consolidated statements of income, comprehensive income,
stockholders equity, and cash flows for each of the three years in the period
ended December 31, 2008, and our report dated March 10, 2009,
expressed an unqualified opinion.
Wexford, Pennsylvania
March 10, 2009
ITEM 9B
OTHER INFORMATION
None.
PART III
ITEM 10 DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information appearing
under the captions The Board of Directors and Committees, Election of
Directors, Section 16(a) Beneficial Ownership Reporting Compliance,
Principal Officers of the Corporation, Certain Transactions, and Audit
Committee Financial Expert in the Companys Proxy Statement dated March 24,
2009 (the Proxy Statement) is incorporated herein by reference.
ITEM 11
EXECUTIVE
COMPENSATION
Information appearing
under the captions Compensation of Directors, Compensation Committee
Interlocks and Insider Participation, Compensation Discussion and Analysis, Compensation
Committee and Benefits Committee Report, and Executive Compensation in the
Proxy Statement is incorporated herein by reference.
ITEM 12 SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The information appearing
under the caption Security Ownership of Certain Beneficial Owners and
Management in the Proxy Statement is incorporated herein by reference.
Equity Compensation Plan Information
Plan Category
|
|
Number of
securities to be
issued upon
exercise of
outstanding options,
warrants and rights
(a)
|
|
Weighted-
average
exercise of
outstanding options,
warrants and rights
(b)
|
|
Number of
securities remaining
available for future
issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
(c)
|
|
Equity
compensation plans approved by security holders
|
|
1,980
|
|
$
|
28.27
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans not approved by security holders
|
|
|
|
|
|
|
|
Total
|
|
1,980
|
|
$
|
28.27
|
|
|
|
ITEM
13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
There have been no
material transactions between the Company and the Bank, nor any material
transactions proposed, with any Director or Executive Officer of the Company
and the Bank, or any associate of the foregoing persons. The Company and the Bank have had, and intend
to continue to have, banking and financial transactions in the ordinary course
of business with Directors and Officers of the Company and the Bank and their
associates on comparable terms and with similar interest rates as those
prevailing from time to time for other customers of the Company and the Bank.
Total loans outstanding
from the Bank at December 31, 2008 to the Companys and the Banks
Officers and Directors as a group and members of their immediate families and
companies in which they had an ownership interest of 10% or more was $8,942,000
or approximately 14.65% of the total equity capital of the Company. Loans to such persons were made in the
ordinary course of business, were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons, and did not involve more than the
normal risk of collectability or present other unfavorable features. See also the information appearing in Note 14
to the Consolidated Financial Statements included elsewhere in the Annual
Report.
In addition, the
information appearing under the caption Election of Directors in the Proxy
Statement is incorporated herein by reference.
ITEM 14
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information appearing
in the Proxy Statement under the captions, Audit Fees, Audit-Related Fees, Tax
Fees, All Other Fees, and Audit Committee Pre-Approval Policies and
Procedures is incorporated herein by reference.
PART IV
ITEM 15 EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
(a)
|
1.
|
Financial Statements
|
|
|
|
|
The following
consolidated financial statements and reports are set forth in Item 8:
|
|
|
|
Report of Independent
Auditors
|
|
|
|
|
Consolidated Balance
Sheet
|
|
|
|
|
Consolidated Statement
of Income
|
|
|
|
|
Consolidated Statement
of Changes in Shareholders Equity
|
|
|
|
|
Consolidated Statement
of Cash Flows
|
|
|
|
|
Notes to the
Consolidated Financial Statements
|
|
|
2.
|
|
Financial Statement
Schedules
|
|
|
|
Financial statement
schedules are omitted because the required information is either not
applicable, not required or is shown in the respective financial statements
or in the notes thereto.
|
|
|
|
|
(b)
|
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, 2005).
|
|
|
(3) (ii)
|
|
Bylaws of the
Registrant as presently in effect (incorporated by reference to
Exhibit 3(ii) of the Registrants Current Report on Form 8-K
filed on June 17, 2005).
|
|
|
(10) (i)
|
|
Employment Agreement,
dated August, 1991, between Jersey Shore State Bank and Ronald A. Walko
(incorporated by reference to Exhibit 10.3 of the Registrants
Registration Statement on Form S-4, No. 333-65821).*
|
|
|
(10) (ii)
|
|
Employee Severance
Benefit Plan, dated May 30, 1996, for Ronald A. Walko (incorporated by
reference to Exhibit 10.4 of the Registrants Registration Statement on
form S-4, No. 333-65821).*
|
|
|
(10) (iii)
|
|
Consulting Agreement,
dated July 18, 2005 between Hubert A. Valencik and Penns Woods
Bancorp, Inc. (incorporated by reference to Exhibit 10.1 of the
Registrants Current Report on Form 8-K filed on July 18, 2005).
