UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x
|
Quarterly
Report pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
|
for the Quarterly Period Ended March 31, 2009.
o
|
Transition
report pursuant to Section 13 or 15 (d) of the Exchange Act
|
for the
Transition Period from
to .
No. 0-17077
(Commission File Number)
PENNS WOODS BANCORP, INC.
(Exact name of Registrant as specified in its charter)
PENNSYLVANIA
|
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23-2226454
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(State or other jurisdiction of
|
|
(I.R.S. Employer
|
incorporation or organization)
|
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Identification No.)
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|
|
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300 Market Street,
P.O. Box 967 Williamsport, Pennsylvania
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17703-0967
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(Address of principal executive offices)
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(Zip Code)
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(570) 322-1111
Registrants telephone number, including area code
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES
x
NO
o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). YES
o
NO
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definition of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated filer
o
|
|
Accelerated filer
x
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|
|
|
Non-accelerated filer
o
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|
Small reporting company
o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act). YES
o
NO
x
On
May 1, 2009 there were 3,832,572 shares of the Registrants common stock
outstanding.
PENNS
WOODS BANCORP, INC.
INDEX TO
QUARTERLY REPORT ON FORM 10-Q
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Page
Number
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Part I
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Financial
Information
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Item 1.
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Financial
Statements
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|
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|
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Consolidated
Balance Sheet (unaudited) as of March 31, 2009 and December 31,
2008
|
3
|
|
|
|
|
Consolidated Statement
of Income (unaudited) for the Three Months ended March 31, 2009 and 2008
|
4
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|
|
|
|
Consolidated
Statement of Changes in Shareholders Equity (unaudited) for the Three Months
ended
March 31, 2009 and 2008
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5
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|
|
|
|
Consolidated Statement
of Comprehensive Income (unaudited) for the Three Months ended March 31,
2009 and 2008
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5
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|
|
|
|
Consolidated Statement
of Cash Flows (unaudited) for the Three Months ended March 31, 2009 and
2008
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6
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Notes to Consolidated
Financial Statements (unaudited)
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7
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Item 2.
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Managements
Discussion and Analysis of Financial Condition and Results of Operations
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14
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Item 3.
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Quantitative and
Qualitative Disclosures About Market Risk
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29
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Item 4.
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Controls and
Procedures
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29
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Part II
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Other
Information
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|
|
|
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Item
1.
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Legal
Proceedings
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30
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Item
1A.
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Risk
Factors
|
30
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Item
2.
|
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Unregistered
Sales of Equity Securities and Use of Proceeds
|
30
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Item
3.
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Defaults
Upon Senior Securities
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30
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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30
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Item
5.
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Other
Information
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30
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Item
6.
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Exhibits
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31
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Signatures
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32
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Exhibit Index
and Exhibits
|
33
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2
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
PENNS WOODS
BANCORP, INC.
CONSOLIDATED
BALANCE SHEET
(UNAUDITED)
|
|
March 31,
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|
December 31,
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|
(In Thousands, Except Share Data)
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
Noninterest-bearing
balances
|
|
$
|
12,886
|
|
$
|
16,563
|
|
Interest-bearing
deposits in other financial institutions
|
|
23
|
|
18
|
|
Total cash and
cash equivalents
|
|
12,909
|
|
16,581
|
|
|
|
|
|
|
|
Investment
securities, available for sale, at fair value
|
|
201,651
|
|
208,251
|
|
Investment
securities held to maturity (fair value of $111 and $136)
|
|
110
|
|
135
|
|
Loans held for
sale
|
|
2,514
|
|
3,622
|
|
Loans
|
|
387,192
|
|
381,478
|
|
Less: Allowance
for loan losses
|
|
4,441
|
|
4,356
|
|
Loans, net
|
|
382,751
|
|
377,122
|
|
Premises and
equipment, net
|
|
7,733
|
|
7,865
|
|
Accrued interest
receivable
|
|
3,370
|
|
3,614
|
|
Bank-owned life
insurance
|
|
14,750
|
|
14,546
|
|
Investment in
limited partnerships
|
|
5,286
|
|
4,727
|
|
Goodwill
|
|
3,032
|
|
3,032
|
|
Deferred tax
asset
|
|
12,614
|
|
10,879
|
|
Other assets
|
|
2,892
|
|
2,429
|
|
TOTAL ASSETS
|
|
$
|
649,612
|
|
$
|
652,803
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
Interest-bearing
deposits
|
|
$
|
376,844
|
|
$
|
345,333
|
|
Noninterest-bearing
deposits
|
|
71,963
|
|
76,035
|
|
Total deposits
|
|
448,807
|
|
421,368
|
|
|
|
|
|
|
|
Short-term
borrowings
|
|
45,268
|
|
73,946
|
|
Long-term
borrowings, Federal Home Loan Bank (FHLB)
|
|
86,778
|
|
86,778
|
|
Accrued interest
payable
|
|
1,193
|
|
1,317
|
|
Other
liabilities
|
|
8,982
|
|
8,367
|
|
TOTAL
LIABILITIES
|
|
591,028
|
|
591,776
|
|
|
|
|
|
|
|
SHAREHOLDERS
EQUITY
|
|
|
|
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|
Common stock,
par value $8.33, 10,000,000 shares authorized; 4,011,251 and 4,010,528 shares
issued
|
|
33,427
|
|
33,421
|
|
Additional
paid-in capital
|
|
17,970
|
|
17,959
|
|
Retained
earnings
|
|
27,254
|
|
28,177
|
|
Accumulated
other comprehensive loss:
|
|
|
|
|
|
Net unrealized
loss on available for sale securities
|
|
(10,023
|
)
|
(8,486
|
)
|
Defined benefit
plan
|
|
(3,780
|
)
|
(3,780
|
)
|
Less: Treasury stock at cost, 179,028 and 179,028
shares
|
|
(6,264
|
)
|
(6,264
|
)
|
TOTAL
SHAREHOLDERS EQUITY
|
|
58,584
|
|
61,027
|
|
TOTAL
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
$
|
649,612
|
|
$
|
652,803
|
|
See accompanying
notes to the unaudited consolidated financial statements.
3
PENNS WOODS
BANCORP, INC.
CONSOLIDATED
STATEMENT OF INCOME
(UNAUDITED)
|
|
Three Months Ended
March 31,
|
|
(In Thousands, Except Per Share Data)
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
INTEREST AND
DIVIDEND INCOME
|
|
|
|
|
|
Loans including
fees
|
|
$
|
6,219
|
|
$
|
6,380
|
|
Investment
Securities:
|
|
|
|
|
|
Taxable
|
|
1,363
|
|
1,190
|
|
Tax-exempt
|
|
1,246
|
|
1,226
|
|
Dividend and
other interest income
|
|
89
|
|
252
|
|
TOTAL INTEREST
AND DIVIDEND INCOME
|
|
8,917
|
|
9,048
|
|
|
|
|
|
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|
INTEREST EXPENSE
|
|
|
|
|
|
Deposits
|
|
2,005
|
|
2,541
|
|
Short-term
borrowings
|
|
158
|
|
429
|
|
Long-term
borrowings, FHLB
|
|
917
|
|
1,197
|
|
TOTAL INTEREST
EXPENSE
|
|
3,080
|
|
4,167
|
|
|
|
|
|
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NET INTEREST
INCOME
|
|
5,837
|
|
4,881
|
|
|
|
|
|
|
|
PROVISION FOR
LOAN LOSSES
|
|
126
|
|
60
|
|
|
|
|
|
|
|
NET INTEREST
INCOME AFTER PROVISION FOR LOAN LOSSES
|
|
5,711
|
|
4,821
|
|
|
|
|
|
|
|
NON-INTEREST
INCOME
|
|
|
|
|
|
Service charges
|
|
525
|
|
570
|
|
Securities
(losses) gains, net
|
|
(2,369
|
)
|
38
|
|
Bank-owned life
insurance
|
|
162
|
|
155
|
|
Gain on sale of
loans
|
|
118
|
|
152
|
|
Insurance
commissions
|
|
354
|
|
580
|
|
Other
|
|
434
|
|
419
|
|
TOTAL
NON-INTEREST INCOME
|
|
(776
|
)
|
1,914
|
|
|
|
|
|
|
|
NON-INTEREST
EXPENSE
|
|
|
|
|
|
Salaries and
employee benefits
|
|
2,482
|
|
2,451
|
|
Occupancy, net
|
|
339
|
|
338
|
|
Furniture and
equipment
|
|
307
|
|
285
|
|
Pennsylvania
shares tax
|
|
171
|
|
105
|
|
Amortization of
investment in limited partnerships
|
|
142
|
|
178
|
|
Other
|
|
1,204
|
|
1,088
|
|
TOTAL
NON-INTEREST EXPENSE
|
|
4,645
|
|
4,445
|
|
|
|
|
|
|
|
INCOME BEFORE
INCOME TAX (BENEFIT) PROVISION
|
|
290
|
|
2,290
|
|
INCOME TAX
(BENEFIT) PROVISION
|
|
(549
|
)
|
159
|
|
NET INCOME
|
|
$
|
839
|
|
$
|
2,131
|
|
|
|
|
|
|
|
EARNINGS PER
SHARE - BASIC
|
|
$
|
0.22
|
|
$
|
0.55
|
|
|
|
|
|
|
|
EARNINGS PER
SHARE - DILUTED
|
|
$
|
0.22
|
|
$
|
0.55
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE
SHARES OUTSTANDING - BASIC
|
|
3,831,747
|
|
3,874,741
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE
SHARES OUTSTANDING - DILUTED
|
|
3,831,747
|
|
3,874,931
|
|
|
|
|
|
|
|
DIVIDENDS PER
SHARE
|
|
$
|
0.46
|
|
$
|
0.46
|
|
See accompanying
notes to the unaudited consolidated financial statements.
