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Penns Woods Bancorp, Inc. Reports First Quarter 2015 Operating Earnings

WILLIAMSPORT, Pa., April 17, 2015 (GLOBE NEWSWIRE) -- Penns Woods Bancorp, Inc. (Nasdaq:PWOD)

Penns Woods Bancorp, Inc. continued its solid earnings and growth achieving net income of $3,355,000 for the three months ended March 31, 2015 resulting in basic and dilutive earnings per share of $0.70.

Highlights

  • Net income from core operations ("operating earnings"), which is a non-generally accepted accounting principles (GAAP) measure of net income excluding net securities gains and bank owned life insurance gains on death benefits, decreased to $2,919,000 for the three months ended March 31, 2015 compared to $3,036,000 for the same period of 2014. Impacting the three month period was an increase in the provision for loan losses of $215,000, due to the level of charge-offs related to commercial loans. In addition, the investment portfolio has declined $50,731,000 from March 31, 2014 to March 31, 2015 as part of our strategy to position the balance sheet for a rising rate environment.
  • Operating earnings per share for the three months ended March 31, 2015 were $0.61 basic and dilutive compared to $0.63 basic and dilutive for the same period of 2014.
  • Return on average assets was 1.06% for the three months ended March 31, 2015 compared to 1.15% for the corresponding period of 2014.
  • Return on average equity was 9.76% for the three months ended March 31, 2015 compared to 10.58% for the corresponding period of 2014.

"The three months ended March 31, 2015 have seen several areas of focus for the Penns Woods family. Branch expansion and renovation continues to move forward as the building of the Lewisburg branch is underway and a new Spring Mills branch will be under construction in the coming months. We have focused resources on succession planning as we evaluate and train our employees for the future success of Penns Woods. While these projects were progressing, we were also in the midst of continuing the shift in the earning asset portfolio from investments to loans. This strategic action has been underway over the past twelve plus months as we focused on shortening the earning asset portfolio per our strategy to reduce interest rate and market price risk," 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, 2015 was $3,355,000 compared to $3,469,000 for the same period of 2014. Results for the three months ended March 31, 2015 compared to 2014 were impacted by an increase in after-tax securities gains of $177,000 (from a gain of $259,000 to a gain of $436,000). In addition, a gain of $174,000 on death benefits related to bank owned life insurance was recorded during the first quarter of 2014. Basic and dilutive earnings per share for the three months ended March 31, 2015 were $0.70 compared to $0.72 for the corresponding periods of 2014. Return on average assets and return on average equity were 1.06% and 9.76% for the three months ended March 31, 2015 compared to 1.15% and 10.58% for the corresponding period of 2014.

Net Interest Margin

The net interest margin for the three months ended March 31, 2015 was 3.69% compared to 3.96% for the corresponding periods of 2014. The decline in the net interest margin was driven by a decreasing yield on the loan and investment portfolios due to the continued low rate environment. The impact of the declining earning asset yield and decreasing investment portfolio balance was partially offset by a 15.02% growth in gross loans from March 31, 2014 to March 31, 2015 resulting in net interest income remaining flat compared to the comparable three month period of 2014. The primary funding for the loan growth was an increase in core deposits. These deposits represent a lower cost funding source than time deposits and comprise 78.33% of total deposits at March 31, 2015 compared to 76.79% at March 31, 2014. The continued growth in core deposits has led to the total cost of deposits decreasing slightly to 40 basis points ("bp") for the three months ended March 31, 2015 from 41 bp for the corresponding period of 2014. Limiting the positive impact on the net margin caused by the growth in core deposits was the lengthening of the time deposit portfolio as part of our strategy to prepare the balance sheet for a rising rate environment.

"The net interest margin continues to decrease each quarter by several basis points which is consistent with industry trends. To offset the negative impact of declining yields on net interest income, we have focused on increasing the earning asset portfolio by adding quality short and intermediate term loans such as home equity loans, even though these new earning assets are at lower yields than legacy assets. The investment portfolio continues to be actively managed in order to reduce interest rate and market risk. The principal action undertaken over the past twelve plus months was the sale of long-term municipal bonds that had a maturity date of 2025 or later and securities with a call date within five years. Proceeds generated from the strategic selling of bonds have been, and continue to be, deployed primarily into loans with limited reinvestment into intermediate term corporate bonds and short and intermediate term municipal bonds. These actions do negatively impact current earnings, but the actions play a key role in our long-term asset liability management strategy as the earning asset portfolio is shortened to better prepare for a rising rate environment," commented President Grafmyre.

