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TABLE OF CONTENTS
Letter to Shareholders 2
Three Year Financial Highlights 3
Report of Independent Certified Accountants 4
Consolidated Balance Sheet 5
Consolidated Statement of Income 6
Consolidated Statement of Changes in 7
Shareholder's Equity
Consolidated Statement of Cash Flows 8
Notes to Consolidated Financial Statements 9-20
Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operation 21-36
SEC Form 10-K 37-49
Management and Board of Directors 50
Offices of Jersey Shore State Bank 51
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, 1996
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.)
115 South Main Street, PO. Box 5098
Jersey Shore, Pennsylvania 17740
(Address of principal executive offices)
Registrant's telephone number, including area code
(717) 398-2213
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
which registered
None None
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
State the aggregate market value of the voting stock held by
non-affiliates of the registrant $46,348,842 at February 28, 1997
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 February 29, 1997
Common Stock, $10 Par Value 1,277,298 Shares
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference:
a). Penns Woods Bancorp, Inc. 1996 Annual Report (Annual Report)
b). Penns Woods Bancorp, Inc. Proxy Statement (Proxy Statement dated
March 25, 1997)
Location in Form 10-K Incorporated Information
Part II
Item 7. Management's Discussion Pages 21 through 36 of the
and Analysis of Consolidated Annual Report
Financial Condition and
Results of Operations
Item 8. Financial Statements and Pages 5 through 20 of
Supplementary Data the Annual Report
Part III
Item 13. Certain Relationships and Page 15 of the Annual
Related Transactions Report
INDEX
PART I
ITEM PAGE
Item 1. Business 39-43
Item 2. Properties 44
Legal Proceedings 44
Item 4. Submission of Matters to a Vote of Security 44
Holders
PART II
Item 5. Market for the Registrant's Common Stock and 45
Related Stockholder Matters
Item 6. Selected Financial Data 46
Item 7. Management's Discussion and Analysis of 21-36
Consolidated Financial Condition and Results
of Operations
Item 8. Financial Statements and Supplementary Data 47
Item 9. Disagreements on Accounting and Financial
Disclosure 47
PART III
Item 10. Directors and Executive Officers of the
Registrant 47
Item 11. Executive Compensation 47
Item 12. Security Ownership and Certain Beneficial
Owners and Management 47
Item 13. Certain Relationships and Related Transactions47
PART IV
Item 1. Exhibits, Financial Statement Schedules and 48
Reports on Form 8-K
Index to Exhibits 48
Signatures 49
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 Company and Woods
Investment Company, 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. It
operates full banking services with seven offices in Northcentral
Pennsylvania.
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 133 persons as of
December 31, 1996. The Company does not have any
employees. The principal officers of the Bank also serve as
officers of the Company.
B. Regulations and Supervision
The Company is under the jurisdiction of the Securities and
Exchange Commission (the "SEC") and of state securities
commissions for matters relating to the offering and sale of its
securities. In addition, the Company is subject to the SEC's
rules and regulations relating to periodic reporting, reporting
to its shareholders, proxy solicitation and insider trading.
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 FRB has issued regulations under the BHCA that
require a bank holding company to serve as a source of
financial and managerial strength to its subsidiary banks.
As a result, the FRB, pursuant to such regulations, may
require the Company to stand ready to use its resources to
provide adequate capital funds to the Bank during periods of
financial stress or adversity. The BHCA requires the
Company to secure the prior approval of the FRB before it
can acquire all or substantially all of the assets of any bank,
or acquire ownership or control of 5% or more of any voting
shares of any bank. Such a transaction would also require
approval of the Department.
A bank holding company is prohibited under the BHCA from
engaging in, or acquiring direct or indirect control of, more
than 5% of the voting shares of any company engaged in
non-banking activities unless the FRB, by order or regulation,
has found such activities to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto.
Under the BHCA, the FRB has the authority to require a bank
holding company to terminate any activity or relinquish control
of a 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, 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 10.00% 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, 1996, the Bank's ratios
were well above required minimum ratios.
As a result of legislation in 1996 discussed below, both the BIF and
SAIF are presently fully funded at more than the minimum amount
required by law. Accordingly, the 1997 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. Prior
to 1997, only thrift institutions were subject to assessments to
raise funds to pay the FICO bonds. On September 30, 1996, as part of
the omnibus budget act, Congress enacted the Deposit Insurance Funds
Act of 1996, which recapitalized the SAIF and provided that
commercial banks would be subject to 1/5 of the assessment to which
thrifts are subject for FICO bond payments through 1999. Beginning in
2000, commercial banks and thrifts will be subject to the same
assessment for FICO bonds. The FICO assessment for the Bank (and all
commercial banks) for the first six months of 1997 is $.0065 for each
$100 of BIF deposits. Because the Bank has SAIF deposits as a result
of its acquisition of Lock Haven Savings Bank, the Bank is also
subject to a FICO assessment of $.0324 for each $100 of SAIF deposits
for the first six months of 1997.
New Legislation
The Deposit Insurance Funds Act of 1996 was a part of the larger
Economic Growth and Regulatory Paperwork Reduction Act of 1996
("EGRPRA"). EGRPRA is a lengthy Act that amends many different bank
regulatory and consumer protection statutes. While EGRPRA does not
contain any major changes to banking law (except for the FDIC and
FICO assessments discussed above), it does contain a number of
smaller provisions that are beneficial to the banking industry. In
particular, certain routine regulatory application requirements and
procedures have been reduced or eliminated, making it easier and less
expensive for banks to comply with regulatory requirements. While
the changes effected by EGRPRA are welcome, the direct effect on the
Corporation and the Bank are expected to be minimal.
Proposed legislation is introduced in almost every
legislative session that would dramatically affect the regulation
of the banking industry. Whether or not such legislation will
ever be enacted and what effect it may have on the Corporation
and the Bank cannot be estimated at this time.
D. Interstate Banking
The Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 (the "Interstate Banking Law") amended various federal
banking laws to provide for nationwide interstate banking, interstate
bank mergers and interstate branching. The interstate banking
provisions allow for the acquisition by a bank holding company of a
bank located in another state. Interstate bank mergers and branch
purchase and assumption transactions will be allowed effective June
1, 1997; however, states may "opt-out" of the merger and purchase and
assumption provisions by enacting a law which specifically prohibits
such interstate transactions. States may, in the alternative, enact
legislation to allow interstate merger and purchase and assumption
transactions prior to June 1, 1997. States may also enact legislation
to allow for de novo interstate branching by out of state banks.
Pennsylvania adopted "opt in" legislation which allows such
transactions today, prior to the June 1, 1997 federal effective date.
E. 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.
F. 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, 1996, the Bank had total assets of
$259,724,00; total shareholders' equity of $33,557,000 and
total deposits of $203,016,000. Its deposits are insured by the
Federal Deposit Insurance Corporation to the extent of $100,000
provided under current law.
Jersey Shore State Bank engages in business as a
commercial bank, doing business at several locations in
Lycoming and Clinton Counties, Pennsylvania.
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 either directly or through regional industrial
development corporations, 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,
student loans, etc. Business loans include seasonal credit
collateral loans and term loans, as well as accounts receivable
and inventory financing.
The Bank's 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 three 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
through the regional industrial corporation and 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 availablity 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 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
3.10% to 6.54% 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 7 full service offices in Lycoming and
Clinton Counties, Pennsylvania. The economic base of the
region is developed around service, light manufacturing
industries and agriculture. The banking environment in
Lycoming and Clinton 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 Company is a one-bank holding company required to be
registered with the Federal Reserve Board under the Federal
Bank Holding Company Act and to comply with its reporting
requirements. This statute provides that the Company may
engage in or acquire direct or indirect ownership or control of
more than 5% of the voting shares of any company engaged in
non-banking activities, only if the Federal Reserve Board, by
order or regulation, has found such activities to be so closely
related to banking or managing and controlling banks as to be a
proper incident thereto. This statute requires approval of the
acquisition of 5% or more of the voting shares of, or interest in
all or substantially all of the assets of, any bank by a bank
holding company and does not permit the approval to be given if
the bank is located outside of Pennsylvania unless such
acquisition is specifically authorized by the laws of the state in
which such bank is located.
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 58 President and Chief Executive Officer
of the Company; the Bank; Woods
Real Estate Development Co., Inc.;
and Woods Investment Company, Inc.
Ronald A. Walko 50 Vice President of the Company; Senior
Vice President and Senior Loan Officer
of the Bank from 1986 to current; Vice
President of Woods Investment
Company, Inc.; Federal bank examiner
prior to 1986 for an eighteen-year
period.
Hubert A. Valencik 55 Vice President of the Company; Senior
Vice President and Operations Officer
of the Bank; Vice President of Woods
Real Estate Development Co., Inc. and
Woods Investment Company, Inc.; Vice
President with another bank prior to
1985 for a fourteen-year period.
Chris B. Ward 50 Treasurer of the Company; Vice
President of the Bank; Treasurer of
Woods Real Estate Development Co.,
Inc. and Woods Investment Company,
Inc.
Sonya E. Hartranft 37 Secretary of the Company; Controller
of the Bank; Secretary of Woods Real
Estate Development Co., Inc. and
Woods Investment Company, Inc.
The following individual is an officer of
the Bank only:
G. David Gundy 48 Vice President.of the Bank;
Vice President and Regional
Manager with another bank
prior to 1992 for a thirteen-year
period.
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 are located; all properties
are in good condition and adequate for the Bank's purposes:
Office Address
Main 115 South Main Street Owned
PO. Box 5098
Jersey Shore, Pennsylvania 17740
Jersey Shore 112 Bridge Street Owned
Jersey Shore, Pennsylvania 17740
DuBoistown 2675 Euclid Avenue Under Lease
DuBoistown, Pennsylvania 17701 -- see below
Williamsport 300 Market Street Owned
PO. Box 967
Williamsport, Pennsylvania 17703-0967
Montgomery RD. 1, Box 493 Under Lease
Montgomery, Pennsylvania 17752 -- see below
Lock Haven 4 West Main Street Owned
Lock Haven, Pennsylvania 17745
Mill Hall Millbrook Plaza, Hogan Boulevard Under Lease
Mill Hall, Pennsylvania 17751 -- see below
The DuBoistown branch office was leased for a twenty-year
period that ended in 1995. After the initial twenty-year period,
the Bank had the option to extend the lease for each of
four successive five-year terms. In 1995 the bank extended the
lease for the first of four five-year optional terms. At the end of
the last five-year extension, the Bank shall be afforded the
opportunity to negotiate a new lease agreement. The Bank is
granted, during the term of the lease or any renewal or extension
thereof, an option to purchase the leased property at any time at
a purchase price to be determined in the following manner: Two
competent real estate appraisers to be selected by agreement
of the Bank and the lessor, and if no such agreement can be
reached, then one selected by the lessor and one selected by
the Bank shall individually appraise the property, and the
purchase price shall be seventy-five (75%) percent of the
average of the two appraisals. The annual rent for the
DuBoistown branch office was $9,000 for the year ended
December 31, 1996.
