UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x Quarterly Report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
for the Quarterly Period Ended March 31, 2012.
o Transition report pursuant to Section 13 or 15 (d) of the Exchange Act
for the Transition Period from to .
No. 0-17077
(Commission File Number)
PENNS WOODS BANCORP, INC.
(Exact name of Registrant as specified in its charter)
PENNSYLVANIA |
|
23-2226454 |
(State or other jurisdiction of |
|
(I.R.S. Employer |
incorporation or organization) |
|
Identification No.) |
300 Market Street, P.O. Box 967 Williamsport, Pennsylvania |
|
17703-0967 |
(Address of principal executive offices) |
|
(Zip Code) |
(570) 322-1111
Registrants telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o |
|
Accelerated filer x |
|
|
|
Non-accelerated filer o |
|
Small reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO x
On May 2, 2012 there were 3,837,576 shares of the Registrants common stock outstanding.
PENNS WOODS BANCORP, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
PENNS WOODS BANCORP, INC.
(UNAUDITED)
|
|
March 31, |
|
December 31, |
|
||
(In Thousands, Except Share Data) |
|
2012 |
|
2011 |
|
||
ASSETS: |
|
|
|
|
|
||
Noninterest-bearing balances |
|
$ |
16,272 |
|
$ |
13,829 |
|
Interest-bearing deposits in other financial institutions |
|
7,159 |
|
56 |
|
||
Total cash and cash equivalents |
|
23,431 |
|
13,885 |
|
||
|
|
|
|
|
|
||
Investment securities, available for sale, at fair value |
|
284,778 |
|
270,097 |
|
||
Investment securities, held to maturity, (fair value of $55) |
|
55 |
|
54 |
|
||
Loans held for sale |
|
2,065 |
|
3,787 |
|
||
Loans |
|
443,577 |
|
435,959 |
|
||
Less: Allowance for loan losses |
|
7,745 |
|
7,154 |
|
||
Loans, net |
|
435,832 |
|
428,805 |
|
||
Premises and equipment, net |
|
8,283 |
|
7,707 |
|
||
Accrued interest receivable |
|
4,100 |
|
3,905 |
|
||
Bank-owned life insurance |
|
15,973 |
|
16,065 |
|
||
Investment in limited partnerships |
|
3,379 |
|
3,544 |
|
||
Goodwill |
|
3,032 |
|
3,032 |
|
||
Deferred tax asset |
|
6,416 |
|
7,991 |
|
||
Other assets |
|
5,770 |
|
5,081 |
|
||
TOTAL ASSETS |
|
$ |
793,114 |
|
$ |
763,953 |
|
|
|
|
|
|
|
||
LIABILITIES: |
|
|
|
|
|
||
Interest-bearing deposits |
|
$ |
505,271 |
|
$ |
470,310 |
|
Noninterest-bearing deposits |
|
116,271 |
|
111,354 |
|
||
Total deposits |
|
621,542 |
|
581,664 |
|
||
|
|
|
|
|
|
||
Short-term borrowings |
|
14,768 |
|
29,598 |
|
||
Long-term borrowings, Federal Home Loan Bank (FHLB) |
|
61,278 |
|
61,278 |
|
||
Accrued interest payable |
|
506 |
|
536 |
|
||
Other liabilities |
|
9,741 |
|
10,417 |
|
||
TOTAL LIABILITIES |
|
707,835 |
|
683,493 |
|
||
|
|
|
|
|
|
||
SHAREHOLDERS EQUITY: |
|
|
|
|
|
||
Common stock, par value $8.33, 10,000,000 shares authorized; 4,018,068 and 4,017,677 shares issued |
|
33,484 |
|
33,480 |
|
||
Additional paid-in capital |
|
18,127 |
|
18,115 |
|
||
Retained earnings |
|
38,279 |
|
36,394 |
|
||
Accumulated other comprehensive gain (loss): |
|
|
|
|
|
||
Net unrealized gain on available for sale securities |
|
5,832 |
|
2,914 |
|
||
Defined benefit plan |
|
(4,133 |
) |
(4,133 |
) |
||
Less: Treasury stock at cost, 180,596 shares |
|
(6,310 |
) |
(6,310 |
) |
||
TOTAL SHAREHOLDERS EQUITY |
|
85,279 |
|
80,460 |
|
||
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
|
$ |
793,114 |
|
$ |
763,953 |
|
See accompanying notes to the unaudited consolidated financial statements.
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
|
|
Three Months Ended |
|
||||
|
|
March 31, |
|
||||
(In Thousands, Except Per Share Data) |
|
2012 |
|
2011 |
|
||
|
|
|
|
|
|
||
INTEREST AND DIVIDEND INCOME: |
|
|
|
|
|
||
Loans, including fees |
|
$ |
6,314 |
|
$ |
6,288 |
|
Investment securities: |
|
|
|
|
|
||
Taxable |
|
1,474 |
|
1,375 |
|
||
Tax-exempt |
|
1,405 |
|
1,267 |
|
||
Dividend and other interest income |
|
92 |
|
52 |
|
||
TOTAL INTEREST AND DIVIDEND INCOME |
|
9,285 |
|
8,982 |
|
||
|
|
|
|
|
|
||
INTEREST EXPENSE: |
|
|
|
|
|
||
Deposits |
|
961 |
|
1,194 |
|
||
Short-term borrowings |
|
34 |
|
57 |
|
||
Long-term borrowings, FHLB |
|
620 |
|
734 |
|
||
TOTAL INTEREST EXPENSE |
|
1,615 |
|
1,985 |
|
||
|
|
|
|
|
|
||
NET INTEREST INCOME |
|
7,670 |
|
6,997 |
|
||
|
|
|
|
|
|
||
PROVISION FOR LOAN LOSSES |
|
600 |
|
600 |
|
||
|
|
|
|
|
|
||
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |
|
7,070 |
|
6,397 |
|
||
|
|
|
|
|
|
||
NON-INTEREST INCOME: |
|
|
|
|
|
||
Service charges |
|
447 |
|
503 |
|
||
Securities gains, net |
|
589 |
|
125 |
|
||
Bank-owned life insurance |
|
268 |
|
174 |
|
||
Gain on sale of loans |
|
183 |
|
249 |
|
||
Insurance commissions |
|
442 |
|
209 |
|
||
Brokerage commissions |
|
212 |
|
274 |
|
||
Other |
|
622 |
|
411 |
|
||
TOTAL NON-INTEREST INCOME |
|
2,763 |
|
1,945 |
|
||
|
|
|
|
|
|
||
NON-INTEREST EXPENSE: |
|
|
|
|
|
||
Salaries and employee benefits |
|
3,017 |
|
2,632 |
|
||
Occupancy, net |
|
328 |
|
348 |
|
||
Furniture and equipment |
|
346 |
|
308 |
|
||
Pennsylvania shares tax |
|
169 |
|
172 |
|
||
Amortization of investment in limited partnerships |
|
165 |
|
166 |
|
||
FDIC deposit insurance |
|
123 |
|
187 |
|
||
Other |
|
1,316 |
|
1,175 |
|
||
TOTAL NON-INTEREST EXPENSE |
|
5,464 |
|
4,988 |
|
||
|
|
|
|
|
|
||
INCOME BEFORE INCOME TAX PROVISION |
|
4,369 |
|
3,354 |
|
||
INCOME TAX PROVISION |
|
680 |
|
501 |
|
||
NET INCOME |
|
$ |
3,689 |
|
$ |
2,853 |
|
|
|
|
|
|
|
||
EARNINGS PER SHARE - BASIC |
|
$ |
0.96 |
|
$ |
0.74 |
|
|
|
|
|
|
|
||
EARNINGS PER SHARE - DILUTED |
|
$ |
0.96 |
|
$ |
0.74 |
|
|
|
|
|
|
|
||
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC |
|
3,837,204 |
|
3,835,295 |
|
||
|
|
|
|
|
|
||
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED |
|
3,837,204 |
|
3,835,295 |
|
||
|
|
|
|
|
|
||
DIVIDENDS PER SHARE |
|
$ |
0.47 |
|
$ |
0.46 |
|
See accompanying notes to the unaudited consolidated financial statements.
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
|
|
Three Months Ended March 31, |
|
||||
(In Thousands) |
|
2012 |
|
2011 |
|
||
|
|
|
|
|
|
||
Net Income |
|
$ |
3,689 |
|
$ |
2,853 |
|
Other comprehensive income: |
|
|
|
|
|
||
Change in unrealized gain on available for sale securities |
|
5,010 |
|
2,051 |
|
||
Tax Effect |
|
(1,703 |
) |
(697 |
) |
||
Net realized gain included in net income |
|
589 |
|
125 |
|
||
Tax Effect |
|
(200 |
) |
(42 |
) |
||
Total other comprehensive income |
|
2,918 |
|
1,271 |
|
||
Comprehensive income |
|
$ |
6,607 |
|
$ |
4,124 |
|
See accompanying notes to the unaudited consolidated financial statements.
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
ACCUMULATED |
|
|
|
|
|
||||||
|
|
COMMON |
|
ADDITIONAL |
|
|
|
OTHER |
|
|
|
TOTAL |
|
||||||||
|
|
STOCK |
|
PAID-IN |
|
RETAINED |
|
COMPREHENSIVE |
|
TREASURY |
|
SHAREHOLDERS |
|
||||||||
(In Thousands, Except Per Share Data) |
|
SHARES |
|
AMOUNT |
|
CAPITAL |
|
EARNINGS |
|
INCOME (LOSS) |
|
STOCK |
|
EQUITY |
|
||||||
Balance, December 31, 2010 |
|
4,015,753 |
|
$ |
33,464 |
|
$ |
18,064 |
|
$ |
31,091 |
|
$ |
(9,689 |
) |
$ |
(6,310 |
) |
$ |
66,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net income |
|
|
|
|
|
|
|
2,853 |
|
|
|
|
|
2,853 |
|
||||||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
1,271 |
|
|
|
1,271 |
|
||||||
Dividends declared, ($0.46 per share) |
|
|
|
|
|
|
|
(1,764 |
) |
|
|
|
|
(1,764 |
) |
||||||
Common shares issued for employee stock purchase plan |
|
480 |
|
4 |
|
14 |
|
|
|
|
|
|
|
18 |
|
||||||
Balance, March 31, 2011 |
|
4,016,233 |
|
$ |
33,468 |
|
$ |
18,078 |
|
$ |
32,180 |
|
$ |
(8,418 |
) |
$ |
(6,310 |
) |
$ |
68,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
ACCUMULATED |
|
|
|
|
|
||||||
|
|
COMMON |
|
ADDITIONAL |
|
|
|
OTHER |
|
|
|
TOTAL |
|
||||||||
|
|
STOCK |
|
PAID-IN |
|
RETAINED |
|
COMPREHENSIVE |
|
TREASURY |
|
SHAREHOLDERS |
|
||||||||
(In Thousands, Except Per Share Data) |
|
SHARES |
|
AMOUNT |
|
CAPITAL |
|
EARNINGS |
|
INCOME (LOSS) |
|
STOCK |
|
EQUITY |
|
||||||
Balance, December 31, 2011 |
|
4,017,677 |
|
$ |
33,480 |
|
$ |
18,115 |
|
$ |
36,394 |
|
$ |
(1,219 |
) |
$ |
(6,310 |
) |
$ |
80,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net income |
|
|
|
|
|
|
|
3,689 |
|
|
|
|
|
3,689 |
|
||||||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
2,918 |
|
|
|
2,918 |
|
||||||
Dividends declared, ($0.47 per share) |
|
|
|
|
|
|
|
(1,804 |
) |
|
|
|
|
(1,804 |
) |
||||||
Common shares issued for employee stock purchase plan |
|
391 |
|
4 |
|
12 |
|
|
|
|
|
|
|
16 |
|
||||||
Balance, March 31, 2012 |
|
4,018,068 |
|
$ |
33,484 |
|
$ |
18,127 |
|
$ |
38,279 |
|
$ |
1,699 |
|
$ |
(6,310 |
) |
$ |
85,279 |
|
See accompanying notes to the unaudited consolidated financial statements.
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
|
|
Three Months Ended |
|
||||
|
|
March 31, |
|
||||
(In Thousands) |
|
2012 |
|
2011 |
|
||
|
|
|
|
|
|
||
OPERATING ACTIVITIES: |
|
|
|
|
|
||
Net Income |
|
$ |
3,689 |
|
$ |
2,853 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
||
Depreciation and amortization |
|
191 |
|
175 |
|
||
Provision for loan losses |
|
600 |
|
600 |
|
||
Accretion and amortization of investment security discounts and premiums |
|
(377 |
) |
(459 |
) |
||
Securities gains, net |
|
(589 |
) |
(125 |
) |
||
Originations of loans held for sale |
|
(4,301 |
) |
(8,686 |
) |
||
Proceeds of loans held for sale |
|
6,206 |
|
10,775 |
|
||
Gain on sale of loans |
|
(183 |
) |
(249 |
) |
||
Earnings on bank-owned life insurance |
|
(268 |
) |
(174 |
) |
||
Decrease in prepaid federal deposit insurance |
|
112 |
|
165 |
|
||
Other, net |
|
(1,590 |
) |
(693 |
) |
||
Net cash provided by operating activities |
|
3,490 |
|
4,182 |
|
||
INVESTING ACTIVITIES: |
|
|
|
|
|
||
Investment securities available for sale: |
|
|
|
|
|
||
Proceeds from sales |
|
9,765 |
|
2,728 |
|
||
Proceeds from calls and maturities |
|
3,400 |
|
2,001 |
|
||
Purchases |
|
(22,741 |
) |
(7,876 |
) |
||
Investment securities held to maturity: |
|
|
|
|
|
||
Proceeds from sales |
|
|
|
5 |
|
||
Proceeds from calls and maturities |
|
|
|
25 |
|
||
Net (increase) decrease in loans |
|
(7,627 |
) |
2,892 |
|
||
Acquisition of bank premises and equipment |
|
(767 |
) |
(151 |
) |
||
Proceeds from the sale of foreclosed assets |
|
131 |
|
92 |
|
||
Purchase of bank-owned life insurance |
|
(29 |
) |
(32 |
) |
||
Proceeds from bank-owned life insurance death benefit |
|
383 |
|
|
|
||
Proceeds from redemption of regulatory stock |
|
281 |
|
345 |
|
||
Net cash (used for) provided by investing activities |
|
(17,204 |
) |
29 |
|
||
FINANCING ACTIVITIES: |
|
|
|
|
|
||
Net increase in interest-bearing deposits |
|
34,961 |
|
5,278 |
|
||
Net increase in noninterest-bearing deposits |
|
4,917 |
|
5,931 |
|
||
Net decrease in short-term borrowings |
|
(14,830 |
) |
(11,663 |
) |
||
Dividends paid |
|
(1,804 |
) |
(1,764 |
) |
||
Issuance of common stock |
|
16 |
|
18 |
|
||
Net cash provided by (used for) financing activities |
|
23,260 |
|
(2,200 |
) |
||
NET INCREASE IN CASH AND CASH EQUIVALENTS |
|
9,546 |
|
2,011 |
|
||
CASH AND CASH EQUIVALENTS, BEGINNING |
|
13,885 |
|
9,493 |
|
||
CASH AND CASH EQUIVALENTS, ENDING |
|
$ |
23,431 |
|
$ |
11,504 |
|
|
|
|
|
|
|
||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
|
|
|
|
|
||
Interest paid |
|
$ |
1,645 |
|
$ |
2,041 |
|
Income taxes paid |
|
925 |
|
750 |
|
||
Transfer of loans to foreclosed real estate |
|
|
|
577 |
|
See accompanying notes to the unaudited consolidated financial statements.
PENNS WOODS BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 Basis of Presentation
The consolidated financial statements include the accounts of Penns Woods Bancorp, Inc. (the Company) and its wholly-owned subsidiaries: Woods Investment Company, Inc., Woods Real Estate Development Company, Inc., and Jersey Shore State Bank (the Bank) and its wholly-owned subsidiary, The M Group, Inc. D/B/A The Comprehensive Financial Group (The M Group). All significant inter-company balances and transactions have been eliminated in the consolidation.
The interim financial statements are unaudited but, in the opinion of management, reflect all adjustments necessary for the fair presentation of results for such periods. The results of operations for any interim period are not necessarily indicative of results for the full year. These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Companys Annual Report on Form 10-K for the year ended December 31, 2011.
The accounting policies followed in the presentation of interim financial results are the same as those followed on an annual basis. These policies are presented on pages 37 through 43 of the Annual Report on Form 10-K for the year ended December 31, 2011.
In reference to the attached financial statements, all adjustments are of a normal recurring nature pursuant to Rule 10-01(b) (8) of Regulation S-X.
Note 2 Recent Accounting Pronouncements
In April 2011, the Financial Accounting Standards Board (FASB) issued ASU 2011-03, Transfers and Services (Topic 860): Reconsideration of Effective Control for Repurchase Agreements . The main objective in developing this update is to improve the accounting for repurchase agreements (repos) and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. The amendments in this update remove from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion. The amendments in this update apply to all entities, both public and nonpublic. The amendments affect all entities that enter into agreements to transfer financial assets that both entitle and obligate the transferor to repurchase or redeem the financial assets before their maturity. The guidance in this update is effective for the first interim or annual period beginning on or after December 15, 2011 and should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. This ASU did not have a significant impact on the Companys financial statements.
In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs . The amendments in this update result in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs. Consequently, the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. The amendments in this update are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. Early application by public entities is not permitted. The Company has provided the necessary disclosures in Note 10 Fair Value Measurements.
In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income . The amendments in this update improve the comparability, clarity, consistency, and transparency of financial reporting and increase the prominence of items reported in other comprehensive income. To increase the prominence of items reported in other comprehensive income and to facilitate convergence of U.S. GAAP and IFRS, the option to present components of other comprehensive income as part of the statement of changes in stockholders equity was eliminated. The amendments require that all non-owner changes in stockholders equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. All entities that report items of comprehensive income, in any period presented, will be affected by the changes in this update. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The amendments in this update should be applied retrospectively, and early adoption is permitted. The Company has provided the necessary disclosure in the Consolidated Statement of Comprehensive Income.
In September 2011, the FASB issued ASU 2011-08, Intangibles Goodwill and Other Topics (Topic 350), Testing Goodwill for Impairment . The objective of this update is to simplify how entities test goodwill for impairment. The amendments in the update permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. Under the amendments in this update, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. The amendments in this update apply to all entities, both public
and nonpublic, that have goodwill reported in their financial statements and are effective for interim and annual goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entitys financial statements for the most recent annual or interim period have not yet been issued or have not yet been made available for issuance. This ASU did not have a significant impact on the Companys financial statements.
In December 2011, the FASB issued ASU 2011-10, Property, Plant, and Equipment (Topic 360): Derecognition of in Substance Real Estate - a Scope Clarification . The amendments in this update affect entities that cease to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the subsidiarys nonrecourse debt. Under the amendments in this update, when a parent (reporting entity) ceases to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the subsidiarys nonrecourse debt, the reporting entity should apply the guidance in Subtopic 360-20 to determine whether it should derecognize the in substance real estate. Generally, a reporting entity would not satisfy the requirements to derecognize the in substance real estate before the legal transfer of the real estate to the lender and the extinguishment of the related nonrecourse indebtedness. That is, even if the reporting entity ceases to have a controlling financial interest under Subtopic 810-10, the reporting entity would continue to include the real estate, debt, and the results of the subsidiarys operations in its consolidated financial statements until legal title to the real estate is transferred to legally satisfy the debt. The amendments in this update should be applied on a prospective basis to deconsolidation events occurring after the effective date. Prior periods should not be adjusted even if the reporting entity has continuing involvement with previously derecognized in substance real estate entities. For public entities, the amendments in this update are effective for fiscal years, and interim periods within those years, beginning on or after June 15, 2012. Early adoption is permitted. This ASU is not expected to have a significant impact on the Companys financial statements.