Assets

Total assets increased $51,696,000 to $1,268,833,000 at March 31, 2015 compared to March 31, 2014. Net loans increased $120,953,000 to $933,044,000 at March 31, 2015 compared to March 31, 2014 primarily due to campaigns related to increasing home equity product market share during 2014 and 2015 and growth in the commercial portfolio. The investment portfolio decreased $50,731,000 from March 31, 2014 to March 31, 2015 due to our strategy to reduce the investment portfolio duration through the selective selling of bonds as opportunities develop. The combination of loan portfolio growth and a decrease in the size of the investment portfolio has resulted in a shortening of the overall earning asset portfolio duration consistent with a strategy to reduce the interest rate and market risk exposure to a rising rate environment.

Non-performing Loans

The non-performing loans to total loans ratio decreased to 1.18% at March 31, 2015 from 1.29% at March 31, 2014. The ratio decreased in spite of an increase in non-performing loans due to a more significant increase in total loans from March 31, 2014 to March 31, 2015. The increase in non-performing loans to $11,157,000 at March 31, 2015 from $10,614,000 at March 31, 2014 is primarily the result of certain commercial loans becoming non-performing. The majority of non-performing loans are 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. Net loan charge-offs of $453,000 for the three months ended March 31, 2015 negatively impacted the allowance for loan losses which was 1.15% of total loans at March 31, 2015. The majority of the loans charged-off had a specific allowance within the allowance for loan losses.

Deposits

Deposits increased $13,463,000 to $996,489,000 at March 31, 2015 compared to March 31, 2014. Core deposits (total deposits excluding time deposits) increased $25,739,000, while higher cost time deposits decreased $12,276,000 due to our commitment to building complete banking relationships with our customers. Noninterest-bearing deposits increased $27,491,000 to $246,231,000 at March 31, 2015 compared to March 31, 2014. Driving this growth is our commitment to easy-to-use products, community involvement, and emphasis on customer service. While deposit gathering efforts have centered on core deposits, the lengthening of the time deposit portfolio is in process as part of the strategy to build balance sheet protection in a rising rate environment.

Shareholders' Equity

Shareholders' equity increased $4,699,000 to $137,004,000 at March 31, 2015 compared to March 31, 2014. The decrease in accumulated other comprehensive loss of $331,000 to $1,306,000 at March 31, 2015 from $1,637,000 at March 31, 2014 is primarily a result of an increase in unrealized gains on available for sale securities from an unrealized gain of $1,088,000 at March 31, 2014 to an unrealized gain of $3,291,000 at March 31, 2015. The amount of accumulated other comprehensive loss at March 31, 2015 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 $1,872,000 to $4,597,000 at March 31, 2015. The current level of shareholders' equity equates to a book value per share of $28.57 at March 31, 2015 compared to $27.45 at March 31, 2014 and an equity to asset ratio of 10.80% at March 31, 2015 compared to 10.87% at March 31, 2014. Excluding goodwill and intangibles, book value per share was $24.72 at March 31, 2015 compared to $23.55 at March 31, 2014. Dividends declared for each of the three months ended March 31, 2015 and 2014 were $0.47 per share.

Penns Woods Bancorp, Inc. is the parent company of Jersey Shore State Bank, which operates fourteen branch offices providing financial services in Lycoming, Clinton, Centre, and Montour Counties, and Luzerne Bank, which operates eight branch offices providing financial services in Luzerne County. Investment and insurance products are offered through Jersey Shore State 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, 2014.