4
PENNS WOODS
BANCORP, INC.
CONSOLIDATED
STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
ACCUMULATED
|
|
|
|
|
|
|
|
COMMON
|
|
ADDITIONAL
|
|
|
|
OTHER
|
|
|
|
TOTAL
|
|
|
|
STOCK
|
|
PAID-IN
|
|
RETAINED
|
|
COMPREHENSIVE
|
|
TREASURY
|
|
SHAREHOLDERS
|
|
(In Thousands, Except Per Share Data)
|
|
SHARES
|
|
AMOUNT
|
|
CAPITAL
|
|
EARNINGS
|
|
LOSS
|
|
STOCK
|
|
EQUITY
|
|
Balance,
December 31, 2008
|
|
4,010,528
|
|
$
|
33,421
|
|
$
|
17,959
|
|
$
|
28,177
|
|
$
|
(12,266
|
)
|
$
|
(6,264
|
)
|
$
|
61,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
839
|
|
|
|
|
|
839
|
|
Other
comprehensive loss
|
|
|
|
|
|
|
|
|
|
(1,537
|
)
|
|
|
(1,537
|
)
|
Dividends declared
($0.46 per share)
|
|
|
|
|
|
|
|
(1,762
|
)
|
|
|
|
|
(1,762
|
)
|
Common shares
issued for employee stock purchase plan
|
|
723
|
|
6
|
|
11
|
|
|
|
|
|
|
|
17
|
|
Balance,
March 31, 2009
|
|
4,011,251
|
|
$
|
33,427
|
|
$
|
17,970
|
|
$
|
27,254
|
|
$
|
(13,803
|
)
|
$
|
(6,264
|
)
|
$
|
58,584
|
|
|
|
|
|
|
|
|
|
|
|
ACCUMULATED
|
|
|
|
|
|
|
|
COMMON
|
|
ADDITIONAL
|
|
|
|
OTHER
|
|
|
|
TOTAL
|
|
|
|
STOCK
|
|
PAID-IN
|
|
RETAINED
|
|
COMPREHENSIVE
|
|
TREASURY
|
|
SHAREHOLDERS
|
|
(In Thousands, Except Per Share Data)
|
|
SHARES
|
|
AMOUNT
|
|
CAPITAL
|
|
EARNINGS
|
|
LOSS
|
|
STOCK
|
|
EQUITY
|
|
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 postretirement benefits
|
|
|
|
|
|
|
|
(437
|
)
|
|
|
|
|
(437
|
)
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
2,131
|
|
|
|
|
|
2,131
|
|
Other
comprehensive loss
|
|
|
|
|
|
|
|
|
|
(1,207
|
)
|
|
|
(1,207
|
)
|
Dividends
declared, ($0.46 per share)
|
|
|
|
|
|
|
|
(1,781
|
)
|
|
|
|
|
(1,781
|
)
|
Common shares
issued for employee stock purchase plan
|
|
718
|
|
6
|
|
16
|
|
|
|
|
|
|
|
22
|
|
Purchase of
treasury stock (4,297 shares)
|
|
|
|
|
|
|
|
|
|
|
|
(133
|
)
|
(133
|
)
|
Balance,
March 31, 2008
|
|
4,007,652
|
|
$
|
33,397
|
|
$
|
17,904
|
|
$
|
27,620
|
|
$
|
(4,741
|
)
|
$
|
(5,026
|
)
|
$
|
69,154
|
|
PENNS WOODS
BANCORP, INC.
CONSOLIDATED
STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
|
|
Three Months Ended March 31,
|
|
(In Thousands)
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
$
|
839
|
|
|
|
$
|
2,131
|
|
Other
comprehensive loss:
|
|
|
|
|
|
|
|
|
|
Change in net
unrealized losses on available for sale securities
|
|
(4,697
|
)
|
|
|
(1,791
|
)
|
|
|
Less:
Reclassification adjustment for net (losses) gains included in net income
|
|
(2,369
|
)
|
|
|
38
|
|
|
|
Other
comprehensive loss before tax benefit
|
|
|
|
(2,328
|
)
|
|
|
(1,829
|
)
|
Income tax
benefit related to other comprehensive loss
|
|
|
|
(791
|
)
|
|
|
(622
|
)
|
Other
comprehensive loss, net of tax
|
|
|
|
(1,537
|
)
|
|
|
(1,207
|
)
|
Comprehensive
(loss) income
|
|
|
|
$
|
(698
|
)
|
|
|
$
|
924
|
|
See accompanying
notes to the unaudited consolidated financial statements.
5
PENNS WOODS
BANCORP, INC.
CONSOLIDATED
STATEMENT OF CASH FLOWS
(UNAUDITED)
|
|
Three Months Ended
March 31,
|
|
(In Thousands)
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
Net Income
|
|
$
|
839
|
|
$
|
2,131
|
|
Adjustments to
reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
Depreciation and
amortization
|
|
181
|
|
157
|
|
Provision for
loan losses
|
|
126
|
|
60
|
|
Accretion and
amortization of investment security discounts and premiums
|
|
(23
|
)
|
(284
|
)
|
Securities
losses (gains), net
|
|
2,369
|
|
(38
|
)
|
Originations of
loans held for sale
|
|
(3,797
|
)
|
(6,400
|
)
|
Proceeds of loans
held for sale
|
|
5,023
|
|
7,512
|
|
Gain on sale of
loans
|
|
(118
|
)
|
(152
|
)
|
Increases in
bank-owned life insurance
|
|
(162
|
)
|
(155
|
)
|
Other, net
|
|
(398
|
)
|
(702
|
)
|
Net cash
provided by operating activities
|
|
4,040
|
|
2,129
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
Investment securities
available for sale:
|
|
|
|
|
|
Proceeds from
sales
|
|
17
|
|
17,737
|
|
Proceeds from
calls and maturities
|
|
2,178
|
|
1,887
|
|
Purchases
|
|
(100
|
)
|
(23,912
|
)
|
Investment
securities held to maturity:
|
|
|
|
|
|
Proceeds from
calls and maturities
|
|
25
|
|
|
|
Net (increase)
decrease in loans
|
|
(5,886
|
)
|
2,833
|
|
Acquisition of
bank premises and equipment
|
|
(49
|
)
|
(764
|
)
|
Proceeds from
the sale of foreclosed assets
|
|
|
|
11
|
|
Purchase of
bank-owned life insurance
|
|
(42
|
)
|
(679
|
)
|
Investment in
limited partnership
|
|
(701
|
)
|
|
|
Proceeds from
redemption of regulatory stock
|
|
|
|
1,161
|
|
Purchases of
regulatory stock
|
|
(170
|
)
|
(1,446
|
)
|
Net cash used
for investing activities
|
|
(4,728
|
)
|
(3,172
|
)
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
Net increase in
interest-bearing deposits
|
|
31,511
|
|
10,112
|
|
Net decrease in
noninterest-bearing deposits
|
|
(4,072
|
)
|
(3,009
|
)
|
Repayment of
long-term borrowings, FHLB
|
|
|
|
(9,600
|
)
|
Net (decrease)
increase in short-term borrowings
|
|
(28,678
|
)
|
6,451
|
|
Dividends paid
|
|
(1,762
|
)
|
(1,781
|
)
|
Issuance of
common stock
|
|
17
|
|
22
|
|
Purchase of
treasury stock
|
|
|
|
(133
|
)
|
Net cash (used
for) provided by financing activities
|
|
(2,984
|
)
|
2,062
|
|
NET (DECREASE)
INCREASE IN CASH AND CASH EQUIVALENTS
|
|
(3,672
|
)
|
1,019
|
|
CASH AND CASH
EQUIVALENTS, BEGINNING
|
|
16,581
|
|
15,433
|
|
CASH AND CASH
EQUIVALENTS, ENDING
|
|
$
|
12,909
|
|
$
|
16,452
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
3,204
|
|
$
|
4,285
|
|
Income taxes
paid
|
|
150
|
|
150
|
|
See accompanying
notes to the unaudited consolidated financial statements.
6
PENNS WOODS BANCORP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The consolidated financial
statements include the accounts of Penns Woods Bancorp, Inc. (the Company)
and its wholly-owned subsidiaries: Woods Investment Company, Inc., Woods
Real Estate Development Company, Inc., and Jersey Shore State Bank (the Bank)
and its wholly-owned subsidiary, The M Group, Inc. D/B/A The Comprehensive
Financial Group (The M Group). All
significant inter-company balances and transactions have been eliminated in the
consolidation.
