Penns Woods Bancorp, Inc. Reports Third Quarter 2009 Earnings

• Press Release
• Source: Penns Woods Bancorp, Inc.
• On 3:28 pm EDT, Tuesday October 20, 2009

WILLIAMSPORT, Pa.--(BUSINESS WIRE)--Penns Woods Bancorp, Inc. (NASDAQ:PWOD - News) 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, was $2,257,000 and $6,868,000 for the three and nine months ended September 30, 2009 compared to $2,545,000 and $6,873,000 for the same periods of 2008. Operating earnings per share for the three months ended September 30, 2009 were $0.59 basic and dilutive compared to $0.66 basic and dilutive for the same period of 2008. Operating earnings per share for the nine months ended September 30, 2009 increased to $1.79 basic and dilutive compared to $1.78 basic and dilutive for the same period of 2008. Operating earnings for the three and nine months ended September 30, 2009 have been positively impacted by loan and deposit growth and solid non-interest operating income. A reconciliation of the non-GAAP financial measures of operating earnings, operating earnings per share, operating return on assets, and operating return on equity described in this paragraph to the comparable GAAP financial measures is included at the end of this press release.

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Symbol	Price	Change
PWOD	31.39	+0.52

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Net income, as reported under U.S. generally accepted accounting principles, for the three and nine months ended September 30, 2009 was $1,922,000 and $3,593,000 compared to $1,552,000 and $5,740,000 for the same periods of 2008. Comparable results were impacted by a decrease in after-tax securities losses of $658,000 (from a loss of $993,000 to a loss of $335,000) for the three month period ended September 30, 2009 compared to 2008 and an increase in after-tax securities losses of $2,142,000 (from a loss of $1,133,000 to a loss of $3,275,000) for the comparable nine month periods of 2009 of 2008. Included within the change in after-tax securities losses are pre-tax other than temporary impairment charges relating to certain equity securities held in the investment portfolio for the three and nine months ended September 30, 2009 of $30,000 and $4,614,000 compared to $1,851,000 and $2,425,000 for the three and nine months ended September 30, 2008. Basic and dilutive earnings per share for the three and nine months ended September 30, 2009 were $0.50 and $0.94 compared to $0.40 and $1.49 for the corresponding periods of 2008. Return on average assets and return on average equity were 1.15% and 12.08% for the three months ended September 30, 2009 compared to 0.98% and 9.43% for the corresponding period of 2008. Earnings for the nine months ended September 30, 2009 correlate to a return on average assets and return on average equity of 0.73% and 7.80% compared to 1.21% and 11.10% for the nine month 2008 period.

The net interest margin for the three and nine months ended September 30, 2009 was 4.35% and 4.39% compared to 4.23% and 4.04% for the corresponding periods of 2008. A decrease in the rate paid on interest bearing liabilities of 52 basis points (bp) and 73 bp for the three and nine months ended September 30, 2009 compared to the same periods of 2008 positively impacted the net interest margin. A declining cost of funds is primarily the result of the rate paid on time deposits decreasing 86 bp and 113 bp for the three and nine month periods ended September 30, 2009 compared to the same periods of 2008. The decreases are the result of Federal Open Market Committee (FOMC) actions to maintain low interest rates coupled with our strategic decision to shorten the duration of the time deposit portfolio over the past year. The shortening of the time deposit portfolio has resulted in an increased repricing frequency which has allowed for the majority of the portfolio to be repriced downward over the past twelve months. The duration of the time deposit portfolio began to be lengthened during the second quarter and through the past quarter due to the apparent bottoming or near bottoming of deposit rates.

“A net interest margin of 4.35% and 4.39% for the three and nine month periods of 2009 with taxable equivalent net interest income of $6,685,000 and $19,796,000 over the same periods has been the primary driver behind the solid operating earnings. Deposit growth coupled with management of the time deposit portfolio duration has led to the increase of 12 bp and 35 bp in the net interest margin from the comparable three and nine month periods of 2008,” commented Ronald A Walko, President and Chief Executive Officer of Penns Woods Bancorp, Inc. “While we have placed emphasis on deposits, we have maintained our focus on sound credit quality and ensuring an adequate risk/return trade-off. Continuing questions surrounding the soft economy are impacting our loan credit quality ratios, although we continue to compare favorably to other members of the financial industry. However, due primarily to the addition of a single past due commercial real estate loan to past due 90 day status, our nonperforming loans to total loans ratio has increased to 1.46%. Furthermore, net loan charge-offs to average loans of 0.12% for the nine month period ended September 30, 2009 remain at a minimal level,” added Mr. Walko.