In December 2011, the FASB issued ASU 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities . The amendments in this update affect all entities that have financial instruments and derivative instruments that are either (1) offset in accordance with either Section 210-20-45 or Section 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement. The requirements amend the disclosure requirements on offsetting in Section 210-20-50. This information will enable users of an entitys financial statements to evaluate the effect or potential effect of netting arrangements on an entitys financial position, including the effect or potential effect of rights of setoff associated with certain financial instruments and derivative instruments in the scope of this update. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The Company is currently evaluating the impact the adoption of this ASU will have on the Companys financial statements.
In December 2011, the FASB issued ASU 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 . In order to defer only those changes in update 2011-05 that relate to the presentation of reclassification adjustments, the paragraphs in this update supersede certain pending paragraphs in update 2011-05. Entities should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before update 2011-05. All other requirements in update 2011-05 are not affected by this update, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, 2011. This ASU did not have a significant impact on the Companys financial statements.
Note 3 Per Share Data
There are no convertible securities which would affect the denominator in calculating basic and dilutive earnings per share. Net income as presented on the consolidated statement of income will be used as the numerator. The following table sets forth the composition of the weighted average common shares (denominator) used in the basic and dilutive earnings per share computation.
|
|
Three Months Ended March 31, |
|
||
|
|
2012 |
|
2011 |
|
Weighted average common shares issued |
|
4,017,800 |
|
4,015,891 |
|
|
|
|
|
|
|
Average treasury stock shares |
|
(180,596 |
) |
(180,596 |
) |
|
|
|
|
|
|
Weighted average common shares and common stock equivalents used to calculate basic earnings per share |
|
3,837,204 |
|
3,835,295 |
|
|
|
|
|
|
|
Additional common stock equivalents (stock options) used to calculate diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares and common stock equivalents used to calculate diluted earnings per share |
|
3,837,204 |
|
3,835,295 |
|
There were no options outstanding during the three months ended March 31, 2011 and 2012.
Note 4 Investment Securities
The amortized cost and fair values of investment securities at March 31, 2012 and December 31, 2011 are as follows:
|
|
March 31, 2012 |
|
||||||||||
|
|
|
|
Gross |
|
Gross |
|
|
|
||||
|
|
Amortized |
|
Unrealized |
|
Unrealized |
|
Fair |
|
||||
(In Thousands) |
|
Cost |
|
Gains |
|
Losses |
|
Value |
|
||||
Available for sale (AFS) |
|
|
|
|
|
|
|
|
|
||||
U.S. Government and agency securities |
|
$ |
21,801 |
|
$ |
1,698 |
|
$ |
|
|
$ |
23,499 |
|
State and political securities |
|
175,921 |
|
9,570 |
|
(3,320 |
) |
182,171 |
|
||||
Other debt securities |
|
66,170 |
|
284 |
|
(788 |
) |
65,666 |
|
||||
Total debt securities |
|
263,892 |
|
11,552 |
|
(4,108 |
) |
271,336 |
|
||||
Financial institution equity securities |
|
8,866 |
|
1,313 |
|
(22 |
) |
10,157 |
|
||||
Other equity securities |
|
3,184 |
|
145 |
|
(44 |
) |
3,285 |
|
||||
Total equity securities |
|
12,050 |
|
1,458 |
|
(66 |
) |
13,442 |
|
||||
Total investment securities AFS |
|
$ |
275,942 |
|
$ |
13,010 |
|
$ |
(4,174 |
) |
$ |
284,778 |
|
|
|
|
|
|
|
|
|
|
|
||||
Held to maturity (HTM) |
|
|
|
|
|
|
|
|
|
||||
Other debt securities |
|
$ |
55 |
|
$ |
|
|
$ |
|
|
$ |
55 |
|
Total investment securities HTM |
|
$ |
55 |
|
$ |
|
|
$ |
|
|
$ |
55 |
|
|
|
December 31, 2011 |
|
||||||||||
|
|
|
|
Gross |
|
Gross |
|
|
|
||||
|
|
Amortized |
|
Unrealized |
|
Unrealized |
|
Fair |
|
||||
(In Thousands) |
|
Cost |
|
Gains |
|
Losses |
|
Value |
|
||||
Available for sale (AFS) |
|
|
|
|
|
|
|
|
|
||||
U.S. Government and agency securities |
|
$ |
26,755 |
|
$ |
1,916 |
|
$ |
|
|
$ |
28,671 |
|
State and political securities |
|
174,790 |
|
8,398 |
|
(4,887 |
) |
178,301 |
|
||||
Other debt securities |
|
51,447 |
|
133 |
|
(2,066 |
) |
49,514 |
|
||||
Total debt securities |
|
252,992 |
|
10,447 |
|
(6,953 |
) |
256,486 |
|
||||
Financial institution equity securities |
|
9,939 |
|
1,095 |
|
(232 |
) |
10,802 |
|
||||
Other equity securities |
|
2,751 |
|
133 |
|
(75 |
) |
2,809 |
|
||||
Total equity securities |
|
12,690 |
|
1,228 |
|
(307 |
) |
13,611 |
|
||||
Total investment securities AFS |
|
$ |
265,682 |
|
$ |
11,675 |
|
$ |
(7,260 |
) |
$ |
270,097 |
|
|
|
|
|
|
|
|
|
|
|
||||
Held to maturity (HTM) |
|
|
|
|
|
|
|
|
|
||||
Other debt securities |
|
$ |
54 |
|
$ |
1 |
|
$ |
|
|
$ |
55 |
|
Total investment securities HTM |
|
$ |
54 |
|
$ |
1 |
|
$ |
|
|
$ |
55 |
|
The following tables show the Companys gross unrealized losses and fair value, aggregated by investment category and length of time, that the individual securities have been in a continuous unrealized loss position, at March 31, 2012 and December 31, 2011.
|
|
March 31, 2012 |
|
||||||||||||||||
|
|
Less than Twelve Months |
|
Twelve Months or Greater |
|
Total |
|
||||||||||||
|
|
|
|
Gross |
|
|
|
Gross |
|
|
|
Gross |
|
||||||
|
|
Fair |
|
Unrealized |
|
Fair |
|
Unrealized |
|
Fair |
|
Unrealized |
|
||||||
(In Thousands) |
|
Value |
|
Losses |
|
Value |
|
Losses |
|
Value |
|
Losses |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
State and political securities |
|
$ |
9,513 |
|
$ |
(382 |
) |
$ |
17,392 |
|
$ |
(2,938 |
) |
$ |
26,905 |
|
$ |
(3,320 |
) |
Other debt securities |
|
41,084 |
|
(786 |
) |
98 |
|
(2 |
) |
41,182 |
|
(788 |
) |
||||||
Total debt securities |
|
50,597 |
|
(1,168 |
) |
17,490 |
|
(2,940 |
) |
68,087 |
|
(4,108 |
) |
||||||
Financial institution equity securities |
|
193 |
|
(7 |
) |
142 |
|
(15 |
) |
335 |
|
(22 |
) |
||||||
Other equity securities |
|
462 |
|
(7 |
) |
125 |
|
(37 |
) |
587 |
|
(44 |
) |
||||||
Total equity securities |
|
655 |
|
(14 |
) |
267 |
|
(52 |
) |
922 |
|
(66 |
) |
||||||
Total |
|
$ |
51,252 |
|
$ |
(1,182 |
) |
$ |
17,757 |
|
$ |
(2,992 |
) |
$ |
69,009 |
|
$ |
(4,174 |
) |
|
|
December 31, 2011 |
|
||||||||||||||||
|
|
Less than Twelve Months |
|
Twelve Months or Greater |
|
Total |
|
||||||||||||
|
|
|
|
Gross |
|
|
|
Gross |
|
|
|
Gross |
|
||||||
|
|
Fair |
|
Unrealized |
|
Fair |
|
Unrealized |
|
Fair |
|
Unrealized |
|
||||||
(In Thousands) |
|
Value |
|
Losses |
|
Value |
|
Losses |
|
Value |
|
Losses |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
State and political securities |
|
$ |
1,142 |
|
$ |
(6 |
) |
$ |
28,260 |
|
$ |
(4,881 |
) |
$ |
29,402 |
|
$ |
(4,887 |
) |
Other debt securities |
|
35,858 |
|
(2,048 |
) |
82 |
|
(18 |
) |
35,940 |
|
(2,066 |
) |
||||||
Total debt securities |
|
37,000 |
|
(2,054 |
) |
28,342 |
|
(4,899 |
) |
65,342 |
|
(6,953 |
) |
||||||
Financial institution equity securities |
|
1,140 |
|
(116 |
) |
273 |
|
(116 |
) |
1,413 |
|
(232 |
) |
||||||
Other equity securities |
|
263 |
|
(65 |
) |
130 |
|
(10 |
) |
393 |
|
(75 |
) |
||||||
Total equity securities |
|
1,403 |
|
(181 |
) |
403 |
|
(126 |
) |
1,806 |
|
(307 |
) |
||||||
Total |
|
$ |
38,403 |
|
$ |
(2,235 |
) |
$ |
28,745 |
|
$ |
(5,025 |
) |
$ |
67,148 |
|
$ |
(7,260 |
) |
At March 31, 2012 there were a total of 54 and 51 individual securities that were in a continuous unrealized loss position for less than twelve months and twelve months or greater, respectively.
The Company reviews its position quarterly and has determined that, at March 31, 2012, the declines outlined in the above table represent temporary declines and the Company does not intend to sell and does not believe it will be required to sell these securities before recovery of their cost basis, which may be at maturity. There were 105 positions that were temporarily impaired at March 31, 2012. The Company has concluded that the unrealized losses disclosed above are not other than temporary but are the result of interest rate changes, sector credit ratings changes, or company-specific ratings changes that are not expected to result in the non-collection of principal and interest during the period.
The amortized cost and fair value of debt securities at March 31, 2012, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities since borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
|
Available for Sale |
|
Held to Maturity |
|
||||||||
|
|
Amortized |
|
|
|
Amortized |
|
|
|
||||
(In Thousands) |
|
Cost |
|
Fair Value |
|
Cost |
|
Fair Value |
|
||||
Due in one year or less |
|
$ |
10,315 |
|
$ |
10,332 |
|
$ |
55 |
|
$ |
55 |
|
Due after one year to five years |
|
41,905 |
|
41,709 |
|
|
|
|
|
||||
Due after five years to ten years |
|
21,569 |
|
21,560 |
|
|
|
|
|
||||
Due after ten years |
|
190,103 |
|
197,735 |
|
|
|
|
|
||||
Total |
|
$ |
263,892 |
|
$ |
271,336 |
|
$ |
55 |
|
$ |
55 |
|
Total gross proceeds from sales of securities available for sale were $9,765,000 and $2,728,000, for the three months ended March 31, 2012 and 2011, respectively. The following table represents gross realized gains and losses on those transactions:
|
|
Three Months Ended March 31, |
|
||||
(In Thousands) |
|
2012 |
|
2011 |
|
||
Gross realized gains: |
|
|
|
|
|
||
U.S. Government and agency securities |
|
$ |
138 |
|
$ |
4 |
|
State and political securities |
|
6 |
|
5 |
|
||
Other debt securities |
|
55 |
|
6 |
|
||
Financial institutions equity securities |
|
355 |
|
|
|
||
Other equity securities |
|
126 |
|
121 |
|
||
Total gross realized gains |
|
$ |
680 |
|
$ |
136 |
|
|
|
|
|
|
|
||
Gross realized losses: |
|
|
|
|
|
||
U.S. Government and agency securities |
|
$ |
|
|
$ |
|
|
State and political securities |
|
|
|
|
|
||
Other debt securities |
|
|
|
11 |
|
||
Financial institutions equity securities |
|
66 |
|
|
|
||
Other equity securities |
|
25 |
|
|
|
||
Total gross realized losses |
|
$ |
91 |
|
$ |
11 |
|
There were no impairment charges included in gross realized losses for the three months ended March 31, 2012 and 2011, respectively.
Note 5 Federal Home Loan Bank Stock
The Bank is a member of the Federal Home Loan Bank (FHLB) of Pittsburgh and as such, is required to maintain a minimum investment in stock of the FHLB that varies with the level of advances outstanding with the FHLB. The stock is bought from and sold to the FHLB based upon its $100 par value. The stock does not have a readily determinable fair value and as such is classified as restricted stock, carried at cost and evaluated for impairment as necessary. The stocks value is determined by the ultimate recoverability of the par value rather than by recognizing temporary declines. The determination of whether the par value will ultimately be recovered is influenced by criteria such as the following: (a) the significance of the decline in net assets of the FHLB as compared to the capital stock amount and the length of time this situation has persisted (b) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance (c) the impact of legislative and regulatory changes on the customer base of the FHLB and (d) the liquidity position of the FHLB.
The FHLB had incurred losses in 2009 and for parts of 2010 due primarily to other-than-temporary impairment credit losses on its private-label mortgage-backed securities portfolio. These securities were the most effected by the extreme economic conditions in place during the previous several years. As a result, the FHLB had suspended the payment of dividends and limited the amount of excess capital stock repurchases. The FHLB has reported net income for both the fourth quarter and the year ended December 31, 2011 and declared a 0.10 percent annualized dividend to its shareholders that was paid during the first quarter of 2012. While the FHLB has not committed to regular dividend payments or future limited repurchases of excess capital stock, it will continue to monitor the overall financial performance of the FHLB in order to determine the status of limited repurchases of excess capital stock or dividends in the future. Management evaluated the stock and concluded that the stock was not impaired for the periods presented herein. More consideration was given to the long-term prospects for the FHLB as opposed to the recent stress caused by the extreme economic conditions the world is facing. Management also considered that the FHLB maintains regulatory capital ratios in excess of all regulatory capital requirements, liquidity appears adequate, new shares of FHLB stock continue to change hands at the $100 par value, and the resumption of dividends.
Note 6 Credit Quality and Related Allowance for Loan Losses
Management segments the Banks loan portfolio to a level that enables risk and performance monitoring according to similar risk characteristics. Loans are segmented based on the underlying collateral characteristics. Categories include commercial and agricultural, real estate, and installment loans to individuals. Real estate loans are further segmented into three categories: residential, commercial and construction.
The following table presents the related aging categories of loans, by segment, as of March 31, 2012 and December 31, 2011:
|
|
March 31, 2012 |
|
|||||||||||||
|
|
|
|
Past Due |
|
Past Due 90 |
|
|
|
|
|
|||||
|
|
|
|
30 To 89 |
|
Days Or More |
|
Non- |
|
|
|
|||||
(In Thousands) |
|
Current |
|
Days |
|
& Still Accruing |
|
Accrual |
|
Total |
|
|||||
Commercial and agricultural |
|
$ |
53,479 |
|
$ |
71 |
|
$ |
|
|
$ |
|
|
$ |
53,550 |
|
Real estate mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Residential |
|
184,662 |
|
1,190 |
|
|
|
517 |
|
186,369 |
|
|||||
Commercial |
|
162,350 |
|
739 |
|
|
|
1,115 |
|
164,204 |
|
|||||
Construction |
|
20,391 |
|
114 |
|
|
|
9,675 |
|
30,180 |
|
|||||
Installment loans to individuals |
|
10,784 |
|
49 |
|
1 |
|
|
|
10,834 |
|
|||||
|
|
431,666 |
|
$ |
2,163 |
|
$ |
1 |
|
$ |
11,307 |
|
445,137 |
|
||
Less: Net deferred loan fees and discounts |
|
(1,560 |
) |
|
|
|
|
|
|
(1,560 |
) |
|||||
Allowance for loan losses |
|
7,745 |
|
|
|
|
|
|
|
7,745 |
|
|||||
Loans, net |
|
$ |
425,481 |
|
|
|
|
|
|
|
$ |
438,952 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
December 31, 2011 |
|
|||||||||||||
|
|
|
|
Past Due |
|
Past Due 90 |
|
|
|
|
|
|||||
|
|
|
|
30 To 89 |
|
Days Or More |
|
Non- |
|
|
|
|||||
(In Thousands) |
|
Current |
|
Days |
|
& Still Accruing |
|
Accrual |
|
Total |
|
|||||
Commercial and agricultural |
|
$ |
53,124 |
|
$ |
5 |
|
$ |
|
|
$ |
|
|
$ |
53,129 |
|
Real estate mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Residential |
|
176,875 |
|
1,438 |
|
378 |
|
692 |
|
179,383 |
|
|||||
Commercial |
|
162,977 |
|
135 |
|
|
|
1,176 |
|
164,288 |
|
|||||
Construction |
|
19,605 |
|
95 |
|
|
|
9,757 |
|
29,457 |
|
|||||
Installment loans to individuals |
|
11,180 |
|
111 |
|
6 |
|
|
|
11,297 |
|
|||||
|
|
423,761 |
|
$ |
1,784 |
|
$ |
384 |
|
$ |
11,625 |
|
437,554 |
|
||
Less: Net deferred loan fees and discounts |
|
1,595 |
|
|
|
|
|
|
|
1,595 |
|
|||||
Allowance for loan losses |
|
7,154 |
|
|
|
|
|
|
|
7,154 |
|
|||||
Loans, net |
|
$ |
415,012 |
|
|
|
|
|
|
|
$ |
428,805 |
|
The following table presents the interest income if interest had been recorded based on the original loan agreement terms and rate of interest for non-accrual loans and interest income recognized on a cash basis for non-accrual loans as of March 31, 2012 and March 31, 2011:
|
|
Three Months Ended March 31, |
|
||
(In Thousands) |
|
2012 |
|
2011 |
|
Interest income if interest had been recorded based on the original loan agreement terms and rate of interest for non-accrual loans |
|
145 |
|
210 |
|
|
|
|
|
|
|
Interest income recognized on a cash basis for non-accrual loans |
|
40 |
|
6 |
|
Impaired Loans
Impaired loans are loans for which it is probable the Bank will not be able to collect all amounts due according to the contractual terms of the loan agreement. The Bank evaluates such loans for impairment individually and does not aggregate loans by major risk classifications. The definition of impaired loans is not the same as the definition of non-accrual loans, although the two categories overlap. The Bank may choose to place a loan on non-accrual status due to payment delinquency or uncertain collectability, while not classifying the loan as impaired. Factors considered by management in determining impairment include payment status and collateral value. The amount of impairment for these types of loans is determined by the difference between the present value of the expected cash flows related to the loan, using the original interest rate, and its recorded value, or as a practical expedient in the case of collateralized loans, the difference between the fair value of the collateral and the recorded amount of the loan. When foreclosure is probable, impairment is measured based on the fair value of the collateral.
Management evaluates individual loans in all of the commercial segments for possible impairment if the loan is greater than $100,000 and if the loan is either on non-accrual status or has a risk rating of substandard. Management may also elect to measure an individual loan for impairment if less than $100,000 on a case by case basis.
Mortgage loans on one-to-four family properties and all consumer loans are large groups of smaller-balance homogeneous loans and are measured for impairment collectively. Loans that experience insignificant payment delays, which are defined as 90 days or less,
generally are not classified as impaired. Management determines the significance of payment delays on a case-by-case basis taking into consideration all circumstances surrounding the loan and the borrower including the length of the delay, the borrowers prior payment record, and the amount of shortfall in relation to the principal and interest owed. Interest income for impaired loans is recorded consistent with the Banks policy on nonaccrual loans.
