Market Overview

Penns Woods Bancorp, Inc. Reports First Quarter 2016 Earnings

Share:

WILLIAMSPORT, Pa., April 20, 2016 (GLOBE NEWSWIRE) -- Penns Woods Bancorp, Inc. (NASDAQ: PWOD)

Penns Woods Bancorp, Inc. continued its solid earnings, supported by strong asset and deposit growth, achieving net income of $3,078,000 for the three months ended March 31, 2016 resulting in basic and dilutive earnings per share of $0.65.

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, decreased to $2,764,000 for the three months ended March 31, 2016 compared to $2,919,000 for the same period of 2015. The 2015 period included non-recurring gains  on the sale of other real estate owned of $270,000. In addition, the investment portfolio has declined $71,533,000 from March 31, 2015 to March 31, 2016 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, 2016 were $0.58 basic and dilutive compared to $0.61 basic and dilutive for the same period of 2015.
  • Return on average assets was 0.94% for the three months ended March 31, 2016 compared to 1.06% for the corresponding period of 2015.
  • Return on average equity was 8.95% for the three months ended March 31, 2016 compared to 9.76% for the corresponding period of 2015.

"The first three months of 2016 saw the continuation of our strategy to reposition our balance sheet to be able to handle the current low interest rate environment while building protection for the future. Our knowledgeable and committed employees increased the loan portfolio through home equity campaigns and continued commercial loan growth. The growth resulted in the addition of shorter duration loans and variable rate loans that provide a fair current rate of return while adding interest rate protection for the future. Funding a portion of the loan growth was core deposit growth. The growth in core deposits is the result of our employees focusing on building relationships," 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, 2016 was $3,078,000 compared to $3,355,000 for the same period of 2015. Results for the three months ended March 31, 2016 compared to 2015 were impacted by a decrease in after-tax securities gains of $122,000 (from a gain of $436,000 to a gain of $314,000) for the three month periods. Basic and dilutive earnings per share for the three months ended March 31, 2016 were $0.65 compared to $0.70 for the corresponding period of 2015. Return on average assets and return on average equity were 0.94% and 8.95% for the three months ended March 31, 2016 compared to 1.06% and 9.76% for the corresponding period of 2015.

Net Interest Margin

The net interest margin for the three months ended March 31, 2016 was 3.57% compared to 3.69% for the corresponding period of 2015. 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 and our strategic decision to continue repositioning the bond portfolio in anticipation of a rising rate environment. The impact of the declining earning asset yield and decreasing investment portfolio balance was partially offset by a 10.32% growth in gross loans from March 31, 2015 to March 31, 2016 resulting in net interest income increasing slightly compared to the comparable three month period of 2015. The loan growth was funded by an increase in core deposits and a decrease in the investment portfolio. Core deposits represent a lower cost funding source than time deposits and comprise 79.22% of total deposits at March 31, 2016 and 78.33% at March 31, 2015.

"Due to the continued low interest rate environment and our strategic decision to reduce our interest and market risk in a rising rate environment, we are experiencing a declining net interest margin as is the financial industry as a whole. The combination of these factors has resulted in new earning assets being added to the balance sheet at rates lower than the legacy assets they replace. In addition, longer term bonds in the investment portfolio continue to be selectively sold as part of our strategy to reduce the duration of the portfolio. The result of the active management has resulted in a reduction of longer term municipal and corporate bonds in the bond portfolio and has provided funding for the loan portfolio growth. We will remain committed to adding quality assets to the balance sheet, while maintaining our long-term asset liability management strategy," commented President Grafmyre.

Assets

Total assets increased $49,304,000 to $1,318,137,000 at March 31, 2016 compared to March 31, 2015. Net loans increased $95,826,000 to $1,028,870,000 at March 31, 2016 compared to March 31, 2015 primarily due to campaigns related to increasing home equity product market share during 2015 and 2016, and growth in the commercial loan portfolio. The investment portfolio decreased $71,533,000 from March 31, 2015 to March 31, 2016 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 1.12% at March 31, 2016 from 1.18% at March 31, 2015. The ratio decreased due to an increase in total loans from March 31, 2015 to March 31, 2016. The increase in non-performing loans to $11,648,000 at March 31, 2016 from $11,157,000 at March 31, 2015 is primarily the result of a large commercial real estate loan that was placed on non-accrual status. 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 $12,000 for the three months ended March 31, 2016 minimally impacted the allowance for loan losses which was 1.19% of total loans at March 31, 2016. The majority of the loans charged-off had a specific allowance within the allowance for loan losses.

