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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ___________________to___________
Commission file number 0-17077
PENNS WOODS BANCORP, INC.
(exact name of registrant as specified in its charter)
Pennsylvania 23-2226454
(State or other jurisdiction (IRS. Employer
of incorporation or organization) Identification No.)
300 Market Street, P.O. Box 967
Williamsport, Pennsylvania 17703-0967
(Address of principal executive offices)
(570) 322-1111
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
None
Title of each class
None
Name of each exchange which registered
Securities to be registered pursuant to Section 12(g) of the
Act:
Common Stock, par value $10 per share
(Title of Class)
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
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 registrant's
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]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant: $79,138,034 at March 6, 2001.
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding at March 6, 2001
Common Stock, $10 Par Value 3,083,257 Shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement
prepared in connection with its annual meeting of shareholders
to be held on April 25, 2001 are incorporated by reference in
Part III hereof.
INDEX
PART I
ITEM PAGE
Item 1. Business....................................... 4
Item 2. Properties..................................... 15
Item 3. Legal Proceedings.............................. 16
Item 4. Submission of Matters to a Vote of Security
Holders........................................ 16
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters.................... 17
Item 6. Selected Financial Data........................ 18
Item 7. Management's Discussion and Analysis of
Consolidated Financial Condition and Results
of Operations.................................. 19
Item 8. Financial Statements and Supplementary Data.... 41
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure......... 79
PART III
Item 10. Directors and Executive Officers of the
Registrant..................................... 79
Item 11. Executive Compensation......................... 80
Item 12. Security Ownership and Certain Beneficial
Owners and Management.......................... 80
Item 13. Certain Relationships and Related
Transactions................................... 80
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K............................ 81
Signatures............................................... 84
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 (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 officially effective on July 12, 1983.
The Company's business has consisted primarily of managing and
supervising the Bank, and its principal source of income has
been dividends paid by the Bank. The Company's two other
wholly-owned subsidiaries are Woods Real Estate Development Co.,
Inc. and Woods Investment Co., Inc.
The Bank is engaged in commercial and retail banking and
the taking of time and regular savings and demand deposits, the
making of commercial and consumer loans and mortgage loans, and
safe deposit services. Auxiliary services, such as cash
management, are provided to commercial customers. The Bank
operates full banking services with ten branch offices and a
Mortgage/Loan Center in Northcentral Pennsylvania.
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 Locust Street Securities, 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 approximately 154 persons as of
December 31, 2000. The Company does not have any employees.
The principal officers of the Bank also serve as officers of the
Company.
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 Bank's 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.
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
nonbanking 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 nonbank subsidiary (other than a nonbank subsidiary
of a bank) upon FRB's 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
FRB's 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.
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 Bank's 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 institution's
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 (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 - There are two deposit insurance funds
administered by the FDIC - the Savings Association Insurance
Fund ("SAIF") and the Bank Insurance Fund ("BIF"). The Bank's
deposits are insured under the BIF; however, the deposits
assumed by the Bank in connection with the merger of Lock Haven
Savings Bank are treated and assessed as SAIF-insured deposits.
The FDIC has implemented a risk-related premium schedule for all
insured depository institutions that results in the assessment
of premiums based on capital and supervisory measure. Under the
risk-related premium schedule, the FDIC assigns, on a semiannual
basis, each institution to one of three capital groups (well-
capitalized, adequately capitalized or undercapitalized) and
further assigns such institution to one of three subgroups
within a capital group. The institution's subgroup assignment
is based upon the FDIC's judgment of the institution's strength
in light of supervisory evaluations, including examination
reports, statistical analyses and other information relevant to
gauging the risk posed by the institution. Only institutions
with a total capital to risk-adjusted assets ratio of 10.0% or
greater, a Tier 1 capital to risk-adjusted assets ratio of 6.0%
or greater and a Tier 1 leverage ratio of 5.0% or greater, are
assigned to the well-capitalized group. As of December 31,
2000, the Bank's ratios were well above required minimum ratios.
Both the BIF and SAIF are presently fully funded at more
than the minimum amount required by law. Accordingly, the BIF
and SAIF assessment rates range from zero for those institutions
with the least risk, to $0.27 for every $100 of insured deposits
for institutions deemed to have the highest risk. The Bank is
in the category of institutions that presently pay nothing for
deposit insurance. The FDIC adjusts the rates every six months.
While the Bank presently pays no premiums for deposit
insurance, it is subject to assessments to pay the interest on
Financing Corporation ("FICO") bonds. FICO was created by
Congress to issue bonds to finance the resolution of failed
thrift institutions. The annual FICO assessment for the Bank
(and all banks) is $.0196 for each $100 of BIF deposits.
New Banking Legislation
Landmark legislation in the financial services area was
signed into law by the President on November 12, 1999. The
Gramm-Leach-Bliley Act dramatically changes certain banking laws
that have been in effect since the early part of the 20th
Century. The most radical changes are that the separation
between banking and the securities businesses mandated by the
Glass-Steagall Act has now been removed, and the provisions of
any state law that prohibits affiliation between banking and
insurance entities have been preempted. Accordingly, the new
legislation now permits firms engaged in underwriting and
dealing in securities, and insurance companies, to own banking
entities, and permits bank holding companies (and in some cases,
banks) to own securities firms and insurance companies. The
provisions of federal law that preclude banking entities from
engaging in non-financially related activity, such as
manufacturing, have not been changed. For example, a
manufacturing company cannot own a bank and become a bank
holding company, and a bank holding company cannot own a
subsidiary that is not engaged in financial activities, as
defined by the regulators.
The new legislation creates a new category of bank holding
company called a "financial holding company". In order to avail
itself of the expanded financial activities permitted under the
new law, a bank holding company must notify the Federal Reserve
that it elects to be a financial holding company. A bank
holding company can make this election if it, and all its bank
subsidiaries, are well capitalized, well managed, and have at
least a satisfactory Community Reinvestment Act rating, each in
accordance with the definitions prescribed by the Federal
Reserve and the regulators of the subsidiary banks. Once a bank
holding company makes such an election, and provided that the
Federal Reserve does not object to such election by such bank
holding company, the financial holding company may engage in
financial activities (i.e. securities underwriting, insurance
underwriting, and certain other activities that are financial in
nature as to be determined by the Federal Reserve) by simply
giving a notice to the Federal Reserve within thirty days after
beginning such business or acquiring a company engaged in such
business. This makes the regulatory approval process to engage
in financial activities much more streamlined than it was under
prior law.
The Company believes it qualifies to become a financial
holding company, but has not yet determined whether or not it
will file to become treated as one.
It is too early to tell what effect the Gramm-Leach-Bliley
Act may have on the Company and the Bank. The intent and scope
of the act is positive for the financial industry, and is an
attempt to modernize federal banking laws and make U.S.
institutions competitive with those from other countries. While
the legislation makes significant changes in U.S. banking law,
such changes may not directly affect the Company's business
unless it decides to avail itself of new opportunities available
under the new law. The Company does not expect any of the
provisions of the Act to have a material adverse effect on our
existing operations, or to significantly increase its costs.
Separately from the Gramm-Leach-Bliley Act, 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 all 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 institution's borrowers may result in a
drastic reduction in the value of the collateral securing the
institution's 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.
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
a. 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, 2000, the Bank had total assets of
$385,592,000; total shareholders' equity of $39,566,000 and
total deposits of $278,304,000. The Bank's deposits are insured
by the Federal Deposit Insurance Corporation for the maximum
amount provided under current law.
Jersey Shore State Bank engages in business as a commercial
bank, doing business at several locations in Lycoming, Clinton
and Centre Counties, Pennsylvania. The Bank offers insurance and
securities brokerage services 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, regular
savings accounts, money market certificates, investment
certificates, fixed rate certificates of deposit and club
accounts. Its services also include making secured and
unsecured commercial and consumer loans, financing commercial
transactions, making construction and mortgage loans and the
renting of safe deposit facilities. Additional services include
making residential mortgage loans, revolving credit loans with
overdraft protection, small business loans, etc. Business loans
include seasonal credit collateral loans and term loans, as well
as accounts receivable and inventory financing.
The Bank's loan portfolio mix can be classified into four
principal categories. They are real estate, agricultural,
commercial and consumer.
Real estate loans can be further segmented into
construction and land development, farm land, one-to-four family
residential, multi-family and commercial or industrial.
Qualified borrowers are defined by policy or by industry
underwriting standards. Owner provided equity requirements
range from 20% to 30% with a first lien status required. Terms
are restricted to between 10 and 20 years with the exception of
construction and land development, which is limited to one to
five years. Appraisals, verifications and visitations comply
with industry standards.
Financial information that is 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. As regards residential
mortgages, 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. Adjustable
rate mortgages are not offered for residential mortgages.
Agricultural loans for the purchase or improvement of real
estate must meet the Bank's 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 required is 20%.
Livestock financing criteria depends upon the nature of the
operation. A dairy herd could be financed over three years, but
a feeder operation would require cleanup in intervals of less
than one year. 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. General purpose working capital loans are also a
possibility with repayment expected within one year. It is also
a general policy to collateralize non-real estate loans with not
only the asset purchased but also junior liens on all other
available assets. Insurance and credit criteria is the same as
mentioned previously. In addition, annual visits are made to
our agricultural customers to determine the general condition of
assets. Personal credit requirements are handled as consumer
loans.
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.
Criteria was discussed under real estate financing for such
loans, but it is important to note that such loans may be made
in conjunction with the Pennsylvania Industrial Development
Authority. Caution is also exercised in taking industrial
property for collateral by requiring, on a selective basis,
environmental audits.
Equipment loans are generally amortized over three to seven
years, with an owner equity contribution required of at least
20% of the purchase price. Unusually expensive pieces may be
financed for a longer period depending upon the asset's useful
life. The increased cash flow resulting from the additional
piece, through improved income or greater depreciation expense,
serves in establishing the terms. Insurance coverage with the
Bank as loss payee is required, especially in the case where the
equipment is rolling stock.
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.
It is unusual for Jersey Shore State Bank to make unsecured
commercial loans. But when such a loan is a necessity, credit
information in the file must support that decision.
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 and collateral is
obtained in most cases, and whenever the expiration date is for
more than 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 four 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 Bank's 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 made
include liquidity, the Company's tax position and the policies
of the Asset/Liability Committee.
The Bank has experienced deposit growth in the range of
.96% to 8.83% over the last five years. This growth has
primarily come in the form of core 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 on intermediate or
longer term investments. Minor seasonal growth in deposits is
experienced at or near the year end.
It is the policy of Jersey Shore State Bank to generally
maintain a rate sensitive asset (RSA) to rate sensitive
liability (RSL) ratio of 200% of equity for a 6-month time
horizon, 175% of equity for a 2-year time horizon and 150% of
equity for a 5-year time horizon.
The Bank operates 10 full service offices in Lycoming,
Clinton, and Centre Counties, Pennsylvania, and a Mortgage/Loan
Center in Centre County, Pennsylvania. The economic base of
the region is developed around service, light manufacturing
industries and agriculture. The banking environment in
Lycoming, Clinton and Centre Counties, Pennsylvania is highly
competitive. The Bank competes for loans and deposits with
commercial banks, savings and loan associations and other
financial institutions.
The Bank has a relatively stable deposit base and no
material amount of deposits is obtained from a single depositor
or group of depositors (including federal, state and local
governments). The Bank has not experienced any significant
seasonal fluctuations in the amount of its deposits.
b. Supervision and Regulation
The earnings of the Bank are affected by the policies of
regulatory authorities including the Federal Deposit Insurance
Corporation and the Board of Governors of the Federal Reserve
System. An important function of the Federal Reserve System 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 Federal Reserve Board
have had and will probably continue to have a significant effect
on the Bank's deposits, loans and investment growth, as well as
the rate of interest earned and paid, and are expected to affect
the Bank's operation in the future. The effect of such policies
and regulations upon the future business and earnings of the
Bank cannot accurately be predicted.
EXECUTIVE OFFICERS OF THE REGISTRANT:
NAME AGE FIVE-YEAR ANALYSIS OF DUTIES
Theodore H. Reich 62 Chairman of the Company; the Bank;
Woods Real Estate Development Co., Inc
Inc.; Woods Investment Company, Inc.;
and The M Group, Inc. D/B/A The
Comprehensive Financial Group.
Ronald A. Walko 54 President and Chief Executive Officer
of the Company; the Bank; The M Group,
Inc. D/B/A The Comprehensive Financial
Group; and Woods Investment Company,
Inc.; Vice President of Woods Real
Estate Development Co., Inc.; and
Federal Bank examiner prior to 1986
for an eighteen-year period.
Hubert A. Valencik 59 Senior Vice President of the Company;
Senior Vice President and Operations
Officer of the Bank; Vice President of
Woods Real Estate Development Co.
Inc.; Vice President - Operations of
the M Group Inc., D/B/A The
Comprehensive Financial Group; and
Vice President with another bank prior
to 1985 for a fourteen-year period.
Sonya E. Scott 41 Secretary of the Company; Vice
President and Controller of the Bank;
Secretary and Treasurer of Woods Real
Estate Development Co., Inc; Woods
Investment Co., Inc; and The M Group
Inc., D/B/A The Comprehensive
Financial Group.
