Penns Woods Bancorp, Inc. Reports First Quarter 2012 Operating Earnings

Penns Woods Bancorp, Inc. (NASDAQ:PWOD)

Highlights
  • Net income from core operations (“operating earnings”), which is a non-GAAP measure of net income excluding net securities gains and losses and bank owned life insurance gains of death benefit, 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 same period of 2011, an increase of 15.3%.
  • Return on average assets was 1.91% for the three months ended March 31, 2012 compared to 1.65% for the corresponding period of 2011.
  • Return on average equity was 17.39% for the three months ended March 31, 2012 compared to 16.62% for the corresponding period of 2011.

“Our focus on building core deposits, loan growth, and managing credit risk is being rewarded through increases in net income and related return metrics of earnings per share, return on equity, and return on assets. While we have successfully been negotiating the challenges presented by the economy and credit cycle, we must and will remain focused on the challenges that lie ahead,” said Richard A. Grafmyre, CFP®, President and CEO.

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 the highlights, to the comparable GAAP financial measures is included at the end of this press release.

Net Income

Net income, as reported under GAAP, for the three months ended March 31, 2012 was $3,689,000 compared to $2,853,000 for the same period of 2011. Results for the three months ended March 31, 2012 compared to 2011 were impacted by an increase in after-tax securities gains of $306,000 (from a gain of $83,000 to a gain of $389,000). In addition, a gain of $109,000 on death benefit related to bank owned life insurance was recorded during the three months ended March 31, 2012. Basic and dilutive earnings per share for the three months ended March 31, 2012 were $0.96 compared to $0.74 for the corresponding period of 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 Interest Margin

The net interest margin 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 basis points (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 current interest rate environment provides challenges to the net interest margin. We have been able to reduce the rates being paid on interest-bearing liabilities; however, earning asset yields have also been decreasing. Over the past few years we have been shortening the bond portfolio duration by utilizing shorter term corporate and agency bonds to offset the relatively longer duration of municipal bonds in the portfolio. While this action has limited current earnings due to the low rates on the short end of the interest rate curve, it also limits interest rate risk and will provide cash flow over the next few years as we anticipate a period of increasing rates. Downward pressure on the yield on earning assets is occurring due to the inability to add new loans and investments to the balance sheet at comparable rates to the current portfolios. Our focus on increasing core deposits has resulted in a decrease in the overall cost of interest-bearing liabilities which has limited the negative effects of a declining yield on earning assets,” commented President Grafmyre.

Assets

Total assets increased $99,777,000 to $793,114,000 at March 31, 2012 compared to March 31, 2011. Net loans increased 7.5% to $435,832,000 at March 31, 2012 compared to March 31, 2011 as the economic environment has in general provided fewer loan opportunities over the past year. 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 or exceed our credit standards. During 2011 and 2012 successful loan campaigns were undertaken to build home equity loans and lines of credit. The investment portfolio increased $63,903,000 from March 31, 2011 to March 31, 2012 due to a combination of market value increases and the purchase of short maturity bonds that have been utilized to reduce the portfolio duration and to provide current cash flow.

Non-performing Loans

Our non-performing loans to total loans ratio has decreased to 2.55% at March 31, 2012 from 3.13% at March 31, 2011. The decrease in non-performing loans is primarily the result of a decrease in commercial loan delinquencies due to a partial charge-off during the second quarter of 2011. The majority of non-performing loans are 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. Net loan charge-offs of $9,000 for the three months ended March 31, 2012 represented 0.01% of average loans for the three months ended March 31, 2012. The allowance for loan losses was increased to 1.75% of total loans at March 31, 2012 from 1.61% at March 31, 2011 due to the general economic uncertainty that persists.

Deposits

Deposits have grown 17.6%, or $92,825,000, to $621,542,000 at March 31, 2012 compared to March 31, 2011, with core deposits (total deposits excluding time deposits) increasing $101,018,000, while higher cost time deposits decreased $8,193,000. Noninterest-bearing deposits have increased 22.0% to $116,271,000 at March 31, 2012 compared to March 31, 2011. Also playing a significant role in increasing core deposits was money market and NOW accounts with growth rates of 31.2% and 53.9%, respectively. Driving this growth is our commitment to easy-to-use products, community involvement, and emphasis on customer service. We have also successfully implemented a targeted marketing campaign aimed at further strengthening our customer relationships, while also expanding our market penetration.

Shareholders’ Equity

Shareholders’ equity increased $16,281,000 to $85,279,000 at March 31, 2012 compared to March 31, 2011. The accumulated other comprehensive gain of $1,699,000 at March 31, 2012 is a result of an increase in unrealized gains on available for sale securities from an unrealized loss of $6,005,000 at March 31, 2011 to an unrealized gain of $5,832,000 at March 31, 2012. However, the amount of accumulated other comprehensive gain at March 31, 2012 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 $1,720,000. The current level of shareholders’ equity equates to a book value per share of $22.22 at March 31, 2012 compared to $17.99 at March 31, 2011 and an equity to asset ratio of 10.75% at March 31, 2012 compared to 9.95% at March 31, 2011. Excluding accumulated other comprehensive gain/loss, book value per share was $21.78 at March 31, 2012 compared to $20.18 at March 31, 2011. Dividends paid to shareholders were $0.47 for the three months ended March 31, 2012 compared to $0.46 for the three months ended March 31, 2011.