The Montgomery branch office is leased
for a fifteen-year period ending in the year 2002. The Bank shall
have the option to extend the lease for a five-year period after the
initial fifteen-year term has expired. The Bank shall also have an
opportunity to negotiate a new lease agreement after the
five-year extension has expired. The Bank is granted, at the end
of the initial term of the lease or at any time during the extended
period, an option to purchase the property at a price to be
determined in the following manner: Two competent real estate
appraisers selected by agreement of the Bank and the lessor,
and if no such agreement can be reached then one selected by
the Bank and one selected by the lessor, shall individually
appraise the property and the purchase price shall be the
average of the two. The annual rent for the Montgomery branch
office was $30,000 for the year ended December 31, 1996.
The Mill Hall branch office is leased for a five-year period
ending in 1997. The Bank shall have the option to renew the
lease for up to two additional terms of five years each after the
initial five-year term of the lease agreement has expired. The
annual rent for the Mill Hall branch office was $20,000 for the
year ended December 31, 1996.
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 1996.
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, 1994. 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.
High Low Dividends
Declared
1994:
First quarter $28 2/3 $26 2/3 $0.17
Second quarter $30 2/3 $30 2/3 $0.17
Third quarter $32 $30/2/3 $0.17
Fourth quarter $32 1/3 $32 $0.28
1995:
First quarter $32 1/3 $32 $0.20
Second quarter $33 1/2 $31 2/3 $0.20
Third quarter $35 1/2 $32 $0.22
Fourth quarter $36 $35 1/2 $0.38
1996:
First quarter $36 $36 $0.22
Second quarter $39 1/2 $36 1/2 $0.22
Third quarter $42 $39 $0.25
Fourth quarter $42 1/2 $39 3/4 $0.51
The stock prices and the dividend have been adjusted to reflect
the 50% stock dividend issued July 31, 1995, and for the
aquisition of Lock Haven Savings Bank.
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 February 28, 1997, the Registrant had approximately
778 shareholders of record.
ITEM 6 SELECTED FINANCIAL DATA
Information appearing in the Annual Report under the caption
"Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations" at page 21
contains statistical and other financial information in accordance
with guidelines for bank holding companies as issued by the
Securities and Exchange Commission.
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,
1996.
As of and for the Years Ended December 31,
1996 1995 1994 1993 1992
(Dollars in thousands, except per share amounts)
Consolidated Statement of
Income Data:
Interest income $19,997 $18,695 $16,882 $15,967 $16,362
Interest expense 8,079 7,793 6,902 6,546 7,703
Net interest income 11,918 10,902 9,980 9,421 8,659
Provision for loan losses 105 300 577 791 628
Net interest income after provision
for loan losses 11,813 10,602 9,403 8,630 8,031
Other income 2,461 2,215 2,137 2,942 1,659
Other expense 6,967 7,534 6,997 6,097 5,833
Income before income taxes 7,307 5,283 4,543 5,475 3,857
Applicable income taxes 1,965 1,421 1,174 1,497 991
Net Income $5,342 $3,862 $3,369 $3,978 $2,866
Consolidated Balance Sheet at
End of Period:
Total assets $259,724 $242,629 $235,638 $223,672 $204,486
Loans 162,267 153,640 151,492 134,571 134,872
Allowance for loan losses (2,413) (2,353) (2,127) (1,956) (1,925)
Deposits 203,016 202,258 190,839 180,587 175,161
Long-term debt -- other 0 0 7,000 5,825 2,234
Stockholders' equity 33,557 29,685 23,839 21,894 19,024
Per Share Data:
Net income $4.20 $3.05 $2.66 $3.14 $2.27
Cash dividends declared 1.20 1.00 0.79 0.89 0.56
Book Value 26.27 23.35 18.84 17.40 15.14
Number of shares outstanding, at
end of period 1,277,298 1,271,339 1,265,597 1,258,569 1,256,919
Average number of shares
outstanding 1,272,281 1,267,538 1,266,878 1,266,878 1,265,228
Selected financial ratios:
Return on average stockholde 17.25% 14.07% 13.89% 19.12% 15.90%
Return on average total asse 2.12% 1.64% 1.45% 1.89% 1.45%
Net interest income to average
interest earning assets 5.08% 5.04% 4.71% 4.80% 4.69%
Dividend payout ratio 28.57% 32.79% 29.70% 28.34% 24.67%
Average stockholders' equity to
average total assets 12.31% 11.64% 10.42% 9.88% 9.09%
Loans to deposits, at end of 78.74% 74.80% 78.27% 73.44% 75.90%
*Numbers adjusted to reflect a stock split effective in the form of a 50% stock dividend.
Management's Discussion and Analysis of
Consolidated Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
ITEM 7
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.
1996
Net interest income , on a fully taxable equivalent basis, was
$13,012,000 for the year ended December 31, 1996 compared to
$12,073,000 at December 31, 1995, or an increase of 7.8%. A volume
increase in aggregate earning assets contributed $1,435,000 to the
overall net increase in net interest income, while net volume
increases in interest-bearing liabilities contributed a net decrease
to net interest income of $350,000. An overall net decline in the
rate of return on earning assets contributed a $210,000 decrease to
net interest income, while an overall rate decrease in the rate paid
for interest-bearing deposits contributed an increase to the net
interest income of $64,000. (Please refer to pages 23-25).
Average interest earning assets increased $17,347,000 during
1996. The majority of this increase or $16,386,000 was in the
investment portfolio. The loan portfolio increased $3,488,000, while
federal funds sold declined by $2,527,000. While the volume of
interest earning assets increased during 1996, the prime lending rate
was lower overall in 1996 than in 1995. During 1995, the prime
lending rate declined from a high of 9.00% to a low of 8.50%.
However, in 1996 the prime lending rate's high was 8.50% and its low
was 8.25%, therefore on average, rates of return on loans were lower
in 1996. The yield curve continued to flatten during 1996, therefore,
purchases of investments during 1996 were at lower yielding rates of
return than the average rates of return earned during 1995.
Total interest bearing liabilities increased by $8,318,000, made
up of an increase in savings deposits of $209,000, an increase in
other time deposits of $2,764,000, an increase in securities sold
under repurchase agreements and federal funds purchased of
$8,262,000,and and increase in other borrowed money of $2,917,000.
The cost of funds of these deposits declined minimally from 4.32% in
1995 to 4.28% during 1996 which also reflects the market decline in
interest rates.
1995
Fully taxable equivalent net interest income increased by
$1,405,000 to $12,073,000 or an increase of 13.17% (please refer to
pages 22 through 25).
Increases in the volume of interest earning assets contributed
$894,000 to the overall increase in net interest income. Increases
due to rates on interest earning assets contributed $1,405,000.
Interest expense increased $109,000 due to volume, and $785,000 due
to rate.
Average earning assets experienced a net increase of $6,860,000
or 3.3% over the 1994 level. The components of this net increase
included an increase in average total loans of $11,179,000, a
decrease in total total average securities of $6,662,000, and an
increase in federal funds sold of $2,343,000.
Loan volume increases had the effect of adding $1,072,000 to net
interest income, and rate increases added $668,000 to net interest
income. Increased loan demand in the area of real estate mortgages
and growth in consumer loans accounts for the increase in loan volume
during 1995, and an increase in the prime lending rate early in 1995
accounts for the majority of the increase in loan income experienced
due to rate.
Total securities and federal funds sold contributed to an
increase in overall net income, which is the net effect of a decrease
in volume of $178,000 and a $737,000 increase in rate. The decrease
in total securities volume was directly related to increased loan
demand. The improved quality of the investment portfolio resulted in
the higher rate of return.
Total average interest bearing liabilities increased
$1,742,000, which had the effect of increasing interest expense
$109,000 and rate changes had the effect of increasing interest
expense by $785,000. The two major areas effecting the volume and
rate in interest bearing liabilities were in savings deposits and
time deposits.
1994
Taxable equivalent net interest income increased $597,000 during
1994 or an increase of 5.9% (please refer to the tables on pages 22 -
25). This increase was primarily due to the net effect of changes in
the volume of earning assets and the volume of interest bearing
liabilities, which contributed $605,000. Average interest earning
assets increased $16,759,000 during 1994 and generated interest
income of $1,298,000 due to volume. The rate of return generated on
interest earning assets was 8.35%, down from the 1993 rate of return
of 8.57%, which resulted in a net decline in interest income due to
rate of $324,000. The decline in the overall rate of return on
interest earning assets was primarily due to a shift in the
securities portfolio from fixed rate securities to floating rate
securities. This move caused an initial forfeiture of income,
however it also had the effect of minimizing the loss that would have
occurred on the fixed-rate securities as rates continued to rise.
The shift in the securities portfolio is expected to have the effect
of improving the Company's future income.
Average interest bearing liabilities increased $15,306,000 during
1994 and generated interest expense of $693,000 due to volume. The
rate of interest paid on average interest bearing liabilities
declined from 3.91% in 1993 to 3.79% in 1994 which decreased interest
expense by $316,000 due to changes in rates. The Company's prime
rate increased at various times throughout 1994 up to 8.5% at
December 31, 1994 compared to 6.0% a year earlier.
AVERAGE BALANCES AND INTEREST RATES
(INCOME AND RATES ON A FULLY TAXABLE EQUIVALENT BASIS)
(IN THOUSANDS)
1996
AVERAGE AVERAGE
BALANCE INTEREST RATE
ASSETS:
Interest earning assets:
Securities:
US. Treasury and federal agency $41,273 $2,911 7.05%
State and political subdivisions 22,452 1,974 8.79%
Other 13,469 909 6.75%
Total securities 77,194 5,794 7.51%
LOANS:
Tax-exempt loans 1,568 145 9.25%
All other loans, net of discount where 155,633 15,147 9.73%
Total loans 157,201 15,292 9.73%
Federal funds sold 86 5 5.81%
Total earning assets 234,481 $21,091 8.99%
Other assets 17,052
TOTAL ASSETS $251,533
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest bearing liabilities:
Deposits:
Savings $84,722 $2,376 2.80%
Other time 89,994 5,054 5.62%
Total deposits 174,716 7,430 4.25%
Securities sold under repurchase
agreements & federal funds purchase 14,034 649 4.62%
Borrowed money 0 0 0.00%
Total interest bearing liabi 188,750 $8,079 4.28%
Demand deposits 27,306
Other liabilities 4,507
Shareholders' equity 30,970
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $251,533
Interest income/earning assets $234,481 $21,091 8.99%
Interest expense/earning assets $234,481 8,079 3.45%
Effective interest differential $13,012 5.54%
1. Fees on loans are included with interest on loans.
2. Average daily balance sheets are not maintained by the Bank.
Information on this table has been calculated using average
monthly balances to obtain average balances.
3. Average daily balances cannot be obtained without undue
burden or expense by the Bank.
4. Nonaccrual loans have been included with loans for the
purpose of analyzing net interest earnings.
5. Loan fees are included in interest income as follows: 1996,
$673,000, 1995, $401,000, 1994, $681,000.
6. 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).