ITEM 2 PROPERTIES
The Company owns and leases its properties.
Listed herewith are the locations of properties owned or
leased, in which the banking offices and Mortgage/Loan Center
are located; all properties are in good condition and adequate
for the Bank's purposes:
Office Address
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 Under Lease
DuBoistown, Pennsylvania 17702
Williamsport 300 Market Street Owned
P.O. Box 967
Williamsport, Pennsylvania 17703-0967
Montgomery RR 1, Box 493 Under Lease
Montgomery, Pennsylvania 17752
Lock Haven 4 West Main Street Owned
Lock Haven, Pennsylvania 17745
Mill Hall (Inside Wal-Mart), Under Lease
167 Hogan Boulevard
Mill Hall, Pennsylvania 17751
Spring Mills Ross Hill Road, P.O. Box 66 Owned
Spring Mills, Pennsylvania 16875
Centre Hall RR 2, Route 45 West Land Under Lease
Centre Hall, Pennsylvania 16828
Zion 100 Cobblestone Road Under Lease
Bellefonte, Pennsylvania 16823
Mortgage/Loan Center Under Lease
State College 300 Allen Street
State College, Pennsylvania 16801
The M Group, Inc. Under Lease
D/B/A The Comprehensive 705 Washington Boulevard
Financial Group Williamsport, Pennsylvania 17701
Financial Group
ITEM 3 LEGAL PROCEEDINGS
In the normal course of business, various lawsuits and
claims arise against the Company and its subsidiary. There are
no such legal proceedings or claims currently pending or
threatened.
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 2000.
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Registrant's Common Stock is traded locally. The
following table sets forth (1) the quarterly high and low prices
for a share of the Registrant's Common Stock during the periods
indicated as reported by the management of the Registrant, and
(2) quarterly dividends on a share of the Common Stock with
respect to each quarter since January 1, 1998. 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
1998:
First quarter $43.64 $29.44 $0.15
Second quarter $48.18 $42.73 $0.15
Third quarter $50.45 $49.09 $0.17
Fourth quarter $51.82 $48.64 $0.41
1999:
First quarter $56.36 $51.82 $0.18
Second quarter $54.32 $48.00 $0.20
Third quarter $50.75 $44.75 $0.20
Fourth quarter $47.50 $40.00 $0.43
2000:
First quarter $41.00 $29.00 $0.23
Second quarter $31.00 $26.00 $0.23
Third quarter $32.00 $26.00 $0.23
Fourth quarter $33.50 $28.00 $0.41
The stock prices and the dividends have been adjusted to
reflect the issuance of a stock split effected in the form of a
100% stock dividend issued on January 15, 1998, and a 10% stock
dividend on June 8, 1999. The stock prices and dividends have
also been adjusted for the acquisition of the First National
Bank of Spring Mills.
The Bank has paid cash dividends since December 31, 1941.
The Registrant has paid dividends since the effective date of
its formation as a bank holding company. It is the present
intention of the Registrant's 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 Registrant considers dividend
policy. Cash available for dividend distributions to
shareholders of the Registrant must initially come from
dividends paid by the Bank to the Registrant. Therefore, the
restrictions on the Bank's dividend payments are directly
applicable to the Registrant.
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 6, 2000, the Registrant had approximately 1,215
shareholders of record.
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, 2000.
As of and for the Years Ended December 31,
2000 1999 1998 1997 1996
(Dollars in thousands, except per share amounts)
Consolidated Statement of
Income Data:
Interest income $ 28,454 $ 26,030 $ 25,096 $ 23,146 $ 22,074
Interest expense 12,778 10,518 10,529 9,324 8,985
-------- -------- -------- -------- --------
Net interest income 15,676 15,512 14,567 13,822 13,089
Provision for loan losses 286 286 305 274 137
-------- -------- -------- -------- --------
Net interest income after provision
for loan losses 15,390 15,226 14,262 13,548 12,952
-------- -------- -------- -------- --------
Other income 2,358 3,527 3,435 5,921 2,611
Other expense 9,563 9,339 9,065 8,219 7,726
-------- -------- -------- -------- --------
Income before income taxes 8,185 9,414 8,632 11,250 7,837
Applicable income taxes 1,619 2,224 2,164 3,113 2,082
-------- -------- -------- -------- --------
Net Income $ 6,566 $ 7,190 $ 6,468 $ 8,137 $ 5,755
======== ======== ======== ======== ========
Consolidated Balance Sheet at
End of Period:
Total assets $394,913 $373,742 $341,601 $314,562 $287,787
Loans 246,486 233,823 216,566 204,756 177,910
Allowance for loan losses (2,879) (2,823) (2,681) (2,579) (2,553)
Deposits 278,134 255,573 253,134 242,806 224,356
Long-term debt -- other 31,778 27,278 22,778 3,500 2,260
Stockholders' equity 50,514 46,085 49,896 47,392 27,734
Per Share Data:
Net income
Earnings per share - basic $ 2.10 $ 2.30 $ 2.08 $ 2.62 $ 1.86
Earnings per share - diluted 2.10 2.30 2.07 2.61 1.86
Cash dividends declared 1.10 1.01 0.88 0.75 0.54
Book value 16.31 14.75 15.97 13.94 11.14
Number of shares outstanding, at
end of period 3,097,293 3,123,372 2,837,167 1,545,250 1,539,769
Average number of shares outstanding 3,119,540 3,121,413 3,114,376 3,101,203 3,087,735
Selected financial ratios:
Return on average stockholders' equity 13.77% 14.96% 13.06% 18.94% 16.37%
Return on average total assets 1.74% 1.99% 1.94% 2.73% 2.06%
Net interest income to average interest
earning assets 4.35% 4.63% 4.77% 5.20% 5.05%
Dividend payout ratio 52.18% 44.20% 42.59% 28.72% 29.11%
Average stockholders' equity to average
total assets 12.62% 13.81% 15.04% 14.51% 12.61%
Loans to deposits, at end of period 88.62% 90.39% 84.49% 83.27% 78.16%
Per share data and number of shares outstanding have been
adjusted in each reporting period to give retroactive effect to
a stock split effected in the form of a 100% stock dividend
issued January 15, 1998, and a 10% stock dividend issued June 8,
1999. In addition, all financial data has been adjusted for the
acquisition of the First National Bank of Spring Mills in 1999.
ITEM 7
Management's Discussion and Analysis of
Consolidated Financial Condition and
Results of Operations
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.
2000 vs 1999
Fully taxable equivalent net interest income increased
$556,000 (3.4%) to $16,952,000 for the year ended December 31,
2000. Income related to volume increased $872,000 while income
related to rates decreased $316,000.
Total interest-earning average assets increased $25,281,000
from the year ended December 31, 1999 to the year ended
December 31, 2000. The volume increases in total interest-
earning average assets is comprised of a 7.4% or $16,629,000
increase in total average loans and a 7.8% or $8,652,000
increase in total average securities.
The volume increases in interest-earning average assets
accounts for $2,280,000 of the $2,816,000 increase in total
interest income on earning assets. An increase of $536,000 was
due to rate changes. Loans contributed $1,692,000 to the total
income, $1,503,000 attributable to volume and $189,000 due to
rate changes. Tax-exempt investment securities added $1,224,000
to interest income while net taxable investment securities
reduced income $100,000.
Total interest-bearing liabilities increased $22,010,000 or
8.4% during the year ended December 31, 2000. The expense
related to the volume increases contributed $1,408,000 to the
net interest expense increase of $2,260,000. The increase of
$852,000 was due to rate increases. The volume increases of
other time deposits, short-term borrowings and other borrowings
explain $1,523,000 of the expense related to volume. A decline
in the average balance of savings deposits reduced the expense
by $115,000 due to volume. The $852,000 increase in expense
related to rate changes is comprised of a $541,000 increase due
to deposits and a $311,000 increase in borrowings.
The effective interest differential fell 19 basis points to
4.71% in 2000. Amid inflation fears, the Federal Reserve
increased the federal funds target rate in 2000. The rate
increases have positively effected loan rates and interest
income on earning assets by 22 basis points. Due to competitive
deposit pricing, interest expense on interest-bearing deposits
also increased 41 basis points.
1999 vs 1998
Taxable equivalent net interest income increased 5.2% or
$804,000, to $16,396,000 from year end 1998 to year end 1999.
The increase is mostly attributable to an increase in tax exempt
investment securities volume of $1,618,000 and a $167,000
decline in the rate creating a net increase of $1,451,000. A
net decrease in taxable investment securities of $511,000 and a
$147,000 decrease in loans, moderates the increase of total
interest-earning assets to $793,000.
Total average interest-earning assets increased to
$334,680,000 in 1999. The $29,488,000 increase over the
previous year consisted of an $18,713,000 increase in total
average securities and an increase of $10,775,000 in total
average loans.
Total average interest-bearing liabilities increased
$23,577,000 during 1999. The increase was primarily due to an
increase in other borrowings of $9,878,000. Other contributors
include an increase in short-term borrowings of $8,442,000 and a
$5,257,000 increase to total deposits.
The effective interest differential declined 21 basis
points during 1999. The decrease was due to the net effect of
an interest rate decrease in total average earning assets and a
rate increase in total average interest bearing liabilities.
Competitive pressures and target interest rate increases by the
Federal Reserve have resulted in upward interest rate pressure.
AVERAGE BALANCES AND INTEREST RATES
(INCOME AND RATES ON A FULLY TAXABLE EQUIVALENT BASIS)
(IN THOUSANDS)
2000 1999 1998
AVERAGE AVERAGE AVERAGE AVERATE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
ASSETS:
Interest-earning assets:
Securities:
U.S. Treasury and federal
agency..................... $ 33,760 $ 2,361 6.99% $ 39,906 $ 2,513 6.30% $ 48,970 $ 3,186 6.51%
State and political
subdivisions.............. 59,085 4,577 7.75% 43,291 3,353 7.75% 22,134 1,902 8.59%
Other....................... 27,147 1,082 3.99% 28,143 1,030 3.66% 21,523 868 4.03%
Total securities.......... 119,992 8,020 6.68% 111,340 6,896 6.19% 92,627 5,956 6.43%
LOANS:
Tax-exempt loans................ 5,164 412 7.98% 6,157 487 7.91% 6,742 520 7.71%
All other loans, net of
discount where applicable...... 234,805 21,298 9.07% 217,183 19,531 8.99% 205,823 19,645 9.54%
Total loans............... 239,969 21,710 9.05% 223,340 20,018 8.96% 212,565 20,165 9.49%
Total interest-earning
assets.................. 359,961 $29,730 8.26% 334,680 $26,914 8.04% 305,192 $26,121 8.56%
Other assets.................... 18,027 21,096 25,308
TOTAL ASSETS............ $377,988 $355,776 $330,500
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing liabilities:
Deposits:
Savings..................... $ 91,288 $ 1,907 2.09% $ 94,200 $ 1,965 2.09% $ 89,438 $ 2,475 2.77%
Other time.................. 131,427 7,258 5.52% 118,461 5,933 5.01% 117,966 6,390 5.42%
Total deposits............ 222,715 9,165 4.12% 212,661 7,898 3.71% 207,404 8,865 4.27%
Short-term borrowings........... 31,813 1,866 5.87% 23,524 1,197 5.09% 15,082 771 5.11%
Other borrowings................ 29,159 1,747 5.99% 25,492 1,423 5.58% 15,614 893 5.72%
Total interest-bearing
liabilities............. 283,687 $12,778 4.50% 261,677 $10,518 4.02% 238,100 $10,529 4.42%
Demand deposits................. 42,765 41,071 36,592
Other liabilities............... 3,837 3,912 6,097
Shareholders' equity............ 47,699 49,116 49,711
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY.. $377,988 $355,776 $330,500
Interest income/earning
assets...................... $359,961 $29,730 8.26% $334,680 $26,914 8.04% $305,192 $26,121 8.56%
Interest expense/earning
assets...................... $359,961 12,778 3.55% $334,680 10,518 3.14% $305,192 10,529 3.45%
Effective interest
differential................ $16,952 4.71% $16,396 4.90% $15,592 5.11%
1. Fees on loans are included with interest on loans.
2. Information on this table has been calculated using average
daily balance sheets to obtain average balances.
3. Nonaccrual loans have been included with loans for the
purpose of analyzing net interest earnings.
4. Loan fees are included in interest income as follows: 2000,
$411,000, 1999, $601,000, 1998, $623,000.
5. 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 (derived by dividing
tax-exempt interest by .66).
SUMMARY OF CHANGES IN INTEREST EARNED AND INTEREST PAID
(IN THOUSANDS)
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
attributable to (i) changes in volume (changes in average volume
multiplied by old rate); (ii) changes in rates (changes in rate
multiplied by old average volume). Increases and decreases due
to both rate and volume, which cannot be separated, have been
allocated proportionally to the change due to volume and the
change due to rate.