Penns Woods Bancorp, Inc. is the parent company of Jersey Shore State Bank, which operates thirteen branch offices providing financial services in Lycoming, Clinton, Centre, and Montour 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, 2011.

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,
2012 2011 % Change
 
ASSETS
Noninterest-bearing balances $ 16,272 $ 10,950 48.6 %
Interest-bearing deposits in other financial institutions   7,159     554   1192.2 %
Total cash and cash equivalents 23,431 11,504 103.7 %
 
Investment securities, available for sale, at fair value 284,778 220,877 28.9 %
Investment securities held to maturity (fair value of $55 and $53) 55 53 3.8 %
Loans held for sale 2,065 4,818 -57.1 %
Loans 443,577 412,093 7.6 %
Less: Allowance for loan losses   7,745     6,640   16.6 %
Loans, net 435,832 405,453 7.5 %
Premises and equipment, net 8,283 7,634 8.5 %
Accrued interest receivable 4,100 3,638 12.7 %
Bank-owned life insurance 15,973 15,640 2.1 %
Investment in limited partnerships 3,379 4,040 -16.4 %
Goodwill 3,032 3,032 0.0 %
Deferred tax asset 6,416 11,554 -44.5 %
Other assets   5,770     5,094   13.3 %
TOTAL ASSETS $ 793,114   $ 693,337   14.4 %
 
LIABILITIES
Interest-bearing deposits $ 505,271 $ 433,439 16.6 %
Noninterest-bearing deposits   116,271     95,278   22.0 %
Total deposits 621,542 528,717 17.6 %
 
Short-term borrowings 14,768 15,636 -5.6 %
Long-term borrowings, Federal Home Loan Bank (FHLB) 61,278 71,778 -14.6 %
Accrued interest payable 506 694 -27.1 %
Other liabilities   9,741     7,514   29.6 %
TOTAL LIABILITIES   707,835     624,339   13.4 %
 
SHAREHOLDERS' EQUITY

Common stock, par value $8.33, 10,000,000 shares authorized; 4,018,068 and 4,016,233 shares issued
33,484 33,468 0.0 %
Additional paid-in capital 18,127 18,078 0.3 %
Retained earnings 38,279 32,180 19.0 %
Accumulated other comprehensive gain (loss):
Net unrealized gain (loss) on available for sale securities 5,832 (6,005 ) 197.1 %
Defined benefit plan (4,133 ) (2,413 ) -71.3 %
Less: Treasury stock at cost, 180,596 shares   (6,310 )   (6,310 ) 0.0 %
TOTAL SHAREHOLDERS' EQUITY   85,279     68,998   23.6 %
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 793,114   $ 693,337   14.4 %
 
 
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
     
 
(In Thousands, Except Per Share Data) Three Months Ended
March 31,
2012 2011 % Change
 
INTEREST AND DIVIDEND INCOME:
Loans including fees $ 6,314 $ 6,288 0.4 %
Investment securities:
Taxable 1,474 1,375 7.2 %
Tax-exempt 1,405 1,267 10.9 %
Dividend and other interest income   92   52 76.9 %
TOTAL INTEREST AND DIVIDEND INCOME   9,285   8,982 3.4 %
 
INTEREST EXPENSE:
Deposits 961 1,194 -19.5 %
Short-term borrowings 34 57 -40.4 %
Long-term borrowings, FHLB   620   734 -15.5 %
TOTAL INTEREST EXPENSE   1,615   1,985 -18.6 %
 
NET INTEREST INCOME 7,670 6,997 9.6 %
 
PROVISION FOR LOAN LOSSES   600   600 0.0 %
 
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES   7,070   6,397 10.5 %
 
NON-INTEREST INCOME:
Service charges 447 503 -11.1 %
Securities gains, net 589 125 371.2 %
Bank-owned life insurance 268 174 54.0 %
Gain on sale of loans 183 249 -26.5 %
Insurance commissions 442 209 111.5 %
Brokerage commissions 212 274 -22.6 %
Other   622   411 51.3 %
TOTAL NON-INTEREST INCOME   2,763   1,945 42.1 %
 
NON-INTEREST EXPENSE:
Salaries and employee benefits 3,017 2,632 14.6 %
Occupancy, net 328 348 -5.7 %
Furniture and equipment 346 308 12.3 %
Pennsylvania shares tax 169 172 -1.7 %
Amortization of investments in limited partnerships 165 166 -0.6 %
FDIC deposit insurance 123 187 -34.2 %
Other   1,316   1,175 12.0 %
TOTAL NON-INTEREST EXPENSE   5,464   4,988 9.5 %
 
