Penns Woods Bancorp, Inc. (NASDAQ:PWOD) today reported that net income from core operations (“operating earnings”), which is a non-GAAP measure of net income excluding net securities gains and losses, increased to $2,770,000 for the three months ended March 31, 2011 compared to $2,450,000 for the same period of 2010. Operating earnings per share for the three months ended March 31, 2011 were $0.72 basic and dilutive compared to $0.64 basic and dilutive for the same period of 2010 or an increase of 12.5%. Operating earnings for the three months ended March 31, 2011 were positively impacted by continued emphasis on core deposit growth, an increasing net interest margin, and expense control. A reconciliation of the non-GAAP financial measures of operating earnings, operating return on assets, operating return on equity, and operating earnings per share described in this paragraph to the comparable GAAP financial measures is included at the end of this press release.

Net income, as reported under U.S. generally accepted accounting principles, for the three months ended March 31, 2011 was $2,853,000 compared to $2,448,000 for the same period of 2010. Results for the three month period ended March 31, 2011 compared to 2010 were impacted by an increase in after-tax securities gains of $85,000 (from a loss of $2,000 to a gain of $83,000). Basic and dilutive earnings per share for the three months ended March 31, 2011 were $0.74 compared to $0.64 for the corresponding period of 2010. Return on average assets and return on average equity were 1.65% and 16.62% for the three months ended March 31, 2011 compared to 1.42% and 14.31% for the corresponding period of 2010.

The net interest margin for the three months ended March 31, 2011 was 4.89% compared to 4.49% for the corresponding period of 2010. Contributing to the increased net interest margin is the significant growth in lower cost core deposits, which has led to the average rate paid on interest bearing liabilities decreasing 50 basis points (bp) for the three months ended March 31, 2011 compared to the same period of 2010. In addition, the average rate paid on time deposits decreased 58 bp for the three months ended March 31, 2011 compared to the same period of 2010. The liability rate decreases are primarily the result of Federal Open Market Committee (FOMC) actions to maintain low interest rates in addition to lower cost core deposit growth to 64.9% of total deposits at March 31, 2011 compared to 58.4% at March 31, 2010. The duration of the time deposit portfolio, which was shortened over the past several years, is now being lengthened due to the apparent bottoming or near bottoming of deposit rates. FHLB long-term borrowings have been reduced by $15,000,000 since March 31, 2010 with cash on hand being utilized to pay off the borrowings. An additional $10,500,000 of FHLB long-term borrowings at an average rate of 4.60% will be maturing during the latter part of 2011. “We continue to manage the balance sheet to not only generate current returns, but to also prepare for a period of increasing interest rates. Quality loans that possess a fair risk/return trade-off and complement the overall earning asset portfolio are being added to the portfolio. The investment portfolio duration is being shortened with purchased bonds primarily having a final maturity of less than seven years. On the liability side of the balance sheet we have been able to reduce borrowings due to continued growth in the deposit portfolio. We have also taken actions to begin lengthening the time deposit portfolio with emphasis on time deposit maturities of greater than two years,” commented Richard A. Grafmyre, President and Chief Executive Officer of Penns Woods Bancorp, Inc.

Total assets decreased $2,418,000 to $693,337,000 at March 31, 2011 compared to March 31, 2010. Net loans have remained stable from March 31, 2010 to 2011 as the economic environment has in general provided fewer loan opportunities. Housing, transportation, and all other facets related to the Marcellus Shale natural gas exploration are creating loan opportunities and we are aggressively attempting to attract those loans that meet and/or exceed our credit standards. The general economic issues of the state and nation are impacting our loan credit quality ratios, although we continue to compare favorably to other members of the financial industry. Our nonperforming loans to total loans ratio has increased to 1.86% at March 31, 2011 from 0.56% at March 31, 2010. The increase in nonperforming loans is primarily the result of an increase in commercial loan delinquencies. The increase is centered on several loans that either are 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. Loan recoveries outpaced charges-offs for the three month period ended March 31, 2011 resulting in net recoveries of $5,000. The allowance for loan losses was increased to 1.61% of total loans at March 31, 2011 due to the general economic uncertainty and an increase in nonperforming loans. The investment portfolio increased $3,571,000 from March 31, 2010 to March 31, 2011 due to the purchase of short maturity bonds that have been utilized to reduce the portfolio duration and to provide current cash flow.