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
$31,385 $1,978 6.30% $39,083 $1,920 4.91%
17,767 1,699 9.56% 16,091 1,535 9.54%
11,656 1,032 8.85% 12,296 826 6.72%
60,808 4,709 7.74% 67,470 4,281 6.35%
1,818 190 10.45% 1,901 205 10.78%
151,895 14,823 9.76% 140,633 13,068 9.29%
153,713 15,013 9.77% 142,534 13,273 9.31%
2,613 144 5.51% 270 13 4.81%
217,134 $19,866 9.15% 210,274 $17,567 8.35%
15,478 20,063
$232,612 $230,337
$84,513 $2,372 2.81% $92,750 $2,384 2.57%
87,230 4,934 5.66% 73,849 3,740 5.06%
171,743 7,306 4.25% 166,599 6,124 3.68%
5,772 291 5.04% 8,694 333 3.83%
2,917 196 6.72% 6,881 442 6.42%
180,432 $7,793 4.32% 182,174 $6,899 3.79%
24,164 21,885
2,228 2,675
25,788 23,603
$232,612 $230,337
$217,134 $19,866 9.15% $210,274 $17,567 8.35%
$217,134 7,793 3.59% $210,274 6,899 3.28%
$12,073 5.56% $10,668 5.07%
SUMMARY OF CHANGES IN INTEREST EARNED AND INTEREST PAID
(IN THOUSANDS)
INTEREST EARNED ON
TOTAL
TAXABLE TAX-EXEMPT FEDERAL INTEREST
INVESTMENT INVESTMENT FUNDS EARNING
SECURITIES SECURITIES LOANS SOLD ASSETS
1996 compared to 1995
Increase (decrease)
Due to:
Volume $823 $420 $339 ($147) $1,435
Rate (13) (145) (60) 8 (210)
Net increase (decrease) $810 $275 $279 ($139) $1,225
1995 compared to 1994
Increase (decrease)
Due to:
Volume ($467) $160 $1,072 $129 $894
Rate 731 4 668 2 1,405
Net increase (decrease) $264 $164 $1,740 $131 $2,299
The change in net interest income (expense) due to mix has
been allocated to the change due to volume and change due to
rate in proportion to the relationship of the absolute dollar
amounts of the change in each.
SUMMARY OF CHANGES IN INTEREST EARNED AND INTEREST PAID
(IN THOUSANDS)
INTEREST PAID ON
SECURITIES
SOLD UNDER
REPURCHASE TOTAL
OTHER AGREEMENTS INTEREST NET
SAVINGS TIME AND FUNDS BORROWED BEARING INTEREST
DEPOSITS DEPOSITS PURCHASED MONEY LIABILITIESEARNINGS
$6 $155 $385 ($196) $350 $1,085
(2) (35) (27) 0 (64) ($146)
$4 $120 $358 ($196) $286 $939
($221) $726 ($130) ($266) $109 $785
209 468 88 20 785 620
($12) $1,194 ($42) ($246) $894 $1,405
PROVISION FOR LOAN LOSSES
1996
Approximately $105,000 was provided for 1996 loan losses, a 65%
decline from the prior year. The amount provided is determined by a
detailed internal quarterly review of loan portfolio quality
supplemented by an annual detailed external review. Management
continues to support a program of aggressive problem loan resolution.
1995
In 1995 loan loss provision totaled $300,020, a reduction of 48%
from the prior year. An internal quarterly analysis of the loan
portfolio supplemented by an annual external review is used in
determining and adjusting provisions throughout the year. Loan
management has and continues to aggressively manage problem accounts
with the intent of reducing provisions going forward.
1994
$577,020 was provided for loan losses in 1994, a decline of 27%
from the prior year. The amount provided was determined by a
detailed internal quarterly review of the loan portfolio supplemented
by an annual detailed external review. The decline, in some part,
can also be attributed to management's decision in 1994 to
aggressively provide for potential losses on several large
bankruptcies. 1994's provision exceeded net charge offs by $171,020
compared to an excess provision of $261,000 in 1993. This decline
again represents the aggressive manner in which problems are
addressed and a general improvement in overall loan portfolio
quality. Portfolio monitoring continues on an ongoing basis as
part of the Company's loan review process.
[CAPTION]
YEAR ENDED DECEMBER 31,
(IN THOUSANDS)
1996 1995 1994
Balance at beginning of period $2,353 $2,127 $1,956
Charge-offs:
Domestic:
Real estate 4 0 0
Commercial and industrial 100 44 432
Consumer and all other loans 138 210 62
Total charge-offs 242 254 494
Recoveries:
Real estate 0 0 0
Commercial and industrial 175 9 67
Consumer and all other loans 22 171 21
Total charge-offs 197 180 88
Net charge-offs 45 74 406
Additions charged to operations 105 300 577
Balance at end of period $2,413 $2,353 $2,127
Ratio of net charge-offs during the period to
average loans outstanding during the 0.03% 0.05% 0.28%
OTHER INCOME
1996
Total other income increased to $2,461,000 in 1996 over 1995's
total other income of $2,215,000. This $246,000, or 11.1% increase
resulted from the net effect of an increase in service charges
collected of $76,000, an increase in securities gains realized of
$165,000, and a slight increase in other operating income of $5,000.
Security gains realized amounted to $1,345,000 during 1996.
Security transactions were in both debt and equity securities. The
majority of the gains taken were due to liquidation of equity
securities which had reached, in management's opinion, their peak
performance. Management also initiated various security transactions
in order to maintain a quality portfolio and to maintain interest
rate risk.
1995
Other income totaled $2,215,031 compared to $2,137,234 in 1994.
The increase, $77,797, is the net effect of an increase in service
charges collected of $72,134, a decrease in security gains of
$87,197, and a net increase in other operating income of $92,860.
The continued growth in the deposit base is attributable to the
10.4% increase in service charges over 1994. The $92,860, or 52.3%
increase in other operating income over 1994, is primarily due to
net gains resulting from the sale of foreclosed assets during 1995.
Security transactions resulted in net security gains realized of
$1,180,073. The decrease in the amount of security gains realized
in 1995 compared to 1994 is due to the decrease in the balance of
certain equity securities that are required to be divested.
Transactions occurred in both equity and debt securities, with the
majority of overall gains realized on equity securities
transactions. Such transactions were initiated by management when
they believed the securities attained their greatest performance. In
addition, managment intiated various security transactions during
1995 in an effort to maintain a quality investment portfolio and
manage interest rate risk.
Debt securities are also utilized to manage the investment
portfolio for quality and interest rate risk. As of December 31,
1995, the Company had no investment securities classified as trading
securities. Debt investment securities had a market value of
$55,887,000, which was 1,770,000 above the amortized cost at December
31, 1995. Marketable equity securities had an aggregate cost of
$10,298,000 or $2,003,000 below the market value at December 31, 1995.
1994
Other income (excluding security gains) decreased to $869,964 in
1994, or a decrease of 3.02% over 1993's other operating income.
The decrease indicated was the result of a decline in other operating
income. The Company realized $1,267,270 in security gains during
1994. Security transactions were in both debt and equity securities.
Among the reasons why security gains were realized during 1994, was
to a change in regulation which requires divestment of certain equity
securities owned by the Company. The amount of security gains
realized in 1994 was lower than the amount realized in 1993 due to
the higher volume of equity securities divested during 1993. In
addition, management realized gains on partial sales of equity
securities that have been in the portfolio long-term that had reached
what management had determined to be their maximum potential on the
near term. Management also continues to utilize debt securities to
manage the investment portfolio for quality and interest rate risk.
As of December 31, 1994 the Company had no investment securities
classified as trading securities. Debt investment securities had a
market value of $57,659,000 which was 1,142,000 below the amortized
cost value at December 31, 1994. Marketable equity securities
had an aggregate cost of $8,947,000, or $148,000 below the market
value at December 31, 1994.
OTHER EXPENSES
1996
There was a considerable decline in other expenses incurred
during 1996 compared to the amount incurred in 1995. Total other
expenses reported as of December 31, 1996 were $6,967,000
compared to $7,534,000 stated at December 31, 1995, resulting in
a $567,000, or 7.5% decrease. The most significant reduction
occurred in salaries and benefits. In 1995, salaries and
employee benefits were charged to satisfy the terms of two Lock
Haven Savings Bank executives' employment agreements in
connection with the merger. This expense did not recur in 1996;
therefore, this reduction, netted with increases in salary
levels, accounts for the overall decrease in salaries and
employee benefits of $370,000.
Occupancy and furniture and expense fell by $44,000. This
savings was experienced due to the closing of two branch offices
after the 1995 merger. During 1996 there was a special assessment on
Savings Association Insurance Fund ("SAIF") accessable deposits
called for under the recently enacted "Deposit Insurance Funds Act of
1996." This special assessment coupled with a decline in the Bank
Insurance Fund ("BIF") assessment rate caused a $38,000 increase in
Federal depository insurance (FDIC) expense over 1995's FDIC
insurance expense.
Other operating expenses, the final component of total other
expenses, declined by $191,000. Expenses that were directly
related to the merger in 1995 did not recur in 1996. In
addition, the Company has experienced operational efficiencies
also due to the 1995 merger with Lock Haven Savings Bank as well
as the addition of platform automation.
1995
Other expenses increased $536,498, or 7.7% over 1994 expenses.
Salaries and benefits, the largest component of the Bank's other
expense, totaled $4,012,349 compared to $3,545,887 in 1994. The
$466,462 increase is largely attributable to an expense incurred
to satisfy employment agreements of two Lock Haven Savings Bank
executives in connection with the merger of Lock Haven Savings Bank
with and into the Company. Also, normal salary increases and an
increase in the expense related to the Company's defined retirement
plan contributed to the overall increase in salaries and employee
benefits. Occupancy and furniture and equipment expense increased
by $57,794, or 5.8%. Due to the acquisition of Lock Haven Savings
Bank and normal increases in the costs of operations, other
operating expenses increased $12,242, or .5% over 1994. The Bank
experienced increases in costs of check imprinting, professional
fees, postage and stationery and supplies and experienced a
significant savings on FDIC insurance due to the reduction of BIF
assessment rates in 1995. It should be noted that the expenses
related to the merger are non-recurring.
1994
The Company's other operating expenses increased $900,460 to
$6,997,635 during 1994. Salaries and employee benefits increased
$296,077 or 9.11% during 1994. This increase was due to salary
increases as well as an increase in expenses related to our defined
benefit retirement plan.
Occupancy and furniture and equipment expense increased by
$135,496 or 15.6%. The majority of this increase can be attributed
to the lease of a new computer system and the purchase of software
for use on the system. Management believes that the cost of the new
computer system will be offset by improved operating efficiency,
thereby reducing operating costs. In addition, snow removal expenses
increased during 1994 and were a contributing factor in the overall
increase of occupancy and furniture and equipment expense. Increases
in other operating expenses totaled $468,887 and were due to
increases in capital shares tax expense, FDIC expense, advertising
expense, management fees, professional fees, and acquisition costs.
Acquisition costs are related to the recent agreement signed by the
Company to acquire Lock Haven Savings Bank.
INCOME TAXES
1996
The income tax provision for 1996 totaled $1,965,000 or an
effective income tax rate of 26.9% compared to 26.9% in 1995.
Although income before the application of income taxes increased,
tax-exempt and tax deductible income increased as well, therefore,
the effective income tax rate remained the same for the two years
indicated.
1995
The Company's effective income tax rate for 1995 was 26.9% as
compared to 25.8% in 1994. The increase in 1995's effective tax rate
is the result of an increase in pretax income that is reflected by a
$1.6 million increase in interest and fees on loans. In addition,
the Company had higher taxable operating income and higher interest
income on federal funds sold that contributed to the increase in the
effective tax rate.
1994
The provision for income taxes for the year ended December 31,
1994 resulted in an effective income tax rate of 25.8%, compared to
27.3% in 1993. The decrease in the effective income tax rate
indicated during the 1994 period was primarily due to an increase in
tax exempt income and the dividends received deduction.