INCOME BEFORE INCOME TAX PROVISION 4,369 3,354 30.3 %
INCOME TAX PROVISION   680   501 35.7 %
NET INCOME $ 3,689 $ 2,853 29.3 %
 
EARNINGS PER SHARE - BASIC $ 0.96 $ 0.74 29.7 %
 
EARNINGS PER SHARE - DILUTED $ 0.96 $ 0.74 29.7 %
 
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC   3,837,204   3,835,295 0.0 %
 
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED   3,837,204   3,835,295 0.0 %
 
DIVIDENDS PER SHARE $ 0.47 $ 0.46 2.2 %
 
 
PENNS WOODS BANCORP, INC.
AVERAGE BALANCES AND INTEREST RATES
 
For the Three Months Ended
(Dollars in Thousands) March 31, 2012   March 31, 2011
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 %
 
 
For the Three Months Ended
March 31,
 
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  

 

 

 
 
Quarter Ended
                 
(Dollars in Thousands, Except Per Share Data)     3/31/2012         12/31/2011         9/30/2011         6/30/2011         3/31/2011  
                                     
Operating Data                                      
                                     
Net income $   3,689     $   3,395     $   3,150     $   2,964     $   2,853  
Net interest income     7,670         7,595         7,210         6,918         6,997  
Provision for loan losses     600         900         600         600         600  
Net security gains     589         479         8         9         125  
Non-interest income, ex. net security gains     2,174         1,932         1,982         1,864         1,820  
Non-interest expense     5,464         5,152         4,968         4,856         4,988  
                                     
Performance Statistics                                      
                                     
Net interest margin     4.72 %       4.78 %       4.55 %       4.58 %       4.86 %
Annualized return on average assets     1.91 %       1.80 %       1.67 %       1.64 %       1.65 %
Annualized return on average equity     17.39 %       17.00 %       16.49 %       16.29 %       16.62 %
Annualized net loan charge-offs to avg loans     0.01 %       0.09 %       0.01 %       1.41 %       0.00 %
Net charge-offs (recoveries)     9         101         8         1,477         (5 )
Efficiency ratio     55.5 %       54.1 %       54.1 %       55.3 %       56.6 %
                                     
Per Share Data                                      
                                     
Basic earnings per share $   0.96     $   0.88     $   0.82     $   0.78     $   0.74  
Diluted earnings per share     0.96         0.88         0.82         0.78         0.74  
Dividend declared per share     0.47         0.46         0.46         0.46         0.46  
Book value     22.22         20.97         20.48         19.27         17.99  
Common stock price:                                      
High     41.67         39.30         36.56         39.30         40.08  
Low     36.20         32.01         31.07         33.33         35.46  
Close     40.88         38.78         32.75         34.36         38.93  
Weighted average common shares:                                      
Basic     3,837         3,837         3,836         3,836         3,835  
Fully Diluted     3,837         3,837         3,836         3,836         3,835  
End-of-period common shares:                                      
Issued     4,018         4,018         4,017         4,017         4,016  
Treasury     181         181         181         181         181  
 
               
Quarter Ended
   
(Dollars in Thousands, Except Per Share Data)     3/31/2012         12/31/2011         9/30/2011         6/30/2011         3/31/2011  
                                     
Financial Condition Data:                                      
General                                      
Total assets $   793,114     $   763,953     $   752,650     $   744,986     $   693,337  
Loans, net     435,832         428,805         422,989         413,397         405,453  
Intangibles     3,032         3,032         3,032         3,032         3,032  
Total deposits     621,542         581,664         575,300         569,833         528,717  
Noninterest-bearing     116,271         111,354         104,783         100,104         95,278  
                                     
Savings     77,253         71,646         73,376         71,923         69,095  
NOW     108,904         101,808         103,264         91,285         70,763  
Money Market     141,830         124,335         122,896         129,004         108,104  
Time Deposits     177,284         172,521         170,981         177,517         185,477  
Total interest-bearing deposits     505,271         470,310         470,517         469,729         433,439  
                                     
Core deposits*     444,258         409,143         404,319         392,316         343,240  
Shareholders' equity     85,279         80,460         78,572         73,906         68,998  
                                     
Asset Quality                                      
                                     
Non-performing assets $   11,308     $   12,009     $   14,344     $   10,911     $   12,900  
Non-performing assets to total assets     1.43 %       1.57 %       1.91 %       1.46 %       1.86 %
Allowance for loan losses     7,745         7,154         6,355         5,764         6,640  
Allowance for loan losses to total loans     1.75 %       1.64 %       1.48 %       1.38 %       1.61 %

Allowance for loan losses to non-performing loans
    68.49 %       59.57 %       44.30 %       52.83 %       51.47 %
Non-performing loans to total loans     2.55 %       2.75 %       3.34 %       2.60 %       3.13 %
                                     
Capitalization                                      
                                     
Shareholders' equity to total assets     10.75 %       10.53 %       10.44 %       9.92 %       9.95 %
 
* 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,
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  

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