Deposits have grown 1.5% or $7,677,000 to $528,717,000 at March 31, 2011 compared to March 31, 2010, with core deposits (total deposits excluding time deposits) increasing $38,985,000. “Our continued focus on customer service coupled with a shift to targeted marketing is the driving factors behind the deposit growth. With a focus on building relationships, we have targeted money market accounts as a key building block. This can be highlighted by the 14.1% growth in money market accounts and 12.8% growth in core deposits. Over the past year, time deposits have decreased as we have taken a position of using these accounts 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 customer’s portfolio,” commented Mr. Grafmyre.

Shareholders’ equity increased $1,026,000 to $68,998,000 at March 31, 2011 compared to March 31, 2010. Accumulated other comprehensive loss increased by $3,286,000 as a result of an increase in unrealized losses on available for sale securities from an unrealized loss of $3,212,000 at March 31, 2010 to an unrealized loss of $6,005,000 at March 31, 2011. Accumulated other comprehensive loss was also impacted by the change in net excess of the projected benefit obligation over the market value of the plan assets of the defined benefit pension plan resulting in an increase in the net loss of $493,000. The current level of shareholders’ equity equates to a book value per share of $17.99 at March 31, 2011 compared to $17.73 at March 31, 2010 and an equity to asset ratio of 9.95% at March 31, 2011 compared to 9.77% at March 31, 2010. Excluding accumulated other comprehensive loss, book value per share was $20.18 at March 31, 2011 compared to $19.06 at March 31, 2010. Dividends paid to shareholders were $0.46 for the three months ended March 31, 2011 and 2010.

“Our capital position continues to provide a solid foundation for organic growth, while also providing sufficient capital for opportunities that may arise. We will continue to maintain a dividend policy and stock repurchase plan that follow our strategic plan, while maintaining a “well capitalized” regulatory capital position,” commented Mr. Grafmyre.

Penns Woods Bancorp, Inc. is the parent company of Jersey Shore State Bank, which operates twelve branch offices providing financial services in Lycoming, Clinton, and Centre Counties. Investment and insurance products are offered through the bank’s subsidiary, The M Group, Inc. D/B/A The Comprehensive Financial Group.

NOTE: This press release contains financial information determined by methods other than in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"). Management uses the non-GAAP measure of net income from core operations in its analysis of the company's performance. This measure, as used by the Company, adjusts net income determined in accordance with GAAP to exclude the effects of special items, including significant gains or losses that are unusual in nature such as net securities gains and losses. Because certain of these items and their impact on the Company’s performance are difficult to predict, management believes presentation of financial measures excluding the impact of such items provides useful supplemental information in evaluating the operating results of the Company’s core businesses. 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.

This press release may contain certain “forward-looking statements” including statements concerning plans, objectives, future events or performance and assumptions and other statements, which are statements 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 actual results and could cause 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, 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 Company’s organization, compensation and benefit plans; (iii) the effect on the Company’s 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. For a list of other factors which could affect the Company’s results, see the Company’s filings with the Securities and Exchange Commission, including “Item 1A. Risk Factors,” set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

You should not place undue reliance on any forward-looking statements. These statements speak only as of the date of this press release, 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 press release.

Previous press releases and additional information can be obtained from the Company’s website at www.jssb.com.

THIS INFORMATION IS SUBJECT TO YEAR-END AUDIT ADJUSTMENT
 
PENNS WOODS BANCORP, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
     
(In Thousands, Except Share Data) March 31,
  2011     2010   % Change  
 
ASSETS
Noninterest-bearing balances $ 10,950 $ 20,335 -46.2 %
Interest-bearing deposits in other financial institutions   554     89   522.5 %
Total cash and cash equivalents 11,504 20,424 -43.7 %
 