Year Ended December 31,
2000 vs 1999 1999 vs 1998
Increase (Decrease) Increase (Decrease)
Due to Due to
Volume Rate Net Volume Rate Net
Interest income:
Taxable investment securities $ (446) $ 346 $ (100) $ (342) $ (169) $ (511)
Tax-exempt investment securities 1,223 1 1,224 1,618 (167) 1,451
Loans 1,503 189 1,692 1,651 (1,798) (147)
Total interest-earning
assets $2,280 $ 536 $2,816 $2,927 $(2,134) $ 793
Interest expenses:
Savings deposits $ (115) $ 57 $ (58) $ 142 $ (652) $ (510)
Other time deposits 841 484 1,325 17 (474) (457)
Short-term borrowings 467 202 669 430 (4) 426
Other borrowings 215 109 324 551 (21) 530
Total interest-bearing
liabilities $1,408 $ 852 $2,260 $1,140 $(1,151) $ (11)
Change in net interest
income $ 872 $(316) $ 556 $1,787 $ (983) $ 804
PROVISION FOR LOAN LOSSES
2000 vs 1999
The allowance for loan losses increased 2.0% or $56,000
from fiscal 1999 after net charge-offs of $230,000 contributing
to a year end allowance for loan losses of $2,879,000. This
allotment recognized the prior year end allowance for loan
losses balance, overall loan performance and anticipated
recoveries. Each quarter management conducts comprehensive,
detailed credit reviews of the loan portfolio to determine the
adequacy of the provision. Supplementing the internal review is
an external review. In so doing, management remains committed
to an aggressive program of problem loan identification and
resolution.
1999 vs 1998
The allowance for loan losses increased 5.3% or $142,000
from fiscal 1998 after net charge-offs of $144,000 contributing
to a year end allowance for loan losses of $2,823,000.
Year Ended December 31,
(In Thousands)
2000 1999 1998 1997 1996
Balance at beginning of period............... $2,823 $2,681 $2,579 $2,553 $2,473
Charge-offs:
Domestic:
Real estate............................ 165 50 - - 4
Commercial and industrial.............. 38 28 91 183 100
Installment loans to individuals....... 66 98 180 176 152
Total charge-offs.................... 269 176 271 359 256
Recoveries:
Real estate............................ 8 4 - 2 -
Commercial and industrial.............. 20 11 29 68 175
Installment loans to individuals....... 11 17 39 41 24
Total recoveries..................... 39 32 68 111 199
Net charge-offs............................ 230 144 203 248 57
Additions charged to operations............ 286 286 305 274 137
Balance at end of period................... $2,879 $2,823 $2,681 $2,579 $2,553
Ratio of net charge-offs during the
period to average loans
outstanding during the period............ 0.10% 0.06% 0.09% 0.14% 0.03%
OTHER INCOME
2000 vs 1999
Total other income for the year ended December 31, 2000
decreased 33.1% or $1,169,000 from 1999. Most of the decrease
resulted from securities gains taken during 2000 versus 1999.
Securities gains realized during 2000 were $269,000 versus
$1,946,000 realized in 1999. Market conditions in 1999 provided
more opportunity for the Company to take security gains than in
2000. The Company also realized losses on debt securities in
efforts to prudently position its assets and liabilities.
Income on service charges increased $207,000 or 15.2% from 1999.
The growth is mainly due to an increase in the fees collected on
deposit accounts. Other operating income increased $301,000 to
$524,000 in 2000. The substantial increase over 1999's other
operating income of $223,000 was mostly due to commission income
recognized from the sale of various financial products, sold by
the Bank's newly acquired subsidiary, The M Group.
1999 vs 1998
Total other income at December 31, 1999 was $3,527,000
versus 1998's year end total of $3,435,000. This $92,000
increase resulted from the net effect of an increase in service
charges collected of $258,000, a decrease in securities gains
realized of $130,000 and a decrease in other operating income of
$36,000. A significant portion of the increase in service
charge income, of $105,000, is due to the growth in the deposit
base and an increase in charges collected on deposit accounts.
Other major factors include an increase of $153,000 in income
based upon ATM and debit card usage. During 1999 securities
gains realized amounted to $1,946,000 versus $2,076,000 realized
in 1998.
OTHER EXPENSES
2000 vs 1999
Other expenses at December 31, 2000 increased $224,000 or
2.4% from year end 1999. Expenses relating to salaries and
employee benefits increased $144,000 or 3.0% from 1999 due to
normal wage increases and the addition of the Bank's subsidiary,
The M Group. Occupancy expense during 2000 increased $68,000
over 1999 expenses. The majority of this expense was due to the
first full year's operation of the Zion branch and painting
expense in the Williamsport branch. Furniture and equipment
expense increased 10.0% in 2000 to $756,000. The $69,000
increase from 1999 year end amount of $687,000 resulted mostly
from costs associated with the acquisition of additional
computer equipment to accommodate the implementation of internet
and telephone banking. Other operating expenses decreased
$57,000 to $3,062,000 during 2000. Expenses relating to
directors insurances represent the majority of the decrease.
1999 vs 1998
When comparing the year ended December 31, 1999 with the
year ended December 31, 1998, there was a $274,000 or 3.0%
increase in other expenses.
Salaries and employee benefits expensed during 1999
increased by $72,000 over the amount expensed during 1998 due to
normal wage increases.
Occupancy, furniture and equipment expense decreased in
1999 by $11,000 compared to 1998. The net effect of a $39,000
increase in occupancy expense and a decrease of $50,000 in
furniture and equipment expense account for this decrease. The
increase in occupancy expense is related to the opening of a new
branch office in Zion. The decrease in furniture and equipment
expense is attributable to a decline in the monthly cost of the
IBM computer lease offset by the increase in depreciation on new
equipment.
Other operating expenses, the final component of total
other expenses increased by $213,000. The most significant
increases occurred in bookkeeping and data processing, check
imprinting, stationery and supplies and ATM expenses. Those
increases were mainly due to the merger of the First National
Bank of Spring Mills and the opening of the Zion branch.
INCOME TAXES
2000 vs 1999
The provision for income taxes for the year ended
December 31, 2000 resulted in an effective income tax rate of
19.8% compared to 23.6% for 1999. The 3.8% decline is
attributable to the increase in tax-exempt interest earned when
comparing 2000 to 1999.
1999 vs 1998
Income tax expense recognized in 1999 was $2,224,000
compared to $2,164,000 in 1998, resulting in an effective income
tax rate of 23.6% and 25.1% for 1999 and 1998, respectively.
The increase in tax-exempt income from 1998 to 1999 caused a
1.5% decline in the effective tax rate.
FINANCIAL CONDITION
INVESTMENTS
2000
The investment portfolio increased $2,831,000 or 2.4% in
2000. The increase is mostly attributable to an increase of
$19,167,000 in the state and political subdivisions category and
a decrease in the U.S. Government agencies category of
$11,363,000 and corporate stock of $4,449,000. U.S. Treasury
securities and other bonds, notes and debentures also decreased
$524,000. The total investment portfolio at year end 2000
comprised of 22.7% U.S. Government agency and treasury
securities, 57.5% state and political subdivisions, 18.6% equity
securities and 1.2% other bonds, notes and debentures. Held to
Maturity securities had a carrying value of $3,228,000.
Available for sale securities occupied 97.3% of the total
portfolio and had an amortized cost of $117,149,000 with an
estimated market value of $115,922,000. The unrealized loss of
$1,227,000 effected shareholders' equity by $(810,000), net of
deferred taxes.
1999
The investment portfolio increased in 1999 by $10,918,000
due to net increases in U.S. Government agencies and state and
political subdivisions of $19,135,000 and a decrease in U.S.
Treasury securities, other bonds, notes and debentures and
corporate stock of $8,217,000. The total investment portfolio
at year end 1999 was comprised of 33.4% U.S. Government agency
and treasury securities, 42.4% state and political subdivisions,
22.9% equity securities and 1.3% other bonds, notes and
debentures. Held to maturity securities had a carrying value of
$3,014,000. The largest portion of the portfolio is classified
as available for sale and had an amortized cost of $117,740,000
with an estimated market value of $113,305,000. Due to the
unrealized loss on available for sale securities of $4,435,000,
shareholders' equity was effected by $(2,927,000), net of
deferred taxes. Management has significantly increased holdings
in tax free municipals which has served to increase its after-
tax yield. The decrease in corporate stock is due to the net
effect of purchases and sales in addition to the change in the
net unrealized gain from year end 1998.
The carrying amounts of investment securities at the dates
indicated are summarized as follows ( in thousands):
DECEMBER 31,
2000 1999 1998
U.S. Treasury securities:
Held to maturity $ - $ - $ -
Available for sale 3,046 3,504 10,866
U.S. Government agencies:
Held to maturity 206 259 339
Available for sale 23,820 35,130 35,112
State and political
subdivisions:
Held to maturity 2,712 2,465 2,464
Available for sale 65,749 46,829 27,633
Other bonds, notes and
debentures:
Held to maturity 310 290 275
Available for sale 1,127 1,213 701
Total bonds, notes and
debentures 96,970 89,690 77,390
Corporate stock -Available
for sale 22,180 26,629 28,011
Total $119,150 $116,319 $105,401
The following table shows the maturities and repricing of
investment securities at December 31, 2000 and the weighted
average yields (for tax-exempt obligations on a fully taxable
basis assuming a 34% tax rate) of such securities (in
thousands):
WITHIN AFTER ONE AFTER FIVE AFTER
ONE BUT WITHIN BUT WITHIN TEN
YEAR FIVE YEARS TEN YEARS YEARS
U.S. Treasury
securities:
HTM Amount $ - $ - $ - $ -
Yield - - - -
AFS Amount - 2,989 - -
Yield - 6.34% - -
U.S. Government
agencies:
HTM Amount - - - 206
Yield - - - 8.83%
AFS Amount - - 2,000 21,655
Yield - - 8.10% 7.50%
State and political
subdivisions:
HTM Amount 890 250 532 1,040
Yield 6.68% 6.90% 7.84% 7.98%
AFS Amount - 320 - 66,245
Yield - 9.63% - 5.85%
Other bonds, notes
and debentures:
HTM Amount 25 185 100 -
Yield 8.50% 7.56% 6.71% -
AFS Amount - - - 1,139
Yield - - - 7.30%
Total Amount $ 915 $3,744 $2,632 $90,285
Total Yield 6.73% 6.72% 8.00% 6.30%
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
obligations and the taxable equivalent of such income at the
standard 34% tax rate (derived by dividing tax-exempt interest
by .66).
LOAN PORTFOLIO
2000
At December 31, 2000, gross loans totaled $246,486,000, an
increase of $12,663,000 or 5.4% over year end 1999. While
commercial, agricultural and installment loans to individuals
decreased from 1999, loans secured by real estate mortgages grew
by $19,889,000 or 11.1%. Residential real estate mortgages
increased $9,696,000 (7.9%). Commercial real estate mortgages
grew by 17.8% or $9,177,000. Construction real estate mortgages
increased $1,016,000 (27.2%). Commercial and agricultural loans
decreased $5,264,000 (16.6%) and installment loans to
individuals declined $1,962,000 or 8.3%.
1999
Gross loans totaled $233,823,000 at year end, an increase
of $17,257,000 or 8.0% over fiscal 1998. Our commercial and
agricultural loan portfolio declined $1,185,000 (3.6%) and
installment loans to individuals declined $986,000 (4.0%).
These reductions were offset by a $19,428,000 (12.2%) increase
in our real estate secured portfolio. Contributing to this
volume are increases of $11,687,000 (10.5%) in residential
mortgages, $7,883,000 (18.1%) in commercial mortgages and a
$142,000 (3.7%) decline in construction loans. A viable local
economy and marketable lending practices are responsible for
this overall increase.
The amount of loans outstanding at the indicated dates are
shown in the following table according to type of loan (in
thousands):
December 31,
2000 1999 1998 1997 1996
Domestic:
Commercial and agricultural $ 26,471 $ 31,735 $ 32,920 $ 38,631 $ 38,999
Real estate mortgage:
Residential 133,088 123,392 111,705 109,767 98,069
Commercial 60,622 51,445 43,562 32,670 21,600
Construction 4,748 3,732 3,874 3,011 1,512
Installment loans to
individuals 21,557 23,519 24,505 23,508 20,452
Gross loans $246,486 $233,823 $216,566 $207,587 $180,632
The amounts of domestic loans at December 31, 2000 are
presented below by category and maturity (in thousands):
COMMERCIAL INSTALLMENT
AND LOANS TO
REAL ESTATE OTHER INDIVIDUALS TOTAL
c>
Loans with floating
interest rates:
1 year or less $ 7,844 $ 7,067 $ 1,573 $ 16,484
1 through 5 years 2,305 683 10 2,998
5 through 10 years 6,949 1,160 182 8,291
After 10 years 22,297 220 114 22,631
Sub Total 39,395 9,130 1,879 50,404
Loans with predetermined
interest rates:
1 year or less 3,849 1,308 2,062 7,219
1 through 5 years 16,599 8,692 14,442 39,733
5 through 10 years 35,722 4,218 1,686 41,626
After 10 years 102,893 3,123 1,488 107,504
Sub Total 159,063 17,341 19,678 196,082
Total $198,458 $26,471 $21,557 $246,486
(1) 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, as to principal amount at
interest rates prevailing at the date of renewal.