Total assets increased $46,441,000 to $678,685,000 at September 30, 2009 compared to September 30, 2008. Net loans increased $29,068,000 despite a softening economy that has in general provided fewer loan opportunities. However, due to our credit quality position and overall balance sheet strength, we have been able to aggressively attract those loans that meet and/or exceed our credit standards. The investment portfolio increased $18,159,000 from September 30, 2008 to 2009 primarily due to an increase in the market value of the portfolio. During the nine months ended September 30, 2009, the equity segment of the portfolio experienced write downs of $4,614,000 ($30,000 during the three months ended September 30, 2009) due to the turbulence in the equity markets, particularly the financial sector, which has caused several of our investments in regional and national financial institutions to be classified as other than temporarily impaired. Despite our ability to hold our equity investment positions that have depreciated in value, each position has been and will continue to be evaluated for other than temporary impairment, and/or a possible exit due primarily to the ability to carry back tax losses.

Deposits have increased 13.8% or $59,491,000 to $490,062,000 at September 30, 2009 compared to 2008 with core deposits (total deposits excluding time deposits) increasing 17.1% or $39,766,000. “Increasing total deposits, with the emphasis on core deposits, continues to be one of our top priorities. Deposit growth has funded the 7.9% growth in gross loans, while also allowing for a reduction in short-term borrowings. Sources of the deposit increase cover a broad spectrum ranging from consumer and commercial to government entity accounts. Leading to the deposit growth across the spectrum are our efforts to keep banking simple. We do not attempt to hide fees, but rather present our position in easy to understand terms, with no strings attached. This straight forward approach combined with the use of technology to deliver service has built a solid reputation within our market footprint. During the past quarter we have added mobile or cell phone based banking to our technology based service channels that include remote deposit capture, electronic delivery of statements, and online banking and cash management services,” commented Mr. Walko.

Shareholders’ equity increased $10,978,000 to $70,539,000 at September 30, 2009 compared to September 30, 2008 as accumulated comprehensive loss decreased $12,612,000, and $510,000 in common stock was strategically repurchased as part of the previously announced stock buyback plan. The decrease in accumulated other comprehensive loss is primarily a result of a change in unrealized gains/losses on available for sale securities from an unrealized loss of $12,347,000 at September 30, 2008 to an unrealized gain of $2,670,000 at September 30, 2009. Countering the change in unrealized gains/losses on available for sale securities was an increase of $2,405,000 in the net excess of the projected benefit obligation over the market value of the plan assets of the defined benefit pension plan due to a decline in the market value of the plan assets caused by the significant downturn in the stock and bond markets over the past year. The current level of shareholders’ equity equates to a book value per share of $18.40 at September 30, 2009 compared to $15.47 at September 30, 2008 and an equity to asset ratio of 10.39% at September 30, 2009. Book value per share, excluding accumulated other comprehensive loss, was $18.69 at September 30, 2009 compared to $19.03 at September 30, 2008. During the three and nine months ended September 30, 2009 and 2008 cash dividends of $0.46 and $1.38 per share were paid to shareholders.

“The economic uncertainty and focus on the dealings of larger financial institutions has resulted in community banks falling away from the spot light. This lack of attention has caused the solid performance of many community banks to go unnoticed. Our inclusion in the Russell 3000 index has attracted market attention with our average daily volume of shares traded increasing since inclusion. Continued strong operating earnings, well capitalized status, and commitment to solid local banking provide a solid foundation for the future. Our well capitalized status and level of core operating earnings have provided the resources to maintain our dividend and to purchase 20,000 treasury shares over the past twelve months,” commented Mr. Walko.

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, 2008.

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.
Ronald A. Walko, President and Chief Executive Officer
570-322-1111
email: jssb@jssb.com