Investment securities, available for sale, at fair value 220,877 217,252 1.7 %
Investment securities held to maturity (fair value of $53 and $108) 53 107 -50.5 %
Loans held for sale 4,818 4,364 10.4 %
Loans 412,093 409,919 0.5 %
Less: Allowance for loan losses   6,640     4,864   36.5 %
Loans, net 405,453 405,055 0.1 %
Premises and equipment, net 7,634 8,013 -4.7 %
Accrued interest receivable 3,638 3,531 3.0 %
Bank-owned life insurance 15,640 15,062 3.8 %
Investment in limited partnerships 4,040 4,756 -15.1 %
Goodwill 3,032 3,032 0.0 %
Deferred tax asset 11,554 9,069 27.4 %
Other assets   5,094     5,090   0.1 %
TOTAL ASSETS $ 693,337   $ 695,755   -0.3 %
 
LIABILITIES
Interest-bearing deposits $ 433,439 $ 440,127 -1.5 %
Noninterest-bearing deposits   95,278     80,913   17.8 %
Total deposits 528,717 521,040 1.5 %
 
Short-term borrowings 15,636 12,978 20.5 %
Long-term borrowings, Federal Home Loan Bank (FHLB) 71,778 86,778 -17.3 %
Accrued interest payable 694 990 -29.9 %
Other liabilities   7,514     5,997   25.3 %
TOTAL LIABILITIES   624,339     627,783   -0.5 %
 
SHAREHOLDERS' EQUITY
Common stock, par value $8.33, 10,000,000 shares authorized;
4,016,233 and 4,013,663 shares issued 33,468 33,447 0.1 %
Additional paid-in capital 18,078 18,020 0.3 %
Retained earnings 32,180 27,901 15.3 %
Accumulated other comprehensive loss:
Net unrealized loss on available for sale securities (6,005 ) (3,212 ) -87.0 %
Defined benefit plan (2,413 ) (1,920 ) -25.7 %
Less: Treasury stock at cost, 180,596 and 179,028 shares   (6,310 )   (6,264 ) -0.7 %
TOTAL SHAREHOLDERS' EQUITY   68,998     67,972   1.5 %
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 693,337   $ 695,755   -0.3 %
 
 
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
     
 
(In Thousands, Except Per Share Data) Three Months Ended
March 31,
  2011   2010   % Change  
 
INTEREST AND DIVIDEND INCOME:
Loans including fees $ 6,288 $ 6,330 -0.7 %
Investment securities:
Taxable 1,375 1,349 1.9 %
Tax-exempt 1,267 1,258 0.7 %
Dividend and other interest income   52   52   0.0 %
TOTAL INTEREST AND DIVIDEND INCOME   8,982   8,989   -0.1 %
 
INTEREST EXPENSE:
Deposits 1,194 1,710 -30.2 %
Short-term borrowings 57 64 -10.9 %
Long-term borrowings, FHLB   734   917   -20.0 %
TOTAL INTEREST EXPENSE   1,985   2,691   -26.2 %
 
NET INTEREST INCOME 6,997 6,298 11.1 %
 
PROVISION FOR LOAN LOSSES   600   300   100.0 %
 
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES   6,397   5,998   6.7 %
 
NON-INTEREST INCOME:
Deposit service charges 503 510 -1.4 %
Securities gains (losses), net 125 (3 ) 4266.7 %
Bank-owned life insurance 174 171 1.8 %
Gain on sale of loans 249 182 36.8 %
Insurance commissions 209 264 -20.8 %
Other   685   572   19.8 %
TOTAL NON-INTEREST INCOME   1,945   1,696   14.7 %
 
NON-INTEREST EXPENSE:
Salaries and employee benefits 2,632 2,737 -3.8 %
Occupancy, net 348 331 5.1 %
Furniture and equipment 308 304 1.3 %
Pennsylvania shares tax 172 169 1.8 %
Amortization of investments in limited partnerships 166 142 16.9 %
Other   1,362   1,303   4.5 %
TOTAL NON-INTEREST EXPENSE   4,988   4,986   0.0 %
 
INCOME BEFORE INCOME TAX PROVISION 3,354 2,708 23.9 %
INCOME TAX PROVISION   501   260   92.7 %
NET INCOME $ 2,853 $ 2,448   16.5 %
 
EARNINGS PER SHARE - BASIC $ 0.74 $ 0.64   15.6 %
 
EARNINGS PER SHARE - DILUTED $ 0.74 $ 0.64   15.6 %
 
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC   3,835,295   3,834,296   0.0 %
 