(2) 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,
2000.
ALLOWANCE FOR LOAN LOSSES
2000
At December 31, 2000, the allowance for loan losses stood
at $2,879,000 or 1.2% of gross loans. This was a $56,000 (2.0%)
increase over year end 1999. The adequacy of the loan loss
allowance is determined quarterly in unison with management's
comprehensive review of the loan portfolio credit quality.
Reviews are further enhanced by analyses of recent and past
economic conditions, portfolio trends and growth, peer
comparisons and other factors impacting overall credit quality.
Underwriting continues to emphasize the need for security and
adequate collateral margins.
Nonaccruing loans increased $493,000 (173.6%) to $777,000
from year end 1999. Overall nonperforming loans increased
$279,000 (53.1%) to $804,000 from fiscal 1999.
1999
At December 31, 1999, the allowance for loan losses stood
at $2,823,000 or 1.2% of gross loans. This was a $142,000 (5.3%)
increase over year end 1998. The adequacy of the loan loss
allowance is determined quarterly in unison with management's
comprehensive review of the loan portfolio of credit quality.
Reviews are further enhanced by analyses of recent and past
economic conditions, portfolio trends and growth, peer
comparisons and other factors impacting overall credit quality.
Underwriting continues to emphasize the need for security and
adequate collateral margins.
Nonaccruing loans declined $362,000 (56.0%) to $284,000
from year end 1998. Overall nonperforming loans were reduced
$181,000 (25.6%) to $525,000 from fiscal 1998. At December 31,
1999, 37.3% of nonaccruing loans were meeting contractual
obligations and three of the five loans are real estate secured.
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 shall ordinarily not be
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
generally accepted accounting principles. Generally accepted
accounting 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 an accruing status when:
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.
TOTAL NONPERFORMING LOANS
(IN THOUSANDS)
90 DAYS
NONACCRUAL PAST DUE RENEGOTIATED
2000 $777 $ 27 --
1999 $284 $241 --
1998 $646 $ 60 --
1997 $552 $430 --
1996 $748 $278 --
If interest had been recorded at the original rate on
nonaccrual loans, such income would have approximated $86,000,
$48,000 and $98,000 for the years ended December 31, 2000, 1999
and 1998, respectively. Interest income on such loans, which is
recorded when received, amounted to approximately $45,000,
$38,000 and $50,000 for the years ended December 31, 2000, 1999
and 1998, respectively.
The significant reduction in nonaccruing loans from 1996 to
1999 is attributed to a strengthening in underwriting standards
and the successful culmination of several commercial loan
workouts. The return of nonaccruing loans to the level
experienced in years prior to 2000 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.
Management's 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 Banking Department and the Federal
Deposit Insurance Corporation.
ALLOCATION IN THE ALLOWANCE FOR LOAN LOSSES
(IN THOUSANDS)
PERCENT OF
LOANS IN
EACH
CATEGORY TO
AMOUNT TOTAL LOANS
DECEMBER 31, 2000:
Balance at end of period applicable to:
Domestic:
Commercial and agricultural $ 541 10.7%
Real estate mortgage:
Residential 1,211 54.1%
Commercial 723 24.6%
Construction 71 1.9%
Installment loans to individuals 306 8.7%
Unallocated general allowance 27 -
Total $2,879 100.0%
DECEMBER 31, 1999:
Balance at end of period applicable to:
Domestic:
Commercial and agricultural $ 531 13.5%
Real estate mortgage:
Residential 1,186 52.8%
Commercial 710 22.0%
Construction 70 1.6%
Installment loans to individuals 300 10.1%
Unallocated general allowance 26 -
Total $2,823 100.0%
DECEMBER 31, 1998:
Balance at end of period applicable to:
Domestic:
Commercial and agricultural $ 505 15.2%
Real estate mortgage:
Residential 1,126 51.6%
Commercial 673 20.1%
Construction 67 1.8%
Installment loans to individuals 284 11.3%
Unallocated general allowance 26 -
Total $2,681 100.0%
DECEMBER 31, 1997:
Balance at end of period applicable to:
Domestic:
Commercial and agricultural $ 485 18.6%
Real estate mortgage:
Residential 1,083 52.9%
Commercial 647 15.7%
Construction 65 1.5%
Installment loans to individuals 273 11.3%
Unallocated general allowance 26 -
Total $2,579 100.0%
DECEMBER 31, 1996:
Balance at end of period applicable to:
Domestic:
Commercial and agricultural $ 480 21.6%
Real estate mortgage:
Residential 1,072 54.3%
Commercial 641 12.0%
Construction 64 0.8%
Installment loans to individuals 271 11.3%
Unallocated general allowance 25 -
Total $2,553 100.0%
DEPOSITS
2000
Overall average deposits increased $11,748,000 or 4.6% to
$265,480,000 over 1999's average deposits of $253,732,000.
Demand deposits grew slightly by $2,063,000 with
noninterest and interest-bearing demand increasing $1,694,000
and $369,000, respectively.
Savings deposits declined by $3,281,000. The majority of
the decline was due to a shift from savings deposits to time
deposits, with average time deposits increasing by $12,966,000
over 1999's average time deposits. The Bank's ability to offer
competitive products during a period of rising interest rates
attracted such deposits.
1999
All categories of deposits increased with demand deposits
showing the most significant growth of 12.2%. Interest bearing
deposits grew $5,257,000 while noninterest-bearing deposits
increased $4,479,000. Together interest and noninterest-bearing
deposits add $9,736,000 to the increase of total average
deposits.
Savings deposits increased $2,354,000 or 5.0% from year end
1998 to year end 1999. Time deposits remained stable, increasing
only $495,000 in 1999.
The reduction of growth in time deposits from 1998 to 1999
as compared to 1997 to 1998 is reflective of a highly
competitive market for funds. Relatively high consumer spending
ignited growth in transaction accounts.
Time deposits of $100,000 or more totaled approximately
$31,148,000 on December 31, 2000 and $24,308,000 on December 31,
1999. Interest expense related to such deposits was
approximately $1,571,000, $1,242,000 and $1,238,000 for the
years ended December 31, 2000, 1999 and 1998, respectively. Time
deposits of $100,000 or more at December 31, 2000 mature as
follows: 2001 - $27,110,000; 2002 - $3,014,000; 2003 - $524,000;
beyond 2005 - $500,000.
The average amount and the average rate paid on deposits
are summarized below (in thousands):
2000 1999 1998
AVERAGE AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE AMOUNT RATE
DEPOSITS IN DOMESTIC
BANK OFFICES:
Demand deposits:
Noninterest-bearing $ 42,765 0.00% $ 41,071 0.00% $ 36,592 0.00%
Interest-bearing 45,464 2.17% 45,095 2.15% 42,687 2.56%
Savings deposits 45,824 2.00% 49,105 2.03% 46,751 2.96%
Time deposits 131,427 5.52% 118,461 5.01% 117,966 5.42%
Total average
deposits $265,480 $253,732 $243,996
SHAREHOLDERS' EQUITY
2000
Shareholders' equity is evaluated in relation to total
assets and the risk associated with those assets. A company is
more likely to meet its cash obligations and absorb unforeseen
losses when the capital resources are greater. Total
shareholders' equity at December 31, 2000 was $50,514,000,
increasing $4,429,000 from the balance at December 31, 1999 of
$46,085,000. Net income and the exercising of stock options
contributed $6,566,000 and $74,000, respectively, to
shareholders' equity. The unrealized appreciation on
securities also added $2,117,000 to total equity. Reductions to
shareholders' equity included $3,426,000 that was paid out in
dividends and $902,000 for the purchase of treasury stock.
1999
Total shareholders' equity at December 31, 1999 was
$46,085,000, decreasing by $3,811,000 from the balance at
December 31, 1998 of $49,896,000. Net income and the exercising
of stock options contributed $7,190,000 and $118,000,
respectively, to shareholders' equity. The overall decline in
total shareholders' equity is largely attributed to the decrease
in the unrealized appreciation on securities. Additional
reductions to shareholders' equity included $3,178,000 that was
paid out in dividends and $56,000 for the purchase of treasury
stock.
Bank regulators have risk based capital guidelines. Under
these guidelines, banks 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, 2000, the Company's required ratios were well above
the minimum ratios as follows:
2000
Minimum
Company Standards
Tier 1 capital ratio 20.05% 8.00%
Total capital ratio 18.91% 4.00%
For a more comprehensive discussion of these requirements,
see "Regulations and Supervision" on the Form 10K. 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 certain ratios are presented as
follows:
2000 1999 1998
Percentage of net income to:
Average total assets 1.74% 1.99% 1.94%
Average shareholders' equity 13.77% 14.96% 13.06%
Percentage of dividends declared
per common share 52.18% 44.20% 42.59%
Percentage of average shareholders'
equity to average total assets 12.62% 13.81% 15.04%
LIQUIDITY, INTEREST RATE SENSITIVITY AND MARKET RISK
Fundamental objectives of the Company's 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
stockholders. 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.
Liquidity is generated from transactions relating to both
the Company's assets and liabilities. Liquidity from assets is
achieved primarily through temporary investments in Federal
funds sold and time deposits with financial institutions. Cash
receipts arising from normal customer loan payments provide
another important source of asset related liquidity. On the
liability side, deposit growth and temporary borrowings from the
Federal Home Loan Bank of Pittsburgh's Open Repo Plus product
provide liquidity. The liquidity provided by these sources is
more than adequate to meet the Company's needs.
Interest rate sensitivity, which is closely related to
liquidity management, is a function of the repricing
characteristics of the Company's 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
Company's balance sheets.
INTEREST RATE SENSITIVITY
The following table sets forth the Company's interest rate
sensitivity as of December 31, 2000:
AFTER ONE AFTER TWO AFTER
WITHIN BUT WITHIN BUT WITHIN FIVE
ONE YEAR TWO YEARS FIVE YEARS YEARS
Earning assets:(1)(2)
Investment securities(1) $ 15,214 $ 6,751 $ 13,558 $ 85,050
Loans(2) 87,604 35,751 101,362 21,770
Total earning assets $102,818 $ 42,502 $114,920 $106,820
Interest-bearing liabilities:
Deposits(3) $121,401 $ 39,505 $ 43,013 $ 26,747
Borrowings 25,856 - 36,943 -
Total interest-bearing
liabilities $147,257 $ 39,505 $ 79,956 $ 26,747
Net noninterest-bearing
funding(4) 7,360 7,360 22,079 36,796
Total net funding sources $154,617 $ 46,865 $102,035 $ 63,543
Excess assets (liabilities) (51,799) (4,363) 12,885 43,277
Cumulative excess assets
(liabilities) (51,799) (56,162) (43,277) -
(1) Investment balances reflect estimated prepayments on
mortgage-backed securities.
(2) Loan balances include annual repayment assumptions based
on projected cash flow from the loan portfolio. The cash
flow projections are based on the terms of the credit
facilities and estimated prepayments on fixed rate mortgage
loans. Loans include loans held for resale.
(3) Adjustments to the interest sensitivity of Savings, NOW and
MMDA account balances reflect managerial assumptions based
on historical experience, expected behavior in future rate
environments and the Company's positioning for these
products.
(4) Net noninterest-bearing funds is the sum of noninterest-
bearing liabilities and shareholders' equity minus
noninterest-earning assets and reflect managerial
assumptions as to the appropriate maturity categories.
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 results of this
rate shock are a useful tool to assist the Company in assessing
interest rate risk inherent in its balance sheet. Below are the
results of this rate shock analysis for the periods indicated:
December 31,
2000
Net Interest Income Change
Changes in (After Tax)
Rates (In thousands)
-200 $ 256
-100 $ 215
+100 $ (36)
+200 $ (190)
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 measure 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 Corporation's 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.
COMPREHENSIVE INCOME
Comprehensive income is a measure of all the changes in
equity of a corporation. It excludes transactions with owners
in their capacity as owners (i.e. Stock options granted or
exercised, repurchase of treasury stock transactions, and
dividends to shareholders).
Other comprehensive income is the difference between net
income and comprehensive income. The Company's other
comprehensive income is composed of unrealized gains and losses
on available for sale securities, net of deferred income tax.
Comprehensive income is not a measure of net income. Net income
would be affected by other comprehensive income only in the
event that the entire securities portfolio was sold on the
statement date.
Unrealized gains or losses reflected in the Company's
comprehensive income may vary widely at statement dates as a
result of changing markets and/or interest rate movements.
Other comprehensive income (loss) for the years ended
December 31, 2000, 1999, 1998 were $2,117,000, $(7,885,000) and
$(1,180,000), respectively.
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 Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements. In order
to comply with the terms of the safe harbor, Penns Woods
Bancorp, Inc. and its subsidiaries (the "Company") notes that a
variety of factors could cause the Company's actual results and
experience to differ materially from the anticipated results or
other expectations expressed in the Company's forward-looking
statements. The risks and uncertainties that may affect the
operations, performance, development and results of the
Company's business include the following: general economic
conditions and changes in interest rates including their impact
on capital expenditures; business conditions in the banking
industry; the regulatory environment; rapidly changing
technology and evolving banking industry standards; the effect
of changes in accounting policies and practices, including
increased competition with community, regional and national
financial institutions; new service and product offerings by
competitors and price pressures; changes in the Company's
organization, compensation and benefit plans; and similar items.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
Penns Woods Bancorp, Inc.