Deposits

Deposits increased $63,092,000 to $1,059,581,000 at March 31, 2016 compared to March 31, 2015. Core deposits (total deposits excluding time deposits) increased $58,813,000 due to our commitment to building complete banking relationships with our customers. Noninterest-bearing deposits increased $23,131,000 to $269,362,000 at March 31, 2016 compared to March 31, 2015. 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 $659,000 to $137,663,000 at March 31, 2016 compared to March 31, 2015. Since March 31, 2015 treasury stock purchases of $2,732,000 for 65,008 shares were completed as part of the stock repurchase plan. The change in accumulated other comprehensive loss from $1,306,000 at March 31, 2015 to $2,708,000 at March 31, 2016 is a result of a decrease in unrealized gains on available for sale securities from an unrealized gain of $3,291,000 at March 31, 2015 to an unrealized gain of $1,324,000 at March 31, 2016. The amount of accumulated other comprehensive loss at March 31, 2016 was also impacted by the change in net excess of the projected benefit obligation over the fair value of the plan assets of the defined benefit pension plan resulting in a decrease in the net loss of $565,000 to $4,032,000 at March 31, 2016. The current level of shareholders' equity equates to a book value per share of $29.09 at March 31, 2016 compared to $28.57 at March 31, 2015 and an equity to asset ratio of 10.44% at March 31, 2016 compared to 10.80% at March 31, 2015. Excluding goodwill and intangibles, book value per share was $25.03 at March 31, 2016 compared to $24.72 at March 31, 2015. Dividends declared for each of the three months ended March 31, 2016 and 2015 were $0.47 per share.

Penns Woods Bancorp, Inc. is the parent company of Jersey Shore State Bank, which operates fifteen branch offices providing financial services in Lycoming, Clinton, Centre, Montour, and Union 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, 2015.

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.pwod.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) 2016  2015 % Change
ASSETS         
Noninterest-bearing balances$22,371 $20,871  7.19%
Interest-bearing balances in other financial institutions 24,754  901  2,647.39%
Total cash and cash equivalents 47,125  21,772  116.45%
Investment securities, available for sale, at fair value 153,709  225,302  (31.78)%
Investment securities, trading 60    100.00%
Loans held for sale 514  1,063  (51.65)%
Loans 1,041,252  943,870  10.32%
Allowance for loan losses (12,382) (10,826) 14.37%
Loans, net 1,028,870  933,044  10.27%
Premises and equipment, net 22,158  20,847  6.29%
Accrued interest receivable 3,878  4,326  (10.36)%
Bank-owned life insurance 26,867  26,165  2.68%
Investment in limited partnerships 746  1,395  (46.52)%
Goodwill 17,104  17,104  %
Intangibles 2,078  1,373  51.35%
Deferred tax asset 8,426  7,801  8.01%
Other assets 6,602  8,641  (23.60)%
TOTAL ASSETS$   1,318,137 $   1,268,833  3.89%
LIABILITIES         
Interest-bearing deposits$790,219 $750,258  5.33%
Noninterest-bearing deposits 269,362  246,231  9.39%
Total deposits 1,059,581  996,489  6.33%
Short-term borrowings 15,874  30,625  (48.17)%
Long-term borrowings 91,025  86,176  5.63%
Accrued interest payable 439  439  %
Other liabilities 13,555  18,100  (25.11)%
TOTAL LIABILITIES 1,180,474  1,131,829  4.30%
SHAREHOLDERS' EQUITY   
Preferred stock, no par value, 3,000,000 shares authorized; no shares issued     n/a 
Common stock, par value $8.33, 15,000,000 shares authorized; 5,005,534 and 5,003,169 shares issued 41,713  41,693  0.05%
Additional paid-in capital 50,004  49,914  0.18%
Retained earnings 58,888  54,205  8.64%
Accumulated other comprehensive loss:   
Net unrealized gain on available for sale securities 1,324  3,291  (59.77)%
Defined benefit plan (4,032) (4,597) 12.29%
Treasury stock at cost, 272,452 and 207,444 shares (10,234) (7,502) 36.42%
TOTAL SHAREHOLDERS' EQUITY 137,663  137,004  0.48%
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY$   1,318,137 $   1,268,833  3.89%


PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
 
 Three Months Ended March 31,
(In Thousands, Except Per Share Data) 2016  2015 % Change
INTEREST AND DIVIDEND INCOME:   
Loans including fees$10,355 $9,323  11.07%
Investment securities:   
Taxable 622  1,014  (38.66)%
Tax-exempt 475  767  (38.07)%
Dividend and other interest income 274  293  (6.48)%
TOTAL INTEREST AND DIVIDEND INCOME 11,726  11,397  2.89%
INTEREST EXPENSE:         
Deposits 834  743  12.25%
Short-term borrowings 26  19  36.84%
Long-term borrowings 492  524  (6.11)%
TOTAL INTEREST EXPENSE 1,352  1,286  5.13%
NET INTEREST INCOME 10,374  10,111  2.60%
PROVISION FOR LOAN LOSSES 350  700  (50.00)%
          