|
|
|
(10) (iv)
|
|
Employment Agreement,
dated January 11, 1999, among Penns Woods Bancorp, Inc., Jersey
Shore State Bank and William H. Rockey (incorporated by reference to
Exhibit 10.7 of the Registrants Annual Report on Form 10-K filed on
March 14, 2008).*
|
|
|
(10) (v)
|
|
Penns Woods
Bancorp, Inc. 1998 Stock Option Plan (incorporated by reference to
Exhibit 10.1 of the Registrants Registration Statement on form S-4,
No. 333-65821).*
|
|
|
(10) (vi)
|
|
Amendment and
Restatement of the Jersey Shore State Bank Deferred Fee Agreement, dated as
of October 1, 2004 (incorporated by reference to Exhibit 10(vii) of the
Registrants Annual Report on Form 10-K for the year ended December 31,
2005).*
|
|
|
(10) (vii)
|
|
Form of First
Amendment to the Jersey Shore State Bank Amendment and Restatement of the
Director Fee Agreement, dated as of October 1, 2004 (incorporated by
reference to Exhibit 10.7 of the Registrants Current Report on
Form 8-K filed on June 29, 2006).
|
|
|
(21)
|
|
Subsidiaries of the
Registrant.
|
|
|
(23)
|
|
Consent of Independent
Certified Public Accountants.
|
|
|
(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 Chief Financial Officer.
|
|
|
(32) (i)
|
|
Section 1350
Certification of Chief Executive Officer.
|
|
|
(32) (ii)
|
|
Section 1350
Certification of Chief Financial Officer.
|
|
|
|
|
|
|
|
|
|
|
*
Denotes compensatory plan or arrangement.
EXHIBIT INDEX
(21)
|
|
Subsidiaries of the
Registrant.
|
(23)
|
|
Consent of Independent
Certified Public Accountants.
|
(
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 Chief Financial Officer.
|
(32)
(i)
|
|
Section 1350
Certification of Chief Executive Officer.
|
(32)
(ii)
|
|
Section 1350
Certification of Chief Financial Officer.
|
SIGNATURES
Pursuant to the requirements of Section 13 or
15(d) 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.
March 10, 2009
|
PENNS WOODS BANCORP,
INC.
|
|
BY:
|
/s/ RONALD A. WALKO
|
|
|
President &
Chief Executive Officer
|
Pursuant to the
requirements of the Securities and Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated:
/s/ Ronald A. Walko
|
|
|
Ronald A. Walko,
President, Chief Executive
|
|
March 10,
2009
|
Officer and Director
(Principal Executive Officer)
|
|
|
|
|
|
|
|
|
/s/ Brian L. Knepp
|
|
|
Brian L. Knepp, Chief
Financial Officer
|
|
March 10,
2009
|
(Principal Financial
Officer)
|
|
|
|
|
|
|
|
|
/s/ Michael J.
Casale, Jr.
|
|
|
Michael J.
Casale, Jr., Director
|
|
March 10,
2009
|
|
|
|
|
|
|
/s/ H. Thomas
Davis, Jr.
|
|
|
H. Thomas
Davis, Jr., Director
|
|
March 10,
2009
|
|
|
|
|
|
|
/s/ James M. Furey III
|
|
|
James M. Furey II,
Director
|
|
March 10,
2009
|
|
|
|
|
|
|
/s/ D. Michael Hawbaker
|
|
|
D. Michael Hawbaker,
Director
|
|
March 10,
2009
|
|
|
|
|
|
|
/s/ Leroy H.. Keiler
III
|
|
|
Leroy H. Keiler III,
Director
|
|
March 10,
2009
|
/s/ R. Edward
Nestlerode, Jr.
|
|
|
R. Edward
Nestlerode, Jr., Director
|
|
March 10,
2009
|
|
|
|
|
|
|
/s/ James E. Plummer
|
|
|
James E. Plummer,
Director
|
|
March 10,
2009
|
|
|
|
|
|
|
/s/ William H.
Rockey, Sr.
|
|
|
William H.
Rockey, Sr. Vice President &Director
|
|
March 10,
2009
|
|
|
|
|
|
|
/s/ Hubert A. Valencik,
Director
|
|
|
Hubert A. Valencik,
Director
|
|
March 10,
2009
|
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