The following table presents the recorded investment, unpaid principal balance, and related allowance of impaired loans by segment as of March 31, 2012 and December 31, 2011:
|
|
March 31, 2012 |
|
|||||||
|
|
Recorded |
|
Unpaid Principal |
|
Related |
|
|||
(In Thousands) |
|
Investment |
|
Balance |
|
Allowance |
|
|||
With no related allowance recorded: |
|
|
|
|
|
|
|
|||
Commercial and agricultural |
|
$ |
|
|
$ |
|
|
$ |
|
|
Real estate mortgages - residential |
|
587 |
|
596 |
|
|
|
|||
Real estate mortgages - commercial |
|
342 |
|
342 |
|
|
|
|||
Real estate mortgages - construction |
|
797 |
|
1,095 |
|
|
|
|||
Installment loans to individuals |
|
|
|
|
|
|
|
|||
|
|
1,726 |
|
2,033 |
|
|
|
|||
With an allowance recorded: |
|
|
|
|
|
|
|
|||
Commercial and agricultural |
|
|
|
|
|
|
|
|||
Real estate mortgages - residential |
|
833 |
|
858 |
|
98 |
|
|||
Real estate mortgages - commercial |
|
6,140 |
|
6,140 |
|
1,518 |
|
|||
Real estate mortgages - construction |
|
8,879 |
|
10,379 |
|
2,102 |
|
|||
Installment loans to individuals |
|
|
|
|
|
|
|
|||
|
|
15,852 |
|
17,377 |
|
3,718 |
|
|||
Total: |
|
|
|
|
|
|
|
|||
Commercial and agricultural |
|
|
|
|
|
|
|
|||
Real estate mortgages - residential |
|
1,420 |
|
1,454 |
|
98 |
|
|||
Real estate mortgages - commercial |
|
6,482 |
|
6,482 |
|
1,518 |
|
|||
Real estate mortgages - construction |
|
9,676 |
|
11,474 |
|
2,102 |
|
|||
Installment loans to individuals |
|
|
|
|
|
|
|
|||
|
|
$ |
17,578 |
|
$ |
19,410 |
|
$ |
3,718 |
|
|
|
December 31, 2011 |
|
|||||||
|
|
Recorded |
|
Unpaid Principal |
|
Related |
|
|||
(In Thousands) |
|
Investment |
|
Balance |
|
Allowance |
|
|||
With no related allowance recorded: |
|
|
|
|
|
|
|
|||
Commercial and agricultural |
|
$ |
|
|
$ |
|
|
$ |
|
|
Real estate mortgages - residential |
|
742 |
|
751 |
|
|
|
|||
Real estate mortgages - commercial |
|
382 |
|
382 |
|
|
|
|||
Real estate mortgages - construction |
|
815 |
|
1,113 |
|
|
|
|||
Installment loans to individuals |
|
|
|
|
|
|
|
|||
|
|
1,939 |
|
2,246 |
|
|
|
|||
With an allowance recorded: |
|
|
|
|
|
|
|
|||
Commercial and agricultural |
|
|
|
|
|
|
|
|||
Real estate mortgages - residential |
|
861 |
|
888 |
|
101 |
|
|||
Real estate mortgages - commercial |
|
6,150 |
|
6,150 |
|
1,481 |
|
|||
Real estate mortgages - construction |
|
8,929 |
|
10,429 |
|
2,155 |
|
|||
Installment loans to individuals |
|
|
|
|
|
|
|
|||
|
|
15,940 |
|
17,467 |
|
3,737 |
|
|||
Total: |
|
|
|
|
|
|
|
|||
Commercial and agricultural |
|
|
|
|
|
|
|
|||
Real estate mortgages - residential |
|
1,603 |
|
1,639 |
|
101 |
|
|||
Real estate mortgages - commercial |
|
6,532 |
|
6,532 |
|
1,481 |
|
|||
Real estate mortgages - construction |
|
9,744 |
|
11,542 |
|
2,155 |
|
|||
Installment loans to individuals |
|
|
|
|
|
|
|
|||
|
|
$ |
17,879 |
|
$ |
19,713 |
|
$ |
3,737 |
|
The following table presents the average recorded investment in impaired loans and related interest income recognized for the three months ended for March 31, 2012 and 2011:
|
|
Three Months Ended March 31, |
|
||||
(In Thousands) |
|
2012 |
|
2011 |
|
||
Average investment in impaired loans |
|
$ |
17,728 |
|
$ |
10,005 |
|
Interest income recognized on an accrual basis on impaired loans |
|
81 |
|
79 |
|
||
Interest income recognized on a cash basis on impaired loans |
|
56 |
|
6 |
|
||
There is approximately $317,000 committed to be advanced in connection with impaired loans.
Modifications
The loan portfolio also includes certain loans that have been modified in a Troubled Debt Restructuring (TDR), where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrowers sustained repayment performance for a reasonable period, generally six months.
Loan modifications that are considered TDRs completed during the three months ended March 31, 2012 and 2011 were as follows:
|
|
Three Months Ended March 31, |
|
||||||||||||||
|
|
2012 |
|
2011 |
|
||||||||||||
(In Thousands, Except Number of Contracts) |
|
Number of
|
|
Pre-Modification
|
|
Post-Modification
|
|
Number of
|
|
Pre-Modification
|
|
Post-Modification
|
|
||||
Troubled debt restructurings |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial and agricultural |
|
|
|
$ |
|
|
$ |
|
|
|
|
$ |
|
|
$ |
|
|
Real estate mortgages - residential |
|
1 |
|
104 |
|
104 |
|
2 |
|
123 |
|
123 |
|
||||
Real estate mortgages - commercial |
|
1 |
|
37 |
|
37 |
|
3 |
|
880 |
|
880 |
|
||||
Real estate mortgages - construction |
|
2 |
|
26 |
|
26 |
|
2 |
|
610 |
|
610 |
|
||||
Installment loans to individuals |
|
|
|
|
|
|
|
1 |
|
2 |
|
2 |
|
||||
Total |
|
4 |
|
$ |
167 |
|
$ |
167 |
|
8 |
|
$ |
1,615 |
|
$ |
1,615 |
|
Loan modifications considered troubled debt restructurings made during the twelve months previous to March 31, 2012, that have defaulted during the three months ended March 31, 2012 were as follows:
|
|
Three Months Ended March 31, 2012 |
|
|||
(In Thousands, Except Number of Contracts) |
|
Number of Contracts |
|
Recorded Investment |
|
|
Commercial and agricultural |
|
|
|
$ |
|
|
Real estate mortgages - residential |
|
1 |
|
104 |
|
|
Real estate mortgages - commercial |
|
|
|
|
|
|
Real estate mortgages - construction |
|
1 |
|
236 |
|
|
Installment loans to individuals |
|
|
|
|
|
|
Total |
|
2 |
|
$ |
340 |
|
Troubled debt restructurings amounted to approximately $17,361,000 and $5,362,000 as of March 31, 2012 and 2011.
Internal Risk Ratings
Management uses a ten point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first six categories are considered not criticized, and are aggregated as Pass rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The special mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a substandard classification. Loans in the substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans greater than 90 days past due are considered Substandard. Loans in the doubtful category exhibit the same weaknesses found in the substandard loans, however, the weaknesses are more pronounced. Such loans are static and collection in full is improbable. However, these loans are not yet rated as loss because certain events may occur which would salvage the debt. Loans classified loss are considered uncollectible and charge-off is imminent.
To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Bank has a structured loan rating process with several layers of internal and external oversight. Generally, consumer and residential mortgage loans are included in the pass category unless a specific action, such as bankruptcy, repossession, or death occurs to raise awareness of a possible credit event. An external annual loan review of all commercial relationships $800,000 or greater is performed, as well as a sample of smaller transactions. Confirmation of the appropriate risk category is included in the review. Detailed reviews, including plans for resolution, are performed on loans classified as Substandard, Doubtful, or Loss on a quarterly basis.
The following table presents the credit quality categories identified above as of March 31, 2012 and December 31, 2011:
|
|
March 31, 2012 |
|
||||||||||||||||
|
|
Commercial and |
|
Real Estate Mortgages |
|
Installment Loans |
|
|
|
||||||||||
(In Thousands) |
|
Agricultural |
|
Residential |
|
Commercial |
|
Construction |
|
to Individuals |
|
Totals |
|
||||||
Pass |
|
$ |
52,236 |
|
$ |
185,459 |
|
$ |
153,037 |
|
$ |
20,457 |
|
$ |
10,834 |
|
$ |
422,023 |
|
Special Mention |
|
1,150 |
|
|
|
1,775 |
|
|
|
|
|
2,925 |
|
||||||
Substandard |
|
164 |
|
910 |
|
9,392 |
|
9,723 |
|
|
|
20,189 |
|
||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total |
|
$ |
53,550 |
|
$ |
186,369 |
|
$ |
164,204 |
|
$ |
30,180 |
|
$ |
10,834 |
|
$ |
445,137 |
|
|
|
December 31, 2011 |
|
||||||||||||||||
|
|
Commercial and |
|
Real Estate Mortgages |
|
Installment Loans |
|
|
|
||||||||||
(In Thousands) |
|
Agricultural |
|
Residential |
|
Commercial |
|
Construction |
|
to Individuals |
|
Totals |
|
||||||
Pass |
|
$ |
51,663 |
|
$ |
177,916 |
|
$ |
152,994 |
|
$ |
19,652 |
|
$ |
11,291 |
|
$ |
413,516 |
|
Special Mention |
|
1,198 |
|
89 |
|
5,804 |
|
|
|
|
|
7,091 |
|
||||||
Substandard |
|
268 |
|
1,378 |
|
5,490 |
|
9,805 |
|
6 |
|
16,947 |
|
||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total |
|
$ |
53,129 |
|
$ |
179,383 |
|
$ |
164,288 |
|
$ |
29,457 |
|
$ |
11,297 |
|
$ |
437,554 |
|
Allowance for Loan Losses
An allowance for loan losses (ALL) is maintained to absorb losses from the loan portfolio. The ALL is based on managements continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated future loss experience, and the amount of non-performing loans.
The Banks methodology for determining the ALL is based on the requirements of ASC Section 310-10-35 for loans individually evaluated for impairment (previously discussed) and ASC Subtopic 450-20 for loans collectively evaluated for impairment, as well as the Interagency Policy Statements on the Allowance for Loan and Lease Losses and other bank regulatory guidance. The total of the two components represents the Banks ALL.
Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate. Allowances are segmented based on collateral characteristics previously disclosed, and consistent with credit quality monitoring. Loans that are collectively evaluated for impairment are grouped into two classes for evaluation. A general allowance is determined for Pass rated credits, while a separate pool allowance is provided for Criticized rated credits that are not individually evaluated for impairment.
For the general allowances, historical loss trends are used in the estimation of losses in the current portfolio. These historical loss amounts are modified by other qualitative factors. A historical charge-off factor is calculated utilizing a twelve quarter moving average. Management has identified a number of additional qualitative factors which it uses to supplement the historical charge-off factor because these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience. The additional factors that are evaluated quarterly and updated using information obtained from internal, regulatory, and governmental sources are: national and local economic trends and conditions; levels of and trends in delinquency rates and non-accrual loans; trends in volumes and terms of loans; effects of changes in lending policies; experience, ability, and depth of lending staff; value of underlying collateral; and concentrations of credit from a loan type, industry and/or geographic standpoint.
Loans in the criticized pools, which possess certain qualities or characteristics that may lead to collection and loss issues, are closely monitored by management and subject to additional qualitative factors. Management also monitors industry loss factors by loan segment for applicable adjustments to actual loss experience.
Management reviews the loan portfolio on a quarterly basis in order to make appropriate and timely adjustments to the ALL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL.
Activity in the allowance is presented for the three months ended March 31, 2012 and 2011:
|
|
March 31, 2012 |
|
||||||||||||||||
|
|
Commercial and |
|
Real Estate Mortgages |
|
Installment Loans |
|
|
|
||||||||||
(In Thousands) |
|
Agricultural |
|
Residential |
|
Commercial |
|
Construction |
|
to Individuals |
|
Totals |
|
||||||
Beginning Balance |
|
$ |
430 |
|
$ |
964 |
|
$ |
2,719 |
|
$ |
2,846 |
|
$ |
195 |
|
$ |
7,154 |
|
Charge-offs |
|
|
|
|
|
|
|
|
|
(32 |
) |
(32 |
) |
||||||
Recoveries |
|
1 |
|
2 |
|
1 |
|
3 |
|
16 |
|
23 |
|
||||||
Provision |
|
(19 |
) |
(48 |
) |
686 |
|
(22 |
) |
3 |
|
600 |
|
||||||
Ending Balance |
|
$ |
412 |
|
$ |
918 |
|
$ |
3,406 |
|
$ |
2,827 |
|
$ |
182 |
|
$ |
7,745 |
|
|
|
March 31, 2011 |
|
||||||||||||||||
|
|
Commercial and |
|
Real Estate Mortgages |
|
Installment Loans |
|
|
|
||||||||||
(In Thousands) |
|
Agricultural |
|
Residential |
|
Commercial |
|
Construction |
|
to Individuals |
|
Totals |
|
||||||
Beginning Balance |
|
$ |
466 |
|
$ |
980 |
|
$ |
1,508 |
|
$ |
2,893 |
|
$ |
188 |
|
$ |
6,035 |
|
Charge-offs |
|
|
|
(25 |
) |
|
|
|
|
(19 |
) |
(44 |
) |
||||||
Recoveries |
|
6 |
|
2 |
|
20 |
|
2 |
|
19 |
|
49 |
|
||||||
Provision |
|
184 |
|
(66 |
) |
56 |
|
445 |
|
(19 |
) |
600 |
|
||||||
Ending Balance |
|
$ |
656 |
|
$ |
891 |
|
$ |
1,584 |
|
$ |
3,340 |
|
$ |
169 |
|
$ |
6,640 |
|
The Company grants commercial, industrial, residential, and installment loans to customers throughout north-central Pennsylvania. Although the Company has a diversified loan portfolio at March 31, 2012, a substantial portion of its debtors ability to honor their contracts is dependent on the economic conditions within this region.
The Company has a concentration of loans at March 31, 2012 and 2011 as follows:
|
|
March 31, |
|
||
|
|
2012 |
|
2011 |
|
Owners of residential rental properties |
|
13.99 |
% |
13.91 |
% |
Owners of commercial rental properties |
|
16.51 |
% |
16.77 |
% |
The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of March 31, 2012 and December 31, 2011:
|
|
March 31, 2012 |
|
||||||||||||||||
|
|
Commercial and |
|
Real Estate Mortgages |
|
Installment Loans |
|
|
|
||||||||||
(In Thousands) |
|
Agricultural |
|
Residential |
|
Commercial |
|
Construction |
|
to Individuals |
|
Totals |
|
||||||
Allowance for Loan Losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Ending allowance balance attributable to loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Individually evaluated for impairment |
|
$ |
|
|
$ |
98 |
|
$ |
1,518 |
|
$ |
2,102 |
|
$ |
|
|
$ |
3,718 |
|
Collectively evaluated for impairment |
|
412 |
|
820 |
|
1,888 |
|
725 |
|
182 |
|
4,027 |
|
||||||
Total ending allowance balance |
|
$ |
412 |
|
$ |
918 |
|
$ |
3,406 |
|
$ |
2,827 |
|
$ |
182 |
|
$ |
7,745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Individually evaluated for impairment |
|
$ |
|
|
$ |
1,420 |
|
$ |
6,482 |
|
$ |
9,676 |
|
$ |
|
|
$ |
17,578 |
|
Collectively evaluated for impairment |
|
53,550 |
|
184,949 |
|
157,722 |
|
20,504 |
|
10,834 |
|
427,559 |
|
||||||
Total ending loans balance |
|
$ |
53,550 |
|
$ |
186,369 |
|
$ |
164,204 |
|
$ |
30,180 |
|
$ |
10,834 |
|
$ |
445,137 |
|
|
|
December 31, 2011 |
|
||||||||||||||||
|
|
Commercial and |
|
Real Estate Mortgages |
|
Installment Loans |
|
|
|
||||||||||
(In Thousands) |
|
Agricultural |
|
Residential |
|
Commercial |
|
Construction |
|
to Individuals |
|
Totals |
|
||||||
Allowance for Loan Losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Ending allowance balance attributable to loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Individually evaluated for impairment |
|
$ |
|
|
$ |
101 |
|
$ |
1,481 |
|
$ |
2,155 |
|
$ |
|
|
$ |
3,737 |
|
Collectively evaluated for impairment |
|
430 |
|
863 |
|
1,238 |
|
691 |
|
195 |
|
3,417 |
|
||||||
Total ending allowance balance |
|
$ |
430 |
|
$ |
964 |
|
$ |
2,719 |
|
$ |
2,846 |
|
$ |
195 |
|
$ |
7,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Individually evaluated for impairment |
|
$ |
|
|
$ |
1,603 |
|
$ |
6,532 |
|
$ |
9,744 |
|
$ |
|
|
$ |
17,879 |
|
Collectively evaluated for impairment |
|
53,129 |
|
177,780 |
|
157,756 |
|
19,713 |
|
11,297 |
|
419,675 |
|
||||||
Total ending loans balance |
|
$ |
53,129 |
|
$ |
179,383 |
|
$ |
164,288 |
|
$ |
29,457 |
|
$ |
11,297 |
|
$ |
437,554 |
|
Note 7 Net Periodic Benefit Cost-Defined Benefit Plans
For a detailed disclosure on the Companys pension and employee benefits plans, please refer to Note 12 of the Companys Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2011.
The following sets forth the components of the net periodic benefit cost of the domestic non-contributory defined benefit plan for the three months ended March 31, 2012 and 2011, respectively:
|
|
Three Months Ended |
|
||||
|
|
March 31, |
|
||||
(In Thousands) |
|
2012 |
|
2011 |
|
||
|
|
|
|
|
|
||
Service cost |
|
$ |
157 |
|
$ |
106 |
|
Interest cost |
|
186 |
|
178 |
|
||
Expected return on plan assets |
|
(196 |
) |
(184 |
) |
||
Amortization of transition obligation |
|
(1 |
) |
(1 |
) |
||
Amortization of prior service cost |
|
7 |
|
6 |
|
||
Amortization of net loss |
|
109 |
|
41 |
|
||
Net periodic cost |
|
$ |
262 |
|
$ |
146 |
|
Employer Contributions
The Company previously disclosed in its consolidated financial statements, included in the Annual Report on Form 10-K for the year ended December 31, 2011, that it expected to contribute a minimum of $750,000 to its defined benefit plan in 2012. As of March 31, 2012, there were contributions of $250,000 made to the plan.
Note 8 Employee Stock Purchase Plan
The Company maintains the Penns Woods Bancorp, Inc. 2006 Employee Stock Purchase Plan (Plan). The Plan is intended to encourage employee participation in the ownership and economic progress of the Company. The Plan allows for up to 1,000,000 shares to be purchased by employees. The purchase price of the shares is 95% of market value with an employee eligible to purchase up to the lesser of 15% of base compensation or $12,000 in market value annually. During the three months ended March 31, 2012 and 2011, there were 391 and 480 shares issued under the plan, respectively.
Note 9 Off Balance Sheet Risk
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments are primarily comprised of commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit, interest rate, or liquidity risk in excess of the amount recognized in the consolidated balance sheet. The contract amounts of these instruments express the extent of involvement the Company has in particular classes of financial instruments.
The Companys exposure to credit loss from nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual amount of these instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The Company may require collateral or other security to support financial instruments with off-balance sheet credit risk.