The interim financial
statements are unaudited but, in the opinion of management, reflect all
adjustments necessary for the fair presentation of results for such
periods. The results of operations for
any interim period are not necessarily indicative of results for the full
year. These financial statements should
be read in conjunction with financial statements and notes thereto contained in
the Companys Annual Report on Form 10-K for the year ended December 31,
2008.
The
accounting policies followed in the presentation of interim financial results
are the same as those followed on an annual basis. These policies are
presented on pages 38 through 44 of the Annual Report on Form 10-K
for the year ended December 31, 2008.
In reference to the
attached financial statements, all adjustments are of a normal recurring nature
pursuant to Rule 10-01(b) (8) of Regulation S-X.
Note 2. Recent
Accounting Pronouncements
In April 2009, the FASB issued FASB Staff
Position (FSP) No. FAS 141(R)-1,
Accounting for Assets
Acquired and Liabilities Assumed in a Business Combination That Arise from
Contingencies
(FAS 141(R)-1).
This FSP requires companies
acquiring contingent assets or assuming contingent liabilities in business
combination to either (a) if the assets or liabilities fair value can be
determined, recognize them at fair value, at the acquisition date, or (b) if
the assets or liabilities fair value cannot be determined, but (i) it is
probable that an asset existed or that a liability had been incurred at the
acquisition date and (ii) the amount of the asset or liability can be
reasonably estimated, recognize them at their estimated amount, at the
acquisition date. If the fair value of
these contingencies cannot be determined and they are not probable or cannot be
reasonably estimated, then companies should not recognize these contingencies
as of the acquisition date and instead should account for them in subsequent
periods by following other applicable GAAP.
This FSP also eliminates the FAS 141(R)-1 requirement of disclosing in
the footnotes to the financial statements the range of expected outcomes for a
recognized contingency. This FSP shall
be effective for assets or liabilities arising from contingencies in business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15,
2008. The adoption of this FSP has
7
not and is not expected to have a material effect on
the Companys results of operations or financial position.
In April 2009, the FASB
issued FSP No. FAS 157-4,
Determining Fair Value
When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly
(FAS
157-4). This FSP relates to determining
fair values when there is no active market or where the price inputs being used
represent distressed sales. It reaffirms
the need to use judgment to ascertain if a formerly active market has become
inactive and in determining fair values when markets have become inactive. FAS
157-4 is effective for interim and annual periods ending after June 15,
2009, but entities may early adopt this FSP for the interim and annual periods
ending after March 15, 2009. The adoption of this FSP is not expected to
have a material effect on the Companys results of operations or financial
position.
In April 2009, the FASB
issued FSP No. FAS 107-1 and APB 28-1,
Interim Disclosures about
Fair Value of Financial Instruments
(FAS 107-1 and APB 28-1),
which relates to fair value disclosures for any financial instruments that are
not currently reflected on the balance sheet of companies at fair value. Prior to issuing this FSP, fair values for
these assets and liabilities were only disclosed once a year. The FSP now
requires these disclosures on a quarterly basis, providing qualitative and
quantitative information about fair value estimates for all those financial
instruments not measured on the balance sheet at fair value. FAS 107-1 and APB 28-1 is effective for
interim and annual periods ending after June 15, 2009, but entities may
early adopt this FSP for the interim and annual periods ending after March 15,
2009. The adoption of this FSP is not
expected to have a material effect on the Companys results of operations or
financial position.
In April 2009, the FASB
issued FSP No. FAS 115-2 and FAS 124-2,
Recognition
and Presentation of Other-Than-Temporary Impairments
(FAS 115-2 and
FAS 124-2), which provides additional guidance designed to create greater
clarity and consistency in accounting for and presenting impairment losses on
securities. FAS 115-2 and FAS 124-2 is
effective for interim and annual periods ending after June 15, 2009, but
entities may early adopt this FSP for the interim and annual periods ending
after March 15, 2009. The adoption
of this FSP is not expected to have a material effect on the Companys results
of operations or financial position.
Note 3. Per Share Data
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.
8
|
|
Three Months Ended March 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Weighted average
common shares issued
|
|
4,010,775
|
|
4,007,176
|
|
|
|
|
|
|
|
Average treasury
stock shares
|
|
(179,028
|
)
|
(132,435
|
)
|
|
|
|
|
|
|
Weighted average
common shares and
common stock equivalents used to calculate basic
earnings per share
|
|
3,831,747
|
|
3,874,741
|
|
|
|
|
|
|
|
Additional
common stock equivalents
(stock options) used to calculate diluted earnings
per share
|
|
|
|
190
|
|
|
|
|
|
|
|
Weighted average
common shares and
common stock equivalents used to calculate diluted
earnings per share
|
|
3,831,747
|
|
3,874,931
|
|
Options to purchase 1,980 shares of common stock were
outstanding during the three months ended March 31, 2009 but were not
included in the computation of diluted earnings per share as they were
anti-dilutive due to the strike prices range of $24.72 to $31.82 being greater
than the average market price of $24.62 for the three months ended March 31,
2009. Options to purchase 8,273 shares
of common stock were outstanding during the three months ended March 31,
2008 but were not included in the computation of diluted earnings per share as
they were anti-dilutive due to the strike price being greater than the average
market price for the three months ended March 31, 2008.
Note 4.
Net
Periodic Benefit Cost-Defined Benefit Plans
For a detailed disclosure on the Companys pension and
employee benefits plans, please refer to Note 11 of the Companys Consolidated
Financial Statements included in the Annual Report on Form 10-K for the
year ended December 31, 2008.
The following sets forth the components of the net
periodic benefit cost of the domestic non-contributory defined benefit plan for
the three months ended March 31, 2009 and 2008, respectively:
9
|
|
Three Months Ended
March 31,
|
|
(In Thousands)
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
136
|
|
$
|
137
|
|
Interest cost
|
|
170
|
|
152
|
|
Expected return
on plan assets
|
|
(127
|
)
|
(157
|
)
|
Amortization of
transition obligation
|
|
(1
|
)
|
(1
|
)
|
Amortization of
prior service cost
|
|
6
|
|
6
|
|
Amortization of
net loss
|
|
85
|
|
14
|
|
Net periodic
cost
|
|
$
|
269
|
|
$
|
151
|
|
Employer Contributions
The Company previously disclosed in its consolidated
financial statements, included in the Annual Report on Form 10-K for the
year ended December 31, 2008, that it expected to contribute a minimum of
$325,000 to its defined benefit plan in 2009. As of March 31, 2009,
there were no contributions made to the plan.
Note
5. Off Balance Sheet Risk
The Company is a party to financial instruments
with off-balance sheet risk in the normal course of business to meet the
financing needs of its customers. These
financial instruments are primarily comprised of commitments to extend credit
and standby letters of credit. These
instruments involve, to varying degrees, elements of credit, interest rate, or
liquidity risk in excess of the amount recognized in the consolidated balance
sheet. The contract amounts of these
instruments express the extent of involvement the Company has in particular
classes of financial instruments.
The Companys exposure to credit loss from
nonperformance by the other party to the financial instruments for commitments
to extend credit and standby letters of credit is represented by the
contractual amount of these instruments.
The Company uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments. The Company may require collateral or other
security to support financial instruments with off-balance sheet credit risk.
Financial instruments whose contract amounts
represent credit risk are as follows at March 31, 2009 and December 31,
2008:
|
|
March 31,
|
|
December 31,
|
|
(In Thousands)
|
|
2009
|
|
2008
|
|
Commitments to
extend credit
|
|
$
|
84,833
|
|
$
|
85,871
|
|
Standby letters
of credit
|
|
883
|
|
841
|
|
|
|
|
|
|
|
|
|
10
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 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 6. Reclassification of Comparative Amounts
Certain comparative
amounts for the prior period have been reclassified to conform to current
period presentations. Such reclassifications had no effect on net income or
shareholders equity.
Note 7. Employee Stock Purchase
Plan
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. During the three months ended March 31,
2009 and 2008, there were 723 and 718 shares issued under the plan,
respectively.
Note 8. Fair Value Measurements
Effective January 1, 2008, the Company adopted
the provisions of FAS No. 157,
Fair Value Measurements
(FAS
157), for financial assets and financial liabilities. FAS 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 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 157 for all nonfinancial assets and nonfinancial liabilities to fiscal
years beginning after November 15, 2008.