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 10,024  9,411  6.51%
NON-INTEREST INCOME:         
Service charges 532  553  (3.80)%
Securities gains, available for sale 435  661  (34.19)%
Securities gains, trading 40    n/a 
Bank-owned life insurance 184  188  (2.13)%
Gain on sale of loans 467  299  56.19%
Insurance commissions 206  234  (11.97)%
Brokerage commissions 255  245  4.08%
Other 878  1,080  (18.70)%
TOTAL NON-INTEREST INCOME 2,997  3,260  (8.07)%
NON-INTEREST EXPENSE:         
Salaries and employee benefits 4,580  4,470  2.46%
Occupancy 541  628  (13.85)%
Furniture and equipment 701  595  17.82%
Pennsylvania shares tax 258  224  15.18%
Amortization of investments in limited partnerships 152  165  (7.88)%
Federal Deposit Insurance Corporation deposit insurance 232  215  7.91%
Marketing 210  129  62.79%
Intangible amortization 87  82  6.10%
Other 2,300  1,960  17.35%
TOTAL NON-INTEREST EXPENSE 9,061  8,468  7.00%
INCOME BEFORE INCOME TAX PROVISION 3,960  4,203  (5.78)%
INCOME TAX PROVISION 882  848  4.01%
NET INCOME$3,078 $3,355  (8.26)%
EARNINGS PER SHARE - BASIC AND DILUTED$0.65 $0.70  (7.14)%
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED 4,740,503  4,801,505  (1.27)%
DIVIDENDS DECLARED PER SHARE$0.47 $0.47  %


PENNS WOODS BANCORP, INC.
AVERAGE BALANCES AND INTEREST RATES
 
 Three Months Ended
 March 31, 2016March 31, 2015
(Dollars in Thousands)Average
Balance
InterestAverage
Rate
Average
Balance
InterestAverage
Rate
ASSETS:      
Tax-exempt loans$  54,014 $535  3.98%$36,183 $383  4.30%
All other loans 988,632  10,002  4.07% 891,877  9,070  4.12%
Total loans 1,042,646  10,537  4.06% 928,060  9,453  4.13%
Taxable securities 99,032  885  3.57% 143,421  1,303  3.63%
Tax-exempt securities 63,373  720  4.54% 87,825  1,162  5.29%
Total securities 162,405  1,605  3.95% 231,246  2,465  4.26%
Interest-bearing deposits 12,693  11  0.35% 6,539  4  0.25%
Total interest-earning assets 1,217,744  12,153  4.01% 1,165,845  11,922  4.14%
Other assets 96,462    96,043   
TOTAL ASSETS$1,314,206   $1,261,888   
       
LIABILITIES AND SHAREHOLDERS' EQUITY:      
Savings$  148,856  14  0.04%$  141,762  14  0.04%
Super Now deposits 188,147  125  0.27% 190,438  129  0.27%
Money market deposits 219,240  139  0.25% 205,243  136  0.27%
Time deposits 220,554  556  1.01% 216,775  464  0.87%
Total interest-bearing deposits 776,797  834  0.43% 754,218  743  0.40%
Short-term borrowings 28,410  26  0.36% 28,229  19  0.27%
Long-term borrowings 91,025  492  2.14% 84,009  524  2.50%
Total borrowings 119,435  518  1.72% 112,238  543  1.94%
Total interest-bearing liabilities 896,232  1,352  0.60% 866,456  1,286  0.60%
Demand deposits 265,053    240,750   
Other liabilities 15,406    17,145   
Shareholders' equity 137,515    137,537   
TOTAL LIABILITIES AND SHAREHOLDERS'      
EQUITY$1,314,206   $1,261,888   
Interest rate spread   3.41%   3.54%
Net interest income/margin
 $10,801  3.57% $10,636  3.69%
       
 Three Months Ended March 31,
   
  2016   2015    
Total interest income$  11,726  $  11,397    
Total interest expense 1,352   1,286    
Net interest income 10,374   10,111    
Tax equivalent adjustment 427   525    
Net interest income (fully taxable equivalent)$  10,801  $  10,636    


 