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)
March 31,
(In Thousands, Except Share Data) 2015 2014 % Change
ASSETS
Noninterest-bearing balances $ 20,871 $ 24,913 (16.22)%
Interest-bearing balances in other financial institutions 901 14,582 (93.82)%
Federal funds sold 168 (100.00)%
Total cash and cash equivalents 21,772 39,663 (45.11)%
Investment securities, available for sale, at fair value 225,302 276,033 (18.38)%
Loans held for sale 1,063 1,647 (35.46)%
Loans 943,870 820,611 15.02 %
Allowance for loan losses (10,826) (8,520) 27.07 %
Loans, net 933,044 812,091 14.89 %
Premises and equipment, net 20,847 20,418 2.10 %
Accrued interest receivable 4,326 4,514 (4.16)%
Bank-owned life insurance 26,165 25,430 2.89 %
Investment in limited partnerships 1,395 2,056 (32.15)%
Goodwill 17,104 17,104 — %
Intangibles 1,373 1,709 (19.66)%
Deferred tax asset 7,801 7,984 (2.29)%
Other assets 8,641 8,488 1.80 %
TOTAL ASSETS $ 1,268,833 $ 1,217,137 4.25 %
LIABILITIES
Interest-bearing deposits $ 750,258 $ 764,286 (1.84)%
Noninterest-bearing deposits 246,231 218,740 12.57 %
Total deposits 996,489 983,026 1.37 %
Short-term borrowings 30,625 14,127 116.78 %
Long-term borrowings 86,176 71,202 21.03 %
Accrued interest payable 439 388 13.14 %
Other liabilities 18,100 16,089 12.50 %
TOTAL LIABILITIES 1,131,829 1,084,832 4.33 %
SHAREHOLDERS' EQUITY
Preferred stock, no par value, 3,000,000 shares authorized; no shares issued n/a
Common stock, par value $8.33, 15,000,000 shares authorized; 5,003,169 and 5,000,561 shares issued 41,693 41,671 0.05 %
Additional paid-in capital 49,914 49,823 0.18 %
Retained earnings 54,205 48,758 11.17 %
Accumulated other comprehensive loss:
Net unrealized gain on available for sale securities 3,291 1,088 202.48 %
Defined benefit plan (4,597) (2,725) (68.70)%
Treasury stock at cost, 207,444 and 180,596 shares (7,502) (6,310) 18.89 %
TOTAL SHAREHOLDERS' EQUITY 137,004 132,305 3.55 %
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,268,833 $ 1,217,137 4.25 %
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
Three Months Ended March 31,
(In Thousands, Except Per Share Data) 2015 2014 % Change
INTEREST AND DIVIDEND INCOME:
Loans including fees $ 9,323 $ 8,813 5.79 %
Investment securities:
Taxable 1,014 1,458 (30.45)%
Tax-exempt 767 931 (17.62)%
Dividend and other interest income 293 127 130.71 %
TOTAL INTEREST AND DIVIDEND INCOME 11,397 11,329 0.60 %
INTEREST EXPENSE:
Deposits 743 758 (1.98)%
Short-term borrowings 19 15 26.67 %
Long-term borrowings 524 469 11.73 %
TOTAL INTEREST EXPENSE 1,286 1,242 3.54 %
NET INTEREST INCOME 10,111 10,087 0.24 %
PROVISION FOR LOAN LOSSES 700 485 44.33 %
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 9,411 9,602 (1.99)%
NON-INTEREST INCOME:
Service charges 553 595 (7.06)%
Securities gains, net 661 393 68.19 %
Bank-owned life insurance 188 370 (49.19)%
Gain on sale of loans 299 290 3.10 %
Insurance commissions 234 420 (44.29)%
Brokerage commissions 245 271 (9.59)%
Other 1,080 872 23.85 %
TOTAL NON-INTEREST INCOME 3,260 3,211 1.53 %
NON-INTEREST EXPENSE:
Salaries and employee benefits 4,470 4,503 (0.73)%
Occupancy 628 630 (0.32)%
Furniture and equipment 595 671 (11.33)%
Pennsylvania shares tax 224 244 (8.20)%
Amortization of investments in limited partnerships 165 165 — %