11
FAS 157 establishes a hierarchal disclosure framework
associated with the level of pricing observability utilized in measuring assets
and liabilities at fair value. The three broad levels defined by FAS 157
hierarchy are as follows:
Level I:
|
|
Quoted prices are available in active markets for
identical assets or liabilities as of the reported date.
|
|
|
|
Level II:
|
|
Pricing inputs are other than quoted prices in
active markets, which are either directly or indirectly observable as of the
reported date. The nature of these assets and liabilities include items for
which quoted prices are available but traded less frequently, and items that
are fair valued using other financial instruments, the parameters of which
can be directly observed.
|
|
|
|
Level III:
|
|
Assets and liabilities that have little to no
pricing observability as of the reported date. These items do not have
two-way markets and are measured using managements best estimate of fair
value, where the inputs into the determination of fair value require
significant management judgment or estimation.
|
The
following table presents the assets reported on the balance sheet at their fair
value on a recurring basis as of March 31, 2009 and December 31,
2008, by level within the fair value hierarchy. As required by FAS 157,
financial assets and liabilities are classified in their entirety based on the
lowest level of input that is significant to the fair value measurement.
|
|
March 31, 2009
|
|
(In Thousands)
|
|
Level I
|
|
Level II
|
|
Level III
|
|
Total
|
|
Assets Measured
on a Recurring Basis:
|
|
|
|
|
|
|
|
|
|
Investment
Securities, available-for-sale
|
|
$
|
11,339
|
|
$
|
190,312
|
|
$
|
|
|
$
|
201,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
(In Thousands)
|
|
Level I
|
|
Level II
|
|
Level III
|
|
Total
|
|
Assets Measured
on a Recurring Basis:
|
|
|
|
|
|
|
|
|
|
Investment
Securities, available-for-sale
|
|
$
|
13,269
|
|
$
|
194,982
|
|
$
|
|
|
$
|
208,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table presents the assets reported on the balance sheet at their fair
value on a non-recurring basis as of March 31, 2009 and December 31,
2008, by level within the fair value hierarchy. As required by FAS 157,
financial assets and liabilities are classified in their entirety based on the
lowest level of input that is significant to the fair value measurement.
|
|
March 31, 2009
|
|
(In Thousands)
|
|
Level I
|
|
Level II
|
|
Level III
|
|
Total
|
|
Assets Measured
on a Non-recurring Basis:
|
|
|
|
|
|
|
|
|
|
Impaired Loans
|
|
$
|
|
|
$
|
6,001
|
|
$
|
|
|
$
|
6,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
(In Thousands)
|
|
Level I
|
|
Level II
|
|
Level III
|
|
Total
|
|
Assets Measured
on a Non-recurring Basis:
|
|
|
|
|
|
|
|
|
|
Impaired Loans
|
|
$
|
|
|
$
|
4,876
|
|
$
|
|
|
$
|
4,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
CAUTIONARY
STATEMENT FOR PURPOSES OF THE PRIVATE
SECURITIES
LITIGATION REFORM ACT OF 1995
This Report contains
certain forward-looking statements including statements concerning plans,
objectives, future events or performance and assumptions and other statements
which are other than statements of historical fact. The Company wishes to caution readers that
the following important factors, among others, may have affected and could in
the future affect the Companys actual results and could cause the Companys
actual results for subsequent periods to differ materially from those expressed
in any forward-looking statement made by or on behalf of the Company
herein: (i) the effect of changes
in laws and regulations, including federal and state banking laws and
regulations, with which the Company must comply, and the associated costs of
compliance with such laws and regulations either currently or in the future as
applicable; (ii) the effect of changes in accounting policies and
practices, as may be adopted by the regulatory agencies as well as by the
Financial Accounting Standards Board, or of changes in the Companys
organization, compensation and benefit plans; (iii) the effect on the Companys
competitive position within its market area of the increasing consolidation
within the banking and financial services industries, including the increased
competition from larger regional and out-of-state banking organizations as well
as non-bank providers of various financial services; (iv) the effect of
changes in interest rates; and (v) the effect of changes in the business
cycle and downturns in the local, regional or national economies.
You
should not put undue reliance on any forward-looking statements. These statements speak only as of the date of
this Quarterly Report on Form 10-Q, even if subsequently made available by
the Company on its website or otherwise.
The Company undertakes no obligation to update or revise these
statements to reflect events or circumstances occurring after the date of this
Quarterly Report on Form 10-Q.
13
Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operation
EARNINGS SUMMARY
Comparison
of the Three Months Ended March 31, 2009 and 2008
Summary
Results
Net
income for the three months ended March 31, 2009 was $839,000 compared to
$2,131,000 for the same period of 2008 as after-tax securities losses increased
$1,589,000 (from a gain of $25,000 to a loss of $1,564,000). Included within the change in after-tax
securities losses was an other than temporary impairment charge relating to
certain equity securities held in the investment portfolio of $2,333,000. Basic
and diluted earnings per share for the three months ended March 31, 2009
were $0.22 compared to $0.55 for the three months ended March 31,
2008. Return on average assets and
return on average equity were 0.52% and 5.64% for the three months ended March 31,
2009 compared to 1.36% and 12.01% for the corresponding period of 2008. Net income from core operations (operating
earnings) increased 14.1% to $2,403,000 for the three months ended March 31,
2009 compared to $2,106,000 for the same period of 2008. Operating earnings per share for the three
months ended March 31, 2009 increased 16.7% to $0.63 basic and dilutive
compared to $0.54 basic and dilutive for the three months ended March 31,
2008.
(Management uses the
non-GAAP measure of net income from core operations in its analysis of the
Companys performance. This measure, as
used by the Company, adjusts net income by excluding significant gains or
losses that are unusual in nature.
Because certain of these items and their impact on the Companys
performance are difficult to predict, management believes the presentation of
financial measures excluding the impact of such items provides useful
supplemental information in evaluating the operating results of the Companys
core businesses. For purposes of this
Quarterly Report on Form 10-Q, net income from core operations means net
income adjusted to exclude after-tax net securities gains or losses. These disclosures should not be viewed as a
substitute for net income determined in accordance with GAAP, nor are they
necessarily comparable to non-GAAP performance measures that may be presented
by other companies.)
Interest
And Dividend Income
Interest
and dividend income for the three months ended March 31, 2009 decreased
$131,000 to $8,917,000 compared to $9,048,000 for the same period of 2008. The decrease in interest income was the
result of a decline in loan interest of $161,000 offset by an increase in
investment securities income of $30,000.
The decline in loan interest is the result of the low interest rate
environment that has existed over the past year. This has caused the interest rate of new
loans to be at a lower rate, resulting in a 56 basis point (bp) decline in
loan portfolio yield. Dividend income
decreased as a direct result of the current status of the economy that has
caused many of the equity holdings in our portfolio to decrease their
dividend. In addition, the Federal
14
Home
Loan Bank of Pittsburgh (FHLB) has suspended payment of dividends on shares
of its common stock, which has resulted in a decrease of approximately $75,000
in dividend income. Offsetting the
decreased dividend income was an increase in taxable investment securities
income of $173,000. On a taxable
equivalent basis, the decline in total interest income was limited to
$73,000. Average loan portfolio growth
of $27,202,000 limited the impact of the decline in loan portfolio yield. In addition, the investment portfolio yield
increased 43 bp resulting in increased taxable equivalent income of $41,000.
Interest
and dividend income composition for the three months ended March 31, 2009
and 2008 was as follows:
|
|
For The Three Months Ended
|
|
|
|
March 31, 2009
|
|
March 31, 2008
|
|
Change
|
|
(In Thousands)
|
|
Amount
|
|
% Total
|
|
Amount
|
|
% Total
|
|
Amount
|
|
%
|
|
Loans including
fees
|
|
$
|
6,219
|
|
69.7
|
%
|
$
|
6,380
|
|
70.5
|
%
|
$
|
(161
|
)
|
(2.5
|
)%
|
Investment
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
1,363
|
|
15.3
|
|
1,190
|
|
13.2
|
|
173
|
|
14.5
|
|
Tax-exempt
|
|
1,246
|
|
14.0
|
|
1,226
|
|
13.5
|
|
20
|
|
1.6
|
|
Dividend and
other interest income
|
|
89
|
|
1.0
|
|
252
|
|
2.8
|
|
(163
|
)
|
(64.7
|
)
|
Total interest
and dividend income
|
|
$
|
8,917
|
|
100.0
|
%
|
$
|
9,048
|
|
100.0
|
%
|
$
|
(131
|
)
|
(1.4
|
)%
|
Interest
Expense
Interest
expense for the three months ended March 31, 2009 decreased $1,087,000 to
$3,080,000 compared to $4,167,000 for the same period of 2008. The decreased expense of $536,000 associated
with deposits is primarily the result of a reduction of 138 bp in rate paid on
time deposits. Factors that led to the
rate decreases include, but are not limited to, Federal Open Market Committee (FOMC)
interest rate actions and campaigns conducted by the Company during the past
two years to attract 12 month or shorter maturity CDs resulting in an increased
repricing frequency. Short-term
borrowings interest expense decreased $271,000 as the increase in average
balance of $10,374,000 was countered by a decrease in the rate paid of 231 bp
due to the FOMC rate actions and overall decline in the treasury security
market. Long-term borrowing interest
expense decreased $280,000 as the average balance of such borrowings decreased
$18,756,000, while the average rate decreased 26 bp to 4.23%. The change in average balance and rate is
reflective of $29,600,000 in long-term borrowing maturities during the first half
of 2008 at an average rate of 4.77% offset by the acquisition of $10,000,000 in
long-term borrowings at a rate of 3.18% during the third quarter of 2008.