We have audited the accompanying consolidated balance sheet
of Penns Woods Bancorp, Inc. and subsidiaries as of December 31,
2000 and 1999, and the related consolidated statements of
income, changes in shareholders' equity, and cash flows for the
years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits. The consolidated statements of
income, changes in shareholders' equity, and cash flows for the
years ended December 31, 1998 were audited by other auditors
whose report, dated January 15, 1999, expressed an unqualified
opinion on those financial statements.
We conducted our audits in accordance with auditing
standards generally accepted in the United States of America.
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 Penns Woods Bancorp, Inc. and subsidiaries
as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the
United States of America.
/s/ S.R. Snodgrass, A.C.
Wexford, PA
January 19, 2001
CONSOLIDATED BALANCE SHEET
December 31,
2000 1999
------------------
(in thousands)
ASSETS
Cash and due from banks . . . . . . . . . $ 15,318 $ 12,474
Securities available for sale . . . . . . 115,922 113,305
Securities held to maturity (market
value of $3,261,000 and $2,992,000) . . 3,228 3,014
Loans, net of unearned discount . . . . . 246,486 233,823
Less allowance for loan losses. . . . . . 2,879 2,823
------- -------
Loans, net. . . . . . . . . . . . . . 243,607 231,000
Bank premises and equipment, net. . . . . 4,727 4,888
Accrued interest receivable . . . . . . . 2,581 2,283
Bank owned life insurance . . . . . . . . 2,353 2,244
Other assets. . . . . . . . . . . . . . . 7,177 4,534
------- -------
TOTAL . . . . . . . . . . . . . . . . . . $394,913 $373,742
======= =======
LIABILITIES:
Interest-bearing deposits . . . . . . . . $230,666 $212,528
Noninterest-bearing deposits. . . . . . . 47,468 43,045
-------- --------
TOTAL DEPOSITS. . . . . . . . . . . . . 278,134 255,573
Short-term borrowings . . . . . . . . . . 31,021 41,641
Other borrowings. . . . . . . . . . . . . 31,778 27,278
Accrued interest payable. . . . . . . . . 1,452 1,123
Other liabilities . . . . . . . . . . . . 2,014 2,042
-------- --------
TOTAL LIABILITIES . . . . . . . . . . . 344,399 327,657
-------- --------
SHAREHOLDERS' EQUITY:
Common stock, par value $10; 10,000,000
shares authorized 3,130,844 and
3,128,332 shares issued . . . . . . . . 31,308 31,283
Additional paid-in capital. . . . . . . . 18,214 18,165
Retained earnings . . . . . . . . . . . . 2,974 (166)
Accumulated other comprehensive loss. . . (810) (2,927)
Less: Treasury stock, at cost 33,551
and 4,960 . . . . . . . . . . . . . . . (1,172) (270)
------- -------
TOTAL SHAREHOLDERS' EQUITY. . . . . . . 50,514 46,085
------- ------
TOTAL . . . . . . . . . . . . . . . . . . $394,913 $373,742
======= =======
CONSOLIDATED STATEMENT OF INCOME
For the Years Ended December 31, 2000, 1999 and 1998
(IN THOUSANDS EXCEPT SHARE DATA)
2000 1999 1998
INTEREST INCOME:
Interest and fees on loans $21,570 $19,990 $19,770
Interest and dividends on investments:
Taxable interest 3,751 3,555 3,395
Tax-exempt interest 2,205 1,664 1,223
Dividends 928 821 708
------- ------ -------
TOTAL INTEREST INCOME 28,454 26,030 25,096
------- ------- -------
INTEREST EXPENSE:
Interest on deposits 9,165 7,898 8,865
Interest on short-term borrowings 1,866 1,197 771
Interest on other borrowings 1,747 1,423 893
------- ------- -------
TOTAL INTEREST EXPENSE 12,778 10,518 10,529
------- ------- -------
NET INTEREST INCOME 15,676 15,512 14,567
PROVISION FOR LOAN LOSSES 286 286 305
------- ------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 15,390 15,226 14,262
------- ------- -------
OTHER INCOME:
Service charges 1,565 1,358 1,100
Securities gains, net 269 1,946 2,076
Other operating income 524 223 259
------- ------- -------
TOTAL OTHER INCOME 2,358 3,527 3,435
------- ------- -------
OTHER EXPENSES:
Salaries and employee benefits 5,004 4,860 4,788
Occupancy expense, net 741 673 634
Furniture and equipment expense 756 687 737
Other operating expenses 3,062 3,119 2,906
------- ------- -------
TOTAL OTHER EXPENSES 9,563 9,339 9,065
------- ------- -------
INCOME BEFORE INCOME TAX PROVISION 8,185 9,414 8,632
INCOME TAX PROVISION 1,619 2,224 2,164
------- ------- -------
NET INCOME $ 6,566 $ 7,190 $ 6,468
======= ======= =======
EARNINGS PER SHARE - BASIC $ 2.10 $ 2.30 $ 2.08
EARNINGS PER SHARE - DILUTED $ 2.10 $ 2.30 $ 2.07
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 2000, 1999 and 1998
(IN THOUSANDS EXCEPT SHARE DATA)
Accumu-
lated
Other
Stock Addi- Compre- Total
Dividend tional hensive Share-
...Common Stock... Distri- Paid-In Retained Income Treasury Holders'
Shares Amount butable Capital Earnings (Loss) Stock Equity
Balance, December 31, 1997 1,545,250 $15,453 $ 12,828 $ 4,712 $ 8,262 $ 6,138 - $47,393
Stock split effected in the
form of a 100%
stock dividend 1,282,779 12,828 (12,828) -
Comprehensive income:
Net income 6,468 6,468
Unrealized loss on securities,
net of reclassification
adjustments and tax benefit
of $608 (1,180) (1,180)
------
Total comprehensive income 5,288
------
Dividends declared, $0.88 (2,755) (2,755)
Stock options exercised 12,794 128 56 184
Treasury stock acquired,
3,656 shares (214) (214)
-------- ------- -------- ------- -------- --------- ------ ------
Balance, December 31, 1998 2,840,823 28,409 - 4,768 11,975 4,958 (214) 49,896
10 percent stock dividend 283,393 2,833 13,320 (16,153) -
Comprehensive loss:
Net income 7,190 7,190
Unrealized loss on
securities, net of
reclassification
adjustments and
tax benefit of $4,062 (7,885) (7,885)
------
Total comprehensive loss (695)
------
Dividends declared, $1.01 (3,178) (3,178)
Stock options exercised 4,116 41 77 118
Treasury stock acquired,
1,304 shares (56) (56)
-------- ------- -------- ------- -------- --------- ------ ------
Balance, December 31, 1999 3,128,332 31,283 - 18,165 (166) (2,927) (270) 46,085
Comprehensive income:
Net income 6,566 6,566
Unrealized gain on
securities, net of
reclassification adjustments
and tax of $1,091 2,117 2,117
-------
Total comprehensive income 8,683
-------
Dividends declared, $1.10 (3,426) (3,426)
Stock options exercised 2,512 25 49 74
Treasury stock acquired,
28,591 shares (902) (902)
-------- ------- -------- ------- -------- --------- ------ -------
Balance, December 31, 2000 3,130,844 $31,308 $ - $18,214 $ 2,974 $ (810) $(1,172) $50,514
========= ======= ======== ======= ======= ========= ======== =======
Components of comprehensive income (loss): 2000 1999 1998
------ -------- -------
Change in net unrealized gain (loss)
on investments available for sale $2,295 $(6,601) $ 190
Realized gains included in net
income, net of tax $91, $662, and $706 $ (178) $(1,284) $(1,370)
------ -------- --------
Total $2,117 $(7,885) $(1,180)
====== ======= =======
CONSOLIDATED STATEMENT OF CASH FLOWS
For the years ended
December 31,
2000 1999 1998
------- -------- -------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,566 $ 7,190 $ 6,468
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 551 512 431
Provision for loan losses 286 286 305
Accretion and amortization of investment
security discounts and premiums (610) (156) (34)
Securities gains, net (269) (1,946) (2,076)
Loss (gain) on sale of foreclosed assets 29 (6) (12)
Increase in all other assets (1,015) (999) (964)
Increase (decrease) in all other liabilities 309 (121) (100)
-------- -------- --------
Net cash provided by operating activities 5,847 4,760 4,018
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities available for sale (57,973) (78,020) (48,469)
Proceeds from sale of securities available for sale 53,301 48,123 27,371
Proceeds from calls and maturities of securities
available for sale 6,142 7,137 4,361
Purchase of securities held to maturity (273) (25) (323)
Proceeds from calls and maturities of securities
held to maturity 58 2,090 2,473
Net increase in loans (12,893) (17,502) (12,053)
Acquisition of bank premises and equipment (390) (662) (713)
Proceeds from the sale of foreclosed assets 168 80 47
Acquisition of a subsidiary (3,321) - -
-------- -------- --------
Net cash used in investing activities (15,181) (38,779) (27,306)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in interest-bearing deposits 18,138 1,627 6,619
Net increase in noninterest-bearing deposits 4,423 812 3,709
Net increase (decrease) in short-term borrowings (10,620) 30,418 (5,087)
Proceeds from other borrowings 5,000 5,000 20,528
Repayment of other borrowings (500) (500) (500)
Dividends paid (3,426) (3,178) (2,755)
Stock options exercised 65 40 56
Purchase of treasury stock (902) (23) (109)
-------- -------- --------
Net cash provided by financing activities 12,178 34,196 22,461
-------- -------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 2,844 177 (827)
CASH AND CASH EQUIVALENTS, BEGINNING 12,474 12,297 13,124
-------- -------- --------
CASH AND CASH EQUIVALENTS, ENDING $ 15,318 $ 12,474 $ 12,297
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
The Company paid approximately $12,449,000, $10,606,000,
and $10,374,000 in interest on deposits and other borrowings
during 2000, 1999, and 1998, respectively. The Company made
income tax payments of approximately $2,008,000, $1,972,000, and
$2,563,000 during 2000, 1999, and 1998, respectively. Transfers
from loans to foreclosed assets held for sale amounted to
approximately $294,000, $102,000, and $40,000 in 2000, 1999, and
1998, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - NATURE OF 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 nonprofit entities and local
government loans 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 service provided by the bank to individuals,
partnerships, non-profit organizations and corporations through
its ten offices and Mortgage/Loan Center 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. is engaged in investing
activities.
The M Group engages in securities brokerage and insurance
activities.
Use of Estimates
The preparation of financial statements in conformity with
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 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 and the valuation of real estate acquired
through, or in lieu of, foreclosure on settlement of debt.
Investment Securities
Investment securities are classified as held to maturity,
available for sale, or trading.
Securities held to maturity include bonds, notes, and
debentures for which the Company has the positive intent and
ability to hold to maturity and are reported at amortized cost.
Trading account securities are recorded at their fair
values. Unrealized gains and losses on trading account
securities are included in other income. The Company has no
trading account securities as of December 31, 2000 or 1999.
Available for sale securities consist of bonds, notes,
debentures, and certain equity securities not classified as
trading securities nor as held to maturity securities.
Unrealized holding gains and losses, net of tax, on available
for sale securities are reported as a net amount in a separate
component of shareholders' equity until realized.
Gains and losses on the sale of all securities are
determined using the specific-identification method.
Declines in the fair value of individual securities held to
maturity and available for sale below their cost that are other
than temporary result in write-downs of the individual
securities to their fair value and are included in earnings as
realized losses.
Premiums and discounts on all securities are recognized in
interest income using the interest method over the period to
maturity.
The fair value of investments and mortgage-backed
securities, except certain state and political securities, is
estimated based on bid prices published in financial newspapers
bid quotations received from securities dealers or in the case
of equity securities, the closing price of the day as listed on
the Internet. The fair value of certain state and political
securities is not readily available through market sources other
than dealer quotations, so fair value estimates are based on
quoted market prices of similar instruments, adjusted for
differences between the quoted instruments and the instruments
being valued.
Loans
Loans are stated at the principal amount outstanding, net
of unearned discount, 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 Company's general
policy has been to stop accruing interest on loans when it is
determined a reasonable doubt exists as to the collectibility 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 management's judgment, the
borrower has the ability and intent to make future principal
payments.
Allowance for Loan Losses
The allowance for loan losses represents the amount which
management estimates is adequate to provide for potential losses
in its portfolio. 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 on management's periodic evaluation of individual loans,
economic factors, past loan loss experience, changes in the
composition and volume of the portfolio, and other relevant
factors. The estimates used in determining the adequacy of the
allowance for loan losses, including the amounts and timing of
future cash flows expected on impaired loans, are particularly
susceptible to changes in the near term.