Federal Deposit Insurance Corporation deposit insurance 215 178 20.79 %
Marketing 129 110 17.27 %
Intangible amortization 82 92 (10.87)%
Other 1,960 2,050 (4.39)%
TOTAL NON-INTEREST EXPENSE 8,468 8,643 (2.02)%
INCOME BEFORE INCOME TAX PROVISION 4,203 4,170 0.79 %
INCOME TAX PROVISION 848 701 20.97 %
NET INCOME $ 3,355 $ 3,469 (3.29)%
EARNINGS PER SHARE - BASIC AND DILUTED $ 0.70 $ 0.72 (2.78)%
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED 4,801,505 4,819,575 (0.37)%
DIVIDENDS DECLARED PER SHARE $ 0.47 $ 0.47 — %
PENNS WOODS BANCORP, INC.
AVERAGE BALANCES AND INTEREST RATES
Three Months Ended
March 31, 2015 March 31, 2014
(Dollars in Thousands) Average
Balance
Interest Average
Rate
Average
Balance
Interest Average
Rate
ASSETS:
Tax-exempt loans $ 36,183 $ 383 4.30% $ 27,190 $ 306 4.57%
All other loans 891,877 9,070 4.12% 770,656 8,611 4.53%
Total loans 928,060 9,453 4.13% 797,846 8,917 4.53%
Federal funds sold —% 562 —%
Taxable securities 143,421 1,303 3.63% 176,725 1,577 3.57%
Tax-exempt securities 87,825 1,162 5.29% 97,131 1,411 5.81%
Total securities 231,246 2,465 4.26% 273,856 2,988 4.36%
Interest-bearing deposits 6,539 4 0.25% 16,043 8 0.20%
Total interest-earning assets 1,165,845 11,922 4.14% 1,088,307 11,913 4.42%
Other assets 96,043 116,465
TOTAL ASSETS $ 1,261,888 $ 1,204,772
LIABILITIES AND SHAREHOLDERS' EQUITY:
Savings $ 141,762 14 0.04% $ 139,756 32 0.09%
Super Now deposits 190,438 129 0.27% 176,806 157 0.36%
Money market deposits 205,243 136 0.27% 206,812 133 0.26%
Time deposits 216,775 464 0.87% 232,182 436 0.76%
Total interest-bearing deposits 754,218 743 0.40% 755,556 758 0.41%
Short-term borrowings 28,229 19 0.27% 20,101 15 0.30%
Long-term borrowings 84,009 524 2.50% 71,202 469 2.63%
Total borrowings 112,238 543 1.94% 91,303 484 2.12%
Total interest-bearing liabilities 866,456 1,286 0.60% 846,859 1,242 0.59%
Demand deposits 240,750 212,152
Other liabilities 17,145 14,608
Shareholders' equity 137,537 131,153
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,261,888 $ 1,204,772
Interest rate spread 3.54% 3.83%
Net interest income/margin $ 10,636 3.69% $ 10,671 3.96%
Three Months Ended March 31,
2015 2014
Total interest income $ 11,397 $ 11,329
Total interest expense 1,286 1,242
Net interest income 10,111 10,087
Tax equivalent adjustment 525 584
Net interest income (fully taxable equivalent) $ 10,636 $ 10,671
(Dollars in Thousands, Except Per Share Data) Quarter Ended
3/31/2015 12/31/2014 9/30/2014 6/30/2014 3/31/2014
Operating Data
Net income $ 3,355 $ 2,883 $ 4,793 $ 3,463 $ 3,469
Net interest income 10,111 10,208 10,218 10,131 10,087
Provision for loan losses 700 1,605 460 300 485
Net security gains 661 490 2,145 487 393
Non-interest income, ex. net security gains 2,599 2,954 2,779 2,442 2,818
Non-interest expense 8,468 8,512 8,313 8,422 8,643
Performance Statistics
Net interest margin 3.69% 3.73% 3.78% 3.83% 3.96%
Annualized return on average assets 1.06% 0.93% 1.56% 1.13% 1.15%
Annualized return on average equity 9.76% 8.33% 13.95% 10.29% 10.58%
Annualized net loan charge-offs to average loans 0.20% 0.12% 0.01% — % 1.06%
Net charge-offs 453 276 21 9 2,109
Efficiency ratio 66.0% 64.0% 63.3% 66.3% 66.3%
Per Share Data
Basic earnings per share $ 0.70 $ 0.60 $ 0.99 $ 0.72 $ 0.72