FINANCIAL CONDITION
INVESTMENTS
1996
There was an overall increase in the investment security
portfolio of $16,238,000 during 1996 due primarily to increases in
state and political subdivisions, and secondarily to increases in
U.S. government agencies. At year end 1996, the investment portfolio
was comprised of 47% US government and agencies, 34% state and
municipal subdivisions, 17% equity securites, and 2% other bonds,
notes and debentures. As of year end, held-to-maturity securities
had a carrying value of $3,105,000. Available-for-sale securities
had an amortized cost of $77,709,000 and a carrying value of
$81,272,000. Available-for-sale securies had an unrealized gain of
$3,563,000, which effected shareholder's equity by an increase of
$2,352,000 net of related federal income taxes. At this time,
management has no intention to establish a trading securites
classification. Management also plans to continue to hold tax-free
bonds, which maintain the overall quality of the portfolio, and
increase its after-tax yield.
1995
The investment security portfolio increased $1,313,986 during
1995 due principally to an overall increase in security market
values. Of the total investment portfolio, government securities
comprised 51%, states and political subdivisions comprised 28%,
other bonds notes and debentures comprised 3%, and equity securities
comprised 18%. At year end 1995, held-to-maturity securities had a
carrying value of $2,817,174. Available-for-sale securities had a
carrying value of $65,322,241 and an amortized cost of $61,597,612.
Shareholders' Equity was effected by an overall increase of
$2,458,255, net of deferred taxes, due to the unrealized net gain on
available-for-sale securities. Management has no plan at this time
to establish a trading securities classification. Also, management
continues to hold in the portfolio tax-free bonds, which enhance the
overall quality of the portfolio and increase its after-tax yield.
The carrying amounts of investment securities at the dates
indicated are summarized as follows ( in thousands):
DECEMBER 31,
1996 1995
US. Treasury securities
Held-to-Maturity $0 $0
Available-for-Sale 3,987 4,038
US. government agencies
Held-to-Maturity 609 791
Available-for-Sale 34,647 29,551
State and political subdivisions
Held-to-Maturity 2,271 1,816
Available-for-Sale 26,282 17,456
Other bonds, notes and debentures
Held-to-Maturity 225 210
Available-for-Sale 1,673 1,976
Total bonds, notes and debenture 69,694 55,838
Corporate stock -Available-for-Sale 14,683 12,301
Total $84,377 $68,139
The following table shows the maturities and repricing of
investment securities at December 31, 1996, the weighted average
yields (for tax-exempt obligations on a fully taxable basis assuming
a 34% tax rate) of such securities (in thousands):
[CAPTION]
WITHIN AFTER ONE AFTER FIVE AFTER
ONE BUT WITHIN BUT WITHIN TEN
YEAR FIVE YEARS TEN YEARS YEARS
US. Treasury securities:
HTM Amount $0 $0 $0 $0
Yield 0.00% 0.00% 0.00% 0.00%
AFS Amount 1,000 2,960 0 0
Yield 6.44% 6.63% 0.00% 0.00%
US. government agencies:
HTM Amount 0 0 0 609
Yield 0.00% 0.00% 0.00% 8.83%
AFS Amount 0 0 0 35,097
Yield 0.00% 0.00% 0.00% 7.30%
State and political subdivisions:
HTM Amount 0 694 554 1,023
Yield 0.00% 4.72% 5.15% 5.36%
AFS Amount 56 50 200 25,464
Yield 9.17% 9.10% 6.50% 5.92%
Other bonds, notes and debentures:
HTM Amount 0 40 185 0
Yield 0.00% 7.48% 7.37% 0.00%
AFS Amount 0 0 499 1,189
Yield 0.00% 0.00% 6.88% 7.68%
Total Amount $1,056 $3,744 $1,438 $63,382
Total Yield 6.58% 6.33% 5.98% 6.72%
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
1996
At the close of the year, gross loans totaled $162,643,000, an
increase of $8,642,000 or 5.61% over the prior year end. While
residential real estate mortgages remained relatively flat year to
year, increasing $407,000, commerical and industrial loans grew
$5,796,000 or 7.91% and consumer loans grew $2,439,000 or 10.08%.
Growth in the portfolio is attributed to having competitive products
and pricing and the markets displeasure with the consolidations
occurring within the industry.
1995
Gross loans at the close of fiscal year 1995 totaled
$154,001,000, an increase of $2,127,000 or 1.40% over the prior
fiscal year end. While real estate mortgages grew by $4,165,000 or
7.96% and consumer loans grew by $1,186,000 or 5.15%, commercial
loans outstanding fell by $3,224,000 or 4.21%. This low overall
growth and contraction in commercial and industrial loans is due to a
slowing in the economy and the liquidation of several problem loans.
Improved but still restrained loan growth is anticipated going
forward.
The amount of loans outstanding at the indicated dates are shown in
the following table according to type of loan (in thousands):
December 31,
1996 1995
Domestic:
Real estate mortgage $56,916 $56,509
Commercial and industrial 79,093 73,297
Consumer and all other loa 26,634 24,195
Gross loans $162,643 $154,001
The amounts of domestic loans at December 31, 1996 are presented
below by category and maturity (in thousands):
[CAPTION]
CATEGORY (1) (2)
COMMERCIAL
AND
REAL ESTATE OTHER CONSUMER TOTAL
Loans with floating interest rates:
1 year or less $10 $7,680 $41 $7,731
1 through 5 years 51 6,731 40 6,822
5 through 10 years 453 5,422 0 5,875
After 10 years 9,076 13,916 7 22,999
Sub Total 9,590 33,749 88 43,427
Loans with predetermined interest rates:
1 year or less 492 3,631 2,186 6,309
1 through 5 years 2,617 9,665 16,462 28,744
5 through 10 years 8,112 10,522 7,810 26,444
After 10 years 36,105 21,526 88 57,719
Sub Total 47,326 45,344 26,546 119,216
Total $56,916 $79,093 $26,634 $162,643
(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. Also,
adjustable rate mortgages are not offered on residential properties.
The Bank does not have any foreign loans outstanding at December 31,
1996.
ALLOWANCE FOR LOAN LOSSES
1996
At the close of business December 31, 1996 the allowance for
loan losses totaled $2,413,021 or 1.48% of gross loans. This is an
increase of $59,697 over the prior year.
Management carefully determines the adequacy of the loan loss
allowance through analyses for credit quality, an awareness of
current and projected economic conditions, growth levels and trends,
and other factors impacting the overall quality of the loan portfolio.
For 1996 nonaccrual loans declined by $261,000 to $748,000. Of
these loans 48% continue to make regularly scheduled payments and 86%
are secured by adequately margined real estate collateral. Because
of the recent payments and collateral level, it is not anticipated
that nonaccrual loans will have a significant impact on the Company's
income or capital.
1995
The allowance for loan losses at December 31, 1995 was
$2,353,000 an increase of $226,000 over the prior year. At this
level the allowance stands at 1.5% of gross loans. In assessing the
adequacy of the allowance, management carefully analyzes credit risk,
present and anticipated economic conditions, growth in the loan
portfolio and other relevant factors related to loan quality. At the
close of 1995 nonaccrual loans were $1,266,000 lower than at the
close of the prior year. Well over 90% of the loans on nonaccrual at
year end were protected by adequately margined real estate
collateral. The percentage of these loans which had recent interest
payments has increased to 66%. Because of collateral liened, it is
not anticipated that these loans will have a significant impact on
the Company's income or capital.
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
NONACCRUALPAST DUE RENEGOTIATED
1996 $748 $256 $0
1995 $1,009 $791 $0
1994 $2,275 $677 $0
1993 $2,273 $382 $295
1992 $1,097 $1,466 $241
If interest had been recorded at the original rate on nonaccrual
loans, such income would have approximated $86,000, $101,000, and
$244,000 for the years ended December 31, 1996, 1995 and 1994,
respectively. Interest income on such loans, which is recorded when
received, amounted to approximately $43,000, $63,000 and $143,000 for
the years ended December 31, 1996, 1995 and 1994, respectively.
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 experience 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, 1996:
Balance at end of period applicable to:
Domestic:
Real Estate $48 2.0%
Commercial and indust 2,172 90.0%
Consumer and all othe 193 8.0%
Total $2,413 100.0%
DECEMBER 31, 1995:
Balance at end of period applicable to:
Domestic:
Real Estate $24 1.0%
Commercial and indust 2,235 95.0%
Consumer and all othe 94 4.0%
Total $2,353 100.0%
DECEMBER 31, 1994:
Balance at end of period applicable to:
Domestic:
Real Estate $21 1.0%
Commercial and indust 2,000 94.0%
Consumer and all othe 106 5.0%
Total $2,127 100.0%
DECEMBER 31, 1993:
Balance at end of period applicable to:
Domestic:
Real Estate $19 1.0%
Commercial and indust 1,839 94.0%
Consumer and all othe 98 5.0%
Total $1,956 100.0%
DECEMBER 31, 1992:
Balance at end of period applicable to:
Domestic:
Real Estate $17 1.0%
Commercial and indust 1,559 92.0%
Consumer and all othe 119 7.0%
Total $1,695 100.0%
DEPOSITS
1996
There was an upward movement in average deposits in 1996 of
$6,115,000, or 3.1% over year-end 1995's average deposits. The
increase in average demand deposits contributed $2,639,000 to the
overall increase. Movements in savings deposits and other time
deposits resulted in increases of $712,000 and $2,764,000,
respectively. The Bank's successful efforts to offer competitive
interest rates on their savings and other time deposit accounts, as
well as providing an attractive, low-fee checking account product
justifies the $6,115,000 upward movement in average deposits.
Additionally, the shifts in deposits may also be seen as indication
that our depositors are attempting to maintain liquidity in order to
take advantage of high-yielding, investing opportunities.
There were approximately $13,850,000 in time deposits exceeding
$100,000. It should be noted that these large deposits are not relied
on by management as a major source of funding.
1995
Average deposits totaled $195,907,000 for 1995, an increase of
$7,423,000 or 3.9% over the same period in 1994. The majority of
this increase occurred in time deposits which increased $13,381,000
followed by savings deposits which increased $3,317,000. Demand
deposits decreased $9,275,000. The movements indicated were the
result of lowered interest rates during 1995 and reflect the shifting
from demand deposits to savings and time deposits. This indicates
our depositors' efforts to secure current interest rates, in
anticipation of future rate movements downward.
At December 31, 1995 time deposits in excess of $100,000 totaled
$14,829,000. Management does not rely on these large time deposits
as a major source of funding.
The following is a breakdown by maturities of time certificates
of deposit of $100,000 or more as of December 31, 1996 (in
thousands):
MATURITY AMOUNT
Three months or less $3,177
Over 3 through 6 months 2,910
Over 6 through 12 months 4,789
Over 12 months 2,974
Total $13,850
The average amount and the average rate paid on deposits
are summarized below (in thousands):
1996 1995 1994
AVERAGE AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE AMOUNT RATE
DEPOSITS IN DOMESTIC
BANK OFFICES:
Demand deposits:
Noninterest bearing $27,306 0.00% $24,164 0.00% $21,885 0.00%
Interest Bearing . 37,146 2.63% 37,649 2.62% 49,203 2.08%
Savings deposits . . . 47,576 2.94% 46,864 2.96% 43,547 3.13%
Time deposits. . . . . 89,994 5.62% 87,230 5.66% 73,849 5.06%
Total average de $202,022 $195,907 $188,484
SHAREHOLDERS' EQUITY
1996
Shareholders' equity is evaluated in relation to total assets
and risk associated with those assets. The greater the capital
resources, the more likely a company is to meet its cash obligations
and absorb unforeseen losses.