Impaired loans are commercial and commercial real estate
loans for which it is probable the Company will not be able to
collect all amounts due according to the contractual terms of
the loan agreement. The Company 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 Company may choose to place a loan on
nonaccrual status due to payment delinquency or uncertain
collectibility, 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 impaired 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 a
case-by-case basis taking into consideration all circumstances
surrounding the loan and the borrower including the length of
the delay, the borrower's prior payment record, and the amount
of shortfall in relation to the principal and interest owed.
Foreclosed Assets Held for Sale
Foreclosed assets held for sale are carried at the lower of
fair value minus estimated costs to sell or cost. 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. Operating
expenses of such properties, net of related income, and gains
and losses on their disposition are included in other expenses.
Bank Premises and Equipment
Bank 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. Costs incurred for routine
maintenance and repairs are expensed currently.
Income Taxes
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 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.
Stock Options
The Company maintains a stock option plan for the
Directors, officers and employees. When the exercise price of
the Company's stock options is greater than or equal to the
market price of the underlying stock on the date of the grant,
no compensation expense is recognized in the Company's financial
statements. Pro forma net income and earnings per share are
presented to reflect the impact of the stock option plan
assuming compensation expense had been recognized based on the
fair value of the stock options granted under the plan.
Comprehensive Income
The Company is required to present comprehensive income in
a full set of general-purpose financial statements for all
periods presented. Other comprehensive income is comprised
exclusively of unrealized holding gains (losses) on the
available for sale securities portfolio. The Company has
elected to report the effects of other comprehensive income as
part of the Statement of Changes in Shareholders' Equity.
Cash Flows
The Company utilizes the net reporting of cash receipts and
cash payments for deposit and lending activities.
The Company considers amounts due from banks as cash
equivalents.
Pending Accounting Pronouncements
Financial Accounting Standards Board ("FASB") Statement No.
133, "Accounting for Derivative Instruments and Hedging
Activities" (Statement No. 133), as amended by FASB Statement
No. 138, "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of Statement No. 133"
(Statement No. 138), is effective in 2001, and requires
measuring and recording the change in fair value of derivative
instruments. Statement No. 133 is not expected to materially
affect the Company's financial position or results of
operations.
In September 2000, the FASB issued Statement No. 140,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." The Statement replaces FASB
Statement No. 125 and provides consistent standards for
distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings based on a control-
oriented "financial-components" approach. Under this approach,
after a transfer of financial assets, and entity recognizes the
financial and servicing assets it controls and liabilities it
has incurred, derecognizes financial assets when control has
been surrendered and derecognizes liabilities when extinguished.
The provisions of Statement No. 140 are effective for
transactions occurring after March 31, 2001. This Statement is
effective for recognition and reclassification of collateral and
for disclosures relating to securitization transactions and
collateral for fiscal years ending after December 15, 2000. The
adoption of the provisions of Statement No. 140 is not expected
to have a material impact on financial position or results of
operations.
NOTE B - PER SHARE DATA
There are no convertible securities which would affect the
numerator in calculating basis 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. The number of shares used
in calculating basic and diluted earnings and cash dividends per
share reflect the retroactive effect of stock dividends
declared.
2000 1999 1998
--------- ---------- ---------
Weighted average common shares outstanding 3,130,178 3,125,292 3,114,396
Average treasury stock shares (10,638) (3,879) (20)
--------- ---------- ---------
Weighted average common shares and
common stock equivalents used to
calculate basic earnings per share 3,119,540 3,121,413 3,114,376
Additional common stock equivalents
(stock options) used to calculate
diluted earnings per share - 8,682 7,585
--------- ---------- ---------
Weighted average common shares and
common stock equivalents used
to calculate diluted earnings per share 3,119,540 3,130,095 3,121,961
========= ========= =========
NOTE C - CASH AND DUE FROM BANKS
Banks are required to maintain reserves consisting of vault
cash and deposit balances with the Federal Reserve Bank in their
district. The reserves are based on deposit levels during the
year and account activity and other services provided by the
Federal Reserve Bank. Average daily currency, coin and cash
balances with the Federal Reserve Bank needed to cover reserves
against deposits for 2000 ranged from $3,526,000 to $4,394,000.
For 1999, these balances ranged from $2,438,000 to $3,873,000.
Average daily cash balances with the Federal Reserve Bank
required to cover services provided to the Bank amounted to
$800,000 throughout 2000 and 1999. Total balances restricted at
December 2000 and 1999, respectively, were $4,819,000 and
$4,384,000.
NOTE D - INVESTMENT SECURITIES
The amortized cost of investment securities and their
approximate fair values at December 31, 2000 and 1999 were as
follows (in thousands):
December 31, 2000
---------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -------
Securities available for sale:
Equity securities $ 19,954 $ 1,917 $ (2,538) $ 19,333
U.S Government and agency securities 26,644 247 (25) 26,866
State and political securities 66,565 1,162 (1,978) 65,749
Restricted equity securities 2,847 - - 2,847
Other debt securities 1,139 3 (15) 1,127
--------- -------- -------- ---------
$ 117,149 $ 3,329 $ (4,556) $ 115,922
========= ======== ======== =========
Securities held to maturity:
U.S Government and agency securities $ 206 $ 1 $ - $ 207
State and political securities 2,712 39 (7) 2,744
Other debt securities 310 - - 310
--------- -------- --------- ---------
$ 3,228 $ 40 $ (7) $ 3,261
========= ======== ======== =========
December 31, 1999
-------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -------
Securities available for sale:
Equity securities $ 23,718 $ 3,122 $ (3,058) $ 23,782
U.S Government and agency securities 39,722 5 (1,093) 38,634
State and political securities 50,224 66 (3,461) 46,829
Restricted equity securities 2,847 - - 2,847
Other debt securities 1,229 2 (18) 1,213
--------- -------- ---------- --------
$ 117,740 $ 3,195 $ (7,630) $113,305
========= ======== ========= ========
Securities held to maturity:
U.S Government and agency securities $ 259 $ 7 $ - $ 266
State and political securities 2,465 8 (37) 2,436
Other debt securities 290 - - 290
--------- -------- ---------- --------
$ 3,014 $ 15 $ (37) $ 2,992
========= ======== ========= ========
The amortized cost and fair value of debt securities at
December 31, 2000, by contractual maturity, are shown below (in
thousands). Expected maturities will differ from contractual
maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
Securities Securities
Held to Maturity Available for Sale
Amoritized Fair Amoritized Fair
Cost Value Cost Value
---------- ----- ---------- -----
Due in one year or less $ 915 $ 915 $ - $ -
Due after one year to five years 435 435 3,309 3,373
Due after five years to ten years 632 646 2,000 2,010
Due after ten years 1,246 1,265 89,039 88,359
-------- ------- -------- --------
Total $ 3,228 $ 3,261 $ 94,348 $ 93,742
======== ======= ======== ========
Total gross proceeds from sales of securities available for
sale, were $53,301,000 $48,123,000 and $27,371,000 for 2000,
1999 and 1998, respectively. The following table represents
gross realized gains and gross realized losses on those
transactions (in thousands):
2000 1999 1998
------- -------- -------
Gross realized gains:
U.S Government and agency securities $ 36 $ 128 $ 72
State and political securities 170 364 -
Equity securities 1,577 2,104 2,024
------- ------- -------
$ 1,783 $ 2,596 $ 2,096
======= ======= =======
Gross realized losses:
U.S Government and agency securities $ 731 $ 416 $ 5
State and political securities 30 26 5
Equity securities 753 181 10
Other debt securities - 27 -
------- ------- -------
$ 1,514 $ 650 $ 20
======= ======= =======
Investment securities with a carrying value of
approximately $32,859,000 and $34,121,000 at December 31, 2000
and 1999, respectively, were pledged to secure certain deposits,
security 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.
NOTE E - LOANS
Major loan classifications loans are summarized as follows
(in thousands):
December 31, 2000
--------------------------------------------------
Past Due Past Due
30 to 90 90 Days Non-
Current Days or More Accrual Total
--------- -------- ------- ------- ---------
Commercial and agricultural $ 26,001 $ 241 $ - $ 229 $ 26,471
Real estate mortgage:
Residential 130,532 2,366 22 168 133,088
Commercial 59,586 885 - 151 60,622
Construction 4,522 - - 226 4,748
Installment loans to individuals 21,252 297 5 3 21,557
---------- ------- ------ ------- ---------
$ 241,893 $ 3,789 $ 27 $ 777 246,486
======= ====== ======= =========
Less: Allowance for loan losses 2,879 2,879
---------- ---------
Loans, net $ 239,014 $ 243,607
========== =========
December 31, 1999
--------------------------------------------------
Past Due Past Due
30 to 90 90 Days Non-
Current Days or More Accrual Total
--------- -------- ------- ------- ---------
Commercial and agricultural $ 31,189 $ 482 $ 25 $ 39 $ 31,735
Real estate mortgage:
Residential 120,668 2,518 201 5 123,392
Commercial 51,102 343 - - 51,445
Construction 3,493 3 - 236 3,732
Installment loans to individuals 23,141 359 15 4 23,519
---------- ------- ------ ------ ----------
$ 229,593 $ 3,705 $ 241 $ 284 233,823
Less: Allowance for loan losses 2,823 ======= ====== ====== 2,823
---------- ----------
Loans, net $ 226,770 $ 231,000
========== ==========
Loans on which the accrual of interest has been
discontinued or reduced amounted to approximately $777,000 and
$284,000 at December 31, 2000 and 1999, respectively. If
interest had been recorded at the original rate on those loans,
such income would have approximated $86,000, $48,000, and
$98,000 for the years ended December 31, 2000, 1999, and 1998,
respectively. Interest income on such loans, which is recorded
as received, amounted to approximately $45,000, $38,000, and
$50,000 for the years ended December 31, 2000, 1999, and 1998,
respectively.
Transactions in the allowance for loan losses are
summarized as follows (in thousands):
Year Ended December 31,
2000 1999 1998
--------- ---------- ----------
Balance, beginning of year $ 2,823 $ 2,681 $ 2,579
Provision charged to operations 286 286 305
Loans charged off (269) (176) (271)
Recoveries 39 32 68
-------- -------- --------
Balance, end of year $ 2,879 $ 2,823 $ 2,681
======== ======== ========
The Company had no concentration of loans to borrowers
engaged in similar businesses or activities which exceed five
percent of total assets at December 31, 2000 or 1999.
The Company grants commercial, industrial, residential, and
installment loans to customers throughout Northcentral
Pennsylvania. Although the Company has a diversified loan
portfolio at December 31, 2000 and December 31,1999, a
substantial portion of its debtors' ability to honor their
contracts is dependent on the economic conditions within this
region.
NOTE F - BANK PREMISES AND EQUIPMENT
Bank premises and equipment are summarized as follows (in
thousands):
December 31,
2000 1999
-------- --------
Land $ 566 $ 566
Bank premises 4,630 4,598
Furniture and equipment 5,129 4,813
Leasehold improvements 795 753
-------- -------
Total 11,120 10,730
Less accumulated depreciation 6,393 5,842
-------- -------
Net $ 4,727 $ 4,888
======== =======
Depreciation expense for the years ended 2000, 1999 and
1998 was $551,000, $512,000, and $431,000, respectively.
NOTE G - DEPOSITS
Time deposits of $100,000 or more totaled approximately
$31,148,000 on December 31, 2000 and $24,308,000 on December 31,
1999. Interest expense related to such deposits was
approximately $1,571,000, $1,242,000, and $1,238,000 for the
years ended December 31, 2000, 1999, and 1998, respectively.
These time deposits at December 31, 2000 mature as follows: 2001
- - $27,110,000; 2002 - $3,014,000; 2003 - $524,000; beyond 2005 -
$500,000.
NOTE H - SHORT-TERM BORROWINGS
Short-term borrowings consist of federal funds purchased,
securities sold under agreements to repurchase, and FHLB
advances which generally represent overnight or less than 30-day
borrowings. The outstanding balances and related information
for short-term borrowings are summarized as follows (in
thousands):
2000 1999
-------- --------
Federal Home Loan Bank:
Balance at year end $ - $ 2,000
Maximum amount outstanding at any month end $ 2,000 $ 2,000
Average balance outstanding during the year $ 1,394 $ 2,000
Weighted-average interest rate:
At year end - 6.12%
Paid during the year 6.45% 6.12%
Open Repo Plus:
Balance at year end $15,610 $23,590
Maximum amount outstanding at any month end $20,970 $23,590
Average balance outstanding during the year $14,009 $ 6,108
Weighted-average interest rate:
At year end 6.63% 4.05%
Paid during the year 6.49% 5.26%
Repurchase Agreements:
Balance at year end $15,411 $16,051
Maximum amount outstanding at any month end $20,724 $17,147
Average balance outstanding during the year $16,410 $15,416
Weighted-average interest rate:
At year end 5.64% 4.62%
Paid during the year 5.29% 4.62%
NOTE I - OTHER BORROWINGS
Other borrowings are comprised of advances from the FHLB.