Interest
expense composition for the three months ended March 31, 2009 and 2008 was
as follows:
15
|
|
For The Three Months Ended
|
|
|
|
March 31, 2009
|
|
March 31, 2008
|
|
Change
|
|
(In Thousands)
|
|
Amount
|
|
% Total
|
|
Amount
|
|
% Total
|
|
Amount
|
|
%
|
|
Deposits
|
|
$
|
2,005
|
|
65.1
|
%
|
$
|
2,541
|
|
61.0
|
%
|
$
|
(536
|
)
|
(21.1
|
)%
|
Short-term
borrowings
|
|
158
|
|
5.1
|
|
429
|
|
10.3
|
|
(271
|
)
|
(63.2
|
)
|
Long-term
borrowings, FHLB
|
|
917
|
|
29.8
|
|
1,197
|
|
28.7
|
|
(280
|
)
|
(23.4
|
)
|
Total interest
expense
|
|
$
|
3,080
|
|
100.0
|
%
|
$
|
4,167
|
|
100.0
|
%
|
$
|
(1,087
|
)
|
(26.1
|
)%
|
Net Interest Margin
The
net interest margin (NIM) for the three months ended March 31, 2009 was
4.47% compared to 3.87% for the corresponding period of 2008. The increase in the NIM was driven by a 105
bp decline in the rate paid on interest bearing liabilities that more than
compensated for a 19 bp decline in the yield on earning assets. The decrease in earning asset yield is due to
the impact on the loan portfolio of the current low rate environment offset in
part by an increase in yield for the investment portfolio. The increase in the investment portfolio
yield was driven by a strategic initiative to increase tax equivalent net
interest income by purchasing tax-exempt and taxable municipal bonds in
anticipation of the decreasing rate environment that has continued to date. The decrease in the cost of interest bearing
liabilities to 2.45% from 3.50% was driven primarily by a reduction in the rate
paid on time deposits of 138 bp and total borrowings of 121 bp. The reduction in the rate paid on time deposits
was the result of a shortening of the time deposit portfolio that has resulted
in an increasing repricing frequency during this period of decreasing rates.
The
following is a schedule of average balances and associated yields for the three
months ended March 31, 2009 and 2008:
16
|
|
AVERAGE
BALANCES AND INTEREST RATES
|
|
|
|
Three Months Ended
March 31, 2009
|
|
Three Months Ended
March 31, 2008
|
|
(In Thousands)
|
|
Average Balance
|
|
Interest
|
|
Average Rate
|
|
Average Balance
|
|
Interest
|
|
Average Rate
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt loans
|
|
$
|
16,052
|
|
$
|
265
|
|
6.70
|
%
|
$
|
8,013
|
|
$
|
126
|
|
6.32
|
%
|
All other loans
|
|
373,878
|
|
6,044
|
|
6.56
|
%
|
354,715
|
|
6,297
|
|
7.14
|
%
|
Total loans
|
|
389,930
|
|
6,309
|
|
6.56
|
%
|
362,728
|
|
6,423
|
|
7.12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
investment securities
|
|
101,890
|
|
1,452
|
|
5.70
|
%
|
100,730
|
|
1,442
|
|
5.73
|
%
|
Tax-exempt
investment securities
|
|
101,654
|
|
1,888
|
|
7.43
|
%
|
114,590
|
|
1,857
|
|
6.48
|
%
|
Total securities
|
|
203,544
|
|
3,340
|
|
6.56
|
%
|
215,320
|
|
3,299
|
|
6.13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing
deposits
|
|
23
|
|
|
|
0.00
|
%
|
38
|
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest-earning assets
|
|
593,497
|
|
9,649
|
|
6.56
|
%
|
578,086
|
|
9,722
|
|
6.75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
55,256
|
|
|
|
|
|
48,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
648,753
|
|
|
|
|
|
$
|
626,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
$
|
59,642
|
|
78
|
|
0.53
|
%
|
$
|
58,561
|
|
109
|
|
0.75
|
%
|
Super Now
deposits
|
|
53,890
|
|
129
|
|
0.97
|
%
|
46,367
|
|
155
|
|
1.34
|
%
|
Money market
deposits
|
|
41,276
|
|
212
|
|
2.08
|
%
|
23,324
|
|
127
|
|
2.18
|
%
|
Time deposits
|
|
205,110
|
|
1,586
|
|
3.14
|
%
|
190,927
|
|
2,150
|
|
4.52
|
%
|
Total deposits
|
|
359,918
|
|
2,005
|
|
2.26
|
%
|
319,179
|
|
2,541
|
|
3.20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
borrowings
|
|
61,487
|
|
158
|
|
1.03
|
%
|
51,113
|
|
429
|
|
3.34
|
%
|
Long-term
borrowings, FHLB
|
|
86,778
|
|
917
|
|
4.23
|
%
|
105,534
|
|
1,197
|
|
4.49
|
%
|
Total borrowings
|
|
148,265
|
|
1,075
|
|
2.90
|
%
|
156,647
|
|
1,626
|
|
4.11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest-bearing liabilities
|
|
508,183
|
|
3,080
|
|
2.45
|
%
|
475,826
|
|
4,167
|
|
3.50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
71,321
|
|
|
|
|
|
70,243
|
|
|
|
|
|
Other
liabilities
|
|
9,760
|
|
|
|
|
|
9,726
|
|
|
|
|
|
Shareholders
equity
|
|
59,489
|
|
|
|
|
|
70,983
|
|
|
|
|
|
Total
liabilities and shareholders equity
|
|
$
|
648,753
|
|
|
|
|
|
$
|
626,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate
spread
|
|
|
|
|
|
4.12
|
%
|
|
|
|
|
3.25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest
income/margin
|
|
|
|
$
|
6,569
|
|
4.47
|
%
|
|
|
$
|
5,555
|
|
3.87
|
%
|
1.
Information on this table has been
calculated using average daily balance sheets to obtain average balances.
2.
Nonaccrual loans have been included with
loans for the purpose of analyzing net interest earnings.
3.
Income and rates on a fully taxable
equivalent basis include an adjustment for the difference between annual income
from tax-exempt obligations and the taxable equivalent of such income at the
standard 34% tax rate.
17
The following table presents the
adjustment to convert net interest income to net interest income on a fully
taxable equivalent basis for the three months ended March 31, 2009 and
2008.
|
|
For the Three Months Ended
March 31,
|
|
(In Thousands)
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Total interest
income
|
|
$
|
8,917
|
|
$
|
9,048
|
|
Total interest
expense
|
|
3,080
|
|
4,167
|
|
|
|
|
|
|
|
Net interest
income
|
|
5,837
|
|
4,881
|
|
Tax equivalent
adjustment
|
|
732
|
|
674
|
|
|
|
|
|
|
|
Net interest
income (fully taxable equivalent)
|
|
$
|
6,569
|
|
$
|
5,555
|
|
The following table sets forth the
respective impact that both volume and rate changes have had on net interest
income on a fully taxable equivalent basis for the three month periods ended March 31,
2009 and 2008:
18
|
|
Three Months Ended March 31,
|
|
|
|
2009 vs 2008
Increase (Decrease)
Due to
|
|
(In Thousands)
|
|
Volume
|
|
Rate
|
|
Net
|
|
Interest income:
|
|
|
|
|
|
|
|
Loans,
tax-exempt
|
|
$
|
131
|
|
$
|
8
|
|
$
|
139
|
|
Loans
|
|
453
|
|
(706
|
)
|
(253
|
)
|
Taxable
investment securities
|
|
17
|
|
(7
|
)
|
10
|
|
Tax-exempt
investment securities
|
|
(223
|
)
|
254
|
|
31
|
|
Interest bearing
deposits
|
|
|
|
|
|
|
|
Total
interest-earning assets
|
|
378
|
|
(451
|
)
|
(73
|
)
|
|
|
|
|
|
|
|
|
Interest
expense:
|
|
|
|
|
|
|
|
Savings deposits
|
|
2
|
|
(33
|
)
|
(31
|
)
|
Super Now deposits
|
|
33
|
|
(59
|
)
|
(26
|
)
|
Money market
deposits
|
|
90
|
|
(5
|
)
|
85
|
|
Time deposits
|
|
178
|
|
(742
|
)
|
(564
|
)
|
Short-term
borrowings
|
|
106
|
|
(377
|
)
|
(271
|
)
|
Long-term
borrowings, FHLB
|
|
(211
|
)
|
(69
|
)
|
(280
|
)
|
Total
interest-bearing liabilities
|
|
198
|
|
(1,285
|
)
|
(1,087
|
)
|
Change in net
interest income
|
|
$
|
180
|
|
$
|
834
|
|
$
|
1,014
|
|
Provision for Loan
Losses
The
provision for loan losses is based upon managements quarterly review of the
loan portfolio. The purpose of the
review is to assess loan quality, identify impaired loans, analyze
delinquencies, ascertain loan growth, evaluate potential charge-offs and
recoveries, and assess general economic conditions in the markets served. An external independent loan review is also
performed annually for the Bank.
Management remains committed to an aggressive program of problem loan
identification and resolution.
The allowance for loan
losses is determined by applying loss factors to outstanding loans by type,
excluding loans for which a specific allowance has been determined. Loss factors are based on managements
consideration of the nature of the portfolio segments, changes in mix and
volume of the loan portfolio, and historical loan loss experience. In addition, management considers industry
standards and trends with respect to non-performing loans and its knowledge and
experience with specific lending segments.