Shareholders' equity increased $3,872,000 or 13.04% to
$33,557,000 as of December 31, 1996 from $29,685,000 at December 31,
1995. The total change in equity can be accounted for by the
contribution of net income earned in 1996 of $5,342,000, an addition
of $165,000 due to stock options exercised, and a reduction of
$1,529,000 for the total dividends paid to shareholders during 1996.
In addition, the net change in the unrealized appreciation on
securities available-for-sale from year-end 1995 to year-end 1996
reduced shareholders' equity by $106,000.
1995
Shareholders' equity is evaluated in relation to total assets
and risk associated with those assets. The greater the capital
resources, the more likely a company is to meet its cash obligations
and absorb unforeseen losses.
At December 31, 1995, shareholders' equity totaled $29,684,804,
an increase of $5,845,635. This 24.5% growth was the result of 1995
earnings of $3,862,012 , stock options that were exercised during
1995 of $138,626, less the total dividends declared of $1,239,251.
Shareholders' equity was also effected by the net change in the
unrealized appreciation on securities "available-for-sale".
Recovering from a net unrealized loss in 1994, $3,084,248 was
restored to shareholders' equity as of December 31, 1995.
The dividend payout ratio, which represents the percentage of
annual earnings returned to the stockholders in the form of cash
dividends, was about 33% in 1995. The Company's normal payout allows
for quarterly cash returns to the stockholders and provides for
earnings retention at a level that is sufficient to finance future
growth.
Bank regulators have recently issued 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, 1996, the Company's required ratios were well
above the minimum ratios as follows:
1996
Minimum
Company Standards
Tier 1 capital ratio 19.5% 4.00%
Total capital ratio 20.8% 8.00%
For a more comprehensive discussion of these requirements, see
"Regulations and Supervision" on Page 39 of Form 10K. Management
believes that the Company will continue to meet current capital ratios.
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:
1996 1995 1994
Percentage of net income to:
Average total assets. . . . . . . . . 2.12% 1.64% 1.45%
Average shareholders' equity. . . . . 17.25% 14.07% 13.89%
Percentage of dividends declared per c 28.57% 32.79% 29.70%
Percentage of average shareholders' equi 12.31% 11.64% 10.42%
total assets
LIQUIDITY AND INTEREST RATE SENSITIVITY
Fundamental objectives of the asset/liability management process
of the Company 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
provides 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 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. Management is committed to making increased use
of automated asset/liability gapping models to more effectively carry
out the asset/liability management responsibility.
In addition to gap management, the Company has recently
developed a new asset liability management policy which incorporates
two new tools in managing interest rate risk. Simulation analysis is
now being used to monitor the effects of interest rate changes on the
Company's balance sheets as well as a market value at risk
calculation which is used to determine the effects of interest rate
movements on Shareholder's Equity. Generally, management believes the
Company is reasonably well positioned to respond expeditiously when
the market interest rate outlook changes.
INTEREST RATE SENSITIVITY
The following table sets forth the Bank's interest rate
sensitivity as of December 31, 1996:
WITHIN AFTER ONE AFTER THREEAFTER
ONE YEAR BUT WITHIN BUT WITHIN FIVE
TWO YEARS FIVE YEARS YEARS
Earning assets (1) (2)
Investment securities (1) $6,717 $9,030 $14,552 $47,790
Loans (2) 69,151 20,666 57,050 17,642
Total earning assets 75,868 29,696 71,602 65,432
Interest-bearing liabilities:
Deposits (3) 92,206 28,652 39,637 13,407
Borrowings 20,232 159 410 1,250
Total interest-bearing liabi 112,438 28,811 40,047 14,657
Net non-interest bearing
funding (4) 8,485 6,362 15,266 16,532
Total net funding sources 120,923 35,173 55,313 31,189
Excess assets (liabilities) (45,055) (5,477) 16,289 34,243
Cumulative excess (45,055) (50,532) (34,243) 0
asssets (liablilities)
(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 Bank's positioning for these products.
(4) Net non-interest bearing funds is the sum of non-interest
bearing liabilities and shareholders' equity minus
non-interest earning assets and reflect managerial
assumptions as to the appropriate investment
maturities for these sources.
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.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
To our
Shareholders
Dear Shareholder:
We are pleased to report the financial success that Penns Woods
Bancorp, Inc. experienced during 1996. Reportable net earnings at
December 31, 1996 were $5,342,348, or $4.20 per share, compared to
$3.05 per share at December 31, 1995. As a result, Penns Woods
Bancorp, Inc. realized outstanding profitability returns at December
31, 1996, with a return on average assets of 2.12% , surpassing the
1.64% return on average assets at December 31, 1995, and a return on
average shareholders' equity of 17.25%, compared to 14.07% at
December 31, 1995. Included in earnings was a one-time expense of
$179,425 that the Federal Deposit Insurance Corporation imposed
during 1996, to recapitalize the Savings Association Insurance Fund.
Although the special assessment had a notable effect on income, the
Company realized significant increases in other areas of operations.
Throughout 1996, income recognized from the sale of student loans,
and fees collected on mortgage loans generated through the
Pennsylvania Housing Agency also contributed to the increase in net
earnings. In addition, operational efficiencies due to the 1995
merger with Lock Haven Savings Bank and the implementation of
platform automation contributed to the increased earnings.
Shareholders' equity, net of unrealized gains and losses,
increased 14.61% to $31,204,929 as of December 31, 1996 from
$27,226,549 reported at December 31, 1995. Growth in assets from 1995
to 1996 amounted to $18,487,475, or 7.66%. For the twenty-fifth
consecutive year, Penns Woods Bancorp, Inc. increased the regular
cash dividend paid to shareholders. The four regular dividends paid,
in addition to the special cash dividend that was paid in the fourth
quarter, brought the total dividend paid to shareholders in 1996 to
$1.20 per share compared to the total dividend paid in 1995 of $1.00.
There was also a $6.50, or 18% increase in the market value of Penns
Woods Bancorp, Inc.'s stock. At December 31, 1996, the market value
was $42.50 up from $36.00 at December 31, 1995.
During the fourth quarter of 1996, the Company offered a debit
card product to customers. Approximately 4,300 debit cards were
issued in a mass mailing and about 93% are active. Customer response
has been positive, with the most common stated advantage being that
the card has replaced check writing. In addition to offering
customers a convenient product, the Company will recognize cost
savings related to check processing as customer usage of the card
increases.
As consolidations continue to occur in the financial industry,
we are compelled to offer competitive products, pricing and services.
In continuing efforts to keep a competitive edge in the market,
management has revised the Bank's Strategic Plan and Asset Liability
Management Policy. The revisions made to each of these will aid in
managing and governing the assets, liabilities and liquidity of the
Company, as well as closely monitoring the financial products and
services the Bank offers as we strive to meet the needs of
individuals and organizations throughout our service area.
Despite the competition, we are encouraged by the financial
results realized by Penns Woods Bancorp, Inc. in 1996 and are excited
to meet the challenges that lie ahead in 1997.
We appreciate the support and dedication of those who have made
Penns Woods Bancorp, Inc. a successful company, our shareholders,
customers, directors and employees.
Report of Independent
Certified Public Accountants
To Shareholders and Board of Directors
Penns Woods Bancorp, Inc. and Subsidiaries
Jersey Shore, Pennsylvania:
We have audited the accompanying consolidated balance sheets of
Penns Woods Bancorp, Inc. and subsidiaries (the "Company") as of
December 31, 1996 and 1995, and the related consolidated statements
of income, changes in shareholder's equity, and cash flows for each
of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's
managment. Our responsibility is to express an opinion on these
financial statements based on our audits. The consolidated financial
statements for the year ended December 31, 1994 have been restated to
reflect the pooling of interests with Lock Haven Savings Bank as
described in Note A to the consolidated financial statements. We did
not audit the 1994 financial statements of Lock Haven Savings Bank,
which statements reflect net interest income of $1,556,249 for the
year ended December 31, 1994. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion,
insofar as it relates to the amounts included of Lock Haven Savings
Bank for the year ended December 31, 1994, is based solely on the
report of the other auditors.