A schedule of other borrowings by maturity as of December 31,
2000 and 1999 is summarized as follows (in thousands):
Interest
Description Maturity Rate 2000 1999
- -------------------------- -------- -------- ------ -------
FHLB Borrowing October 29, 2000 5.21% $ - $ 500
FHLB Borrowing June 24, 2013 5.87% 528 528
Convertible Select Advance April 7, 2008 5.54% 10,000 10,000
Convertible Select Advance June 16, 2008 5.56% 10,000 10,000
Convertible Select Advance February 26, 2009 5.06% 5,000 5,000
FHLB Borrowing October 17, 2011 6.92% 500 500
FHLB Borrowing May 25, 2015 6.92% 750 750
Convertible Select Advance August 10, 2010 6.65% 5,000 -
------- ------
Total $31,778 $27,278
======= =======
The Bank maintains a credit arrangement which includes a
revolving line of credit with FHLB. Under this credit
arrangement, the Bank has a remaining borrowing capacity of
approximately $68,000,000 at December 31, 2000, 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.
NOTE J - INCOME TAXES
The following temporary differences gave rise to the net
deferred tax asset at December 31, 2000 and 1999 (in thousands):
2000 1999
-------- -------
Deferred tax asset:
Allowance for loan losses $ 634 $ 601
Deferred compensation 283 260
Contingencies 73 83
Pension 266 202
Loan fees and costs 184 169
Unrealized losses on available for sale securities 417 1,508
Stock option - 14
------ ------
Total 1,857 2,837
------ ------
Deferred tax liability:
Bond accretion 17 20
Depreciation 127 124
------- -------
Total 144 144
------- -------
Deferred tax asset, net $ 1,713 $ 2,693
======= =======
No valuation allowance was established at December 31, 2000
and 1999, in the view of the Company's ability to carry back to
taxes paid in previous years and certain tax strategies, coupled
with the anticipated future taxable income as evidenced by the
Company's earning potential.
The provision for income taxes is comprised of the
following (in thousands):
Year Ended December 31,
2000 1999 1998
------- ------- -------
Currently payable $1,730 $2,422 $2,263
Deferred benefit (111) (198) (99)
------ ------ ------
Total provision $1,619 $2,224 $2,164
====== ====== ======
The effective federal income tax rate for the years ended
December 31, 2000, 1999, and 1998 was 19.8 percent, 23.6
percent, and 25.1 percent, respectively. A reconciliation
between the expected income tax and rate and the effective
income tax and rate on income before income tax provision
follows (in thousands):
2000 1999 1998
---------------- ----------------- ----------------
Amount % Amount % Amount %
---------------- ----------------- ----------------
Provision at expected rate $ 2,783 34.0% $ 3,201 34.0% $ 2,935 34.0%
Decrease in tax
resulting from:
Tax-exempt income (837) (10.2) (677) (7.2) (416) (4.8)
Other, net (327) (4.0) (300) (3.2) (355) (4.1)
-------- ----- ------- ---- ------- ----
Effective income tax
and rates $ 1,619 19.8% $ 2,224 23.6% $ 2,164 25.1%
======== ====== ======= ===== ======= =====
NOTE K - 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. 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 tables show the funded status and components
of net periodic benefit cost from this defined benefit plan (in
thousands):
2000 1999
-------- -------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $4,099 $3,459
Service cost 256 254
Interest cost 242 236
Actuarial adjustment (625) 253
Benefits paid (37) (103)
------ ------
Benefit obligation at end of year 3,935 4,099
------ ------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year 3,641 3,476
Actual return (loss) on plan assets (7) 268
Benefits paid (37) (103)
------ ------
Fair value of plan assets at end of year 3,597 3,641
------ ------
Funded status (338) (458)
------ ------
Unrecognized net actuarial gain (646) (350)
Unrecognized transition asset (30) (32)
Unrecognized prior service cost 229 248
------ ------
Accrued benefit cost $ (785) $ (592)
====== ======
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31:
Discount rate 7.00% 6.50%
Expected return on plan assets 8.00% 8.00%
Rate of compensation increase 5.00% 5.00%
2000 1999 1998
-------- -------- --------
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost $ 256 $ 254 $ 222
Interest cost 242 236 213
Expected return on plan assets (291) (268) (224)
Amortization of transition asset (3) (3) (3)
Amortization of prior service cost 20 20 18
Recognized net actuarial gain (33) (15) (1)
------- ------- -------
Net periodic benefit cost $ 191 $ 224 $ 225
======= ======= =======
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 to be
determined by the Company. Participants are at all times fully
vested in their contributions and vest over a period of five
years in the employer contribution. Contribution expense was
approximately $67,000, $64,000, and $114,000 for the years ended
December 31, 2000, 1999, and 1998, respectively.
DEFERRED COMPENSATION PLAN
The Company has a deferred compensation plan whereby
participating directors elected to forego director's fees for a
period of five years. 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 corporate-owned life insurance policies on
the lives of the participating directors for which insurance
benefits are payable to the Company. The total expense charged
to other expenses was $66,000, $128,000 and $114,000 for the
years ended December 31, 2000, 1999 and 1998, respectively.
Benefits paid under the plan were approximately $53,000 in 2000
and $57,000 in 1999 and $45,000 in 1998.
NOTE L - STOCK OPTIONS
Prior to 1998, the Company granted a select group of its
officers options to purchase shares of its common stock. These
options, which are immediately exercisable, expire within three
to ten years after having been granted. Also, in 1998, the
Company adopted the "1998 Stock Option 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.
In addition, non-employee directors are eligible to receive
grants of nonqualified stock options. 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.
The Company applies Accounting Principles Board Opinion
No. 25 and related interpretations in accounting for these
options. Accordingly, compensation expense is recognized on the
grant date, in amount equivalent to the intrinsic value of the
options (stock price less exercise price, at measurement date).
Had compensation costs for these options been determined based
on the fair values at the grant dates for awards consistent with
the method of SFAS No. 123, the effect on the Company's net
income and earnings per share for 2000, 1999, and 1998 would
have been insignificant. For purposes of the calculations
required by SFAS No. 123, the fair value of each option grant is
estimated on the date of the grant using the Black-Scholes
option-pricing model with the following weighted-average
assumptions for grants issued in 2000, 1999 and 1998,
respectively: dividend yield of 1.03 percent, 1.85 percent, and
2.52 percent, respectively; risk-free interest rates of 4.95
percent, 6.75 percent, and 5.63 percent, respectively; expected
option lives of three years and expected volatility of 23.81
percent, 18.73 percent, and 14.51 percent, respectively.
A summary of the status of the Company's common stock
option plans, adjusted to reflect a stock split effected in the
form of a 100 percent stock dividend issued January 15, 1998 and
a 10 percent stock dividend issued June 8, 1999, is presented
below:
2000 1999 1998
------------------ ------------------- ------------------
Weighted- Weighted- Weighted-
average average average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- -------- ------ --------- ------ ---------
Outstanding, beginning
of year 34,813 $ 38.52 28,479 $ 34.27 32,652 $ 18.70
Granted 10,000 32.63 10,450 42.00 9,900 53.18
Exercised 2,512 25.98 4,116 17.95 14,073 11.45
Forfeited - - - - - -
------ -------- ------ -------- ------ --------
Outstanding, end of year 42,301 $ 37.87 34,813 $ 38.52 28,479 $ 34.27
====== ======== ====== ======== ====== ========
Options exercisable
at year-end 32,301 $ 39.49 24,363 $ 37.03 18,579 $ 24.19
====== ======== ====== ======== ====== ========
The following table summarizes information about nonqualified
and incentive stock options outstanding at December 31, 2000:
Exercise Number Remaining Number
Prices Outstanding Contractual Life Exercisable
-------- ----------- ---------------- -----------
$ 25.98 11,951 3 years 11,951
53.18 9,900 8 years 9,900
42.00 10,450 9 years 10,450
32.63 10,000 10 years -
------- ------
42,301 32,301
======= ======
NOTE M - 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 (in thousands):
Beginning Retired/ Charge- Ending
Year Balance Additions Payments Resigned offs Balance
---- --------- --------- -------- -------- ------ -------
2000 $ 5,810 $ 1,387 $ 2,243 $ - $ - $ 4,954
1999 $ 2,452 $ 6,775 $ 3,417 $ - $ - $ 5,810
1998 $ 2,096 $ 1,642 $ 1,074 $ 212 $ - $ 2,452
NOTE N - COMMITMENTS AND CONTINGENT LIABILITIES
The following schedule of future minimum rental payments
under operating leases with noncancellable terms in excess of
one year as of December 31, 2000 (in thousands):
Year Ending December 31,
2001 $ 191
2002 142
2003 95
2004 71
2005 66
Thereafter 193
------
Total $ 758
======
Total rental expense for all operating leases for the years
ended December 31, 2000, 1999, and 1998 approximated $208,000,
$197,000, and $268,000, respectively.
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.
NOTE O - 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 Company's 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 (in thousands):
2000 1999
-------- --------
Commitments to extend credit $ 27,911 $ 25,917
Standby letters of credit $ 1,332 $ 1,564
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 customer's credit worthiness on a case-
by-case basis. The amount of collateral obtained, if deemed
necessary by the Company, on extension of credit is based on
management's credit assessment of the counterparty.
Standby letters of credit are conditional commitments
issued by the Company guaranteeing performance by a customer to
a third party. Those guarantees are issued primarily to support
public and private borrowing arrangements including commercial
paper, bond financing, and similar transactions. The credit
risk involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities to customers.
NOTE P - 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 form "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, 2000 and 1999, the 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 Company's and the Bank's actual capital ratios are
presented in the following tables, which shows that both met all
regulatory capital requirements.
The Company's actual capital amounts and ratios are
presented in the following table (in thousands).
2000 1999
--------------------- ---------------------
Amount Ratio Amount Ratio
---------- --------- ---------- ---------
Total Capital
(to Risk-weighted Assets)
- ----------------------------
Actual $ 50,533 20.1% $ 51,864 21.5%
For Capital Adequacy Purposes 20,162 8.0 19,286 8.0
To Be Well Capitalized 25,202 10.0 24,108 10.0
Tier I Capital
(to Risk-weighted Assets)
- ---------------------------
Actual $ 47,654 18.9% $ 49,012 20.3%
For Capital Adequacy Purposes 10,081 4.0 9,643 4.0
To Be Well Capitalized 15,121 6.0 14,464 6.0
Tier I Capital
(to Average Assets)
- ---------------------
Actual $ 47,654 12.4% $ 49,012 13.5%
For Capital Adequacy Purposes 15,428 4.0 14,481 4.0
To Be Well Capitalized 19,285 5.0 18,102 5.0
The Bank's actual capital amounts and ratios are presented
in the following table (in thousands).
2000 1999
--------------------- ---------------------
Amount Ratio Amount Ratio
---------- --------- ---------- ---------
Total Capital
(to Risk-weighted Assets)
- ---------------------------
Actual $ 39,584 16.3% $ 38,572 16.8%
For Capital Adequacy Purposes 19,416 8.0 18,332 8.0
To Be Well Capitalized 24,270 10.0 22,916 10.0
Tier I Capital
(to Risk-weighted Assets)
- ---------------------------
Actual $ 36,705 15.1% $ 35,749 15.6%
For Capital Adequacy Purposes 9,708 4.0 9,166 4.0
To Be Well Capitalized 14,562 6.0 13,749 6.0
Tier I Capital
(to Average Assets)
- ---------------------
Actual $ 36,705 9.8% $ 35,749 10.5%
For Capital Adequacy Purposes 15,059 4.0 13,607 4.0
To Be Well Capitalized 18,823 5.0 17,009 5.0
The Pennsylvania Banking Code restricts the availability of
capital funds for payment of dividend by all state chartered
banks to the additional paid in capital of the bank.
Accordingly, at December 31, 2000, the balance in the additional
paid in capital account totaling approximately $11,700,000 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, 2000, the regulatory lending limit amounted to
approximately $4,012,000.
NOTE Q - ACQUISITION
On October 1, 2000, the Bank acquired The M Group in a
business acquisition accounted for as a purchase. The M Group
is engaged in the insurance business. The results of operations
of The M Group are included in the accompanying consolidated
financial statements since the date of acquisition. The total
cost of the acquisition was $3,321,000, which exceeds the fair
value of the net assets of The M Group by $3,261,000 which was
allocated to goodwill.
On January 11, 1999 the Company completed the acquisition
of all the outstanding common stock of the First National Bank
of Spring Mills in exchange for 262,471 shares of the Company's
common stock, in a business combination accounted for as a
pooling of interest. As a result of this transaction, total
consolidated assets increased approximately $31,834,000.
Historical financial information has been restated to include
the First National Bank of Spring Mills.
NOTE R - STOCK DIVIDEND
On April 28, 1999, the Board of Directors approved a ten
percent stock dividend to shareholders of record as of May 10,
1999. As a result of the dividend, an additional 283,393 shares
of the Company were issued, with fractional shares paid in cash.
Average shares and all per share amounts included in the
consolidated financial statements are based on the increased
number of shares after giving retroactive effect to the stock
dividend.