Although management
believes it uses the best information available to make such determinations and
that the allowance for loan losses is adequate at March 31, 2009, 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,
19
increased unemployment,
and delays in receiving financial information from borrowers could result in
increased levels of nonperforming assets, charge-offs, loan loss provisions,
and reductions in income. Additionally,
as an integral part of the examination process, bank regulatory agencies
periodically review the Banks loan loss allowance. The banking agencies could require the
recognition of additions to the loan loss allowance based on their judgment of
information available to them at the time of their examination.
While determining the
appropriate allowance level, management has attributed the allowance for loan
losses to various portfolio segments; however, the allowance is available for
the entire portfolio as needed.
The allowance for loan
losses increased from $4,356,000 at December 31, 2008 to $4,441,000 at March 31,
2009. At March 31, 2009 and December 31,
2008, the allowance for loan losses to total loans was 1.15% and 1.14%,
respectively.
The provision for loan
losses totaled $126,000 for the three months ended March 31, 2009,
compared to $60,000 for the same period in 2008. The amount of the increase in the provision
was the result of several factors, including but not limited to, an increase in
gross loans of $5,714,000 since December 31, 2008, a ratio of annualized
net charge offs to average loans of 0.04% for the three months ended March 31,
2009, a ratio of nonperforming loans to total loans of 0.59%, and a ratio of
the allowance for loan losses to nonperforming loans of 195.72% at March 31,
2009.
Non-interest
Income
Total
non-interest income for the three months ended March 31, 2009 compared to
the same period in 2008 decreased $2,690,000 to $(776,000) due to a $2,407,000
decrease in net securities gains and losses realized when comparing the three
month periods ended March 31, 2009 and 2008. Excluding net securities gains and losses,
non-interest income for the first quarter of 2009 would have decreased $283,000
as compared to the 2008 period. Deposit
service charges decreased $45,000 as overdraft fee income declined $33,000 in
addition to customers migrating to no service charge checking accounts that
were introduced as part of a customer acquisition and retention program. Gain on sale of loans decreased $34,000 due
primarily from a change in product mix which has resulted in a greater
percentage of the fee collected being categorized as other income. Other income increased due to increased
revenue from electronic card (debit/credit) usage and fees from the sale of
loans into the secondary market, which countered losses realized from the sale
of other real estate owned.
Insurance
commissions for the three months ended March 31, 2009 decreased $226,000
compared to the same period in 2008 due to a softening market and shift in
product mix. Management of The M Group
continues to pursue new and build upon current relationships. The sales call program continues to expand to
other financial institutions, which results in additional revenue for The M
Group if another sales outlet is added.
However, the addition of another sales outlet for The M Group can take
up to a year or more to be completed.
20
Non-interest
income composition for the three months ended March 31, 2009 and 2008 was
as follows:
|
|
For The Three Months Ended
|
|
|
|
March 31, 2009
|
|
March 31, 2008
|
|
Change
|
|
(In Thousands)
|
|
Amount
|
|
% Total
|
|
Amount
|
|
% Total
|
|
Amount
|
|
%
|
|
Deposit service
charges
|
|
$
|
525
|
|
(67.7
|
)%
|
$
|
570
|
|
29.8
|
%
|
$
|
(45
|
)
|
(7.9
|
)%
|
Securities
(losses) gains, net
|
|
(2,369
|
)
|
305.3
|
|
38
|
|
2.0
|
|
(2,407
|
)
|
(6,334.2
|
)
|
Bank owned life
insurance
|
|
162
|
|
(20.9
|
)
|
155
|
|
8.1
|
|
7
|
|
4.5
|
|
Gain on sale of
loans
|
|
118
|
|
(15.2
|
)
|
152
|
|
7.9
|
|
(34
|
)
|
(22.4
|
)
|
Insurance
commissions
|
|
354
|
|
(45.6
|
)
|
580
|
|
30.3
|
|
(226
|
)
|
(39.0
|
)
|
Other
|
|
434
|
|
(55.9
|
)
|
419
|
|
21.9
|
|
15
|
|
3.6
|
|
Total
non-interest income
|
|
$
|
(776
|
)
|
100.0
|
%
|
$
|
1,914
|
|
100.0
|
%
|
$
|
(2,690
|
)
|
(140.5
|
)%
|
Non-interest
Expense
Total
non-interest expense increased $200,000 for the three months ended March 31,
2009 compared to the same period of 2008.
The increase in salaries and employee benefits was attributable to
several items including standard cost of living wage adjustments for employees,
increased pension expense, and other benefit costs. Pennsylvania shares tax increased $66,000 due
to the utilization of Pennsylvania Enterprise Zone tax credits from a low
income housing partnership during 2008.
Other expenses increased primarily due to normal anticipated
inflationary adjustments to ongoing business operating costs.
Non-interest
expense composition for the three months ended March 31, 2009 and 2008 was
as follows:
|
|
For The Three Months Ended
|
|
|
|
March 31, 2009
|
|
March 31, 2008
|
|
Change
|
|
(In Thousands)
|
|
Amount
|
|
% Total
|
|
Amount
|
|
% Total
|
|
Amount
|
|
%
|
|
Salaries and
employee benefits
|
|
$
|
2,482
|
|
53.4
|
%
|
$
|
2,451
|
|
55.1
|
%
|
$
|
31
|
|
1.3
|
%
|
Occupancy, net
|
|
339
|
|
7.3
|
|
338
|
|
7.6
|
|
1
|
|
0.3
|
|
Furniture and
equipment
|
|
307
|
|
6.6
|
|
285
|
|
6.4
|
|
22
|
|
7.7
|
|
Pennsylvania
shares tax
|
|
171
|
|
3.7
|
|
105
|
|
2.4
|
|
66
|
|
62.9
|
|
Amortization of
investment in limited partnerships
|
|
142
|
|
3.1
|
|
177
|
|
4.0
|
|
(35
|
)
|
(19.8
|
)
|
Other
|
|
1,204
|
|
25.9
|
|
1,089
|
|
24.5
|
|
115
|
|
10.6
|
|
Total
non-interest expense
|
|
$
|
4,645
|
|
100.0
|
%
|
$
|
4,445
|
|
100.0
|
%
|
$
|
200
|
|
4.5
|
%
|
Provision
for Income Taxes
Income
taxes decreased $708,000 for the three months ended March 31, 2009
compared to the same period of 2008. The
decrease, due to net securities losses of $2,369,000, resulted in a tax benefit
of $549,000 for the three months ended March 31, 2009. Excluding the impact of the net securities
gains and losses, the effective tax rate for the three months ended March 31,
2009 was 9.63% as compared to 6.48% for the same period of 2008. The Company currently is in a deferred tax
asset position due to the low income housing tax credits earned both currently
and previously. Management has reviewed
the deferred tax asset and has determined that the asset
21
will
be utilized within the appropriate carry forward period and therefore does not
require a valuation allowance.
ASSET/LIABILITY
MANAGEMENT
Cash and Cash
Equivalents
Cash and cash equivalents
decreased $3,672,000 from $16,581,000 at December 31, 2008 to $12,909,000
at March 31, 2009 primarily as a result of the following activities during
the three months ended March 31, 2009:
Loans Held for
Sale
Activity regarding loans
held for sale resulted in sale proceeds exceeding loan originations, less
$118,000 in realized gains, by $1,108,000 for the three months ended March 31,
2009.
Loans
Gross loans increased $5,714,000
since December 31, 2008 due to the increase of commercial related loans,
while non-commercial loans remained relatively constant.
The allocation of the loan portfolio, by category,
as of March 31, 2009 and December 31, 2008 is presented below:
|
|
March 31, 2009
|
|
December 31, 2008
|
|
Change
|
|
(In Thousands)
|
|
Amount
|
|
% Total
|
|
Amount
|
|
% Total
|
|
Amount
|
|
%
|
|
Commercial,
financial and agricultural
|
|
$
|
43,606
|
|
11.3
|
%
|
$
|
40,602
|
|
10.6
|
%
|
$
|
3,004
|
|
7.4
|
%
|
Real estate
mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
177,637
|
|
45.9
|
|
177,406
|
|
46.5
|
|
231
|
|
0.1
|
|
Commercial
|
|
139,255
|
|
36.0
|
|
136,158
|
|
35.7
|
|
3,097
|
|
2.3
|
|
Construction
|
|
15,897
|
|
4.1
|
|
15,838
|
|
4.2
|
|
59
|
|
0.4
|
|
Installment
loans to individuals
|
|
11,806
|
|
3.0
|
|
12,487
|
|
3.3
|
|
(681
|
)
|
(5.5
|
)
|
Less: Net deferred
loan fees
|
|
1,009
|
|
(0.3
|
)
|
1,013
|
|
(0.3
|
)
|
(4
|
)
|
(0.4
|
)
|
Gross loans
|
|
$
|
387,192
|
|
100.0
|
%
|
$
|
381,478
|
|
100.0
|
%
|
$
|
5,714
|
|
1.5
|
%
|
The recorded investment in loans for which impairment has been
recognized in accordance with Statement of Financial Accounting Standards No. 114,
Accounting by Creditors for Impairment of a Loan
,
amounted to $6,743,000 at March 31, 2009, compared to $5,042,000 at December 31,
2008. The valuation allowance related to
impaired loans amounted to $742,000 at March 31, 2009 and $166,000 at December 31,
2008. The increase in impaired loans and
valuation allowance is from a few commercial relationships.