Financial instruments whose contract amounts represent credit risk are as follows at March 31, 2012 and December 31, 2011:
|
|
March 31, |
|
December 31, |
|
||
(In Thousands) |
|
2012 |
|
2011 |
|
||
Commitments to extend credit |
|
$ |
92,116 |
|
$ |
80,320 |
|
Standby letters of credit |
|
1,164 |
|
1,180 |
|
||
Commitments to extend credit are legally binding agreements to lend to customers. Commitments generally have fixed expiration dates or other termination clauses and may require payment of fees. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future liquidity requirements. The Company evaluates each customers credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company, on an extension of credit is based on managements credit assessment of the counterparty.
Standby letters of credit represent conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These instruments are issued primarily to support bid or performance related contracts. The coverage period for these instruments is typically a one year period with an annual renewal option subject to prior approval by management. Fees earned from the issuance of these letters are recognized upon expiration of the coverage period. For secured letters of credit, the collateral is typically Bank deposit instruments or customer business assets.
Note 10 Fair Value Measurements
The following disclosures show the hierarchal disclosure framework associated with the level of pricing observations utilized in measuring assets and liabilities at fair value.
Level I: |
|
Quoted prices are available in active markets for identical assets or liabilities as of the reported date. |
|
|
|
Level II: |
|
Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed. |
|
|
|
Level III: |
|
Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using managements best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation. |
This hierarchy requires the use of observable market data when available.
The following table presents the assets reported on the balance sheet at their fair value on a recurring basis as of March 31, 2012 and December 31, 2011, by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
|
|
March 31, 2012 |
|
||||||||||
(In Thousands) |
|
Level I |
|
Level II |
|
Level III |
|
Total |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Assets measured on a recurring basis: |
|
|
|
|
|
|
|
|
|
||||
Investment securities, available for sale: |
|
|
|
|
|
|
|
|
|
||||
U.S. Government and agency securities |
|
$ |
|
|
$ |
23,499 |
|
$ |
|
|
$ |
23,499 |
|
State and political securities |
|
|
|
182,171 |
|
|
|
182,171 |
|
||||
Other debt securities |
|
|
|
65,666 |
|
|
|
65,666 |
|
||||
Financial institution equity securities |
|
10,157 |
|
|
|
|
|
10,157 |
|
||||
Other equity securities |
|
3,285 |
|
|
|
|
|
3,285 |
|
||||
Total assets measured on a recurring basis |
|
$ |
13,442 |
|
$ |
271,336 |
|
$ |
|
|
$ |
284,778 |
|
|
|
December 31, 2011 |
|
||||||||||
(In Thousands) |
|
Level I |
|
Level II |
|
Level III |
|
Total |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Assets measured on a recurring basis: |
|
|
|
|
|
|
|
|
|
||||
Investment securities, available for sale: |
|
|
|
|
|
|
|
|
|
||||
U.S. Government and agency securities |
|
$ |
|
|
$ |
28,671 |
|
$ |
|
|
$ |
28,671 |
|
State and political securities |
|
|
|
178,301 |
|
|
|
178,301 |
|
||||
Other debt securities |
|
|
|
49,514 |
|
|
|
49,514 |
|
||||
Financial institution equity securities |
|
10,802 |
|
|
|
|
|
10,802 |
|
||||
Other equity securities |
|
2,809 |
|
|
|
|
|
2,809 |
|
||||
Total assets measured on a recurring basis |
|
$ |
13,611 |
|
$ |
256,486 |
|
$ |
|
|
$ |
270,097 |
|
The following table presents the assets reported on the consolidated balance sheet at their fair value on a non-recurring basis as of March 31, 2012 and December 31, 2011, by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
|
|
March 31, 2012 |
|
||||||||||
(In Thousands) |
|
Level I |
|
Level II |
|
Level III |
|
Total |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Assets measured on a non-recurring basis: |
|
|
|
|
|
|
|
|
|
||||
Impaired loans |
|
$ |
|
|
$ |
|
|
$ |
13,859 |
|
$ |
13,859 |
|
Other real estate owned |
|
|
|
|
|
2,034 |
|
2,034 |
|
||||
Total assets measured on a non-recurring basis |
|
$ |
|
|
$ |
|
|
$ |
15,893 |
|
$ |
15,893 |
|
|
|
December 31, 2011 |
|
||||||||||
(In Thousands) |
|
Level I |
|
Level II |
|
Level III |
|
Total |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Assets measured on a non-recurring basis: |
|
|
|
|
|
|
|
|
|
||||
Impaired loans |
|
$ |
|
|
$ |
|
|
$ |
14,142 |
|
$ |
14,142 |
|
Other real estate owned |
|
|
|
|
|
2,144 |
|
2,144 |
|
||||
Total assets measured on a non-recurring basis |
|
$ |
|
|
$ |
|
|
$ |
16,286 |
|
$ |
16,286 |
|
The following table provides a listing of significant unobservable inputs used in the fair value measurement process for items valued utilizing level III techniques as of March 31, 2012.
|
|
Quantitative Information About Level III Fair Value Measurements |
|
||||||
(In Thousands) |
|
Fair Value |
|
Valuation Technique(s) |
|
Unobservable Inputs |
|
Range |
|
Impaired loans |
|
13,859 |
|
Discounted cash flow |
|
Temporary change in payment amount |
|
0 to -30% |
|
|
|
|
|
|
|
Probability of default |
|
0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Appraisal of collateral |
|
Appraisal adjustments (1) |
|
0 to -20% |
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned |
|
2,034 |
|
Appraisal of collateral |
|
Appraisal adjustments (1) |
|
0% |
|
(1) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range of appraisal adjustments are presented as a percent of the appraisal.
The significant unobservable inputs used in the fair value measurement of the Companys impaired loans using the discounted cash flow valuation technique include temporary changes in payment amounts and the probability of default. Significant increases (decreases) in payment amounts would result in significantly higher (lower) fair value measurements. The probability of default is 0% for impaired loans using the discounted cash flow valuation technique because all defaulted impaired loans are valued using the appraisal of collateral valuation technique.
The significant unobservable input used in the fair value measurement of the Companys impaired loans using the appraisal of collateral valuation technique include appraisal adjustments, which are adjustments to appraisals by management for qualitative factors such as economic conditions and estimated liquidation expenses. The significant unobservable input used in the fair value measurement of the Companys other real estate owned are the same inputs used to value impaired loans using the appraisal of collateral valuation technique.
Note 11 Fair Value of Financial Instruments
The Company is required to disclose fair values for its financial instruments. Fair values are made at a specific point in time, based on relevant market information and information about the financial instrument. These fair values do not reflect any premium or discount that could result from offering for sale at one time the Companys entire holdings of a particular financial instrument. Also, it is the Companys general practice and intention to hold most of its financial instruments to maturity and not to engage in trading or sales activities. Because no market exists for a significant portion of the Companys financial instruments, fair values are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These fair values 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 fair values.
Fair values have been determined by the Company using historical data and an estimation methodology suitable for each category of financial instruments. The Companys fair value, methods, and assumptions are set forth below for the Companys other financial instruments.
As certain assets and liabilities, such as deferred tax assets, premises and equipment, and many other operational elements of the Company, are not considered financial instruments but have value, this estimated fair value of financial instruments would not represent the full market value of the Company.
The fair values of the Companys financial instruments are as follows at March 31, 2012 and December 31, 2011:
|
|
Fair Value Measurements at March 31, 2012 |
|
|||||||||||||
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|||||
|
|
|
|
|
|
Active Markets for |
|
Significant Other |
|
Significant |
|
|||||
|
|
Carrying |
|
Fair |
|
Identical Assets |
|
Observable Inputs |
|
Unobservable Inputs |
|
|||||
(In Thousands) |
|
Value |
|
Value |
|
(Level I) |
|
(Level II) |
|
(Level III) |
|
|||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash and cash equivalents |
|
$ |
23,431 |
|
$ |
23,431 |
|
$ |
23,431 |
|
$ |
|
|
$ |
|
|
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Available for sale |
|
284,778 |
|
284,778 |
|
13,442 |
|
271,336 |
|
|
|
|||||
Held to maturity |
|
55 |
|
55 |
|
55 |
|
|
|
|
|
|||||
Loans held for sale |
|
2,065 |
|
2,065 |
|
2,065 |
|
|
|
|
|
|||||
Loans, net |
|
435,832 |
|
430,454 |
|
|
|
416,595 |
|
13,859 |
|
|||||
Bank-owned life insurance |
|
15,973 |
|
15,973 |
|
15,973 |
|
|
|
|
|
|||||
Accrued interest receivable |
|
4,100 |
|
4,100 |
|
4,100 |
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Interest-bearing deposits |
|
$ |
505,271 |
|
$ |
503,592 |
|
$ |
|
|
$ |
503,592 |
|
|
|
|
Noninterest-bearing deposits |
|
116,271 |
|
116,271 |
|
116,271 |
|
|
|
|
|
|||||
Short-term borrowings |
|
14,768 |
|
14,768 |
|
14,768 |
|
|
|
|
|
|||||
Long-term borrowings, FHLB |
|
61,278 |
|
66,304 |
|
|
|
66,304 |
|
|
|
|||||
Accrued interest payable |
|
506 |
|
506 |
|
506 |
|
|
|
|
|
|||||
|
|
December 31, 2011 |
|
||||
|
|
Carrying |
|
Fair |
|
||
(In Thousands) |
|
Value |
|
Value |
|
||
Financial assets: |
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
13,885 |
|
$ |
13,885 |
|
Investment securities: |
|
|
|
|
|
||
Available for sale |
|
270,097 |
|
270,097 |
|
||
Held to maturity |
|
54 |
|
55 |
|
||
Loans held for sale |
|
3,787 |
|
3,787 |
|
||
Loans, net |
|
428,805 |
|
424,586 |
|
||
Bank-owned life insurance |
|
16,065 |
|
16,065 |
|
||
Accrued interest receivable |
|
3,905 |
|
3,905 |
|
||
|
|
|
|
|
|
||
Financial liabilities: |
|
|
|
|
|
||
Interest-bearing deposits |
|
$ |
470,310 |
|
$ |
471,212 |
|
Noninterest-bearing deposits |
|
111,354 |
|
111,354 |
|
||
Short-term borrowings |
|
29,598 |
|
29,598 |
|
||
Long-term borrowings, FHLB |
|
61,278 |
|
65,848 |
|
||
Accrued interest payable |
|
536 |
|
536 |
|
Cash and Cash Equivalents, Loans Held for Sale, Accrued Interest Receivable, Short-term Borrowings, and Accrued Interest Payable:
The fair value is equal to the carrying value.
Investment Securities:
The fair value of investment securities available for sale and held to maturity is equal to the available quoted market price. If no quoted market price is available, fair value is estimated using the quoted market price for similar securities. Regulatory stocks fair value is equal to the carrying value.
Loans:
Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, commercial real estate, residential real estate, construction real estate, and installment loans to individuals. Each loan category is further segmented into fixed and adjustable rate interest terms and by performing and nonperforming categories.
The fair value of performing loans is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan. The estimate of maturity is based on the Companys historical experience with repayments for each loan classification, modified, as required, by an estimate of the effect of current economic and lending conditions.
Fair value for significant nonperforming loans is based on recent external appraisals. If appraisals are not available, estimated cash
flows are discounted using a rate commensurate with the risk associated with the estimated cash flows. Assumptions regarding credit risk, cash flows, and discounted rates are judgmentally determined using available market information and specific borrower information.
Bank-Owned Life Insurance:
The fair value is equal to the cash surrender value of the life insurance policies.
Deposits:
The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, savings, NOW, and money market accounts, is equal to the amount payable on demand. The fair value of certificates of deposit is based on the discounted value of contractual cash flows.
The fair value estimates above do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market, commonly referred to as the core deposit intangible.
Long Term Borrowings:
The fair value of long term borrowings is based on the discounted value of contractual cash flows.
Commitments to Extend Credit, Standby Letters of Credit, and Financial Guarantees Written:
There is no material difference between the notional amount and the estimated fair value of off-balance sheet items. The contractual amounts of unfunded commitments and letters of credit are presented in Note 9 (Off Balance Sheet Risk).
Note 12 Reclassification of Comparative Amounts
Certain comparative amounts for the prior period have been reclassified to conform to current period presentations. Such reclassifications had no effect on net income or shareholders equity.
CAUTIONARY STATEMENT FOR PURPOSES OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Report contains certain forward-looking statements including statements concerning plans, objectives, future events or performance and assumptions and other statements which are other than statements of historical fact. The Company cautions readers that the following important factors, among others, may have affected and could in the future affect the Companys actual results and could cause the Companys actual results for subsequent periods to differ materially from those expressed in any forward-looking statement made by or on behalf of the Company herein: (i) the effect of changes in laws and regulations, including federal and state banking laws and regulations, with which the Company must comply, and the associated costs of compliance with such laws and regulations either currently or in the future as applicable; (ii) the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies as well as by the Financial Accounting Standards Board, or of changes in the Companys organization, compensation and benefit plans; (iii) the effect on the Companys competitive position within its market area of the increasing consolidation within the banking and financial services industries, including the increased competition from larger regional and out-of-state banking organizations as well as non-bank providers of various financial services; (iv) the effect of changes in interest rates; and (v) the effect of changes in the business cycle and downturns in the local, regional or national economies.
You should not put undue reliance on any forward-looking statements. These statements speak only as of the date of this Quarterly Report on Form 10-Q, even if subsequently made available by the Company on its website or otherwise. The Company undertakes no obligation to update or revise these statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operation
EARNINGS SUMMARY
Comparison of the Three Months Ended March 31, 2012 and 2011
Summary Results
Net income for the three months ended March 31, 2012 was $3,689,000 compared to $2,853,000 for the same period of 2011 as after-tax securities gains increased $306,000 (from a gain of $83,000 to a gain of $389,000). In addition, a gain of $109,000 on a death benefit related to bank owned life insurance was recorded during the three months ended March 31, 2012. Basic and diluted earnings per share for the three months ended March 31, 2012 were $0.96 compared to $0.74 for the three months ended March 31, 2011. Return on average assets and return on average equity were 1.91% and 17.39% for the three months ended March 31, 2012 compared to 1.65% and 16.62% for the corresponding period of 2011. Net income from core operations (operating earnings) increased to $3,191,000 for the three months ended March 31, 2012 compared to $2,770,000 for the same period of 2011. Operating earnings per share for the three months ended March 31, 2012 were $0.83 basic and dilutive compared to $0.72 basic and dilutive for the three months ended March 31, 2011.
Management uses the non-GAAP measure of net income from core operations, or operating earnings, in its analysis of the Companys performance. This measure, as used by the Company, adjusts net income by excluding significant gains or losses that are unusual in nature. Because certain of these items and their impact on the Companys performance are difficult to predict, management believes the presentation of financial measures excluding the impact of such items provides useful supplemental information in evaluating the operating results of the Companys core businesses. For purposes of this Quarterly Report on Form 10-Q, net income from core operations, or operating earnings, means net income adjusted to exclude after-tax net securities gains or losses. These disclosures should not be viewed as a substitute for net income determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.
Reconciliation of GAAP and Non-GAAP Income
|
|
Three Months Ended |
|
||||
|
|
March 31, |
|
||||
(Dollars in Thousands, Except Per Share Data) |
|
2012 |
|
2011 |
|
||
GAAP net income |
|
$ |
3,689 |
|
$ |
2,853 |
|
Less: net securities and bank-owned life insurance gains, net of tax |
|
498 |
|
83 |
|
||
Non-GAAP operating earnings |
|
$ |
3,191 |
|
$ |
2,770 |
|
|
|
Three Months Ended |
|
||
|
|
March 31, |
|
||
|
|
2012 |
|
2011 |
|
Return on average assets (ROA) |
|
1.91 |
% |
1.65 |
% |
Less: net securities and bank-owned life insurance gains, net of tax |
|
0.26 |
% |
0.05 |
% |
Non-GAAP operating ROA |
|
1.65 |
% |
1.60 |
% |
|
|
Three Months Ended |
|
||
|
|
March 31, |
|
||
|
|
2012 |
|
2011 |
|
Return on average equity (ROE) |
|
17.39 |
% |
16.62 |
% |
Less: net securities and bank-owned life insurance gains, net of tax |
|
2.35 |
% |
0.48 |
% |
Non-GAAP operating ROE |
|
15.04 |
% |
16.14 |
% |
|
|
Three Months Ended |
|
||||
|
|
March 31, |
|
||||
|
|
2012 |
|
2011 |
|
||
Basic earnings per share (EPS) |
|
$ |
0.96 |
|
$ |
0.74 |
|
Less: net securities and bank-owned life insurance gains, net of tax |
|
0.13 |
|
0.02 |
|
||
Non-GAAP basic operating EPS |
|
$ |
0.83 |
|
$ |
0.72 |
|
|
|
Three Months Ended |
|
||||
|
|
March 31, |
|
||||
|
|
2012 |
|
2011 |
|
||
Dilutive EPS |
|
$ |
0.96 |
|
$ |
0.74 |
|
Less: net securities and bank-owned life insurance gains, net of tax |
|
0.13 |
|
0.02 |
|
||
Non-GAAP dilutive operating EPS |
|
$ |
0.83 |
|
$ |
0.72 |
|
Interest and Dividend Income
Interest and dividend income increased to $9,285,000 for the three months ended March 31, 2012 compared to $8,982,000 for the same period of 2011. Loan interest including fees remained flat as the impact of portfolio growth was offset by a yield that decreased 35 basis points (bp) due to the downward pressure on current loan offerings and the downward repricing of the variable rate segment of the loan portfolio. Investment portfolio interest increased due to growth in the average investment portfolio of $59,942,000 primarily from the addition of corporate and municipal bonds to the portfolio, which offset a decline in the average taxable equivalent yield of 83 bp. Dividend and other interest income increased due to a focus on purchasing dividend-yielding investments.
Interest and dividend income composition for the three months ended March 31, 2012 and 2011 was as follows:
|
|
For The Three Months Ended |
|
|||||||||||||
|
|
March 31, 2012 |
|
March 31, 2011 |
|
Change |
|
|||||||||
(In Thousands) |
|
Amount |
|
% Total |
|
Amount |
|
% Total |
|
Amount |
|
% |
|
|||
Loans including fees |
|
$ |
6,314 |
|
68.00 |
% |
$ |
6,288 |
|
70.00 |
% |
$ |
26 |
|
0.41 |
% |
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Taxable |
|
1,474 |
|
15.88 |
|
1,375 |
|
15.31 |
|
99 |
|
7.20 |
|
|||
Tax-exempt |
|
1,405 |
|
15.13 |
|
1,267 |
|
14.11 |
|
138 |
|
10.89 |
|
|||
Dividend and other interest income |
|
92 |
|
0.99 |
|
52 |
|
0.58 |
|
40 |
|
76.92 |
|
|||
Total interest and dividend income |
|
$ |
9,285 |
|
100.00 |
% |
$ |
8,982 |
|
100.00 |
% |
$ |
303 |
|
3.37 |
% |
Interest Expense
Interest expense for the three months ended March 31, 2012 decreased $370,000 to $1,615,000 compared to $1,985,000 for the same period of 2011. The substantial decrease associated with deposits is primarily the result of a reduction of 37 bp in the rate paid on time deposits and a shift from higher cost time deposits to core deposits, with emphasis on money market and NOW accounts. Factors that led to the rate decreases include, but are not limited to, Federal Open Market Committee (FOMC) interest rate actions and campaigns conducted by the Company to focus on core deposit growth (non-time deposits) as the building block to solid customer relationships. In addition, during the past two years the time deposit portfolio has been shortened in order to increase repricing frequency. The time deposit portfolio is now being lengthened to build protection when interest rates begin to increase with a focus on maturities of 36 months and greater. Borrowing interest expense decreased as the significant growth in deposits has allowed for a reduction in the average balance of total borrowings.