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED   3,835,295   3,834,448   0.0 %
 
DIVIDENDS PER SHARE $ 0.46 $ 0.46   0.0 %
 
 
PENNS WOODS BANCORP, INC.
AVERAGE BALANCES AND INTEREST RATES
           
For the Three Months Ended
(Dollars in Thousands) March 31, 2011 March 31, 2010
Average Balance Interest Average Rate Average Balance Interest Average Rate
ASSETS:
Tax-exempt loans $ 20,377 $ 308 6.13 % $ 17,346 $ 292 6.83 %
All other loans   399,599   6,085   6.18 %   394,957   6,137 6.30 %
Total loans   419,976   6,393   6.17 %   412,303   6,429 6.32 %
 
Taxable securities 114,740 1,427 4.97 % 106,645 1,400 5.25 %
Tax-exempt securities   103,108   1,920   7.45 %   107,013   1,906 7.12 %
Total securities   217,848   3,347   6.15 %   213,658   3,306 6.19 %
 
Interest bearing deposits   2,002   -   0.00 %   7,569   1 0.05 %
 
Total interest-earning assets 639,826   9,740   6.14 % 633,530   9,736 6.20 %
 
Other assets   53,883   55,410
 
TOTAL ASSETS $ 693,709 $ 688,940
 
LIABILITIES AND SHAREHOLDERS' EQUITY:
Savings $ 66,510 35 0.21 % $ 62,282 53 0.35 %
Super Now deposits 69,177 83 0.49 % 63,046 109 0.70 %
Money market deposits 109,196 265 0.98 % 87,186 287 1.34 %
Time deposits   188,561   811   1.74 %   220,214   1,261 2.32 %
Total interest-bearing deposits   433,444   1,194   1.12 %   432,728   1,710 1.60 %
 
Short-term borrowings 19,207 57 1.20 % 14,745 64 1.76 %
Long-term borrowings, FHLB   71,778   734   4.09 %   86,778   917 4.23 %
Total borrowings   90,985   791   3.48 %   101,523   981 3.87 %
 
Total interest-bearing liabilities 524,429   1,985   1.53 % 534,251   2,691 2.03 %
 
Demand deposits 91,473 78,039
Other liabilities 9,155 8,245
Shareholders' equity   68,652   68,405
 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 693,709 $ 688,940
Interest rate spread   4.61 % 4.17 %
Net interest income/margin $ 7,755   4.89 % $ 7,045 4.49 %
 
 
For the Three Months Ended
March 31,
 
  2011   2010  
 
Total interest income $ 8,982 $ 8,989
Total interest expense   1,985   2,691  
 
Net interest income 6,997 6,298
Tax equivalent adjustment   758   747  
 
Net interest income (fully taxable equivalent) $ 7,755 $ 7,045  
 
 
Quarter Ended
 
(Dollars in Thousands, Except Per Share Data)  

3/31/2011
   

12/31/2010
   

9/30/2010
   

6/30/2010
   

3/31/2010
 
                   
Operating Data                    
                   
Net income $ 2,853   $ 2,861   $ 2,848   $ 2,772   $ 2,448  
Net interest income   6,997     6,848     6,758     6,590     6,298  
Provision for loan losses   600     750     700     400     300  
Net security gains (losses)   125     11     109     56     (3 )
Non-interest income, ex. net security gains (losses)   1,820     1,874     1,761     1,952     1,699  
Non-interest expense   4,988     4,812     4,704     4,990     4,986  
                   
Performance Statistics                    
                   
Net interest margin   4.89 %   4.66 %   4.56 %   4.56 %   4.49 %
Annualized return on average assets   1.65 %   1.63 %   1.60 %   1.58 %   1.42 %
Annualized return on average equity   16.62 %   15.56 %   15.51 %   15.76 %   14.31 %
Annualized net loan charge-offs to avg loans   0.00 %   0.18 %   0.26 %   0.21 %   0.09 %
Net (recoveries) charge-offs   (5 )   193     268     217     93  
Efficiency ratio   56.6 %   55.2 %   55.2 %   58.4 %   62.4 %
                   