A loan is considered impaired, based on current information and events,
if it is probable that the Bank will be unable to collect the scheduled
payments of principal or interest when due according to the contractual terms
of the loan agreement. The measurement of impaired loans is generally based on
the present value of expected future cash flows discounted at the historical
22
effective interest rate, except that all collateral-dependent loans are
measured for impairment based on the fair value of the collateral.
Investments
The
estimated fair value of the investment securities portfolio at March 31,
2009 has decreased $6,625,000 since December 31, 2008. The change is due to a reduction in agency
securities caused by normal principal payments, an increase in unrealized
losses for state and political securities, and an equity securities impairment
charge. The increased level of
unrealized losses within the bond portfolio was the result of changes in the
yield curve and a virtual freeze of trading in the municipal market, not credit
quality, as the credit quality of the portfolio remains sound.
The
equity portfolio continues to feel the effects of the economic turbulence that
is affecting the financial sector. This
sector of the portfolio, as of March 31, 2009, held $3,103,000 in
unrealized losses on an amortized cost basis of $14,263,000. The amount of the declines has caused several
of our equity holdings to be deemed other than temporarily impaired resulting
in a write down in value of these holdings of $2,333,000 for the three months
ended March 31, 2009. Certain
positions may be liquidated, in whole or part, through the balance of 2009 so
that the losses can be carried back for tax purposes and offset against gains
that have been recognized over the past several years.
23
The
amortized cost of investment securities and their estimated fair values are as
follows:
|
|
March 31, 2009
|
|
(In Thousands)
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Estimated
Fair
Value
|
|
Available for
sale (AFS)
|
|
|
|
|
|
|
|
|
|
U.S. Government
and agency
securities
|
|
$
|
43,909
|
|
$
|
1,645
|
|
$
|
|
|
$
|
45,554
|
|
State and
political securities
|
|
142,655
|
|
270
|
|
(12,014
|
)
|
130,911
|
|
Other debt
securities
|
|
16,010
|
|
92
|
|
(2,255
|
)
|
13,847
|
|
Total debt
securities
|
|
202,574
|
|
2,007
|
|
(14,269
|
)
|
190,312
|
|
Equity
securities
|
|
14,263
|
|
179
|
|
(3,103
|
)
|
11,339
|
|
Total investment
securities AFS
|
|
$
|
216,837
|
|
$
|
2,186
|
|
$
|
(17,372
|
)
|
$
|
201,651
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity
(HTM)
|
|
|
|
|
|
|
|
|
|
U.S. Government
and agency
securities
|
|
$
|
10
|
|
$
|
1
|
|
$
|
|
|
$
|
11
|
|
Other debt securities
|
|
100
|
|
|
|
|
|
100
|
|
Total investment
securities HTM
|
|
$
|
110
|
|
$
|
1
|
|
$
|
|
|
$
|
111
|
|
|
|
December 31, 2008
|
|
(In Thousands)
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Estimated
Fair
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
|
|
24
Financing Activities
Deposits
Total
deposits increased 6.5% or $27,439,000 from December 31, 2008 to March 31,
2009. The growth was led by a 40.8% or
$14,628,000 increase in money market deposits from December 31, 2008 to March 31,
2009. The increase in core deposits
(deposits less time deposits) of 6.5% or $14,647,000 has provided relationship
driven funding for the loan portfolio, while also reducing the utilization of
FHLB borrowings. The increase in
deposits is the result of a deposit gathering program coupled with customers
coming back to their hometown bank in the wake of the economic turbulence.
Deposit balances and their changes
for the periods being discussed follow:
|
|
March 31, 2009
|
|
December 31, 2008
|
|
Change
|
|
(In Thousands)
|
|
Amount
|
|
% Total
|
|
Amount
|
|
% Total
|
|
Amount
|
|
%
|
|
Demand deposits
|
|
$
|
71,963
|
|
16.0
|
%
|
$
|
76,035
|
|
18.0
|
%
|
$
|
(4,072
|
)
|
(5.4
|
)%
|
NOW accounts
|
|
55,816
|
|
12.4
|
|
53,821
|
|
12.8
|
|
1,995
|
|
3.7
|
|
Money market
deposits
|
|
50,476
|
|
11.3
|
|
35,848
|
|
8.5
|
|
14,628
|
|
40.8
|
|
Savings deposits
|
|
60,764
|
|
13.5
|
|
58,668
|
|
13.9
|
|
2,096
|
|
3.6
|
|
Time deposits
|
|
209,788
|
|
46.8
|
|
196,996
|
|
46.8
|
|
12,792
|
|
6.5
|
|
Total deposits
|
|
$
|
448,807
|
|
100.0
|
%
|
$
|
421,368
|
|
100.0
|
%
|
$
|
27,439
|
|
6.5
|
%
|
Borrowed Funds
Total borrowed funds
decreased 17.8% or $28,678,000 to $132,046,000 at March 31, 2009 compared
to $160,724,000 at December 31, 2008.
The decrease in borrowed funds is primarily the result of growth in
deposits as part of the previously discussed deposit gathering campaigns that
were utilized to provide loan portfolio funding and to reduce the level of
total borrowings. Short-term FHLB
borrowings were utilized in addition to FHLB repurchase agreements as their
structure allowed for a reduction in interest expense, while also reducing
short-term exposure to interest rate changes.
|
|
March 31, 2009
|
|
December 31, 2008
|
|
Change
|
|
(In Thousands)
|
|
Amount
|
|
% Total
|
|
Amount
|
|
% Total
|
|
Amount
|
|
%
|
|
Short-term
borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB repurchase
agreements
|
|
$
|
24,320
|
|
18.4
|
%
|
$
|
61,013
|
|
38.0
|
%
|
$
|
(36,693
|
)
|
(60.1
|
)%
|
Securities sold
under agreement to repurchase
|
|
10,948
|
|
8.3
|
|
12,933
|
|
8.0
|
|
(1,985
|
)
|
(15.3
|
)
|
Short-term
borrowings, FHLB
|
|
10,000
|
|
7.6
|
|
|
|
|
|
10,000
|
|
100.0
|
|
Total short-term
borrowings
|
|
45,268
|
|
34.3
|
%
|
73,946
|
|
46.0
|
%
|
(28,678
|
)
|
(38.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
borrowings, FHLB
|
|
86,778
|
|
65.7
|
|
86,778
|
|
54.0
|
|
|
|
|
|
Total borrowed funds
|
|
$
|
132,046
|
|
100.0
|
%
|
$
|
160,724
|
|
100.0
|
%
|
$
|
(28,678
|
)
|
(17.8
|
)%
|
25
Capital
The adequacy of the Companys capital is reviewed on
an ongoing basis with reference to the size, composition, and quality of the
Companys resources and regulatory guidelines.
Management seeks to maintain a level of capital sufficient to support
existing assets and anticipated asset growth, maintain favorable access to
capital markets, and preserve high quality credit ratings.
Bank holding companies are required to comply with the
Federal Reserve Boards risk-based capital guidelines. The risk-based capital rules are
designed to make regulatory capital requirements more sensitive to differences
in risk profiles among banks and bank holding companies and to minimize
disincentives for holding liquid assets.
Specifically, each is required to maintain certain minimum dollar
amounts and ratios of total risk-based, tier I risk-based, and tier I leverage
capital. In addition to the capital requirements, the Federal Deposit Insurance
Corporation Improvements Act (FDICIA) established five capital categories
ranging from well capitalized to critically undercapitalized. To be
classified as well capitalized, total risk-based, tier I risked-based, and
tier I leverage capital ratios must be at least 10%, 6%,
and 5%,
respectively.
The
Emergency Economic Stabilization Act of 2008 provides authority to the United
States Department of the Treasury (Treasury) to, among other things, purchase
up to $700 billion of mortgages, mortgage-backed securities, and certain other
financial instruments from financial institutions. Pursuant to this authority, Treasury
implemented a number of programs, including the Troubled Assets Relief Capital
Purchase Program. The Company evaluated
participation in the Capital Purchase Program, pursuant to which Treasury
purchased preferred stock and common stock purchase warrants from qualifying
institutions that applied for funds, and determined that the Company would not
participate in the Program due primarily to the fact that the Company did not
require additional capital because its capital ratios remained well above the
minimum levels required for well capitalized status under applicable banking
regulations. The FDIC has also initiated
a Temporary Liquidity Guarantee Program (TLGP) that provides a guarantee for
certain new senior unsecured debt issued by a participating institution by June 30,
2009 (or October 31, 2009 in certain cases) and a temporary guarantee of
deposits held in noninterest-bearing transaction accounts at a participating
institution. Participating institutions
that issue senior unsecured debt covered by the TLGP will generally pay a
premium of 50 to 100 bps per year (depending on maturity) on the principal
amount of securities covered by the guarantee and a fee of 10 bps on amounts in
noninterest-bearing transaction accounts in excess of $250,000. The Company did not opt out of coverage by
the TLGP, but has not at this time issued any new senior unsecured debt that
would be covered by the debt guarantee portion of the TLGP.