Interest expense composition for the three months ended March 31, 2012 and 2011 was as follows:
|
|
For The Three Months Ended |
|
|||||||||||||
|
|
March 31, 2012 |
|
March 31, 2011 |
|
Change |
|
|||||||||
(In Thousands) |
|
Amount |
|
% Total |
|
Amount |
|
% Total |
|
Amount |
|
% |
|
|||
Deposits |
|
$ |
961 |
|
59.50 |
% |
$ |
1,194 |
|
60.15 |
% |
$ |
(233 |
) |
(19.51 |
)% |
Short-term borrowings |
|
34 |
|
2.11 |
|
57 |
|
2.87 |
|
(23 |
) |
(40.35 |
) |
|||
Long-term borrowings, FHLB |
|
620 |
|
38.39 |
|
734 |
|
36.98 |
|
(114 |
) |
(15.53 |
) |
|||
Total interest expense |
|
$ |
1,615 |
|
100.00 |
% |
$ |
1,985 |
|
100.00 |
% |
$ |
(370 |
) |
(18.64 |
)% |
Net Interest Margin
The net interest margin (NIM) for the three months ended March 31, 2012 was 4.72% compared to 4.89% for the corresponding period of 2011. While the net interest margin has decreased year over year, net interest income on a fully taxable equivalent basis has increased $743,000 to $8,498,000 for the three months ended March 31, 2012 compared to the corresponding period of 2011. Driving this increase is the continued emphasis on core deposit growth. These deposits represent a lower cost funding source than time deposits and comprise 71.5% of total deposits at March 31, 2012 compared to 64.9% at March 31, 2011. The average rate paid on total interest-bearing deposits decreased 33 bp for the three months ended March 31, 2012 compared to the same period of 2011. The decrease was led by the rate paid on time deposits decreasing 37 bp for the three months ended March 31, 2012 compared to the same period of 2011. The duration of the time deposit portfolio, which was shortened over the past several years, is now being slowly lengthened due to the apparent bottoming or near bottoming of deposit rates. FHLB long-term borrowings have been reduced by
$10,500,000 since March 31, 2011 as borrowings carrying an average rate of 4.60% matured during the three months ended December 31, 2011.
The following is a schedule of average balances and associated yields for the three months ended March 31, 2012 and 2011:
|
|
AVERAGE BALANCES AND INTEREST RATES |
|
||||||||||||||
|
|
Three Months Ended |
|
Three Months Ended |
|
||||||||||||
|
|
March 31, 2012 |
|
March 31, 2011 |
|
||||||||||||
(In Thousands) |
|
Average Balance |
|
Interest |
|
Average Rate |
|
Average Balance |
|
Interest |
|
Average Rate |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Tax-exempt loans |
|
$ |
21,591 |
|
$ |
309 |
|
5.76 |
% |
$ |
20,377 |
|
$ |
308 |
|
6.13 |
% |
All other loans |
|
422,098 |
|
6,110 |
|
5.82 |
% |
399,599 |
|
6,085 |
|
6.18 |
% |
||||
Total loans |
|
443,689 |
|
6,419 |
|
5.82 |
% |
419,976 |
|
6,393 |
|
6.17 |
% |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Taxable securities |
|
147,200 |
|
1,566 |
|
4.26 |
% |
114,740 |
|
1,427 |
|
4.97 |
% |
||||
Tax-exempt securities |
|
130,590 |
|
2,128 |
|
6.52 |
% |
103,108 |
|
1,920 |
|
7.45 |
% |
||||
Total securities |
|
277,790 |
|
3,694 |
|
5.32 |
% |
217,848 |
|
3,347 |
|
6.15 |
% |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest-bearing deposits |
|
2,037 |
|
|
|
0.00 |
% |
2,002 |
|
|
|
0.00 |
% |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total interest-earning assets |
|
723,516 |
|
10,113 |
|
5.61 |
% |
639,826 |
|
9,740 |
|
6.14 |
% |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other assets |
|
50,914 |
|
|
|
|
|
53,883 |
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total assets |
|
$ |
774,430 |
|
|
|
|
|
$ |
693,709 |
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities and shareholders equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Savings |
|
$ |
73,628 |
|
11 |
|
0.06 |
% |
$ |
66,510 |
|
35 |
|
0.21 |
% |
||
Super Now deposits |
|
108,369 |
|
142 |
|
0.53 |
% |
69,177 |
|
83 |
|
0.49 |
% |
||||
Money market deposits |
|
127,387 |
|
205 |
|
0.65 |
% |
109,196 |
|
265 |
|
0.98 |
% |
||||
Time deposits |
|
177,083 |
|
603 |
|
1.37 |
% |
188,561 |
|
811 |
|
1.74 |
% |
||||
Total interest-bearing deposits |
|
486,467 |
|
961 |
|
0.79 |
% |
433,444 |
|
1,194 |
|
1.12 |
% |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Short-term borrowings |
|
22,058 |
|
34 |
|
0.62 |
% |
19,207 |
|
57 |
|
1.20 |
% |
||||
Long-term borrowings, FHLB |
|
61,278 |
|
620 |
|
4.00 |
% |
71,778 |
|
734 |
|
4.09 |
% |
||||
Total borrowings |
|
83,336 |
|
654 |
|
3.11 |
% |
90,985 |
|
791 |
|
3.48 |
% |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total interest-bearing liabilities |
|
569,803 |
|
1,615 |
|
1.13 |
% |
524,429 |
|
1,985 |
|
1.53 |
% |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Demand deposits |
|
108,081 |
|
|
|
|
|
91,473 |
|
|
|
|
|
||||
Other liabilities |
|
11,669 |
|
|
|
|
|
9,155 |
|
|
|
|
|
||||
Shareholders equity |
|
84,877 |
|
|
|
|
|
68,652 |
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total liabilities and shareholders equity |
|
$ |
774,430 |
|
|
|
|
|
$ |
693,709 |
|
|
|
|
|
||
Interest rate spread |
|
|
|
|
|
4.48 |
% |
|
|
|
|
4.61 |
% |
||||
Net interest income/margin |
|
|
|
$ |
8,498 |
|
4.72 |
% |
|
|
$ |
7,755 |
|
4.89 |
% |
1. Information on this table has been calculated using average daily balance sheets to obtain average balances.
2. Nonaccrual loans have been included with loans for the purpose of analyzing net interest earnings.
3. Income and rates on a fully taxable equivalent basis include an adjustment for the difference between annual income from tax-exempt obligations and the taxable equivalent of such income at the standard 34% tax rate.
The following table presents the adjustment to convert net interest income to net interest income on a fully taxable equivalent basis for the three months ended March 31, 2012 and 2011.
|
|
For the Three Months Ended |
|
||||
|
|
March 31, |
|
||||
(In Thousands) |
|
2012 |
|
2011 |
|
||
Total interest income |
|
$ |
9,285 |
|
$ |
8,982 |
|
Total interest expense |
|
1,615 |
|
1,985 |
|
||
Net interest income |
|
7,670 |
|
6,997 |
|
||
Tax equivalent adjustment |
|
828 |
|
758 |
|
||
Net interest income (fully taxable equivalent) |
|
$ |
8,498 |
|
$ |
7,755 |
|
The following table sets forth the respective impact that both volume and rate changes have had on net interest income on a fully taxable equivalent basis for the three months ended March 31, 2012 and 2011:
|
|
Three Months Ended March 31, |
|
|||||||
|
|
2012 vs. 2011 |
|
|||||||
|
|
Increase (Decrease) Due to |
|
|||||||
(In Thousands) |
|
Volume |
|
Rate |
|
Net |
|
|||
Interest income: |
|
|
|
|
|
|
|
|||
Loans, tax-exempt |
|
$ |
38 |
|
$ |
(37 |
) |
$ |
1 |
|
Loans |
|
708 |
|
(683 |
) |
25 |
|
|||
Taxable investment securities |
|
365 |
|
(226 |
) |
139 |
|
|||
Tax-exempt investment securities |
|
468 |
|
(260 |
) |
208 |
|
|||
Interest bearing deposits |
|
|
|
|
|
|
|
|||
Total interest-earning assets |
|
1,579 |
|
(1,206 |
) |
373 |
|
|||
|
|
|
|
|
|
|
|
|||
Interest expense: |
|
|
|
|
|
|
|
|||
Savings deposits |
|
9 |
|
(33 |
) |
(24 |
) |
|||
Super Now deposits |
|
52 |
|
7 |
|
59 |
|
|||
Money market deposits |
|
98 |
|
(158 |
) |
(60 |
) |
|||
Time deposits |
|
(46 |
) |
(162 |
) |
(208 |
) |
|||
Short-term borrowings |
|
21 |
|
(44 |
) |
(23 |
) |
|||
Long-term borrowings, FHLB |
|
(99 |
) |
(15 |
) |
(114 |
) |
|||
Total interest-bearing liabilities |
|
35 |
|
(405 |
) |
(370 |
) |
|||
Change in net interest income |
|
$ |
1,544 |
|
$ |
(801 |
) |
$ |
743 |
|
Provision for Loan Losses
The provision for loan losses is based upon managements quarterly review of the loan portfolio. The purpose of the review is to assess loan quality, identify impaired loans, analyze delinquencies, ascertain loan growth, evaluate potential charge-offs and recoveries, and assess general economic conditions in the markets served. An external independent loan review is also performed annually for the Bank. Management remains committed to an aggressive program of problem loan identification and resolution.
The allowance for loan losses is determined by applying loss factors to outstanding loans by type, excluding loans for which a specific allowance has been determined. Loss factors are based on managements consideration of the nature of the portfolio segments, changes in mix and volume of the loan portfolio, and historical loan loss experience. In addition, management considers industry standards and trends with respect to non-performing loans and its knowledge and experience with specific lending segments.
Although management believes it uses the best information available to make such determinations and that the allowance for loan losses is adequate at March 31, 2012, future adjustments could be necessary if circumstances or economic conditions differ substantially from the assumptions used in making the initial determinations. A downturn in the local economy, increased unemployment, and delays in receiving financial information from borrowers could result in increased levels of nonperforming assets, charge-offs, loan loss provisions, and reductions in income. Additionally, as an integral part of the examination process, bank regulatory agencies periodically review the Banks loan loss allowance. The banking agencies could require the recognition of additions to the loan loss allowance based on their judgment of information available to them at the time of their examination.
When determining the appropriate allowance level, management has attributed the allowance for loan losses to various portfolio segments; however, the allowance is available for the entire portfolio as needed.
The allowance for loan losses increased from $7,154,000 at December 31, 2011 to $7,745,000 at March 31, 2012. At March 31, 2012 and December 31, 2011, the allowance for loan losses to total loans was 1.75% and 1.64%, respectively.
The provision for loan losses totaled $600,000 for the three months ended March 31, 2012 and 2011. The amount of the provision was the result of several factors, including but not limited to, a ratio of nonperforming loans to total loans of 2.55% at March 31, 2012 and a ratio of the allowance for loan losses to nonperforming loans of 68.49% at March 31, 2012. Nonperforming loans decreased to $11,308,000 at March 31, 2012 from $12,900,000 at March 31, 2011 due to primarily to a partial charge-off of $1,500,000 during the second quarter of 2011. The nonperforming loan portfolio is centered on several loans that are either in a secured position and have sureties with a strong underlying financial position or have a specific allocation for any impairment recorded within the allowance for loan losses. Internal loan review and analysis and the continued uncertainty surrounding the economy, coupled with the ratios noted previously, dictated the level of provision for loan losses for the three month period despite the decrease in nonperforming loans.
The following is a table showing total nonperforming loans as of:
|
|
Total Nonperforming Loans |
|
|||||||
|
|
|
|
90 Days |
|
|
|
|||
(In Thousands) |
|
Nonaccrual |
|
Past Due |
|
Total |
|
|||
March 31, 2012 |
|
$ |
11,307 |
|
$ |
1 |
|
$ |
11,308 |
|
December 31, 2011 |
|
11,625 |
|
384 |
|
12,009 |
|
|||
September 30, 2011 |
|
11,885 |
|
2,459 |
|
14,344 |
|
|||
June 30, 2011 |
|
10,911 |
|
|
|
10,911 |
|
|||
March 31, 2011 |
|
12,797 |
|
103 |
|
12,900 |
|
|||
Non-interest Income
Total non-interest income for the three months ended March 31, 2012 compared to the same period in 2011 increased $818,000 to $2,763,000. Excluding net securities gains, non-interest income for the three months ended March 31, 2012 would have increased $354,000 compared to the 2011 period. Deposit service charges decreased due to a change in the overdraft program that allows for a de minimus overdraft prior to any fees being charged. Bank owned life insurance income increased due to a gain on death benefit of $109,000. Gain on sale of loans decreased primarily due to a shift in product mix. Other income increased as debit and credit card related income continues to build as debit cards continue to gain in popularity, while an increasing number of merchants utilize our merchant card services.
Insurance and brokerage commissions for the three months ended March 31, 2012 increased due to continued efforts to add sales representatives. Management of The M Group continues to pursue new and build upon current relationships. The sales call program continues to expand to other financial institutions, which results in additional revenue for The M Group if an additional sales outlet is added. However, the addition of a sales outlet for The M Group can take up to a year or more to be completed.
Non-interest income composition for the three months ended March 31, 2012 and 2011 was as follows:
|
|
For the Three Months Ended |
|
|||||||||||||
|
|
March 31, 2012 |
|
March 31, 2011 |
|
Change |
|
|||||||||
(In Thousands) |
|
Amount |
|
% Total |
|
Amount |
|
% Total |
|
Amount |
|
% |
|
|||
Deposit service charges |
|
$ |
447 |
|
16.18 |
% |
$ |
503 |
|
25.85 |
% |
$ |
(56 |
) |
(11.13 |
)% |
Securities gains, net |
|
589 |
|
21.32 |
|
125 |
|
6.43 |
|
464 |
|
371.20 |
|
|||
Bank owned life insurance |
|
268 |
|
9.70 |
|
174 |
|
8.95 |
|
94 |
|
54.02 |
|
|||
Gain on sale of loans |
|
183 |
|
6.62 |
|
249 |
|
12.80 |
|
(66 |
) |
(26.51 |
) |
|||
Insurance commissions |
|
442 |
|
16.00 |
|
209 |
|
10.75 |
|
233 |
|
111.48 |
|
|||
Brokerage commissions |
|
212 |
|
7.67 |
|
274 |
|
14.09 |
|
(62 |
) |
(22.63 |
) |
|||
Other |
|
622 |
|
22.51 |
|
411 |
|
21.13 |
|
211 |
|
51.34 |
|
|||
Total non-interest income |
|
$ |
2,763 |
|
100.00 |
% |
$ |
1,945 |
|
100.00 |
% |
$ |
818 |
|
42.06 |
% |
Non-interest Expense
Total non-interest expense increased $476,000 for the three months ended March 31, 2012 compared to the same period of 2011. The increase in salaries and employee benefits was attributable to increases in health insurance, salaries, and bonus accrual. FDIC deposit insurance decreased due to a change in the assessment base from a deposit to asset based calculation. Other expenses increased primarily due to expenses associated with the opening of a new branch in Danville, Montour County with emphasis on marketing costs.
Non-interest expense composition for the three months ended March 31, 2012 and 2011 was as follows:
|
|
For the Three Months Ended |
|
|||||||||||||
|
|
March 31, 2012 |
|
March 31, 2011 |
|
Change |
|
|||||||||
(In Thousands) |
|
Amount |
|
% Total |
|
Amount |
|
% Total |
|
Amount |
|
% |
|
|||
Salaries and employee benefits |
|
$ |
3,017 |
|
55.22 |
% |
$ |
2,632 |
|
52.76 |
% |
$ |
385 |
|
14.63 |
% |
Occupancy, net |
|
328 |
|
6.00 |
|
348 |
|
6.98 |
|
(20 |
) |
(5.75 |
) |
|||
Furniture and equipment |
|
346 |
|
6.33 |
|
308 |
|
6.17 |
|
38 |
|
12.34 |
|
|||
Pennsylvania shares tax |
|
169 |
|
3.09 |
|
172 |
|
3.45 |
|
(3 |
) |
(1.74 |
) |
|||
Amortization of investment in limited partnerships |
|
165 |
|
3.02 |
|
166 |
|
3.33 |
|
(1 |
) |
(0.60 |
) |
|||
FDIC deposit insurance |
|
123 |
|
2.25 |
|
187 |
|
3.75 |
|
(64 |
) |
(34.22 |
) |
|||
Other |
|
1,316 |
|
24.09 |
|
1,175 |
|
23.56 |
|
141 |
|
12.00 |
|
|||
Total non-interest expense |
|
$ |
5,464 |
|
100.00 |
% |
$ |
4,988 |
|
100.00 |
% |
$ |
476 |
|
9.54 |
% |
Provision for Income Taxes
Income taxes increased $179,000 for the three months ended March 31, 2012 compared to the same periods of 2011. The primary cause of the increase in tax expense for the three month periods ended March 31, 2012 compared to 2011 is the impact of increased net interest income in addition to an increase in net security gains. Excluding the impact of the net securities gains, the effective tax rate for the three months ended March 31, 2012 was 12.70% compared to 14.18% for the same period of 2011. The Company currently is in a deferred tax asset position due to the low income housing tax credits earned both currently and previously. Management has reviewed the deferred tax asset and has determined that the asset will be utilized within the appropriate carry forward period and therefore does not require a valuation allowance.
ASSET/LIABILITY MANAGEMENT
Cash and Cash Equivalents
Cash and cash equivalents increased $9,546,000 from $13,885,000 at December 31, 2011 to $23,431,000 at March 31, 2012 primarily as a result of the following activities during the three months ended March 31, 2012:
Loans Held for Sale
Activity regarding loans held for sale resulted in loan originations trailing sale proceeds, less $183,000 in realized gains, by $1,722,000 for the three months ended March 31, 2012.
Loans
Gross loans increased $7,618,000 since December 31, 2011 due primarily to an increase of residential real estate loans.
The allocation of the loan portfolio, by category, as of March 31, 2012 and December 31, 2011 is presented below:
|
|
March 31, 2012 |
|
December 31, 2011 |
|
Change |
|
|||||||||
(In Thousands) |
|
Amount |
|
% Total |
|
Amount |
|
% Total |
|
Amount |
|
% |
|
|||
Commercial and agricultural |
|
$ |
53,550 |
|
12.07 |
% |
$ |
53,129 |
|
12.19 |
% |
$ |
421 |
|
0.79 |
% |
Real estate mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Residential |
|
186,369 |
|
42.02 |
|
179,383 |
|
41.15 |
|
6,986 |
|
3.89 |
|
|||
Commercial |
|
164,204 |
|
37.02 |
|
164,288 |
|
37.68 |
|
(84 |
) |
(0.05 |
) |
|||
Construction |
|
30,180 |
|
6.80 |
|
29,457 |
|
6.76 |
|
723 |
|
2.45 |
|
|||
Installment loans to individuals |
|
10,834 |
|
2.44 |
|
11,297 |
|
2.59 |
|
(463 |
) |
(4.10 |
) |
|||
Less: Net deferred loan fees and discounts |
|
(1,560 |
) |
(0.35 |
) |
(1,595 |
) |
(0.37 |
) |
35 |
|
(2.19 |
) |
|||
Gross loans |
|
$ |
443,577 |
|
100.00 |
% |
$ |
435,959 |
|
100.00 |
% |
$ |
7,618 |
|
1.75 |
% |
Investments
The fair value of the investment securities portfolio at March 31, 2012 increased $14,681,000 since December 31, 2011. The change is primarily due to purchases of short-term other debt securities coupled with a net unrealized gain of $8,836,000 at March 31, 2012 compared to an unrealized gain of $4,415,000 at December 31, 2011. The unrealized losses within the debt securities portfolio are the result of market activity, not credit issues/ratings, as approximately 93% of the debt securities portfolio on an amortized cost basis is currently rated A or higher by either S&P or Moodys.