Per Share Data                    
                   
Basic earnings per share $ 0.74   $ 0.75   $ 0.74   $ 0.72   $ 0.64  
Diluted earnings per share   0.74     0.75     0.74     0.72     0.64  
Dividend declared per share   0.46     0.46     0.46     0.46     0.46  
Book value   17.99     17.37     19.64     18.42     17.73  
Common stock price:                    
High   40.08     41.26     33.15     34.50     34.03  
Low   35.46     31.97     29.41     26.76     30.04  
Close   38.93     39.80     33.05     30.42     33.55  
Weighted average common shares:                    
Basic   3,835     3,835     3,834     3,834     3,834  
Fully Diluted   3,835     3,835     3,834     3,834     3,834  
End-of-period common shares:                    
Issued   4,016     4,016     4,015     4,014     4,014  
Treasury   181     181     181     181     179  
 
 
Quarter Ended
       
(Dollars in Thousands, Except Per Share Data)  

3/31/2011
     

12/31/2010
     

9/30/2010
     

6/30/2010
     

3/31/2010
 
                           
Financial Condition Data:                            
General                            
Total assets $ 693,337     $ 691,688     $ 713,496     $ 710,291     $ 695,755  
Loans, net   405,453       409,522       407,394       406,913       405,055  
Intangibles   3,032       3,032       3,032       3,032       3,032  
Total deposits   528,717       517,508       534,170       529,981       521,040  
Noninterest-bearing   95,278       89,347       92,128       87,979       80,913  
                           
Savings   69,095       64,258       66,763       66,789       64,255  
NOW   70,763       67,505       66,957       65,802       64,362  
Money Market   108,104       107,123       105,147       101,301       94,725  
Time Deposits   185,477       189,275       203,175       208,110       216,785  
Total interest-bearing deposits   433,439       428,161       442,042       442,002       440,127  
                           
Core deposits*   343,240       328,233       330,995       321,871       304,255  
Shareholders' equity   68,998       66,620       75,323       70,603       67,972  
                           
Asset Quality                            
                           
Non-performing assets $ 12,900     $ 6,215     $ 6,918     $ 6,646     $ 3,863  
Non-performing assets to total assets   1.86 %     0.90 %     0.97 %     0.94 %     0.56 %
Allowance for loan losses   6,640       6,035       5,479       5,047       4,864  
Allowance for loan losses to total loans   1.61 %     1.45 %     1.33 %     1.23 %     1.19 %

Allowance for loan losses to non-performing loans
  51.47 %     97.10 %     79.20 %     75.94 %     125.91 %
Non-performing loans to total loans   3.13 %     1.50 %     1.68 %     1.61 %     0.94 %
                           
Capitalization                            
                           
Shareholders' equity to total assets   9.95 %     9.63 %     10.56 %     9.94 %     9.77 %
 
* Core deposits are defined as total deposits less time deposits
 
 
Reconciliation of GAAP and non-GAAP Financial Measures
   
(Dollars in Thousands, Except Per Share Data) Three Months Ended
March 31,
2011 2010
GAAP net income $ 2,853 $ 2,448
Less: securities gains (losses), net of tax   83     (2 )
Non-GAAP operating earnings $ 2,770   $ 2,450  
 
Three Months Ended
March 31,
2011 2010
Return on average assets (ROA) 1.65 % 1.42 %
Less: securities gains (losses), net of tax   0.05 %   0.01 %
Non-GAAP operating ROA   1.60 %   1.41 %
 
Three Months Ended
March 31,
2011 2010
Return on average equity (ROE) 16.62 % 14.31 %
Less: securities gains (losses), net of tax   0.48 %   -0.02 %
Non-GAAP operating ROE   16.14 %   14.33 %
 
Three Months Ended
March 31,
2011 2010
Basic earnings per share (EPS) $ 0.74 $ 0.64
Less: securities gains (losses), net of tax   0.02     0.00  
Non-GAAP basic operating EPS $ 0.72   $ 0.64  
 
Three Months Ended
March 31,
2011 2010
Dilutive EPS $ 0.74 $ 0.64
Less: securities gains (losses), net of tax   0.02     0.00  
Non-GAAP dilutive operating EPS $ 0.72   $ 0.64  
 

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