26
Capital
ratios as of March 31, 2009 and December 31, 2008 were as follows:
|
|
2009
|
|
2008
|
|
(In Thousands)
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Total Capital
(to
Risk-weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
$
|
64,374
|
|
15.3
|
%
|
$
|
66,891
|
|
16.0
|
%
|
For Capital
Adequacy Purposes
|
|
33,612
|
|
8.0
|
|
33,410
|
|
8.0
|
|
To Be Well
Capitalized
|
|
42,016
|
|
10.0
|
|
41,763
|
|
10.0
|
|
|
|
|
|
|
|
|
|
|
|
Tier I Capital
(to
Risk-weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
$
|
59,933
|
|
14.3
|
%
|
$
|
62,540
|
|
15.0
|
%
|
For Capital
Adequacy Purposes
|
|
16,806
|
|
4.0
|
|
16,705
|
|
4.0
|
|
To Be Well
Capitalized
|
|
25,209
|
|
6.0
|
|
25,058
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
Tier I Capital
(to Average Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
$
|
59,933
|
|
9.2
|
%
|
$
|
62,540
|
|
9.7
|
%
|
For Capital
Adequacy Purposes
|
|
26,059
|
|
4.0
|
|
25,773
|
|
4.0
|
|
To Be Well
Capitalized
|
|
32,574
|
|
5.0
|
|
32,216
|
|
5.0
|
|
Liquidity and
Interest Rate Sensitivity
The asset/liability committee addresses the liquidity
needs of the Company to ensure that sufficient funds are available to meet
credit demands and deposit withdrawals as well as to the placement of available
funds in the investment portfolio. In
assessing liquidity requirements, equal consideration is given to the current
position as well as the future outlook.
The following liquidity measures
are monitored for compliance within the limits cited:
1. Net Loans to Total Assets, 85% maximum
2. Net Loans to Total Deposits, 100% maximum
3. Cumulative 90 day Maturity GAP %, +/- 20%
maximum
4. Cumulative 1 Year Maturity GAP %, +/- 25%
maximum
Fundamental
objectives of the Companys asset/liability management process are to maintain
adequate liquidity while minimizing interest rate risk. The maintenance of adequate liquidity
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
27
and
business opportunities as they arise.
The objective of interest rate sensitivity management is to increase net
interest income by managing interest sensitive assets and liabilities in such a
way that they can be repriced in response to changes in market interest rates.
The
Bank, like other financial institutions, must have sufficient funds available
to meet its liquidity needs for deposit withdrawals, loan commitments and
originations, and expenses. In order to
control cash flow, the Bank estimates future cash flows from deposits, loan
payments, and investment security payments.
The primary sources of funds are deposits, principal and interest
payments on loans and investment securities, FHLB borrowings, and brokered
deposits. Management believes the Bank
has adequate resources to meet its normal funding requirements.
Management
monitors the Companys liquidity on both a long and short-term basis, thereby
providing management necessary information to react to current balance sheet
trends. Cash flow needs are assessed and
sources of funds are determined. Funding
strategies consider both customer needs and economical cost. Both short and long-term funding needs are
addressed by maturities and sales of available for sale investment securities,
loan repayments and maturities, and liquidating money market investments such
as federal funds sold. The use of these
resources, in conjunction with access to credit provides core funding 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
$213,644,000.
In addition to this credit arrangement, the
Company has additional lines of credit with correspondent banks of $13,596,000.
Management believes it has sufficient liquidity to satisfy estimated short-term
and long-term funding needs.
FHLB borrowings totaled $121,098
as of March 31, 2009.
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.
28
There
have been no substantial changes in the Companys gap analyses or simulation
analyses compared to the information provided in the Companys Form 10-K
for the year ended December 31, 2008.
Generally,
management believes the Company is well positioned to respond in a timely
manner when the market interest rate outlook changes.
Inflation
The asset and liability
structure of a financial institution is primarily monetary in nature. Therefore, interest rates rather than
inflation have a more significant impact on the Companys performance. Interest rates are not always affected in the
same direction or magnitude as prices of other goods and services, but are
reflective of fiscal policy initiatives or economic factors which are not measured
by a price index.
Item 3. Quantitative and Qualitative Disclosures
About Market Risk
Market
risk for the Company is comprised primarily of interest rate risk exposure and
liquidity risk. Interest rate risk and
liquidity risk management is performed at the Bank level as well as the Company
level. The Companys interest rate
sensitivity is monitored by management through selected interest rate risk
measures produced by an independent third party. There have been no substantial changes in the
Companys gap analyses or simulation analyses compared to the information
provided in the Annual Report on Form 10-K for the period ended December 31,
2008. Additional information and details
are provided in the Liquidity and Interest Rate Sensitivity section of Item
2. Managements Discussion and Analysis of Financial Condition and Results of
Operations.
Generally,
management believes the Company is well positioned to respond in a timely
manner when the market interest rate outlook changes.
Item 4. Controls and Procedures
An analysis was performed under the supervision and with the
participation of the Companys management, including the Chief Executive
Officer and the Chief Financial Officer, of the effectiveness of the design and
operation of the Companys disclosure controls and procedures. Based on that
evaluation, the Companys Chief Executive Officer and Chief Financial Officer
concluded that the Companys disclosure controls and procedures were effective
as of March 31, 2009. There were no
changes in the Companys internal control over financial reporting that
occurred during the quarter ended March 31, 2009, that have materially
affected, or are reasonably likely to materially affect, the Companys internal
control over financial reporting.
29
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
There are no material
changes to the risk factors set forth in Part I, Item 1A, Risk Factors,
of the Companys Annual Report on Form 10-K for the year ended December 31,
2008. Please refer to that section for
disclosures regarding the risks and uncertainties related to the Companys
business.
Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds
|
|
Total
|
|
Average
|
|
Total Number of
|
|
Maximum Number (or
|
|
|
|
Number of
|
|
Price Paid
|
|
Shares (or Units)
|
|
Approximate Dollar Value)
|
|
|
|
Shares (or
|
|
per Share
|
|
Purchased as Part of
|
|
of Shares (or Units) that
|
|
|
|
Units)
|
|
(or Units)
|
|
Publicly Announced
|
|
May Yet Be Purchased
|
|
Period
|
|
Purchased
|
|
Purchased
|
|
Plans or Programs
|
|
Under the Plans or Programs
|
|
|
|
|
|
|
|
|
|
|
|
Month #1
(January 1-
January 31, 2009)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Month #2
(February 1-
February 28, 2009)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Month #3
(March 1-
March 31, 2009)
|
|
|
|
|
|
|
|
|
|
On April 28, 2009,
the Board of Directors extended the previously approved authorization to
repurchase up to 197,000 shares, or approximately 5%, of the outstanding shares
of the Company for an additional year to April 30, 2010. To date, there have been 118,656 shares
repurchased under this plan.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of
Security Holders
None
Item 5. Other
Information
None
30
Item 6. Exhibits
(3)
(i)
|
|
Articles
of Incorporation of the Registrant, as presently in effect (incorporated by
reference to Exhibit 3(i) of the Registrants Annual Report on
Form 10-K for the year ended December 31, 2005).
|
(3)
(ii)
|
|
Bylaws
of the Registrants as presently in effect (incorporated by reference to
Exhibit 3(ii) of the Registrants Current Report on Form 8-K
filed June 17, 2005).
|
(31)
(i)
|
|
Rule 13a-14(a)/Rule 15d-14(a) Certification
of Chief Executive Officer.
|
(31)
(ii)
|
|
Rule 13a-14(a)/Rule 15d-14(a) Certification
of Chief Financial Officer.
|
(32)
(i)
|
|
Section 1350
Certification of Chief Executive Officer.
|
(32)
(ii)
|
|
Section 1350
Certification of Chief Financial Officer.
|
31
SIGNATURES
Pursuant to the requirements
of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly authorized.
|
PENNS WOODS
BANCORP, INC.
|
|
(Registrant)
|
|
|
|
|
Date: May 11, 2009
|
/s/ Ronald A. Walko
|
|
Ronald A. Walko,
President and Chief Executive Officer
|
|
|
|
|
Date: May 11, 2009
|
/s/ Brian L. Knepp
|
|
Brian L. Knepp, Chief
Financial Officer
|
32
EXHIBIT
INDEX
Exhibit 31(i)
|
|
Rule 13a-14(a)/Rule 15d-14(a) Certification
of Chief Executive Officer
|
Exhibit 31(ii)
|
|
Rule 13a-14(a)/Rule 15d-14(a) Certification
of Principal Financial Officer
|
Exhibit 32(i)
|
|
Section 1350
Certification of Chief Executive Officer
|
Exhibit 32(ii)
|
|
Section 1350
Certification of Chief Financial Officer
|
33
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