The Company considers various factors, which include examples from applicable accounting guidance, when analyzing the available for sale portfolio for possible other than temporary impairment. The Company primarily considers the following factors in its analysis: length of time and severity of the market value being less than carrying value; reduction of dividend paid (equities);
continued payment of dividend/interest, credit rating, and financial condition of an issuer; intent and ability to hold until anticipated recovery (which may be maturity); and general outlook for the economy, specific industry, and entity in question.
The bond portion of the portfolio review is conducted with emphases on several factors. Continued payment of principal and interest is given primary importance with credit rating and financial condition of the issuer following as the next most important. Credit ratings were reviewed with the ratings of the bonds being satisfactory. Bonds that were not currently rated were discussed with a third party and/or underwent an internal financial review. The Company also monitors whether each of the investments incurred a decline in market value from carrying value of at least 20% for twelve consecutive months or a similar decline of at least 50% for three consecutive months. Each bond is reviewed to determine whether it is a general obligation bond, which is backed by the credit and taxing power of the issuing jurisdiction, or revenue bond, which is only payable from specified revenues. Based on the review undertaken by the Company, the Company determined that the decline in value of the various bond holdings were temporary and were the result of the general market downturns and interest rate/yield curve changes, not credit issues. The fact that almost all of such bonds are general obligation bonds further solidified the Companys determination that the decline in the value of these bond holdings is temporary.
The fair value of the equity portfolio continues to fluctuate as the economic turbulence both domestic and global continues to impact financial sector stock pricing. The amortized cost of the equity securities portfolio has decreased $640,000 to $12,050,000 at March 31, 2012 from $12,690,000 at December 31, 2011 as the Company sold certain holdings within the portfolio. These holdings were sold due to the determination that their value was fully measured and as part of a strategy to shift the portfolio from a reliance on financial institution securities to a portfolio containing a greater amount of sector and geographic diversity as seen in the growth of non-financial institution holdings.
The equity portion of the portfolio is reviewed for possible other than temporary impairment in a similar manner to the bond portfolio with greater emphasis placed on the length of time the market value has been less than the carrying value and financial sector outlook. The Company also reviews dividend payment activities and, in the case of financial institutions, whether or not such issuer was participating in the TARP Capital Purchase Program. The starting point for the equity analysis is the length and severity of a market price decline. The Company monitors two primary measures: 20% decline in market value from carrying value for twelve consecutive months and 50% decline for three consecutive months.
The distribution of credit ratings by amortized cost and fair values for the debt security portfolio at March 31, 2012 follows:
|
|
A- to AAA |
|
B- to BBB+ |
|
C to CCC+ |
|
Not Rated |
|
Total |
|
||||||||||||||||||||
|
|
Amortized |
|
Fair |
|
Amortized |
|
Fair |
|
Amortized |
|
Fair |
|
Amortized |
|
Fair |
|
Amortized |
|
Fair |
|
||||||||||
(In Thousands) |
|
Cost |
|
Value |
|
Cost |
|
Value |
|
Cost |
|
Value |
|
Cost |
|
Value |
|
Cost |
|
Value |
|
||||||||||
Available for sale (AFS) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
U.S. Government and agency securities |
|
$ |
21,801 |
|
$ |
23,499 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
21,801 |
|
$ |
23,499 |
|
State and political securities |
|
160,213 |
|
167,360 |
|
7,011 |
|
6,414 |
|
|
|
|
|
8,697 |
|
8,397 |
|
175,921 |
|
182,171 |
|
||||||||||
Other debt securities |
|
64,574 |
|
64,171 |
|
600 |
|
601 |
|
|
|
|
|
996 |
|
894 |
|
66,170 |
|
65,666 |
|
||||||||||
Total debt securities AFS |
|
$ |
246,588 |
|
$ |
255,030 |
|
$ |
7,611 |
|
$ |
7,015 |
|
$ |
|
|
$ |
|
|
$ |
9,693 |
|
$ |
9,291 |
|
$ |
263,892 |
|
$ |
271,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Held to maturity (HTM) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Other debt securities |
|
$ |
55 |
|
$ |
55 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
55 |
|
$ |
55 |
|
Total debt securities HTM |
|
$ |
55 |
|
$ |
55 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
55 |
|
$ |
55 |
|
Financing Activities
Deposits
Total deposits increased $39,878,000 from December 31, 2011 to March 31, 2012. The growth was led by an increase in money market and NOW accounts from December 31, 2011 to March 31, 2012 of 14.07% and 6.97%, respectively. The increase in core deposits (deposits less time deposits) has provided relationship driven funding for the loan and investment portfolios, while also reducing the utilization of FHLB borrowings. The increase in deposits is the result of our focus on building relationships with money market accounts being the key building block. Time deposits have increased as efforts to slowly lengthen the portfolio have begun; however, time deposits remain as complementary accounts to core deposits. To facilitate this strategy we are actively working single product time deposit relationships to create a solid relationship through the addition of other products to the customers portfolio.
Deposit balances and their changes for the periods being discussed follow:
|
|
March 31, 2012 |
|
December 31, 2011 |
|
Change |
|
|||||||||
(In Thousands) |
|
Amount |
|
% Total |
|
Amount |
|
% Total |
|
Amount |
|
% |
|
|||
Demand deposits |
|
$ |
116,271 |
|
18.71 |
% |
$ |
111,354 |
|
19.14 |
% |
$ |
4,917 |
|
4.42 |
% |
NOW accounts |
|
108,904 |
|
17.52 |
|
101,808 |
|
17.50 |
|
7,096 |
|
6.97 |
|
|||
Money market deposits |
|
141,830 |
|
22.82 |
|
124,335 |
|
21.38 |
|
17,495 |
|
14.07 |
|
|||
Savings deposits |
|
77,253 |
|
12.43 |
|
71,646 |
|
12.32 |
|
5,607 |
|
7.83 |
|
|||
Time deposits |
|
177,284 |
|
28.52 |
|
172,521 |
|
29.66 |
|
4,763 |
|
2.76 |
|
|||
Total deposits |
|
$ |
621,542 |
|
100.00 |
% |
$ |
581,664 |
|
100.00 |
% |
$ |
39,878 |
|
6.86 |
% |
Borrowed Funds
Total borrowed funds decreased 16.32% or $14,830,000 to $76,046,000 at March 31, 2012 compared to $90,876,000 at December 31, 2011. The decrease in borrowed funds is primarily the result of growth in deposits as the deposit growth provided loan portfolio funding and funds to reduce the level of total borrowings. FHLB repurchase agreements were utilized as their structure allowed for a reduction in interest expense, while providing the ability to reduce the borrowings at our discretion as deposit levels increased.
|
|
March 31, 2012 |
|
December 31, 2011 |
|
Change |
|
|||||||||
(In Thousands) |
|
Amount |
|
% Total |
|
Amount |
|
% Total |
|
Amount |
|
% |
|
|||
Short-term borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
FHLB repurchase agreements |
|
$ |
|
|
|
% |
$ |
16,445 |
|
18.10 |
% |
$ |
(16,445 |
) |
(100.00 |
)% |
Securities sold under agreement to repurchase |
|
14,768 |
|
19.42 |
|
13,153 |
|
14.47 |
|
1,615 |
|
12.28 |
|
|||
Total short-term borrowings |
|
14,768 |
|
19.42 |
|
29,598 |
|
32.57 |
|
(14,830 |
) |
(50.10 |
) |
|||
Long-term borrowings, FHLB |
|
61,278 |
|
80.58 |
|
61,278 |
|
67.43 |
|
|
|
|
|
|||
Total borrowed funds |
|
$ |
76,046 |
|
100.00 |
% |
$ |
90,876 |
|
100.00 |
% |
$ |
(14,830 |
) |
(16.32 |
)% |
Capital
The adequacy of the Companys capital is reviewed on an ongoing basis with reference to the size, composition, and quality of the Companys resources and regulatory guidelines. Management seeks to maintain a level of capital sufficient to support existing assets and anticipated asset growth, maintain favorable access to capital markets, and preserve high quality credit ratings.
Bank holding companies are required to comply with the Federal Reserve Boards risk-based capital guidelines. The risk-based capital rules are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies and to minimize disincentives for holding liquid assets. Specifically, each is required to maintain certain minimum dollar amounts and ratios of total risk-based, tier I risk-based, and tier I leverage capital. In addition to the capital requirements, the Federal Deposit Insurance Corporation Improvements Act (FDICIA) established five capital categories ranging from well capitalized to critically undercapitalized. To be classified as well capitalized, total risk-based, tier I risked-based, and tier I leverage capital ratios must be at least 10%, 6%, and 5%, respectively.
Capital ratios as of March 31, 2012 and December 31, 2011 were as follows:
|
|
March 31, 2012 |
|
December 31, 2011 |
|
||||||
(In Thousands) |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
||
Total Capital (to Risk-weighted Assets) |
|
|
|
|
|
|
|
|
|
||
Actual |
|
$ |
80,200 |
|
15.11 |
% |
$ |
77,863 |
|
15.27 |
% |
For Capital Adequacy Purposes |
|
42,458 |
|
8.00 |
|
40,796 |
|
8.00 |
|
||
To Be Well Capitalized |
|
53,073 |
|
10.00 |
|
50,995 |
|
10.00 |
|
||
|
|
|
|
|
|
|
|
|
|
||
Tier I Capital (to Risk-weighted Assets) |
|
|
|
|
|
|
|
|
|
||
Actual |
|
$ |
73,002 |
|
13.76 |
% |
$ |
71,064 |
|
13.94 |
% |
For Capital Adequacy Purposes |
|
21,229 |
|
4.00 |
|
20,398 |
|
4.00 |
|
||
To Be Well Capitalized |
|
31,844 |
|
6.00 |
|
30,597 |
|
6.00 |
|
||
|
|
|
|
|
|
|
|
|
|
||
Tier I Capital (to Average Assets) |
|
|
|
|
|
|
|
|
|
||
Actual |
|
$ |
73,002 |
|
9.66 |
% |
$ |
71,064 |
|
9.57 |
% |
For Capital Adequacy Purposes |
|
30,217 |
|
4.00 |
|
29,688 |
|
4.00 |
|
||
To Be Well Capitalized |
|
37,771 |
|
5.00 |
|
37,110 |
|
5.00 |
|
Liquidity; Interest Rate Sensitivity and Market Risk
The asset/liability committee addresses the liquidity needs of the Company to ensure that sufficient funds are available to meet credit demands and deposit withdrawals as well as to the placement of available funds in the investment portfolio. In assessing liquidity requirements, equal consideration is given to the current position as well as the future outlook.
The following liquidity measures are monitored for compliance and were within the limits cited at March 31, 2012:
1. Net Loans to Total Assets, 85% maximum
2. Net Loans to Total Deposits, 100% maximum
3. Cumulative 90 day Maturity GAP %, +/- 20% maximum
4. Cumulative 1 Year Maturity GAP %, +/- 25% maximum
Fundamental objectives of the Companys asset/liability management process are to maintain adequate liquidity while minimizing interest rate risk. The maintenance of adequate liquidity provides the Company with the ability to meet its financial obligations to depositors, loan customers, and shareholders. Additionally, it provides funds for normal operating expenditures and business opportunities as they arise. The objective of interest rate sensitivity management is to increase net interest income by managing interest sensitive assets and liabilities in such a way that they can be repriced in response to changes in market interest rates.
The Bank, like other financial institutions, must have sufficient funds available to meet its liquidity needs for deposit withdrawals, loan commitments and originations, and expenses. In order to control cash flow, the Bank estimates future cash flows from deposits, loan payments, and investment security payments. The primary sources of funds are deposits, principal and interest payments on loans and investment securities, FHLB borrowings, and brokered deposits. Management believes the Bank has adequate resources to meet its normal funding requirements.
Management monitors the Companys liquidity on both a long and short-term basis, thereby providing management necessary information to react to current balance sheet trends. Cash flow needs are assessed and sources of funds are determined. Funding strategies consider both customer needs and economical cost. Both short and long-term funding needs are addressed by maturities and sales of available for sale investment securities, loan repayments and maturities, and liquidating money market investments such as federal funds sold. The use of these resources, in conjunction with access to credit provides core funding to satisfy depositor, borrower, and creditor needs.
Management monitors and determines the desirable level of liquidity. Consideration is given to loan demand, investment opportunities, deposit pricing and growth potential, as well as the current cost of borrowing funds. As of March 31, 2012, the Company has a current borrowing capacity at the FHLB of $209,690,000. In addition to this credit arrangement, the Company has additional lines of credit with correspondent banks of $27,317,000. Management believes it has sufficient liquidity to satisfy estimated short-term and long-term funding needs. FHLB borrowings totaled $61,278,000 as of March 31, 2012.
Interest rate sensitivity, which is closely related to liquidity management, is a function of the repricing characteristics of the Companys portfolio of assets and liabilities. Asset/liability management strives to match maturities and rates between loan and investment security assets with the deposit liabilities and borrowings that fund them. Successful asset/liability management results in a balance sheet structure which can cope effectively with market rate fluctuations. The matching process is affected by segmenting both assets and liabilities into future time periods (usually 12 months, or less) based upon when repricing can be effected. Repriceable assets are subtracted from repriceable liabilities, for a specific time period to determine the gap, or difference. Once known, the gap is managed based on predictions about future market interest rates. Intentional mismatching, or gapping, can enhance net interest income if market rates move as predicted. However, if market rates behave in a manner contrary to predictions, net interest income will suffer. Gaps, therefore, contain an element of risk and must be prudently managed. In addition to gap management, the Company has an asset/liability management policy which incorporates a market value at risk calculation which is used to determine the effects of interest rate movements on shareholders equity and a simulation analysis to monitor the effects of interest rate changes on the Companys balance sheet.
The Company currently maintains a GAP position of being liability sensitive. The Company has strategically taken this position as it has decreased the duration of the time deposit portfolio, while continuing to maintain a primarily fixed rate earning asset portfolio with a duration greater than the liabilities utilized to fund earning assets. Lengthening of the liability portfolio coupled with the addition of limited short-term assets is being undertaken. These actions are expected to reduce, but not eliminate, the liability sensitive structure of the balance sheet.
A market value at risk calculation is utilized to monitor the effects of interest rate changes on the Companys balance sheet and more specifically shareholders equity. The Company does not manage the balance sheet structure in order to maintain compliance with this calculation. The calculation serves as a guideline with greater emphases placed on interest rate sensitivity. Changes to calculation results from period to period are reviewed as changes in results could be a signal of future events. As of the most recent analysis, the results of the market value at risk calculation were outside of established guidelines due to the strategic direction being taken.
Interest Rate Sensitivity
In this analysis the Company examines the result of various changes in market interest rates in 100 basis point increments and their effect on net interest income. It is assumed that the change is instantaneous and that all rates move in a parallel manner. Assumptions are also made concerning prepayment speeds on mortgage loans and mortgage securities.
The following is a rate shock forecast for the twelve month period ending March 31, 2013 assuming a static balance sheet as of March 31, 2012.
|
|
Parallel Rate Shock in Basis Points |
|
|||||||||||||||||||
(In Thousands) |
|
-200 |
|
-100 |
|
Static |
|
+100 |
|
+200 |
|
+300 |
|
+400 |
|
|||||||
Net interest income |
|
$ |
27,245 |
|
$ |
27,983 |
|
$ |
28,461 |
|
$ |
28,754 |
|
$ |
29,053 |
|
$ |
29,247 |
|
$ |
29,205 |
|
Change from static |
|
(1,216 |
) |
(478 |
) |
|
|
293 |
|
592 |
|
786 |
|
744 |
|
|||||||
Percent change from static |
|
-4.27 |
% |
-1.68 |
% |
|
|
1.03 |
% |
2.08 |
% |
2.76 |
% |
2.61 |
% |
|||||||
The model utilized to create the report presented above makes various estimates at each level of interest rate change regarding cash flow from principal repayment on loans and mortgage-backed securities and/or call activity on investment securities. Actual results could differ significantly from these estimates which would result in significant differences in the calculated projected change. In addition, the limits stated above do not necessarily represent the level of change under which management would undertake specific measures to realign its portfolio in order to reduce the projected level of change. Generally, management believes the Company is well positioned to respond expeditiously when the market interest rate outlook changes.
Inflation
The asset and liability structure of a financial institution is primarily monetary in nature. Therefore, interest rates rather than inflation have a more significant impact on the Companys performance. Interest rates are not always affected in the same direction or magnitude as prices of other goods and services, but are reflective of fiscal policy initiatives or economic factors which are not measured by a price index.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk for the Company is comprised primarily of interest rate risk exposure and liquidity risk. Interest rate risk and liquidity risk management is performed at the Bank level as well as the Company level. The Companys interest rate sensitivity is monitored by management through selected interest rate risk measures produced by an independent third party. There have been no substantial changes in the Companys gap analyses or simulation analyses compared to the information provided in the Annual Report on Form 10-K for the period ended December 31, 2011. Additional information and details are provided in the Liquidity and Interest Rate Sensitivity section of Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Generally, management believes the Company is well positioned to respond in a timely manner when the market interest rate outlook changes.
Item 4. Controls and Procedures
An analysis was performed under the supervision and with the participation of the Companys management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures. Based on that evaluation, the Companys Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures were effective as of March 31, 2012. There were no changes in the Companys internal control over financial reporting that occurred during the quarter ended March 31, 2012, that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
None.
There are no material changes to the risk factors set forth in Part I, Item 1A, Risk Factors, of the Companys Annual Report on Form 10-K for the year ended December 31, 2011. Please refer to that section for disclosures regarding the risks and uncertainties related to the Companys business.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Period |
|
Total Number
|
|
Average Price
|
|
Total Number of Shares (or
|
|
Maximum Number (or Approximate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Month #1 (January 1 - January 31, 2012) |
|
|
|
$ |
|
|
|
|
76,776 |
|
|
|
|
|
|
|
|
|
|
|
|
Month #2 (February 1 - February 29, 2012) |
|
|
|
|
|
|
|
76,776 |
|
|
|
|
|
|
|
|
|
|
|
|
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Month #3 (March 1 - March 31, 2012) |
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|
|
|
|
|
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76,776 |
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|
On April 24, 2012, the Board of Directors extended the previously approved authorization to repurchase up to 197,000 shares, or approximately 5%, of the outstanding shares of the Company for an additional year to April 30, 2013. To date, there have been 120,224 shares repurchased under this plan.
On April 25, 2012, the Shareholders of the Corporation authorized an amendment to the Articles of Incorporation to increase the number of shares of common stock from 10,000,000 to 15,000,000 and authorized 3,000,000 shares of preferred stock.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
None.
