July 20, 2018

Penns Woods Bancorp, Inc. Reports Second Quarter 2018 Earnings

  

Williamsport, PA — July 20, 2018 - Penns Woods Bancorp, Inc. (NASDAQ: PWOD)

Penns Woods Bancorp, Inc., supported by loan and deposit growth, achieved net income of $6.7 million, for the six months ended June 30, 2018 resulting in basic and dilutive earnings per share of $1.43.

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 or losses, was $3.5 million for the three months ended June 30, 2018 compared to $3.1 million for the same period of 2017. Operating earnings increased to $6.7 million for the six months ended June 30, 2018 compared to $5.6 million for the same period of 2017. Impacting the level of operating earnings were several factors including the continued shift of earning assets from the investment portfolio to the loan portfolio as the balance sheet is actively managed to reduce market risk and interest rate risk in a rising rate environment. In addition, the effective tax rate has decreased due to the "Tax Cuts and Jobs Act," which reduced the corporate tax rate to 21% effective January 1, 2018.

  • Operating earnings per share for the three months ended June 30, 2018 was $0.74 for basic and dilutive, an increase from $0.66 for basic and dilutive for the same period of 2017. Operating earnings per share for the six month ended June 30, 2018 were $1.43 basic and dilutive compared to $1.20 basic and dilutive for the same period of 2017. 

  • Return on average assets was 0.91%  for the three months ended June 30, 2018 compared to 0.88% for the corresponding period of 2017. Return on average assets was 0.89% for the six months ended June 30, 2018 compared to 0.83% for the corresponding period of 2017.

  • Return on average equity was 10.07% for the three months ended June 30, 2018 compared to 8.79% for the corresponding period of 2017. Return on average equity was 9.68% for the six months ended June 30, 2018 compared to 8.24% for the corresponding period of 2017.

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 and six months ended June 30, 2018 was $3.5 million and $6.7 million compared to $3.1 million and $5.8 million for the same period of 2017.  Results for the three and six months ended June 30, 2018 compared to 2017 were impacted by an increase in after-tax securities gains of $20,000 (from a loss of $8,000 to a gain of $12,000) for the three month periods and a decrease in after-tax securities gains of $143,000 (from a gain of $123,000 to a loss of $20,000) for the six month periods. The impact of the Tax Cuts and Jobs Act was the primary driver for the decrease in the Company's effective tax rate to 17.40% and 16.50% for the three and six month periods ended June 30, 2018 compared to 28.38% and 27.68% for the prior year periods.  Earnings per share for the three and six months ended June 30, 2018 was $0.74 and $1.43 basic and diluted, an increase from the 2017 basic and diluted earnings per share of $0.65 and $1.22.  Return on average assets and return on average equity were 0.91% and 10.07% for the three months ended June 30, 2018 compared to 0.88% and 8.79% for the corresponding periods of 2017. Return on average assets and return on average equity were 0.89% and 9.68% for the six months ended June 30, 2018 compared to 0.83% and 8.24% for the corresponding periods of 2017.

 Net Interest Margin

The net interest margin for the three and six months ended June 30, 2018 was 3.32% and 3.31% compared to 3.44% and 3.42% for the corresponding period of 2017.  The decrease in the net interest margin was driven by an increase in the cost of interest-bearing liabilities of 30 basis points ("bps") for the three month period and 25 bps for the six month period primarily from an increase in the rate paid on time deposits as the liabilities are lengthened. The impact of the increased cost of funds was limited by an increase in the yield on earning assets of 12 bps and 9 bps for the three and six month periods.  The increase in the yield on earning assets was driven by an increase in the loan portfolio yield in conjunction with an increase in the average loan portfolio of $177.4 million and $169.6 million respectively.  The loan growth was primarily funded by an increase in average borrowings of $93.9 million and $88.2 million for the three and six month periods along with growth in average total deposits of $45.0 million and $41.1 million respectively.  Core deposits represent a lower cost funding source than time deposits and comprise 78.80% of total deposits at June 30, 2018 and 82.11% at June 30, 2017.

 

Assets

 

Total assets increased $207.9 million to $1.6 billion at June 30, 2018 compared to June 30, 2017.  Net loans increased $192.1 million to $1.3 billion at June 30, 2018 compared to June 30, 2017, primarily due to campaigns related to increasing home equity product market share and indirect auto lending.  The investment portfolio decreased $7.9 million from June 30, 2017 to June 30, 2018 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 shortening 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 ratio of non-performing loans to total loans ratio decreased to 0.51% at June 30, 2018 from 1.10% June 30, 2017 as non-performing loans have decreased to $6.8 million at June 30, 2018 from $12.5 million at June 30, 2017. The level of non-performing loans decreased primarily as a result of a large non-performing loan being paid off during the quarter ended September 30, 2017.  The majority of non-performing loans involve 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 $319,000 for the six months ended June 30, 2018 minimally impacted the allowance for loan losses which was 0.98% of total loans at June 30, 2018.  The majority of the loans charged-off had a specific allowance within the allowance for loan losses.

 

Deposits

 

Deposits increased $39.9 million to $1.2 billion at June 30, 2018 compared to June 30, 2017. Noninterest-bearing deposits increased  to $311.2 million at June 30, 2018 compared to June 30, 2017. 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 continues to move forward as part of the strategy to build balance sheet protection in a rising rate environment.

 

Shareholders’ Equity

 

Shareholders’ equity increased $695,000 to $139.1 million at June 30, 2018 compared to June 30, 2017. The change in accumulated other comprehensive loss from $4.2 million at June 30, 2017 to $6.9 million at June 30, 2018 is a result of an increase in unrealized losses on available for sale securities (from an unrealized loss of $16,000 at June 30, 2017 to an unrealized loss of $2,057,000 at June 30, 2018). The amount of accumulated other comprehensive loss at June 30, 2018 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 an increase in the net loss of $620,000, mainly due to the change in the corporate tax rate from 2017 to 2018. The current level of shareholders’ equity equates to a book value per share of $29.66 at June 30, 2018 compared to $29.53 at June 30, 2017 and an equity to asset ratio of 8.68% at June 30, 2018 compared to 9.92% at June 30, 2017.  Excluding goodwill and intangibles, book value per share was $25.74 at June 30, 2018 compared to $25.54 at June 30, 2017.  Dividends declared for the six months ended June 30, 2018 and 2017 were $0.94 per share.

Penns Woods Bancorp, Inc. is the parent company of Jersey Shore State Bank, which operates seventeen branch offices providing financial services in Lycoming, Clinton, Centre, Montour, and Union Counties, and Luzerne Bank, which operates nine 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.  Insurance products are offered through United Insurance Solutions, LLC a joint venture that is a subsidiary of the holding company.

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. These certain 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, 2017.

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.

Contact:

Richard A. Grafmyre, Chief Executive Officer

 

110 Reynolds Street

 

Williamsport, PA 17702

 

570-322-1111

e-mail: pwod@pwod.com

 

THIS INFORMATION IS SUBJECT TO YEAR-END AUDIT ADJUSTMENT