We conducted our audits in accordance with generally accepted
auditing standards. 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, based on our audits and the report of other
auditors, 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, 1996
and 1995, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
Williamsport, Pennsylvania
January 17, 1997
Consolidated
Balance Sheet
December 31, 1996 and 1995
(IN THOUSANDS)
1996 1995
ASSETS:
Cash and due from banks $8,015 $14,284
Federal funds sold 0 570
Securities available-for-sale 81,272 65,322
Securities held-to-maturity 3,105 2,817
Loans, net 159,854 151,287
Bank premises and equipment, net 3,835 3,809
Accrued interest receivable 1,676 1,718
Foreclosed assets held for sale 253 943
Other assets 1,714 487
TOTAL $259,724 $241,237
LIABILITIES:
Interest-bearing deposits $174,060 $175,079
Noninterest-bearing deposits 28,956 27,179
TOTAL DEPOSITS 203,016 202,258
Securities sold under repurchase agreements 5,628 6,344
Other borrowed funds 14,491 0
Accrued interest payable 884 919
Other liabilities 2,148 2,031
TOTAL LIABILITIES 226,167 211,552
SHAREHOLDERS' EQUITY:
Common stock, par value $10, 10,000,000 shares authorized; 1,277,298
and 1,271,339 shares issued and outstanding at December 31, 1996
and 1995, respectively 12,773 12,714
Additional paid-in capital 4,559 4,453
Retained earnings 13,873 10,060
Net unrealized appreciation on securities available-f 2,352 2,458
TOTAL SHAREHOLDERS' EQUITY 33,557 29,685
TOTAL $259,724 $241,237
See Notes to Consolidated Financial Statements
Consolidated
Statement of Income
For the Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
(IN THOUSANDS)
INTEREST INCOME:
Interest and fees on loans $15,022 $14,706 $13,109
Interest and dividends on investments:
Taxable interest 3,126 2,326 2,368
Tax-exempt interest 1,295 1,110 1,007
Dividends 529 409 385
Interest on federal funds sold 25 144 13
TOTAL INTEREST INCOME 19,997 18,695 16,882
INTEREST EXPENSE:
Interest on deposits 7,430 7,306 6,124
Interest on securities sold under repurc 310 222 124
Interest on other borrowings 339 265 654
TOTAL INTEREST EXPENSE 8,079 7,793 6,902
NET INTEREST INCOME 11,918 10,902 9,980
PROVISION FOR LOAN LOSSES 105 300 577
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 11,813 10,602 9,403
OTHER INCOME:
Service charges 840 764 692
Securities gains 1,345 1,180 1,267
Other operating income 276 271 178
TOTAL OTHER INCOME 2,461 2,215 2,137
OTHER EXPENSES:
Salaries and employee benefits 3,642 4,012 3,546
Occupancy expense, net 466 468 559
Furniture and equipment expense 553 595 446
Federal depository insurance 280 242 413
Other operating expenses 2,026 2,217 2,033
TOTAL OTHER EXPENSES 6,967 7,534 6,997
INCOME BEFORE INCOME TAX PROVISION 7,307 5,283 4,543
INCOME TAX PROVISION 1,965 1,421 1,174
NET INCOME $5,342 $3,862 $3,369
EARNINGS PER SHARE $4.20 $3.05 $2.66
WEIGHTED AVERAGE SHARES OUTSTANDING 1,272,281 1,267,538 1,266,878
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS) UNREALIZED
APPRECIATION
(DEPRECIATIO
ADDITIONAL ON SECURITIETOTAL
COMMON PAID-IN RETAINED AVAILABLE- SHAREHOLDERS'
STOCK CAPITAL EARNINGS FOR-SALE EQUITY
Balance, December 31, 1993 $8,433 $4,171 $9,290 - $21,894
Net income 3,369 3,369
Dividends declared, $0.79 per share (999) (999)
Implementation of SFAS No. 115 2,689 2,689
Stock options exercised, Lock Haven Savi 5 197 202
Net change in unrealized appreciation (depreciation) (3,315) (3,315)
Balance, December 31, 1994 8,438 4,368 11,660 (626) 23,840
Net income 3,862 3,862
Dividends declared, $1.00 per share (1,239) (1,239)
Stock split effected in the form of a 50 4,223 (4,223) -
Net change in unrealized appreciation (depreciation) 3,084 3,084
Stock options exercised 53 85 138
Balance, December 31, 1995 12,714 4,453 10,060 2,458 29,685
Net income 5,342 5,342
Dividends Declared, $1.20 per share (1,529) (1,529)
Net change in unrealized appreciation (depreciation) (106) (106)
Stock options exercised 59 106 165
Balance, December 31, 1996 $12,773 $4,559 $13,873 $2,352 $33,557
See Notes to Consolidated Financial Statements
Consolidated Statement
of Cash Flows
For the Years Ended December 31, 1996, 1995 and 1994
(IN THOUSANDS)
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $5,342 $3,862 $3,369
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 365 343 305
Provision for loan losses 105 300 577
Amortization of investment security premiums 20 38 67
Accretion of investment security discounts (70) (105) (63)
Securities gains (1,345) (1,180) (1,267)
Increase in all other assets (1,130) (855) (542)
Increase (decrease) in all other liabilities 113 1,245 (51)
Stock option compensation expense 16 5 169
Net cash provided by operating acti 3,416 3,653 2,564
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities available-for-sale (47,761) (52,595) (44,812)
Proceeds from sale of securities available-for-sale 33,038 52,586 48,589
Purchase of securities held-to-maturity (1,296) (515) (1,002)
Proceeds from calls and maturities of securities held 1,015 5,130 1,992
Net increase in loans (8,672) (2,222) (17,327)
Decrease (increase) in foreclosed assets 690 (529) 156
Acquisition of bank premises and equipment (391) (83) (418)
Net cash (used in) provided by inve (23,377) 1,772 (12,822)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in interest-bearing deposits (1,019) 7,053 8,056
Net increase in noninterest-bearing deposits 1,777 4,366 2,196
Net (decrease) increase in securities sold under repu (716) 1,327 1,061
Increase (decrease) in other borrowed funds 14,491 (7,170) (2,233)
Long-term borrowings - - 1,175
Repayment of long-term borrowings - (7,000)-
Dividends paid (1,529) (1,239) (999)
Proceeds from excercise of stock options 118 66 47
Net cash provided by (used in) fina 13,122 (2,597) 9,303
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (6,839) 2,828 (955)
CASH AND CASH EQUIVALENTS, BEGINNING 14,854 12,026 12,981
CASH AND CASH EQUIVALENTS, ENDING
$8,015 $14,854 $12,026
The Company paid $8,113,833, $7,484,756 and $6,849,515 in interest on
deposits and other borrowings during 1996, 1995 and 1994, respectively.
The Company made income tax payments of $1,998,100, $1,350,400 and
$1,706,817 during 1996, 1995 and 1994, respectively.
Transfers from loans to foreclosed assets held for sale amounted to
$352,005, $1,372,173 and $231,864 in 1996, 1995, respectively.
See Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - 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
("Bank"), Woods Real Estate Development Co., Inc. and Woods
Investment Company, Inc. (collectively, the "Company"). All
significant intercompany balances and transactions have been
eliminated.
Nature of Business: The Bank engages in a full service commercial
banking business, making available to the community a wide range of
financial services, including, but not limited to, installment loans,
credit cards, mortgage and home equity loans, lines of credit,
construction financing, farm loans, community development loans,
loans to non- profit entities and local government 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 services are provided to individuals, partnerships,
non-profit organizations and corporations through its seven offices
located in Clinton and Lycoming Counties, Pennsylvania.
Woods Real Estate Development Company engages in real estate
transactions on behalf of the Penns Woods Bancorp, Inc. and the Bank.
Woods Investment Company, Inc. is engaged in investing 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
reporting amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results may differ
from those estimates.
Material estimates that are particularly susceptible to significant
change relate to the determination of the allowance for the loan
losses, and the valuation of real estate acquired through, or in lieu
of, foreclosure on settlement of debt.
While it is reasonably possible that the estimate of the effect on
the financial statements of a condition, situation, or set of
circumstances that existed at the date of the financial statements
will change in near term due to one or more future confirming events,
based on current information known to management, management is not
aware of a condition, situation, or set of circumstances whereby the
offset of the change would be material to the financial statements.
Business Combination: On April 7, 1995, Lock Haven Savings Bank was
merged with and into the Company, and 102,111 shares of the Company's
common stock were issued in exchange for all of the outstanding stock
of Lock Haven Savings Bank. The merger was accounted for as a
pooling of interests, and, accordingly, the accompanying financial
statements have been restated to include the accounts and operations
of Lock Haven Savings Bank for all periods prior to the merger.
Prior to the pooling of interests, net interest income and net loss
of Lock Haven Savings Bank for the period ended April 7, 1995 were
$430,945 and $188,149, respectively. Separate results for the year
ended December 31, 1994 are as follows (in thousands):
Net interest income:
As previously reported $8,281
Acquired Company 1699
As restated $9,980
Net income:
As previously reported $3,248
Acquired Company 121
As restated $3,369
INVESTMENT SECURITIES
Investment Securities: Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," requires the classification of investment
securities 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, 1996 or 1995. 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. Any related write-downs 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 municipal securities, is estimated based on
bid prices published in financial newspapers or bid quotations
received from securities dealers. The fair value of certain state
and municipal 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 interest, unamortized loan fees and costs, and the allowance
for loan losses. Interest on real estate loans is accrued on the
principal balance using a 360-day year. Interest on other loans is
accrued on the principal balance, on an actual day basis. Interest on
consumer loans is accrued over the term of each loan using the
"actuarial method." Loans are placed on a nonaccrual basis when there
are serious doubts about the collectibility of principal or interest.
The Company recognizes nonrefundable loan origination fees and
certain direct loan origination costs over the life of the related
loans as an adjustment of loan yield using the interest method. For
loans made before 1988, the Company has recognized such fees and
costs in the year received or incurred.
Allowance for Loan Losses: The provision for loan losses charged to
operations reflects the amount deemed appropriate by management to
establish an adequate allowance to meet the present and foreseeable
risks of the loan portfolio. Management's judgment is based upon
evaluation of individual loans, overall risk of the various portfolio
segments, past experience with losses, the impact of economic
conditions on borrowers and other relevant factors.
It is the opinion of management that the allowance for loan losses
is adequate to absorb foreseeable loan losses. Loan losses are
charged directly against the allowance and recoveries on previously
charged-off loans are added to the allowance.
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.
Employee Benefit Plan: It is the Company's policy to fund pension
cost on a current basis to the extent deductible under existing tax
regulations. Such contributions are intended to provide not only for
benefits attributed to service to date, but also for those expected
to be earned in the future.
Income Taxes: Deferred tax assets and liabilities 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: Earnings per share are calculated by dividing
net income by the weighted average number of shares outstanding
during the periods presented which have been adjusted to give
retroactive effect to stock dividends and stock splits. Outstanding
stock options are common stock equivalents but have no material
dilutive effect on earnings per share.
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 and federal funds sold
as cash equivalents.
Reporting Format: Certain 1995 and 1994 financial information has
been reclassified to conform to the 1996 financial statement
presentation.
NOTE B - INVESTMENT SECURITIES
The amortized cost of investment securities and their approximate
fair values at December 31, 1996 and 1995 were as follows (in
thousands):
DECEMBER 31, 1996
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Securities available-for-sale:
Equity securities $9,801 $3,494 $5 $13,290
U.S. government and agency
securities 39,058 119 543 38,634
State and municipal secur 25,769 560 47 26,282
Restricted equity securit 1,393 1,393
Other debt securities 1,688 15 1,673
$77,709 $4,173 $610 $81,272
Securities held-to-maturity:
U.S. government and agency
securities $609 $27 $636
State and municipal secur 2,271 12 17 2,266
Other debt securities 225 225
$3,105 $39 $17 $3,127
DECEMBER 31, 1995
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Securities available-for-sale:
Equity securities $9,272 $2,051 $48 $11,275
U.S. government and agency
securities 33,073 530 14 33,589
State and municipal secur 16,273 1,192 9 17,456
Restricted equity securit 1,026 1,026
Other debt securities 1,954 30 8 1,976
$61,598 $3,803 $79 $65,322
Securities held-to-maturity:
U.S. government and agency
securities $791 $32 $823
State and municipal secur 1,816 18 1,834
Other debt securities 210 1 209
$2,817 $50 $1 $2,866
The amortized cost and fair value of debt securities at December 31,
1996, 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
Amortized Fair Amortized Fair
Cost Value Cost Value
Due in one year or less $1,056 $1,056
Due from one year to five ye 734 736 3010 3032
Due from five to ten years 739 739 699 703
Due after ten years 1632 1652 61750 61798
$3,105 $3,127 $66,515 $66,589
Gross realized gains and gross realized losses on sales of
available-for-sale securities were (in thousands):
1996 1995 1994
Gross realized gains:
U.S. government and agency
securities $13 $88 $35
State and municipal secur 466 511 321
Equity securities 1,362 1,124 1,567
Other debt securities 13
$1,854 $1,723 $1,923
Gross realized losses:
U.S. government and agenc $445 $408 $283
securities 27 127 352
State and municipal secur 18 4 21
Equity securities 19 4
Other debt securities $509 $543 $656
During 1996, the Company sold a debt security with a carrying value
of $465,000 which had been classified as held to maturity.
Subsequent to the purchase of this security, the Company received
information indicating that this was not a bank qualified investment.
This transaction resulted in a realized gain of $8,174. There were
no sales of securities classified as held to maturity in 1995 or 1994.
Investment securities with a carrying value of approximately
$11,506,000 and $10,646,000 at December 31, 1996 and 1995,
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 10% of
shareholders' equity for any individual issuer, excluding those
guaranteed by the U.S. government.