NOTE S - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
"Disclosures about Fair Value of Financial Instruments,"
requires that the Company 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 Company's entire holdings of a
particular financial instrument. Also, it is the Company's
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 Company's 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 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 estimated fair
value of the Company's investment securities is described in
Note A. The Company's fair value estimates, methods, and
assumptions are set forth below for the Company's 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 Company's financial
instruments are as follows:
2000 1999
-------------------- ---------------------
Carrying Fair Carrying Fair
Value Value Value Value
-------- ------ -------- ------
Financial assets:
Cash and due from banks $ 15,318 $ 15,318 $ 12,474 $ 12,474
Investment securities:
Available for sale 115,922 115,922 113,305 113,305
Held to maturity 3,228 3,261 3,014 2,992
Loans, net of earned discount 246,486 246,403 233,823 233,923
Bank owned life insurance 2,353 2,353 2,244 2,244
Accrued interest receivable 2,581 2,581 2,283 2,283
-------- -------- -------- --------
Total $385,888 $385,838 $367,143 $367,221
======== ======== ======== ========
Financial liabilities:
Interest-bearing Deposits $230,666 $230,267 $212,528 $212,378
Noninterest-bearing Deposits 47,468 47,468 43,045 43,045
Short-term borrowings 31,021 31,021 41,641 41,641
Other borrowings 31,778 31,638 27,278 26,888
Accrued interest payable 1,452 1,452 1,123 1,123
-------- -------- -------- --------
Total $342,385 $341,846 $325,615 $325,075
======== ======== ======== ========
Cash and due from banks, 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.
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
mortgage, credit card, 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, except residential
mortgage and credit card 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 Company's historical experience with
repayments for each loan classification, modified, as required,
by an estimate of the effect of current economic and lending
conditions. For performing residential mortgage loans, fair
value is estimated by discounting contractual cash flows
adjusted for prepayment estimates using discounted rates based
on secondary market sources adjusted to reflect differences in
servicing and credit costs. For credit card loans, cash flows
and maturities are estimated based on contractual interest rates
and historical experience and are discounted using secondary
market rates adjusted for differences in servicing and credit
costs.
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.
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 life
insurance policies.
Deposits:
The fair value of deposits with no stated maturity, such as
noninterest-bearing demand deposits, savings and NOW accounts,
and money market and checking accounts, is equal to the amount
payable on demand as of December 31, 2000 and 1999. 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.
Other Borrowings:
The fair value of other 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, 2000 and 1999 respectively.
NOTE T - PARENT COMPANY ONLY FINANCIAL STATEMENTS
Condensed financial information for Penns Woods Bancorp,
Inc. follows:
CONDENSED BALANCE SHEET, DECEMBER 31,
2000 1999
--------- ---------
(in thousands)
ASSETS
Cash $ 156 $ 27
Investment in subsidiaries:
Bank 39,566 33,261
Nonbank 11,030 13,224
Other assets 11 27
--------- ---------
Total Assets $ 50,763 $ 46,539
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Other liabilities $ 249 $ 454
Shareholders' equity 50,514 46,085
--------- ---------
Total Liabilities and
Shareholders' Equity $ 50,763 $ 46,539
========= =========
CONDENSED STATEMENT OF INCOME, FOR THE YEARS ENDED DECEMBER 31,
2000 1999 1998
------- ------- -------
(in thousands)
OPERATING INCOME
Dividends from subsidiaries $6,220 $3,735 $3,789
Equity in undistributed net income
of subsidiaries 443 3,583 2,691
Other income 2 1 -
OPERATING EXPENSES (99) (129) (12)
------ ------ ------
NET INCOME $6,566 $7,190 $6,468
====== ====== ======
CONDENSED STATEMENT OF CASH FLOWS, FOR THE YEARS ENDED
DECEMBER 31,
2000 1999 1998
-------- -------- --------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 6,566 $ 7,190 $ 6,468
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in undistributed net
income of subsidiaries (443) (3,583) (2,691)
Increase in income taxes payable 16 174 37
Increase (decrease) in liabilities 5 (24) (105)
------- ------ -------
Net cash provided by operating
activities 6,144 3,757 3,709
------- ------ -------
CASH FLOWS FROM INVESTING ACTIVITIES
Additional investment in subsidiaries (1,752) (620) (1,105)
------- ------ -------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid 3,426) (3,178) (2,755)
Proceeds from exercise of stock
options 65 40 56
Purchase of treasury stock (902) (23) (109)
------- ------ -------
Net cash used in financing
activities (4,263) (3,161) (2,808)
------- ------ -------
NET INCREASE (DECREASE) IN CASH 129 (24) (204)
CASH, BEGINNING OF YEAR 27 51 255
------- ------ -------
CASH, END OF YEAR $ 156 $ 27 $ 51
======= ======= =======
NOTE U - CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE THREE MONTHS ENDED
March June September December
2000 31, 30, 30, 31,
- ----------------------------- --------- --------- --------- ---------
Interest income $ 6,819 $ 6,945 $ 7,252 $ 7,438
Interest expense 2,931 3,038 3,349 3,460
-------- -------- -------- --------
Net interest income 3,888 3,907 3,903 3,978
Provision for loan losses 78 52 78 78
Other income 412 477 461 739
Securities gains (losses), net 161 91 153 (136)
Other expenses 2,371 2,402 2,319 2,471
-------- -------- -------- --------
Income before income tax
provision 2,012 2,021 2,120 2,032
Income tax provision 466 417 399 337
-------- -------- -------- --------
Net income $ 1,546 $ 1,604 $ 1,721 $ 1,695
======== ======== ======== ========
Earnings per share - basic $ 0.49 $ 0.52 $ 0.55 $ 0.54
Earnings per share - diluted $ 0.49 $ 0.52 $ 0.55 $ 0.54
FOR THE THREE MONTHS ENDED
March June September December
1999 31, 30, 30, 31,
- ----------------------------- --------- --------- --------- ---------
Interest income $ 6,214 $ 6,368 $ 6,580 $ 6,868
Interest expense 2,524 2,536 2,610 2,848
-------- -------- -------- --------
Net interest income 3,690 3,832 3,970 4,020
Provision for loan losses 78 52 78 78
Other income 377 397 389 418
Securities gains, net 185 94 272 1,395
Other expenses 2,268 2,220 2,233 2,618
-------- -------- -------- --------
Income before income tax
provision 1,906 2,051 2,320 3,137
Income tax provision 431 454 540 799
-------- -------- -------- --------
Net income $ 1,475 $ 1,597 $ 1,780 $ 2,338
======== ======== ======== ========
Earnings per share - basic $ 0.52 $ 0.46 $ 0.57 $ 0.75
Earnings per share - diluted $ 0.52 $ 0.46 $ 0.57 $ 0.75
SCHEDULE 1
PENNS WOODS BANCORP, INC.
INDEBTEDNESS OF RELATED PARTIES
Column A Column B Column C Column D Column E
Deductions
Beginning Retired/ Charge- Ending
Year Name of Debtor Balance Additions Payments Resigned offs Balance
2000 6 directors, 13 affiliated $5,810 $1,387 $2,243 $0 $0 $4,954
interests, and 2 officers
1999 6 directors, 15 affiliated $2,452 $6,775 $3,417 $0 $0 $5,810
interests, and 2 officers
1998 7 directors, 18 affiliated $2,096 $1,642 $1,074 $212 $0 $2,452
interests, and 3 officers
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On July 27, 1999, the board of Directors, upon the
recommendation of its audit committee, engaged the accounting
firm of S.R. Snodgrass, A.C. as independent accountants to audit
the Company's financial statements for the fiscal year ended
December 3, 1999. Concurrently with the engagement of S.R.
Snodgrass, the Board of Directors dismissed Parente, Randolph,
Orlando, Carey & Associates ("Parente") as the Company's
independent auditors. During the fiscal years ended December 31,
1997 and 1998, there were no disagreements with Parente on any
matter of accounting principles or practice, financial statement
disclosure, or auditing scope or procedure or any reportable
event. The reports on the financial statements of the Company
for such years issued by Parente did not contain an adverse
opinion or a disclaimer of opinion, and were not qualified or
modified as to uncertainty, audit scope, or accounting
principles
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information appearing in the Proxy Statement under the
caption "Election of Directors" is incorporated herein by
reference. (a) Identification of directors. The information
appearing under the caption "Election of Directors" in the
Company's Proxy Statement dated March 27, 2001 (at page 5
thereto) is incorporated herein by reference.
ITEM 11 EXECUTIVE COMPENSATION
Information appearing under the caption "Executive
Compensation" in the Company's Proxy Statement (at page 6
thereto) is incorporated herein by reference.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information appearing under the caption "Principal
Beneficial Owners of the Corporation's Common Stock" in the
Company's Proxy Statement (at page 3 thereto) is incorporated
herein by reference.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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, 2000
to the Company's and the Bank's 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
$4,954,000 or approximately 12.5% of the total equity capital of
the Bank. 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 footnote M to the
Consolidated Financial Statements included elsewhere in the
Annual Report.
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) Financial Statements.
1. The following consolidated financial
statements and reports are set forth in
Item 8:
Report of Independent Certified Public
Accountants
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. The following schedules are submitted
herewith:
I. Indebtedness of Related Parties
(b) Reports on Form 8-K
On January 26, 1999 Penns Woods Bancorp, Inc.
filed a Form 8-K, reporting completion of the
Company's acquisition of the First National Bank
of Spring Mills. In addition, on September 23,
1999 Penns Woods Bancorp, Inc. filed a Form 8-K
report under Item 4 of Form 8-K reporting a change
in the registrant's independent certified public
accountants.
The schedules not included are omitted
because the required matter or conditions are not
present, the data is insignificant or the required
information is submitted as part of the
consolidated financial statements and notes
thereto.
(c) Exhibits:
(3)(i) Articles of Incorporation of the
Registrant, as presently in effect
(incorporated herein by reference to
Exhibit 3.1 of Registration Statement
No. 333-65821 on Form S-4).
(3)(ii) Bylaws of the Registrant as presently in
effect (incorporated herein by reference
to Exhibit 3.2 of Registration Statement
No. 333-65821 on Form S-4).
(10)(i) Employment Agreement, dated as of
January 1, 1995, among Penns Woods
Bancorp, Inc., Jersey Shore State Bank,
and Theodore H. Reich (incorporated by
reference to Exhibit 10.2 to
Registration Statement No. 333-65821 on
Form S-4)*.
(10)(ii) Employment Agreement, dated August 29,
1991, between Jersey Shore State Bank
and Ronald A. Walko (incorporated by
reference to Exhibit 10.3 to
Registration Statement No. 333-65821 on
Form S-4)*.
(10)(iii) Employment Agreement, dated November 5,
1984, between Jersey Shore State Bank
and Hubert A. Valencik.*
(10)(iv) Employment Severance Benefit Plan, dated
May 30, 1996, between Jersey Shore State
Bank and Ronald A. Walko (incorporated
by reference to Exhibit 10.4 to
Registration Statement No. 333-65821 on
Form S-4)*.
(10)(v) Employment Severance Benefit Plan, dated
May 30, 1996, between Jersey Shore State
Bank and Hubert A. Valencik.*
(10)(vi) Penns Woods Bancorp, Inc. 1998 Stock
Option Plan (incorporated by reference
to Exhibit 10.1 to Registration
Statement No. 333-65821 on Form S-4)*.
(16) Letter re: change in certifying
accountant (incorporated herein by
reference to Exhibit 16.1 of the
Registrant's Current Report on
Form 8-K/A filed September 23, 1999).
(21) Subsidiaries of the Registrant.
(23) Consent of Parente, Randolph, Orlando,
Carry & Associates.
* Denotes compensatory plan or arrangement.
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 13, 2001 PENNS WOODS BANCORP, INC.
/s/Theodore H. Reich
Theodore H. Reich, Chairman
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/Theodore H. Reich Chairman March 13, 2001
Theodore H. Reich
/s/Ronald A. Walko President, Chief March 13, 2001
Ronald A. Walko Executive Officer
and Director
/s/Sonya E. Scott Principal March 13, 2001
Sonya E. Scott Accounting
Officer & Principal
Financial Officer
/s/Phillip H. Bower Director March 13, 2001
Phillip H. Bower
/s/Lynn S. Bowes Director March 13, 2001
Lynn S. Bowes
/s/Michael J. Casale, Jr. Director March 13, 2001
Michael J. Casale, Jr.
/s/H. Thomas Davis, Jr. Director March 13, 2001
H. Thomas Davis, Jr.
/s/William S. Frazier Director March 13, 2001
William S. Frazier
/s/James M. Furey II Director March 13, 2001
James M. Furey II
/s/Allan W. Lugg Director March 13, 2001
Allan W. Lugg
/s/ Jay H. McCormick Director March 13, 2001
Jay H. McCormick
/s/R. Edward Nestlerode, Jr. Director March 13, 2001
R. Edward Nestlerode, Jr.
/s/James E. Plummer Director March 13, 2001
James E. Plummer
/s/William H. Rockey Sr. Vice March 13, 2001
William H. Rockey President
and Director
EXHIBIT INDEX
(10)(iii) Employment Agreement, dated November 5,
1984, between Jersey Shore State Bank
and Hubert A. Valencik.
(10)(v) Employment Severance Benefit Plan, dated
May 30, 1996, between Jersey Shore State
Bank and Hubert A. Valencik.
(21) Subsidiaries of the Registrant.
(23) Consent of Parente, Randolph, Orlando,
Carry & Associates.