3(i) |
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Articles of Incorporation of the Registrant, as presently in effect. |
3(ii) |
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Bylaws of the Registrants as presently in effect (incorporated by reference to Exhibit 3(ii) of the Registrants Current Report on Form 8-K filed June 17, 2005). |
10(i) |
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Employment Agreement, dated October 25, 2010, between Robert J. Glunk, Penns Woods Bancorp, Inc. and Jersey Shore State Bank. |
31(i) |
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Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Executive Officer. |
31(ii) |
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Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Financial Officer. |
32(i) |
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Section 1350 Certification of Chief Executive Officer. |
32(ii) |
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Section 1350 Certification of Chief Financial Officer. |
101 |
|
Interactive data file containing the following financial statements formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheet at March 31, 2012 and December 31, 2011; (ii) the Consolidated Statement of Income for the three months ended March 31, 2012 and 2011; (iii) the Consolidated Statements of Shareholders Equity for the three months ended March 31, 2012 and 2011; (iv) Consolidated Statement of Comprehensive Income for the three months ended March 31, 2012 and 2011; (v) the Consolidated Statement of Cash Flows for the three months ended March 31, 2012 and 2011; and, (vi) the Notes to Consolidated Financial Statements, tagged as blocks of text. As provided in Rule 406T of Regulation S-T, this interactive data file shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, and shall not be deemed filed or part of any registration statement or prospectus for purposes of Section 11 or 12 under the Securities Act of 1933, or otherwise subject to liability under those sections. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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PENNS WOODS BANCORP, INC. |
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(Registrant) |
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Date: May 9, 2012 |
/s/ Richard A. Grafmyre |
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Richard A. Grafmyre, President and Chief Executive Officer |
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(Principal Executive Officer) |
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Date: May 9, 2012 |
/s/ Brian L. Knepp |
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Brian L. Knepp, Chief Financial Officer |
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(Principal Financial Officer and Principal Accounting |
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Officer) |
Exhibit 3(i) |
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Articles of Incorporation of the Registrant, as presently in effect. |
Exhibit 10(i) |
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Employment Agreement, dated October 25, 2010, between Robert J. Glunk, Penns Woods Bancorp, Inc. and Jersey Shore State Bank. |
Exhibit 31(i) |
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Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Executive Officer |
Exhibit 31(ii) |
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Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Financial Officer |
Exhibit 32(i) |
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Section 1350 Certification of Chief Executive Officer |
Exhibit 32(ii) |
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Section 1350 Certification of Chief Financial Officer |
Exhibit 101 |
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Interactive data file containing the following financial statements formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheet at March 31, 2012 and December 31, 2011; (ii) the Consolidated Statement of Income for the three months ended March 31, 2012 and 2011; (iii) the Consolidated Statements of Shareholders Equity for the three months ended March 31, 2012 and 2011; (iv) Consolidated Statement of Comprehensive Income for the three months ended March 31, 2012 and 2011; (v) the Consolidated Statement of Cash Flows for the three months ended March 31, 2012 and 2011; and, (vi) the Notes to Consolidated Financial Statements, tagged as blocks of text. As provided in Rule 406T of Regulation S-T, this interactive data file shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, and shall not be deemed filed or part of any registration statement or prospectus for purposes of Section 11 or 12 under the Securities Act of 1933, or otherwise subject to liability under those sections. |
EXHIBIT 3(i)
ARTICLES OF INCORPORATION, AS AMENDED
1. The name of the corporation is Penns Woods Bancorp, Inc.
2. The location and post office address of the initial registered office of the corporation in this Commonwealth is 115 S. Main Street, Jersey Shore, Pennsylvania 17740.
3. The corporation is incorporated under the Business Corporation Law of the Commonwealth of Pennsylvania for the following purpose or purpose: To have unlimited power to engage in and do any lawful act concerning any or all lawful business for which corporations may be incorporated under the provisions of the Business Corporation Law of the Commonwealth of Pennsylvania. The corporation is incorporated under the provisions of the Business Corporation Law of the Commonwealth of Pennsylvania (Act of May 5, 1933, P.L. 364 as amended).
4. The term for which the corporation is to exist is perpetual.
5. The corporation shall have authority to issue (i) fifteen million (15,000,000) shares of common stock, par value $8.33 per share, and (ii) three million (3,000,000) shares of preferred stock, having such par value as the Board of Directors shall fix and determine (the Preferred Stock). The Preferred Stock may be issued from time to time as a class without series or, if so determined by the Board of Directors of the corporation, either in whole or in part, in one or more series. There is hereby expressly granted to and vested in the Board of Directors of the corporation authority to fix and determine (except as fixed and determined herein), by resolution, the par value, voting powers, full or limited, or no voting powers, and such designations, preferences and relative, participating, optional or other special rights, if any, and the qualifications, limitations or restrictions thereof, if any, including specifically, but not limited to, the dividend rights, conversion rights, redemption rights and liquidation preferences, if any, of any wholly unissued series of Preferred Stock (or the entire class of Preferred Stock if none of such shares have been issued), the number of shares constituting any such series and the terms and conditions of the issue thereof. Prior to the issuance of any shares of Preferred Stock, a statement setting forth a copy of each such resolution or resolutions and the number of shares of Preferred Stock of each such class or series shall be executed and filed in accordance with the Pennsylvania Business Corporation Law. Unless otherwise provided in any such resolution or resolutions, the number of shares of capital stock of any such class or series so set forth in such resolution or resolutions may thereafter be increased or decreased (but not below the number of shares then outstanding), by a statement likewise executed and filed setting forth a statement that a specified increase or decrease therein had been authorized and directed by a resolution or resolutions likewise adopted by the Board of Directors of the corporation. In case the number of such shares shall be decreased, the number of shares so specified in the statement shall resume the status they had prior to the adoption of the first resolution or resolutions.
6. The name(s) and post office address(es) of each incorporator(s) and the number and class of shares subscribed for by such incorporator(s) is (are):
Name |
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Address |
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No. and Class
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Theodore H. Reich |
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226 Front Street, Jersey Shore, PA 17740 |
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1 |
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Raymond D. Eck |
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R.D. 2 Jersey Shore, PA 17740 |
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1 |
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Howard N. Thompson |
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P.O. Box 504 Jersey Shore, PA 17740 |
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1 |
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7. Cumulative voting rights shall not exist with respect to the election of directors.
8. A. The Board of Directors may, if it deems it advisable, oppose a tender, or other offer for the corporations securities, whether the offer is in cash or in securities of a corporation or otherwise. When considering whether to oppose an offer, the Board of Directors may, but it is not legally obligated to, consider any pertinent issues; by way of illustration, but not of limitation, the Board of Directors may, but shall not be legally obligated to, consider any and all of the following:
(1) Whether the offer price is acceptable based on the historical and present operating results or financial condition of the corporation.
(2) Whether a more favorable price could be obtained for the corporations securities in the future.
(3) The impact which an acquisition of the corporation would have on its employees, depositors and customers of the corporation and its subsidiaries in the community which they serve.
(4) The reputation and business practices of the offeror and its management and affiliates as they would affect the employees, depositors and customers of the corporation and its subsidiaries and the future value of the corporations stock.
(5) The value of the securities, if any, which the offeror is offering in exchange for the corporations securities, based on an analysis of the worth of the corporation as compared to the corporation or other entity whose securities are being offered.
(6) Any antitrust or other legal and regulatory issues that are raised by the offer.
B. If the Board of Directors determines that an offer should be rejected, it may take any lawful action to accomplish its purpose including, but not limited to, any and all of the following: advising shareholders not to accept the offer; litigation against the offeror; filing complaints with all governmental and regulatory authorities; acquiring the authorized but unissued securities or treasury stock or granting options with respect thereto; acquiring a company to create an antitrust or other regulatory problem for the offeror; and obtaining a more favorable offer from another individual or entity.
9. The Board of Directors of the corporation shall be divided into three classes, the respective terms of office of which shall end in successive years. The number of directors in each class shall be specified in the Bylaws and shall be nearly as equal as possible. Unless they are elected to fill vacancies, the directors in each class shall be elected to hold office until the third successive annual meeting of shareholders after their election and until their successors shall have been elected and qualified. At each annual meeting of shareholders the directors of only one class shall be elected, except directors who may be elected to fill vacancies.
10. No holder of shares of any class or of any series of any class shall have any preemptive right to subscribe for, purchase or receive any shares of the corporation, whether now or hereafter authorized, or any obligations or other securities convertible into or carrying options to purchase any such shares of the corporation, or any options or rights to purchase any such shares or securities, issued or sold by the corporation for cash or any other form of consideration, and any such shares, securities or rights may be issued or disposed of by the Board of Directors to such persons and on such terms as the Board in its discretion shall deem advisable.
11. The corporation shall have authority to borrow money and the Board of Directors, without the approval of the shareholders and acting within their sole discretion, shall have the authority to issue debt instruments of the corporation upon such terms and conditions and with such limitation as the Board of Directors deems advisable. The authority of the Board of Directors shall include, but not be limited to, the power to issue convertible debentures.
12. Every person who is or was a director, officer, employee, or agent of the corporation, or of any corporation which he served as such at the request of the corporation, shall be indemnified by the corporation to the fullest extent permitted by law against all expenses and liabilities reasonably incurred by or imposed upon him in connection with any proceeding to which he may be made, or threatened to be made, any party, or in which he may become involved by reason of his being or having been a director, officer, employee or agent of the corporation, or of such other corporation, whether or not he is a director, officer, employee or agent of the corporation or such other corporation at the time the expenses or liabilities are incurred.
13. No merger, consolidation, liquidation or dissolution of the corporation nor any action that would result in the sale or other disposition of all or substantially all of the assets of the corporation shall be valid unless first approved by the affirmative vote of the holders of at least sixty-six and 2/3 percent (66-2/3%) of the outstanding shares of Common Stock. This Article 12 may not be amended unless first approved by the affirmative vote of the holders of at least sixty-six and 2/3 percent (66-2/3%) of the outstanding shares of Common Stock.
Effective as of May 3, 2012
Exhibit 10(i)
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made the 25th day of October 2010 (the Effective Date), between PENNS WOODS BANCORP, INC. (Penns Woods), a Pennsylvania business corporation, JERSEY SHORE STATE BANK (JSSB), a Pennsylvania banking institution and wholly owned subsidiary of Penns Woods (Penns Woods and JSSB are sometimes referred to herein collectively as the Employer), and ROBERT J. GLUNK, an adult individual (Executive).
WITNESSETH :
WHEREAS, Executive is presently employed by JSSB as its Vice President of Branch Administration and Business Development;
WHEREAS, it is the desire of JSSB that Executive continue Executives employment, on the terms and conditions set forth herein, in order that the experience Executive has gained throughout Executives career will continue to be available to JSSB; and
WHEREAS, Executive is willing to continue such employment, on the terms and conditions set forth herein.
NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as follows:
1. Employment . JSSB hereby employs Executive, and Executive hereby accepts employment with JSSB, on the terms and conditions set forth in this Agreement.
2. Titles and Duties of Executive . Executive shall perform and discharge well and faithfully such management and administrative duties as a senior officer of JSSB as may be assigned to Executive from time to time by the President and Chief Executive Officer of JSSB and which are consistent with Executives positions set forth in the following sentence. Executive shall be employed as the Vice President of Branch Administration and Business Development of JSSB. Executive shall report to the President and Chief Executive Officer of JSSB. Executive shall devote Executives full time, attention and energies to the business of JSSB during the Employment Period (as defined in Section 3); provided, however, that this section shall not be construed as preventing Executive from (a) investing Executives personal assets in enterprises that do not compete with Penns Woods, JSSB or any of their majority-owned subsidiaries (except as an investor owning less than 5% of the stock of a publicly-owned company), or (b) being involved in any civic, community or other activities with the prior approval of the President and Chief Executive Officer of JSSB.
3. Term of Agreement .
(a) This Agreement shall be for a period (the Employment Period) commencing on the Effective Date and ending three years thereafter; provided, however, that, commencing on the third anniversary of the Effective Date and on each anniversary thereafter (each an Annual Renewal Date), the Employment Period shall be automatically extended for one (1) additional year from the applicable Annual Renewal Date, unless JSSB or Executive shall give written notice of nonrenewal to the other party at least sixty (60) days prior to an Annual Renewal Date, in which event this Agreement shall terminate at the end of the then existing Employment Period. Neither the expiration of the Employment Period, nor the termination of this Agreement, shall affect the enforceability of the provisions of Sections 7, 8 and 9.
(b) Notwithstanding the provisions of Section 3(a), this Agreement shall terminate automatically for Cause (as defined below) upon fifteen (15) days prior written notice (setting forth the section relied upon and setting forth in reasonable detail the facts and circumstances claimed to provide the basis for termination for Cause) from the Board of Directors of JSSB to Executive, unless such Cause has been cured within such fifteen (15) day period (if capable of being cured). As used in this Agreement, Cause shall mean any of the following:
(i) Executives conviction of, or plea of guilty or nolo contendere to, a felony, a crime of falsehood, or a crime involving moral turpitude, or the actual incarceration of Executive for a period of at least thirty (30) days;
(ii) Executives failure to follow the good faith lawful instructions of the President and Chief Executive Officer of JSSB, following Executives receipt of written notice of such instructions;
(iii) Executives intentional failure to substantially perform Executives duties to, or on behalf of, JSSB, other than a failure resulting from Executives incapacity because of disability;
(iv) Executives intentional violation of any law, rule or regulation (other than traffic violations or similar offenses), Executives intentional violation of any memorandum of understanding or cease and desist order of a federal or state
banking agency applicable to JSSB, Executives intentional violation of any code of conduct or ethics applicable to officers or employees of JSSB, or Executives intentional violation of any material provision of this Agreement;
(v) dishonesty on the part of the Executive in the performance of Executives duties or conduct on the part of the Executive which, in the reasonable judgment of the Board of Directors of JSSB, brings public discredit to Penns Woods or JSSB;
(vi) Executives breach of fiduciary duty, in connection with Executives employment hereunder, which involves personal profit or which results in demonstrable material injury to Penns Woods or JSSB; or
(vii) Executives removal or prohibition from being an institution-affiliated party by a final order of an appropriate federal banking agency pursuant to Section 8(e) of the Federal Deposit Insurance Act or by the Pennsylvania Department of Banking pursuant to state law.
If this Agreement is terminated for Cause, Executives rights under this Agreement shall cease as of the effective date of such termination.
(c) Notwithstanding the provisions of Section 3(a) of this Agreement, this Agreement shall terminate automatically upon Executives voluntary termination of employment (other than for Good Reason), retirement at Executives election, or Executives death, and Executives rights under this Agreement shall cease as of the date of such voluntary termination, retirement at Executives election, or death; provided, however, that, if Executive dies after Executive delivers a Notice of Termination (as defined in Section 5(d)), the provisions of Section 17(b) shall apply.
(d) Notwithstanding the provisions of Section 3(a), this Agreement shall terminate automatically upon Executives disability and Executives rights under this Agreement shall cease as of the date of such termination; provided, however, that, if Executive becomes disabled after Executive delivers a Notice of Termination, Executive shall be entitled to receive all of the compensation and benefits provided for in, and for the term set forth in, Section 5 of this Agreement. For purposes of this Agreement, disability shall mean Executives incapacitation by accident, sickness, or otherwise which renders Executive mentally or physically incapable of performing the services required hereunder of Executive for a period of six (6) consecutive months.
(e) Executive agrees that, in the event Executives employment under this Agreement terminates for any reason, Executive shall concurrently resign as a director of Penns Woods, JSSB and any affiliate of either, if Executive is then serving as a director of any of such entities.
4. Employment Period Compensation .
(a) Salary . During the Employment Period, Executive shall be paid a base salary at the rate of $115,432 per year, payable at such times as salaries are paid to other senior officers of JSSB. The Board of Directors of JSSB shall review Executives base salary annually and may, from time to time, in its discretion increase Executives base salary. Any and all such increases in base salary shall be deemed to constitute amendments to this subsection to reflect the increased amounts, effective as of the dates established for such increases by appropriate corporate action.
(b) Discretionary Bonus . During the Employment Period, Executive shall be entitled to participate in an equitable manner with other senior management employees of JSSB in such annual or other periodic bonus programs (if any) as may be maintained from time to time by JSSB for its senior officers.
(c) Vacation and Sick Leave . During the Employment Period, Executive shall be entitled to such paid vacation as may be determined in accordance with the personnel policies of JSSB from time to time in effect, but in no event less than three (3) weeks per annum. During the Employment Period, Executive shall be entitled to an annual sick leave benefit as may be determined in accordance with the personnel policies of JSSB from time to time in effect, but in no event less than forty (40) hours per year. Executive shall not be entitled to receive any additional compensation from JSSB for failure to take all of Executives entitled vacation or sick leave time, nor shall Executive be able to accumulate unused vacation or sick leave time from one year to the next, unless otherwise provided by the personnel policies of JSSB from time to time in effect.
(d) Employee Benefit Plans . During the Employment Period, Executive shall be entitled to participate in and receive the benefits of any pension or other retirement benefit plan, welfare benefit plan or similar employee benefit plans or arrangements (including stock option plans, short- or long-term disability plans, life insurance programs, and health insurance) made available from time to time to employees of JSSB in accordance with the provisions of such plans. The base salary and any bonus payable to Executive under Section 4 shall be considered covered compensation for purposes of such plans to the maximum extent permitted by the terms of such plans. Nothing paid to Executive under any plan or arrangement presently in effect or made available in the future shall be deemed to be in lieu of the amounts payable to Executive pursuant to Section 4(a) hereof.
(e) Expense Reimbursement . JSSB shall promptly reimburse Executive, upon submission of appropriate documentation, for reasonable business expenses, including travel and reasonable entertainment expenses, incurred by Executive in accordance with the expense reimbursement policies of JSSB in effect from time to time.
(f) Automobile . During the Employment Period, JSSB shall provide Executive with a mid-size automobile selected by JSSB (which shall be owned or leased by JSSB) for the Executives business use (and ancillary personal use). JSSB will cover all repairs and operating expenses of said automobile, including the cost of liability insurance, comprehensive and collision insurance. Upon termination of Executives employment hereunder for any reason, Executive shall either immediately return the vehicle to JSSB or purchase the vehicle (or assume the lease) in accordance with JSSBs vehicle purchase policy. Upon request by JSSB, Executive shall submit to JSSB on a timely basis documentation which defines the percentage of Executives use of the vehicle which was for business purposes.
5. Rights in Event of Termination of Employment Following a Change in Control .
(a) Benefits . If a Change in Control (as defined below) shall occur and concurrently therewith or during a period of twenty-four (24) months thereafter Executives employment hereunder is terminated by JSSB without Cause (other than for the reasons set forth in Section 3(d)) or by Executive with Good Reason (as defined below), Executive shall be entitled to receive a lump-sum cash payment, no later than thirty (30) days following the date of such termination, in an amount equal to two (2.0) times the sum of (i) Executives annual base salary then in effect (or immediately prior to any reduction resulting in a termination for Good Reason) and (ii) the average of the last three (3) annual bonuses paid by JSSB to Executive.
(b) Limitation on Benefits . Notwithstanding anything in this section or elsewhere in this Agreement to the contrary, in the event the payments and benefits payable hereunder to or on behalf of Executive (which the parties agree will not include any portion of payments allocated to the non-compete and non-solicitation provisions of Sections 7 and 9 that are classified as payments of reasonable compensation for purposes of Section 280G of the Internal Revenue Code of 1986, as amended (the Code)), when added to all other amounts and benefits payable to or on behalf of Executive, would result in the loss of a deduction under Code Section 280G, or the imposition of an excise tax under Code Section 4999, the amounts and benefits payable hereunder shall be reduced to such extent as may be necessary to avoid such loss of deduction or imposition of excise tax. In applying this principle, the reduction shall be made in a manner consistent with the requirements of Code Section 409A and where two or more economically equivalent amounts are subject to reduction, but payable at different times, such amounts shall be reduced on a pro-rata basis. All calculations required to be made under this subsection will be made by JSSBs independent public accountants, subject to the right of Executives professional advisors to review the same. The parties recognize that the actual implementation of the provisions of this subsection are complex and agree to deal with each other in good faith to resolve any questions or disagreements arising hereunder.