Diluted earnings per share 0.70 0.60 0.99 0.72 0.72
Dividend declared per share 0.47 0.47 0.47 0.47 0.47
Book value 28.57 28.30 28.49 28.17 27.45
Common stock price:
High 48.91 49.26 48.79 48.37 50.95
Low 44.41 42.18 42.25 43.21 43.19
Close 48.91 49.26 42.25 47.10 48.78
Weighted average common shares:
Basic 4,802 4,805 4,820 4,820 4,820
Fully Diluted 4,802 4,805 4,820 4,820 4,820
End-of-period common shares:
Issued 5,003 5,003 5,002 5,001 5,001
Treasury 207 198 192 181 181
Quarter Ended
(Dollars in Thousands, Except Per Share Data) 3/31/2015 12/31/2014 9/30/2014 6/30/2014 3/31/2014
Financial Condition Data:
General
Total assets $ 1,268,833 $ 1,245,011 $ 1,227,122 $ 1,222,847 $ 1,217,137
Loans, net 933,044 905,000 881,477 847,521 812,091
Goodwill 17,104 17,104 17,104 17,104 17,104
Intangibles 1,373 1,456 1,538 1,621 1,709
Total deposits 996,489 981,419 989,128 981,826 983,026
Noninterest-bearing 246,231 243,378 232,588 228,758 218,740
Savings 143,222 139,278 141,170 141,362 142,030
NOW 186,788 177,970 183,056 176,066 191,191
Money Market 204,352 204,535 213,725 212,782 202,893
Time Deposits 215,896 216,258 218,589 222,858 228,172
Total interest-bearing deposits 750,258 738,041 756,540 753,068 764,286
Core deposits* 780,593 765,161 770,539 758,968 754,854
Shareholders' equity 137,004 135,967 137,004 135,802 132,305
Asset Quality
Non-performing assets $ 11,157 $ 12,248 $ 12,294 $ 11,979 $ 10,614
Non-performing assets to total assets 0.88% 0.98% 1.00% 0.98% 0.87%
Allowance for loan losses 10,826 10,579 9,250 8,811 8,520
Allowance for loan losses to total loans 1.15% 1.16% 1.04% 1.03% 1.04%
Allowance for loan losses to non-performing loans 97.03% 86.37% 75.24% 73.55% 80.27%
Non-performing loans to total loans 1.18% 1.34% 1.38% 1.40% 1.29%
Capitalization
Shareholders' equity to total assets 10.80% 10.92% 11.16% 11.11% 10.87%
* Core deposits are defined as total deposits less time deposits
Reconciliation of GAAP and Non-GAAP Financial Measures
Three Months Ended
March 31,
(Dollars in Thousands, Except Per Share Data) 2015 2014
GAAP net income $ 3,355 $ 3,469
Less: net securities and bank-owned life insurance gains, net of tax 436 433
Non-GAAP operating earnings $ 2,919 $ 3,036
Three Months Ended
March 31,
2015 2014
Return on average assets (ROA) 1.06% 1.15%
Less: net securities and bank-owned life insurance gains, net of tax 0.13% 0.14%
Non-GAAP operating ROA 0.93% 1.01%
Three Months Ended
March 31,
2015 2014
Return on average equity (ROE) 9.76% 10.58%
Less: net securities and bank-owned life insurance gains, net of tax 1.27% 1.32%
Non-GAAP operating ROE 8.49% 9.26%
Three Months Ended
March 31,
2015 2014
Basic earnings per share (EPS) $ 0.70 $ 0.72
Less: net securities and bank-owned life insurance gains, net of tax 0.09 0.09
Non-GAAP basic operating EPS $ 0.61 $ 0.63
Three Months Ended
March 31,
2015 2014
Dilutive EPS $ 0.70 $ 0.72
Less: net securities and bank-owned life insurance gains, net of tax 0.09 0.09
Non-GAAP dilutive operating EPS $ 0.61 $ 0.63

CONTACT: Richard A. Grafmyre, President and Chief Executive Officer 300 Market Street Williamsport, PA 17701 570-322-1111 e-mail: pwod@pwod.comSource:Penns Woods Bancorp, Inc.

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