 (Dollars in Thousands, Except Per Share Data)Quarter Ended
 3/31/201612/31/20159/30/20156/30/20153/31/2015
Operating Data     
Net income$  3,078 $  3,746 $  3,364 $  3,433 $  3,355 
Net interest income 10,374  10,338  10,234  10,222  10,111 
Provision for loan losses 350  480  520  600  700 
Net security gains 475  894  493  522  661 
Non-interest income, excluding net security gains 2,522  2,417  2,644  2,535  2,599 
Non-interest expense 9,061  8,317  8,530  8,421  8,468 
Performance Statistics     
Net interest margin 3.57% 3.55% 3.55% 3.64% 3.69%
Annualized return on average assets 0.94% 1.15% 1.04% 1.07% 1.06%
Annualized return on average equity 8.95% 10.73% 9.89% 10.05% 9.76%
Annualized net loan charge-offs (recoveries) to average loans % (0.03)% 0.12% 0.07% 0.20%
Net charge-offs (recoveries) 12  (75) 296  161  453 
Efficiency ratio 69.6% 64.6% 65.7% 65.3% 66.0%
Per Share Data     
Basic earnings per share$  0.65 $  0.79 $  0.71 $  0.72 $  0.70 
Diluted earnings per share 0.65  0.79  0.71  0.72  0.70 
Dividend declared per share 0.47  0.47  0.47  0.47  0.47 
Book value 29.09  28.71  28.54  28.33  28.57 
Common stock price:     
High 41.32  45.28  44.56  48.28  48.91 
Low 36.73  40.47  40.41  41.84  44.41 
Close 38.54  42.46  40.92  44.09  48.91 
Weighted average common shares:     
Basic 4,741  4,747  4,762  4,780  4,802 
Fully Diluted 4,741  4,747  4,762  4,780  4,802 
End-of-period common shares:     
Issued 5,006  5,005  5,004  5,004  5,003 
Treasury 272  258  254  238  207 


(Dollars in Thousands, Except Per Share Data)
  Quarter Ended
 3/31/201612/31/20159/30/20156/30/20153/31/2015
Financial Condition Data:     
General     
Total assets$1,318,137 $1,320,057 $1,299,292 $1,291,812 $1,268,833 
Loans, net 1,028,870  1,033,163  990,164  966,613  933,044 
Goodwill 17,104  17,104  17,104  17,104  17,104 
Intangibles 2,078  1,240  1,316  1,294  1,373 
Total deposits 1,059,581  1,031,880  1,004,801  1,007,468  996,489 
Noninterest-bearing 269,362  280,083  247,848  244,502  246,231 
Savings 153,217  144,561  143,224  143,415  143,222 
NOW 190,168  176,078  188,444  188,092  186,788 
Money Market 226,659  209,782  204,475  211,412  204,352 
Time Deposits 220,175  221,376  220,810  220,047  215,896 
Total interest-bearing deposits 790,219  751,797  756,953  762,966  750,258 
Core deposits* 839,406  810,504  783,991  787,421  780,593 
Shareholders' equity 137,663  136,279  135,577  134,998  137,004 
      
Asset Quality     
Non-performing loans$  11,648 $  9,446 $  8,608 $  9,689 $  11,157 
Non-performing loans to total assets 0.88% 0.72% 0.66% 0.75% 0.88%
Allowance for loan losses 12,382  12,044  11,489  11,265  10,826 
Allowance for loan losses to total loans 1.19% 1.15% 1.15% 1.15% 1.15%
Allowance for loan losses to non-performing loans 106.30% 127.50% 133.47% 116.27% 97.03%
Non-performing loans to total loans 1.12% 0.90% 0.86% 0.99% 1.18%
      
Capitalization     
Shareholders' equity to total assets 10.44% 10.32% 10.43% 10.45% 10.80%
 
* 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) 2016  2015 
GAAP net income$3,078 $3,355 
Less: net securities gains, net of tax 314  436 
Non-GAAP operating earnings$2,764 $2,919 
  
 Three Months Ended
March 31,

  2016  2015 
Return on average assets (ROA) 0.94% 1.06%
Less: net securities gains, net of tax 0.10% 0.13%
Non-GAAP operating ROA 0.84% 0.93%
  
  Three Months Ended
March 31,
  2016  2015 
Return on average equity (ROE) 8.95% 9.76%
Less: net securities gains, net of tax 0.91% 1.27%
Non-GAAP operating ROE 8.04% 8.49%
  
 Three Months Ended
March 31,

  2016  2015 
Basic earnings per share (EPS)$0.65 $0.70 
Less: net securities gains, net of tax 0.07  0.09 
Non-GAAP basic operating EPS$0.58 $0.61 
  
 Three Months Ended
March 31,
  2016  2015 
Dilutive EPS$0.65 $0.70 
Less: net securities gains, net of tax 0.07  0.09 
Non-GAAP dilutive operating EPS$0.58 $0.61 

 


Contact: Richard A. Grafmyre, President and Chief Executive Officer 300 Market Street Williamsport, PA 17701 570-322-1111 e-mail: pwod@pwod.com
View Comments and Join the Discussion!