NOTE C - LOANS
Major loan classifications are summarized as follows (in thousands):
DECEMBER 31, 1996
PAST DUE PAST DUE
30 TO 90 90 DAYS NON-
CURRENT DAYS OR MORE ACCRUAL TOTAL
Real estate loans - mortgage $53,005 $1,907 $146 $346 $55,404
Real estate loans - construc 1,512 1,377 1,512
Commercial and industrial lo 77,298 778 70 348 79,093
Consumer and all other loans 25,762 40 54 26,634
Gross loans $157,577 $4,062 $256 $748 162,643
Less: Unearned income 6
Unamortized loan 370
fees/costs
Allowance for loan losses 2,413
Loans, net $159,854
DECEMBER 31, 1995
PAST DUE PAST DUE
30 TO 90 90 DAYS NON-
CURRENT DAYS OR MORE ACCRUAL TOTAL
Real estate loans - mortgage $52,792 $1,964 $433 $108 $55,297
Real estate loans - construc 1,212 1,212
Commercial and industrial lo 70,141 2,104 172 880 73,297
Consumer and all other loans 23,332 656 186 21 24,195
Gross loans $147,477 $4,724 $791 $1,009 154,001
Less: Unearned income 15
Unamortized loan 346
fees/costs
Allowance for loan losses 2,353
Loans, net $151,287
Loans on which the accrual of interest has been discontinued or
reduced amounted to approximately $748,000 and $1,009,000 at December
31, 1996 and 1995, respectively. If interest had been recorded at
the original rate on those loans, such income would have approximated
$86,000, $101,000 and $244,000 for the years ended December 31, 1996,
1995 and 1994, respectively. Interest income on such loans, which is
recorded as received, amounted to approximately $43,000, $63,000 and
$143,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
Transactions in the allowance for loan losses are summarized as
follows (in thousands):
YEAR ENDED DECEMBER 31,
1996 1995 1994
Balance, beginning of year $2,353 $2,127 $1,956
Provision charged to operati 105 300 577
Loans charged off (242) (254) (494)
Recoveries 197 180 88
Balance, end of year $2,413 $2,353 $2,127
At December 31, 1996 and 1995, the Company had loans amounting to
approximately $181,000 and $165,000, respectively, that were
specifically classified as impaired, $172,000 and $133,000,
respectively of which are included in nonaccrual loans. By
definition, a loan is impaired when, based on current information and
events, it is probable that all amounts due will not be collected
according to the contractual terms of the loan agreement. In 1996
and 1995, the average balance of these loans amounted to
approximately $184,000 and $165,000, respectively for the year. There
was no specific allowance for the loan losses related to impaired
loans at December 31, 1996 and 1995. level of loans classified as
impaired, and the fact that the majority of such impaired loans are
adequately collateralized, impaired loans should not have a material
effect on the allowance for loan losses or the earnings of the
Company. The following is a summary of cash receipts on these loans
and how they were applied (in thousands):
1996 1995
Cash receipts applied to reduce principa $6 $1
Cash receipts recognized as interest inc 5 3
Total $11 $4
The Company has no commitments to loan additional funds to borrowers
with impaired or nonaccrual loans.
The Company has no concentration of loans to borrowers engaged in
similar businesses or activities which exceed 5% of total assets at
December 31, 1996 or 1995.
The Company grants commercial, industrial, residential and consumer
loans to customers throughout Northcentral Pennsylvania. Although
the Company has a diversified loan portfolio, a substantial portion
of its debtors' ability to honor their contracts is dependent on the
economic conditions within this region.
NOTE D - BANK PREMISES AND EQUIPMENT
Bank premises and equipment are summarized as follows (in thousands):
DECEMBER 31,
1996 1995
Land $440 $430
Bank premises 3,642 3,529
Furniture and equipment 3,357 3,093
Leasehold improvements 497 493
Total 7,936 7,545
Less accumulated depreciatio 4,101 3,736
Net $3,835 $3,809
NOTE E - OTHER BORROWED FUNDS
At December 31, 1996, the Company had $14,491,000 of borrowings in the
form of advances received from the Federal Home Lan Bank of Pittsburgh
under the "Repo Plus" credit program. There were no borrowings at
December 31, 1995.
The weighted average interest rate for the years ended December 31,
1996, 1995 and 1994 was 5.44%, 6.18%, and 5.72%, respectively. The
maximum amount of other borrowed funds outstanding at any time was
$16,737,000, $8,186,000 and $16,636,000, respectively, for those same
periods.
NOTE F - DEPOSITS
Time deposits of $100,000 or more totaled approximately $13,250,000
on December 31, 1996 and $14,829,000 on December 31, 1995. related to
such deposits was approximately $750,000, $727,000 and $407,000 for
the years ended December 31, 1996, 1995 and 1994, respectively.
NOTE G - INCOME TAXES
The following temporary differences gave rise to the net
December 31, 1996 and 1995 (in thousands):
1996 1995
Deferred tax asset:
Allowance for loan losses $494 $468
Deferred compensation 168 126
Contingencies 79 74
Pension 101 91
Loan fees and costs 126 118
Stock option 12 32
Total 980 909
Deferred tax liability:
Bond accretion (75) (154)
Depreciation (117) (112)
Unrealized gains on available-for-sal (1,211) (1,266)
Total (1,403) (1,532)
Deferred tax liability, net ($423) ($623)
The provision for income taxes is comprised of the following (in
thousands):
YEAR ENDED DECEMBER 31,
1996 1995 1994
Currently payable $2,110 $1,600 $1,255
Deferred benefit (145) (179) (81)
Total Provision $1,965 $1,421 $1,174
The effective federal income tax rate for the years ended December
31, 1996, 1995 and 1994 was 26.9%, 26.9% and 25.8%, 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):
[CAPTION]
1996 1995 1994
AMOUNT % AMOUNT % AMOUNT %
Provision at expected rate $2,484 34.0% $1,796 34.0% $1,544 34.0%
Increase (decrease) in
tax resulting from:
Tax-exempt income (578) -7.9% (452) -8.6% (456) -10.0%
Other, net 59 0.8% 77 1.5% 86 1.8%
Effective
Income tax
and rates $1,965 26.9% $1,421 26.9% $1,174 25.8%
NOTE H - EMPLOYEE BENEFIT PLANS
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 Company's
funding policy is consistent with the funding requirements of federal
law and regulations. Plan assets are comprised of common stock, U.S.
government and corporate debt securities.
Net periodic pension cost includes the following components (in
thousands):
YEAR ENDED DECEMBER 31,
1996 1995 1994
Service costs benefits earned during the $218 $180 $171
Interest cost on projected benefit oblig 189 158 137
Return on assets (154) (119) (110)
Amortization of transition gain 2 (1) 1
Prior service costs 19 24 18
Net periodic pension cost $274 $242 $217
The funded status of the Plan and amount recognized in the Company's
balance sheet is summarized below (in thousands):
1996 1995
Actuarial present value of:
Vested benefit obligation $1,742 $1,149
Nonvested benefit obligation $12 $13
Projected benefit obligation $3,032 $2,400
Plan assets at fair value 2,137 1,678
Excess of projected benefit obligation o (895) (722)
Unrecognized prior-service cost 307 174
Unrecognized transition gain being recognized over
employees' average remaining service (40) (31)
Deferred unexpected loss 329 99
Accrued pension cost ($299) ($480)
The projected benefit obligation at December 31, 1996 and 1995 was
determined using an assumed discount rate of 7%, and an assumed
long-term rate of compensation increase of 6%. An assumed long-term
rate of return on Plan assets of 8% was used in both 1996 and 1995.
The Company 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 $44,934, $40,171 and $33,693 for the years
ended December 31, 1996, 1995 and 1994 respectively.
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 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 $114,000 , $72,001
and $31,740 for the years ended December 31, 1996, 1995 and 1994,
respectively. Benefits paid under the Plan were $39,323, $33,664 and
$18,557, respectively, for the years ended December 31, 1996, 1995
and 1994.
NOTE I - STOCK OPTIONS
The Company has 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. 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 amounts 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 1996 and 1995 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 1996 and 1995, respectively:
dividend yield of 3.05%; risk free interest rates of 5.81% and 5.20%,
respectively; expected option lives of three years and expected
volatility of 17.58% and 19.86%, respectively.
A summary of the status of the Company's stock option agreements as
of December 31, 1996 and 1995, and changes during the years then
ended, is presented below:
[CAPTION]
1996 1995
Weighted- Weighted-
Average Average
Nonqualified Stock Options Excercise Excercise
Shares Price Shares Price
Outstanding, beginning of ye 13,232 $22.16 12,593 $14.45
Granted 5,100 35.00 5,100 35.00
Exercised 5,959 19.89 4,461 15.07
Forfeited - -
Outstanding, end of year 12,373 28.55 13,232 22.16
Options exercisable at year- 12,373 13,232
Fair value of options granted during
the year $9.20 $6.08
The following table summarizes information about nonqualified stock
options outstanding at December 31, 1996:
Exercise Number Remaining Number
Prices OutstandinContractual Exercisable
$35.00 4,455 1 year 4,455
35.00 5,100 3 years 5,100
6.67 2,818 4 years 2,818
12,373 12,373
NOTE J - 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 10%), 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 officers, directors, stockholders and
associates of such persons is listed below (in thousands):
BEGINNING CHARGE- ENDING
YEAR BALANCE ADDITIONS PAYMENTS OFFS BALANCE
1996 $1,781 $1,009 $776 $ - $2,014
1995 $1,272 $652 $143 $ - $1,781
1994 $891 $715 $334 $ - $1,272
NOTE K- COMMITMENTS AND CONTINGENT LIABILITIES
The following is a schedule of future minimum rental payments under
operating leases with noncancellable terms in excess of one year as
of December 31, 1996 (in thousands):
YEAR ENDING DECEMBER 31,
1997 $163
1998 144
1999 46
2000 40
2001 34
Thereafter 33
Total $460
Total rental expense for all operating leases for years ended
December 31, 1996, 1995 and 1994 approximated $172,000, $164,000 and
$162,000, 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 L- 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 (in thousands)
CONTRACT AMOUNT
DECEMBER 31,
CONTRACT AMOUNT
1996 1995
Commitments to extend credit $16,010 $18,281
Standby letters of credit $2,026 $1,332
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 M - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory-and
possibly additional discretionary-actions by regulators that, if
undertaken, could have a direct material effect on the Bank's
financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet
specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Bank's capital
amounts and classification are also subject to qualitative judgments
by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I capital (as defined in
the regulations) to risk-weighted assets (as defined), and of Tier I
capital to average assets (as defined). Management believes, as of
December 31, 1996, that the Bank meets all capital adequacy
requirements to which it is subject.
To be categorized as adequately capitalized a bank must maintain
minimum total risk-based, Tier I risk-based, and Tier I leverage
ratios as set forth in the table.
The Bank's actual capital amounts and ratios are also presented in
the following table (in thousands):
[CAPTION]
To Be Well
Capitilized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
As of December 31, 1996:
Total Capital
(to Risk Weighted Assets) $33,208 20.8%>$12,783 >8.0% >$15,979 >10.0%
Tier I Capital
(to Risk Weighted Assets) $31,205 19.5%>$6,392 >4.0% >$9,587 > 6.0%
Tier I Capital
(to Average Assets) $31,205 12.3%>$10,135 >4.0% >$12,669 > 5.0%
As of December 31, 1995:
Total Capital
(to Risk Weighted Assets) $29,166 18.8%>$12,407 >8.0% >$15,508 >10.0%
Tier I Capital
(to Risk Weighted Assets) $27,227 17.6%>$6,203 >4.0% >$9,305 > 6.0%
Tier I Capital
(to Average Assets) $27,227 11.5%>$9,436 >4.0% >$11,795 > 5.0%
Banking regulations limit the amount of dividends that may be paid by
the Bank to Penns Woods Bancorp, Inc. Retained earnings against
which dividends may be paid without prior approval of the banking
regulators amounted to approximately $21,296,000 at December 31,
1996, subject to minimum capital ratio requirements noted above.