(c) Exclusive Remedy . The amounts payable pursuant to this Section 5 shall constitute Executives sole and exclusive remedy in the event of the termination of Executives employment in accordance with Section 5(a).
(d) Good Reason Defined . Executive shall be considered to have terminated employment hereunder for Good Reason if such termination of employment occurs on or within twenty-four (24) months after a Change in Control and is on account of any of the following actions by JSSB without Executives express written consent:
(i) A material diminution in Executives authority, duties or other terms or conditions of employment as the same exist on the date of the Change in Control;
(ii) Any reassignment of Executive to a location greater than 50 miles from the location of Executives office on the date of the Change in Control, unless such new location is closer to Executives primary residence than the location on the date of the Change in Control;
(iii) Any failure to pay Executive any amounts due and owing to Executive under Section 4 of this Agreement, which constitutes a material breach by JSSB of this Agreement;
(iv) Any failure to provide Executive with any benefits enjoyed by Executive under any of JSSBs retirement or pension, life insurance, medical, health and accident, disability or other material employee plans in which Executive participated at the time of the Change in Control or the taking of any action that would materially reduce any of such benefits in effect at the time of the Change in Control, except for any reductions in benefits or other actions resulting from changes to or reductions in benefits applicable to employees generally;
(v) Any requirement that Executive travel in the performance of Executives duties on behalf of JSSB for a significantly greater period of time during any year than was required of Executive during the year preceding the year in which the Change in Control occurred, which results in a material negative change to Executive in the employment relationship; or
(vi) Any other material breach of this Agreement.
Notwithstanding the foregoing, a termination by Executive shall not be for Good Reason, unless Executive shall have given JSSB at least ten (10) business days written notice (a Notice of Termination) specifying the grounds upon which Executive intends to terminate Executives employment hereunder for Good Reason and such notice is received by JSSB within ninety (90) days of the date the event of Good Reason occurred. In addition, any action or inaction by JSSB which is remedied within thirty (30) days following a Notice of Termination shall not constitute Good Reason for termination hereunder and shall render such Notice of Termination null and void.
(e) Change in Control Defined . As used in this Agreement, Change in Control shall mean the occurrence of any one of the following:
(i) (A) a merger, consolidation, or division involving Penns Woods or JSSB, (B) a sale, exchange, transfer, or other disposition of substantially all of the assets of Penns Woods or JSSB, or (C) a purchase by Penns Woods or JSSB of substantially all of the assets of another entity, unless (x) such merger, consolidation, division, sale, exchange, transfer, purchase or disposition is approved in advance by 66-2/3% or more of the members of the Board of Directors of Penns Woods who are not interested in the transaction and (y) a majority of the members of the Board of Directors of the legal entity resulting from or existing after any such transaction and of the Board of Directors of such entitys parent corporation, if any, are former members of the Board of Directors of Penns Woods or JSSB;
(ii) a person or group (within the meaning of Section 13(d) of the Securities Exchange Act of 1934) becomes the beneficial owner (within the meaning of Section 13(d) of the Securities Exchange Act of 1934) of 25% or more of the outstanding shares of common stock of Penns Woods;
(iii) at any time during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of Penns Woods cease to constitute a majority of such Board (unless the election or nomination of each new director was approved by a vote of at least 51% of the directors who were directors at the beginning of such period); or
(iv) any other change in control similar in effect to any of the foregoing and designated as a change in control by the Board of Directors of Penns Woods or JSSB.
(f) Notwithstanding the foregoing, to the extent the definition of Change in Control as set forth in Section 5(e) does not amount to a change in control event as defined under Treas. Reg. § 1.409A-3(i)(5), then the benefits set forth in Section 5(a) shall be paid at the same time and in the same form as benefits are paid under Section 6(a).
6. Rights in Event of Termination of Employment absent a Change in Control .
(a) Benefits . In the event that Executives employment is involuntarily terminated by JSSB (other than by reason of Section 3(d)) without Cause and no Change in Control shall have occurred at the date of such termination, Executive shall be entitled to receive the following benefits:
(i) JSSB shall continue to pay Executives then base salary under Section 4(a) for the number of full months remaining in the Employment Period as of the date of termination of employment. A final pro rated payment shall be made for any fraction of a month remaining in the Employment Period as of the date of Executives termination of employment.
(ii) For a period of two (2) years following Executives termination, Executive shall be provided, at no charge, with a continuation of health and medical benefits no less favorable than the health and medical benefits in effect on the date of termination of the Executives employment. To the extent such benefits cannot be provided under a plan because Executive is no longer an employee of JSSB or it is not in JSSBs best interests to provide such benefits due to the applicable nondiscrimination requirements set forth in Section 1001 of the Patient Protection and Affordable Care Act, as amended, a dollar amount equal to the after-tax cost (estimated in good faith by JSSB) of obtaining such benefits, or substantially similar benefits, shall be paid to the Employee within thirty (30) days following the date of termination.
(b) Exclusive Remedy . The amounts payable pursuant to this Section 6 shall constitute Executives sole and exclusive remedy in the event of involuntary termination of Executives employment by JSSB (other than by reason of Section 3(d)) without Cause in the absence of a Change in Control.
(c) Limitation on Benefits . Notwithstanding anything herein to the contrary, to the extent the provisions of Code Section 280G become applicable to payments or benefits to be provided under this Section 6, the provisions of Section 5(b) shall apply to such payments or benefits.
7. Covenant Not to Compete .
(a) Executive hereby acknowledges and recognizes the highly competitive nature of the business of Penns Woods and JSSB and accordingly agrees, in consideration of this Agreement, including without limitation the three-year initial term hereof, that, during and for the applicable period set forth in Section 7(c), Executive shall not:
(i) be engaged, directly or indirectly, either for Executives own account or as agent, consultant, employee, partner, officer, director, proprietor, investor (except as an investor owning less than 5% of the stock of a publicly-owned company) or otherwise of any person, firm, corporation, or enterprise engaged in the banking or financial services business in any county in the Commonwealth of Pennsylvania in which, at the date of termination of the Executives employment, a branch, office or other facility of Penns Woods, JSSB or any of their respective majority-owned subsidiaries is located, or in any county contiguous to such a county, whether located inside or outside of the Commonwealth of Pennsylvania (the Non-Competition Area); or
(ii) provide financial or other assistance to any person, firm, corporation, or enterprise engaged in the banking or financial services business in the Non-Competition Area.
(b) It is expressly understood and agreed that, although Executive, Penns Woods and JSSB consider the restrictions contained in Section 7(a) reasonable for the purpose of preserving for Penns Woods and JSSB their goodwill and other proprietary rights, if a final judicial determination is made by a court or arbitrator having jurisdiction that the time or territory or any other restriction contained in Section 7(a) is an unreasonable or otherwise unenforceable restriction against Executive, the provisions of Section 7(a) shall not be rendered void but shall be deemed amended to apply as to such maximum time and territory and to such other extent as such court may judicially determine or indicate to be reasonable.
(c) The provisions of this Section 7 shall be applicable commencing on the date of this Agreement and ending on one of the following dates, as applicable:
(i) if Executive voluntarily terminates Executives employment (other than for Good Reason) or Executives employment is terminated for Cause in accordance with the provisions of Section 3(b), one (1) year following the effective date of termination of employment;
(ii) if Executive becomes entitled to receive the payment set forth in Section 5(a), one (1) year following the effective date of termination of employment;
(iii) if Executives employment is involuntarily terminated in accordance with the provisions of Section 3(d) or 6, and Executive actually receives payments under a disability plan or program maintained by JSSB or severance payments under Section 6, respectively, the lesser of one (1) year following the effective date of termination of employment or the period during which such payments remain in effect;
(iv) if Executives employment terminates as a result of delivery of a notice of nonrenewal by JSSB in accordance with Section 3(a), the ending date of the then existing Employment Period; or
(v) if Executives employment terminates as a result of delivery of a notice of nonrenewal by Executive in accordance with Section 3(a), one (1) year following the ending date of the then existing Employment Period.
8. Unauthorized Disclosure . During the Employment Period and at any time thereafter, Executive shall not, without the written consent of the Boards of Directors of Penns Woods and JSSB, or a person authorized thereby, knowingly disclose to any person, other than an employee of Penns Woods or JSSB, or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by Executive of Executives duties hereunder, any material confidential information obtained by Executive while in the employ of JSSB with respect to Penns Woods, JSSBs or any of their majority-owned subsidiaries services, products, improvements, formulas, designs or styles, processes, customers, methods of business or any business practices the disclosure of which could be or would be damaging to Penns Woods, JSSB or any such subsidiary; provided, however, that confidential information shall not include any information known generally to the public (other than as a result of unauthorized disclosure by Executive or any person with the assistance, consent, or direction of Executive), or any information that must be disclosed as required by law.
9. Nonsolicitation of Customers and Employees . Executive hereby agrees that Executive shall not during any period that Executive is subject to the provisions of Section 7, directly or indirectly, (i) solicit any customer of Penns Woods, JSSB or any majority-owned subsidiary of either of them located in the Non-Competition Area for any banking or financial services business, or (ii) solicit or hire any persons who are currently or were within six (6) months prior to Executives termination date employees of Penns Woods, JSSB or any majority-owned subsidiary of either of them. Executive also agrees that Executive shall not, for the period
described in the preceding sentence, encourage or induce any of such customers or employees of Penns Woods, JSSB or any majority-owned subsidiary of either of them to terminate their business relationship with any of such entities.
10. Remedies . Executive acknowledges and agrees that the remedy at law of the Employer for a breach or threatened breach of any of the provisions of Section 7, 8 or 9 would be inadequate and, in recognition of this fact, in the event of a breach or threatened breach by Executive of any of the provisions of Section 7, 8 or 9, it is agreed that the Employer shall be entitled to, without posting any bond, and the Executive agrees not to oppose any request of the Employer for, equitable relief in the form of specific performance, a temporary restraining order, a temporary or permanent injunction, or any other equitable remedy which may then be available. Nothing contained in this section shall be construed as prohibiting the Employer from pursuing any other remedies available to them, at law or in equity, for such breach or threatened breach.
11. Arbitration . The Employer and Executive recognize that, in the event a dispute should arise between them concerning the interpretation or implementation of this Agreement, lengthy and expensive litigation will not afford a practical resolution of the issues within a reasonable period of time. Consequently, each party agrees that all disputes, disagreements and questions of interpretation concerning this Agreement are to be submitted for resolution, in Williamsport, Pennsylvania, to the American Arbitration Association (the Association) in accordance with the Associations National Rules for the Resolution of Employment Disputes or other applicable rules then in effect (Rules). The Employer or Executive may initiate an arbitration proceeding at any time by giving notice to the other in accordance with the Rules. The Employer and Executive may, as a matter of right, mutually agree on the appointment of a particular arbitrator from the Associations pool. The arbitrator shall not be bound by the rules of evidence and procedure of the courts of the Commonwealth of Pennsylvania but shall be bound by the substantive law applicable to this Agreement. The decision of the arbitrator, absent fraud, duress, incompetence or gross and obvious error of fact, shall be final and binding upon the parties and shall be enforceable in courts of proper jurisdiction. Following written notice of a request for arbitration, the Employer and Executive shall be entitled to an injunction restraining all further proceedings in any pending or subsequently filed litigation concerning this Agreement, except as otherwise provided herein or contemplated by Section 10.
12. Legal Expenses . If Executive obtains a judgment, award or settlement which enforces a material disputed right or benefit under this Agreement, JSSB shall pay to Executive, within ten days after demand therefor, all legal fees and expenses incurred by Executive in seeking to obtain or enforce such right or benefit.
13. Notices . Except as otherwise provided in this Agreement, any notice required or permitted to be given under this Agreement shall be deemed properly given if in writing and if mailed by registered or certified mail, postage prepaid with return receipt requested, to Executives residence (as then reflected in the personnel records of JSSB), in the case of notices to Executive, and to the then principal offices of JSSB, in the case of notices to JSSB.
14. Waiver . No provision of this Agreement may be modified, waived, or discharged unless such waiver, modification, or discharge is agreed to in writing and signed by Executive and the President and Chief Executive Officer of JSSB. No waiver by any party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.
15. Assignment . This Agreement shall not be assignable by any party, except by the Employer to any affiliated company or to any successor in interest to its businesses.
16. Entire Agreement; Effect on Prior Agreements . This Agreement contains the entire agreement of the parties relating to the subject matter of this Agreement and supersedes and replaces any prior written or oral agreements between them respecting the within subject matter.
17. Successors; Binding Agreement .
(a) The Employer will require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the businesses and/or assets of Penns Woods and/or JSSB to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Employer would be required to perform it if no such succession had taken place. Failure by the Employer to obtain such assumption and agreement prior to the effectiveness of any such succession shall constitute a material breach of this Agreement and the provisions of Section 5 (relating to termination of employment following a Change in Control) shall apply as though a Notice of Termination was authorized and had been timely given. As used in this Agreement, Penns Woods, and JSSB shall mean Penns Woods and JSSB, as defined previously, and any successor to their respective businesses and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable by Executives personal or legal representatives, executors, administrators, heirs, distributees, devisees, and legatees. If Executive should die after a Notice of
Termination is delivered by Executive, or following termination of Executives employment without Cause, and any amounts would be payable to Executive under this Agreement if Executive had continued to live, all such amounts shall be paid in accordance with the terms of this Agreement to Executives devisee, legatee, or other designee, or, if there is no such person, to Executives estate. The preceding sentence shall also apply to the last clause of Section 3(c).
18. No Mitigation or Offset . Executive shall not be required to mitigate the amount of any payment or benefit provided for in this Agreement by seeking employment or otherwise. Further, there shall be no offset against any amount or benefit payable or provided hereunder following Executives termination of employment solely by reason of Executives employment with another employer.
19. Validity . The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.
20. Applicable Law . This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, without regard to its conflict of laws principles.
21. Headings . The section headings of this Agreement are for convenience only and shall not control or affect the meaning or construction, or limit the scope or intent, of any of the provisions of this Agreement.
22. Number . Words used herein in the singular form shall be construed as being used in the plural form, as the context requires, and vice versa.
23. Regulatory Matters . The obligations of JSSB under this Agreement shall in all events be subject to any required limitations or restrictions imposed by or pursuant to the Federal Deposit Insurance Act or the Pennsylvania Banking Code of 1965 as the same may be amended from time to time.
24. Tax Withholding . All payments made and benefits provided hereunder shall be subject to such federal, state and local tax withholding as may be required by law.
25. Compliance with Code Section 409A .
(a) Notwithstanding anything in this Agreement to the contrary, the receipt of any benefits under this Agreement as a result of a termination of employment shall be subject to satisfaction of the condition precedent that Executive undergo a separation from service within the meaning of Treas. Reg. § 1.409A-1(h) or any successor thereto. In addition, if Executive is deemed to be a specified employee within the meaning of that term under Code Section 409A(a)(2)(B), then with regard to any payment or the provisions of any benefit that is required to be delayed pursuant to Code Section 409A(a)(2)(B), such payment or benefit shall not be made or provided prior to the earlier of (i) the expiration of the six (6) month period measured from the date of Executives separation from service (as such term is defined in Treas. Reg. § 1.409A-1(h)), or (ii) the date of Executives death (the Delay Period). Within ten (10) days following the expiration of the Delay Period, all payments and benefits delayed pursuant to this section (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed to Executive in a lump sum, and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein. To the extent that the foregoing applies to the provision of any ongoing welfare benefits to Executive that would not be required to be delayed if the premiums therefore were paid by Executive, Executive shall pay the full costs of premiums for such welfare benefits during the Delay Period and JSSB shall pay Executive an amount equal to the amount of such premiums paid by Executive during the Delay Period within ten (10) days after the conclusion of such Delay Period.
(b) Except as otherwise expressly provided herein, to the extent any expense reimbursement or other in-kind benefit is determined to be subject to Code Section 409A, the amount of any such expenses eligible for reimbursement or in-kind benefits in one calendar year shall not affect the expenses eligible for reimbursement or in-kind benefits in any other taxable year (except under any lifetime limit applicable to expenses for medical care), in no event shall any expenses be reimbursed or in-kind benefits be provided after the last day of the calendar year following the calendar year in which Executive incurred such expenses or received such benefits, and in no event shall any right to reimbursement or in-kind benefits be subject to liquidation or exchange for another benefit.
(c) Any payments made pursuant to Sections 5 and 6, to the extent of payments made from the date of termination through March 15th of the calendar year following such date, are intended to constitute separate payments for purposes of Treas. Reg. §1.409A-2(b)(2) and thus payable pursuant to the short-term deferral rule set forth in Treas. Reg. §1.409A-1(b)(4); to the extent such payments are made following said March 15th, they are intended to constitute separate payments for purposes of Treas. Reg. §1.409A-2(b)(2) made upon an involuntary termination from service and payable pursuant to Treas. Reg. §1.409A-1(b)(9)(iii), to the maximum extent permitted by said provision. Notwithstanding the foregoing, if JSSB determines that any other payments hereunder
fail to satisfy the distribution requirement of Section 409A(a)(2)(A) of the Internal Revenue Code of 1986, as amended (the Code), the payment of such benefit shall be delayed to the minimum extent necessary so that such payments are not subject to the provisions of Code Section 409A(a)(1).
(d) To the extent it is determined that any benefits described in Section 6(b) are taxable to Executive, they are intended to be payable pursuant to Treas. Reg. §1.409A-1(b)(9)(v), to the maximum extent permitted by said provision.
IN WITNESS WHEREOF, the parties have executed this Agreement, or caused it to be executed, as of the date first above written.
PENNS WOODS BANCORP, INC. |
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By: |
/s/ Ronald A. Walko |
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Date: October 25, 2010 |
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(Penns Woods) |
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JERSEY SHORE STATE BANK |
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By: |
/s/Ronald A. Walko |
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Date: October 25, 2010 |
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(JSSB) |
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/s/ Robert J. Glunk (SEAL) |
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Date: October 25, 2010 |
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ROBERT J. GLUNK |
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(Executive) |
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Exhibit 31(i)
Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Executive Officer
I, Richard A. Grafmyre, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Penns Woods Bancorp, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing equivalent functions):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: May 9, 2012 |
/s/ Richard A. Grafmyre |
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Richard A. Grafmyre |
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Chief Executive Officer |
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(Principal Executive Officer) |
Exhibit 31(ii)
Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Financial Officer
I, Brian L. Knepp, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Penns Woods Bancorp, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing equivalent functions):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: May 9, 2012 |
/s/ Brian L. Knepp |
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Brian L. Knepp |
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Chief Financial Officer |
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(Principal Financial Officer and Principal Accounting Officer) |
Exhibit 32 (i)
CERTIFICATION SECTION 1350
In connection with the Quarterly Report of Penns Woods Bancorp, Inc. (the Company) on Form 10-Q for the period ending March 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Richard A. Grafmyre, Chief Executive Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
/s/ Richard A. Grafmyre |
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Richard A. Grafmyre |
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Chief Executive Officer |
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May 9, 2012 |
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Exhibit 32 (ii)
CERTIFICATION SECTION 1350
In connection with the Quarterly Report of Penns Woods Bancorp, Inc. (the Company) on Form 10-Q for the period ending March 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Brian L. Knepp, Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
/s/ Brian L. Knepp |
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Brian L. Knepp |
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Chief Financial Officer |
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May 9, 2012 |
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