The Bank is subject to regulatory restrictions which limit its
ability to loan funds to Penns Woods Bancorp, Inc. At December 31,
1996, the regulatory lending limit amounted to approximately
$2,859,000.
NOTE N - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "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, as generally provided in the Company's regulatory
reports, 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 B. The Company's fair
value estimates, methods and assumptions are set forth below for the
Company's other financial instruments.
Cash and cash equivalents:
The carrying amounts for cash, due from banks and federal funds
sold approximate fair value because they mature in 90 days or less
and do not present unanticipated credit concerns.
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.
The following table presents information for loans (in thousands):
[CAPTION]
AVERAGE AVERAGE ESTIMATED
BOOK HISTORICAL MATURITY DISCOUNT FAIR
VALUE YIELD (YRS) (1) RATE VALUES
DECEMBER 31, 1996
Commercial $79,093 9.00% 3.53 9.44% $78,775
Real Estate 56,916 9.71% 5.21 8.75% 57,416
Other 25,634 9.42% 5.84 8.75% 26,798
DECEMBER 31, 1995
Commercial $73,297 9.99% 4.41 10.75% $72,906
Real Estate 56,509 9.15% 5.66 9.41% 56,375
Other 24,195 10.05% 5.54 10.10% 24,184
(1) Average maturity represents the expected average cash-flow
period, which in some instances is different than the stated maturity.
(2) Management has made estimates of fair value discount rates that
it believes to be reasonable. However, because there is no market
for many of these financial instruments, management has no basis to
determine whether the fair value presented above would be indicative
of the value negotiated in an actual sale.
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, 1996 and 1995 The fair value of
certificates of deposit is based on the discounted value of
contractual cash flows. The discount rate is estimated using the
rates currently offered for deposits of similar remaining maturities
(in thousands):
BOOK FAIR
VALUE VALUE
DECEMBER 31, 1996
Interest-bearing deposits $174,060 $174,400
Noninterest-bearing depos $28,956 $28,956
DECEMBER 31, 1995
Interest-bearing deposits $175,079 $175,392
Noninterest-bearing depos $27,179 $27,179
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.
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 which total
approximately $18,036,000 and $19,613,000 at December 31, 1996 and
1995, respectively, and are primarily comprised of unfunded loan
commitments which are generally priced at market at the time of
funding.
NOTE O - PARENT COMPANY ONLY FINANCIAL STATEMENTS (UNAUDITED)
Condensed financial information for Penns Woods Bancorp, Inc. follows:
(IN THOUSANDS)
CONDENSED BALANCE SHEET, DECEMBER 31, 1996 1995
ASSETS:
Cash $37 $106
Investment in subsidiaries:
Bank 28,586 25,851
Nonbank 5272 4061
Deferred tax asset 12 32
Prepaid taxes 55 72
Total assets $33,962 $30,122
LIABILITIES AND SHAREHOLDERS' EQUITY:
Other liabilities 405 437
Shareholders' equity 33,557 29,685
Total liabilities and shareholders' $33,962 $30,122
[CAPTION]
CONDENSED STATEMENT OF INCOME FOR (IN THOUSANDS)
THE YEARS ENDED DECEMBER 31, 1996 1995 1994
Operating income:
Dividends from subsidiaries $1,707 $1,530 $1,583
Equity in undistributed net
income of subsidiaries 3,727 2,581 1,798
Other income - - 175
Operating expenses (92) (249) (188)
Net income $5,342 $3,862 $3,368
[CAPTION]
CONDENSED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, (IN THOUSANDS)
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $5,342 $3,862 $3,388
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed net income of
subsidiaries (3,727) (2,581) (1,798)
Decrease in income taxes payable 37 (72) (22)
Gains on investment securities - - (119)
Increase (decrease) in liabilities 9 24 (312)
Stock option compensation expense 16 5 24
Net cash provided by operating acti 1,677 1,238 1,161
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investment securities - - 597
Purchase of investment securities - - (715)
Additional investment in subsidiaries (335) (18) (108)
Net cash used in investing activiti (335) (18) (226)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (1,529) (1,239) (999)
Proceeds from intercompany loan - - 15
Proceeds from exercise of stock options 118 66 46
Net cash used in financing activiti (1,411) (1,173) (938)
NET INCREASE (DECREASE) IN CASH (69) 47 (3)
CASH, BEGINNING OF YEAR 106 59 62
CASH, END OF YEAR $37 $106 $59
CONDENSED STATEMENT OF CASH FLOWS
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITY:
During 1994, Penns Woods Bancorp, Inc. transferred $2,926,345
in equity securities to Woods Investment Company, Inc.; in a
related transaction, Woods Investment Company, Inc. assumed
a liability for $191,696 which Penns Woods Bancorp, Inc. owed
to Jersey Shore State Bank.
NOTE P - CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
[CAPTION]
FOR THE THREE MONTHS ENDED
MAR. JUN. SEP. DEC.
1996 31, 30, 30, 31,
Interest income $4,782 $4,888 $5,049 $5,278
Interest expense 1,970 1,978 2,057 2,074
Net interest income 2,812 2,910 2,992 3,204
Provision for loan losses 42 21 21 21
Other income 262 304 276 274
Securities gains 36 255 397 657
Other expenses 1,760 1,748 1,750 1,709
Income before income tax pro 1,308 1,700 1,894 2,405
Income tax provision 326 434 536 669
Net income $982 $1,266 $1,358 $1,736
Net income per share $0.77 $1.00 $1.07 $1.36
FOR THE THREE MONTHS ENDED
MAR. JUN. SEP. DEC.
1996 31, 30, 30, 31,
Interest income $4,551 $4,623 $4,765 $4,756
Interest expense 1,881 1,949 1,968 1,995
Net interest income 2,670 2,674 2,797 2,761
Provision for loan losses 100 124 76 -
Other income 237 251 256 291
Securities gains 283 308 296 293
Other expenses 2,008 2,189 1,712 1,625
Income before income tax pro 1,082 920 1,561 1,720
Income tax provision 289 54 545 533
Net income $793 $866 $1,016 $1,187
Net income per share $0.63 $0.68 $0.80 $0.94
FOR THE THREE MONTHS ENDED
MAR. JUN. SEP. DEC.
1996 31, 30, 30, 31,
Interest income $3,942 $4,043 $4,376 $4,523
Interest expense 1,645 1,678 1,760 1,819
Net interest income 2,297 2,365 2,616 2,704
Provision for loan losses 152 150 125 150
Other income 202 225 247 201
Securities gains (losses) 625 329 341 (28)
Other expenses 1,575 1,600 1,667 2,162
Income before income tax pro 1,397 1,169 1,412 565
Income tax provision 350 314 401 109
Net income $1,047 $855 $1,011 $456
Net income per share $0.83 $0.67 $0.80 $0.36
The Registrant's Consolidated Financial Statements and
notes thereto contained in the Annual Report (at page 10
thereto)are incorporated in their entirety by reference under this
Item 8.
The Registrant does not meet both of the tests under Item
302(a)(5) of Regulation S-K, and therefore, is not required to
provide supplementary financial data.
PENNS WOODS BANCORP, INC.
INDEBTEDNESS OF RELATED PARTIES
Column A Column B Column C Column D Column E
Deductions
Beginning Charge- Ending
Year Name of Debtor Balance Additions Paments offs Balance
1996 8 directors, 10 affiliated interests,
and 3 officers $1,781 $1,009 $776 $0 $2,014
1995 6 directors, 7 affiliated interests,
and 3 officers 1,272 652 143 0 1,781
1994 5 directors, 7 affiliated interests,
and 3 officers 891 715 334 0 1,272
ITEM 9 DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None
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 25, 1997 (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
CERTAIN TRANSACTIONS
There have been no material transactions between the
Corporation and the Bank, nor any material transactions
proposed, with any Director or executive officer of the
Corporation and the Bank, or any associate of the foregoing
persons. The Corporation 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
Corporation 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 Corporation and the Bank.
Total loans outstanding from the Bank at December 31, 1996
to the Corporation'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
$2,014,000 or approximately 7.05% 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 J 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
No reports were required to be filed on Form 8-K during 1996.
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 B to
Amendment No. 2 of Form 10 filed on February 3, 1989).
(3) (ii) Bylaws of the Registrant as presently in effect
(incorporated herein by reference to Exhibit C to Amendment No.
2 of Form 10 filed on February 3, 1989).
(4) Dissenting Shareholders' Rights presently in effect
(incorporated herein by reference to Exhibit D to Amendment
No. 2 of Form 10 filed on February 3, 1989).
(13) Annual Report to Shareholders
(21) Subsidiaries of the Registrant (incorporated herein by
reference to Exhibit F to Amendment No. 2 of Form 10 filed on
February 3, 1989).
(23) Consent of Independent Certified Public Accountants
(27) Financial Data Schedule
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 11, 1997 PENNS WOODS BANCORP, INC.
BY: THEODORE H. REICH
President
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:
Theodore H. Reich, President and DirectoMarch 11, 1997
/s/ Theodore H. Reich
Sonya E. Hartranft, Principal AccountingMarch 11, 1997
Principal Financial Officer
/s/ Sonya E. Hartranft
Phillip H. Bower, Director March 11, 1997
/s/ Phillip H. Bower
Lynn S. Bowes, Director March 11, 1997
/s/ Lynn S. Bowes
William S. Frazier, Director March 11, 1997
/s/ William S. Frazier
James M. Furey II, Director March 11, 1997
/s/ James M. Furey II
Allan W. Lugg, Director March 11, 1997
/s/ Allan W. Lugg
Jay H. McCormick, Director March 11, 1997
/s/ Jay H. McCormick
R. Edward Nestlerode, Jr., Director March 11, 1997
/s/ R. Edward Nestlerode, Jr.
James E. Plummer, Director March 11, 1997
/s/ James E. Plummer
Howard M. Thompson, Director March 11, 1997
/s/ Howard M. Thompson
William F. Williams, Jr., Director March 11, 1997
/s/ William F. Williams, Jr.
This statement has not been reviewed or confirmed for accuracy
or relevance, by the Federal Deposit Insurance Corporation.
EXHIBIT INDEX
(3) (i) Articles of Incorporation of the Registrant, as presently
in effect (incorporated herein by reference to Exhibit B to
Amendment No. 2 of Form 10 filed on February 3, 1989).
(3) (ii) Bylaws of the Registrant as presently in effect
(incorporated herein by reference to Exhibit C to Amendment No.
2 of Form 10 filed on February 3, 1989).
(4) Dissenting Shareholders' Rights presently in effect
(incorporated herein by reference to Exhibit D to Amendment
No. 2 of Form 10 filed on February 3, 1989).
(21) Subsidiaries of the Registrant (incorporated herein by
reference to Exhibit F to Amendment No. 2 of Form 10 filed on
February 3, 1989).
(24) Consent of Independent Certified Public Accountants