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Penns Woods Bancorp, Inc. Reports First Quarter 2018 Earnings

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WILLIAMSPORT, Pa., April 19, 2018 (GLOBE NEWSWIRE) -- Penns Woods Bancorp, Inc. (NASDAQ:PWOD)

Penns Woods Bancorp, Inc., supported by loan and deposit growth, achieved net income of $3.2 million, for the three months ended March 31, 2018 resulting in basic and dilutive earnings per share of $0.68.

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 $3.2 million for the three months ended March 31, 2018 compared to $2.6 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 March 31, 2018 was $0.69 for basic and dilutive, an increase from $0.54 for basic and dilutive for the same period of 2017.
  • Return on average assets was 0.86% for the three months ended March 31, 2018 compared to 0.79% for the corresponding period of 2017.
  • Return on average equity was 9.18% for the three months ended March 31, 2018 compared to 7.69% 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 months ended March 31, 2018 was $3.2 million compared to $2.7 million for the same period of 2017.  Results for the three months ended March 31, 2018 compared to 2017 were impacted by an increase in after-tax securities losses of $163,000 (from a gain of $131,000 to a loss of $32,000) for the three 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 15.5% for the three month period ended March 31, 2018 compared to 26.9% for the prior year period.  Earnings per share for the three months ended March 31, 2018 was $0.68 basic and diluted, a change from the 2017 basic and diluted earnings per share of $0.57 basic and $0.56 diluted.  Return on average assets and return on average equity were 0.86% and 9.18% for the three months ended March 31, 2018 compared to 0.79% and 7.69% for the corresponding period of 2017.

Net Interest Margin

The net interest margin for the three months ended March 31, 2018 was 3.31% compared to 3.40% 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 19 basis points ("bps").  The impact of the increased cost of funds was limited by an increase in the yield on earning assets of 8 bps coupled with an increase in the average loan portfolio of $161.8 million.  The loan growth was primarily funded by an increase in average borrowings of $82.4 million and growth in average total deposits of $37.2 million.  Core deposits represent a lower cost funding source than time deposits and comprise 79.34% of total deposits at March 31, 2018 and 82.32% at March 31, 2017. 

Assets

Total assets increased $126.0 million to $1.5 billion at March 31, 2018 compared to March 31, 2017.  Net loans increased $169.7 million to $1.3 billion at March 31, 2018 compared to March 31, 2017, primarily due to campaigns related to increasing home equity product market share during 2018 and indirect auto lending.  The investment portfolio decreased $6.8 million from March 31, 2017 to March 31, 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 0.60% at March 31, 2018 from 0.98% March 31, 2017 as non-performing loans have decreased to $7.6 million at March 31, 2018 from $10.9 million at March 31, 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 $182,000 for the three months ended March 31, 2018 minimally impacted the allowance for loan losses which was 1.00% of total loans at March 31, 2018.  The majority of the loans charged-off had a specific allowance within the allowance for loan losses.

Deposits

Deposits increased $31.8 million to $1.2 billion at March 31, 2018 compared to March 31, 2017. Noninterest-bearing deposits decreased slightly to $304.3 million at March 31, 2018 compared to March 31, 2017.  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 decreased $1.0 million to $138.1 million at March 31, 2018 compared to March 31, 2017. The change in accumulated other comprehensive loss from $4.5 million at March 31, 2017 to $5.6 million at March 31, 2018 is a result of an increase in unrealized losses on available for sale securities (from an unrealized loss of $281,000 at March 31, 2017 to an unrealized loss of $666,000 at March 31, 2018). The amount of accumulated other comprehensive loss at March 31, 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 $623,000, 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 $29.45 at March 31, 2018 compared to $29.38 at March 31, 2017 and an equity to asset ratio of 9.05% at March 31, 2018 compared to 9.93% at March 31, 2017.  Excluding goodwill and intangibles, book value per share was $25.51 at March 31, 2018 compared to $25.41 at March 31, 2017.  Dividends declared for the three months ended March 31, 2018 and 2017 were $0.47 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


PENNS WOODS BANCORP, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)

    March 31,
(In Thousands, Except Share Data)   2018   2017   % Change
ASSETS:            
Noninterest-bearing balances   $ 18,940     $ 22,494     (15.80 )%
Interest-bearing balances in other financial institutions    18,452     53,166     (65.29 )%
Total cash and cash equivalents    37,392     75,660     (50.58 )%
             
Investment debt securities, available for sale, at fair value   116,444     123,456     (5.68 )%
Investment equity securities, at fair value    2,482     2,455     1.10 %
Investment securities, trading   159         100.00 %
Restricted investment in bank stock, at fair value    13,483     10,999     22.58 %
Loans held for sale    748     1,221     (38.74 )%
Loans    1,280,748     1,111,100     15.27 %
Allowance for loan losses    (12,836 )   (12,905 )   (0.53 )%
Loans, net    1,267,912     1,098,195     15.45 %
Premises and equipment, net   27,587     24,431     12.92 %
Accrued interest receivable    4,456     3,945     12.95 %
Bank-owned life insurance    28,169     27,521     2.35 %
Goodwill    17,104     17,104     %
Intangibles   1,382     1,709     (19.13 )%
Deferred tax asset   4,721     8,039     (41.27 )%
Other assets    4,706     5,973     (21.21 )%
TOTAL ASSETS    $ 1,526,745     $ 1,400,708     9.00 %
             
LIABILITIES:            
Interest-bearing deposits    $ 888,193     $ 848,272     4.71 %
Noninterest-bearing deposits    304,261     312,392     (2.60 )%
Total deposits    1,192,454     1,160,664     2.74 %
             
Short-term borrowings   59,305     8,589     590.48 %
Long-term borrowings   123,970     75,998     63.12 %
Accrued interest payable    793     387     104.91 %
Other liabilities    12,110     15,957     (24.11 )%
TOTAL LIABILITIES    1,388,632     1,261,595     10.07 %
             
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; 5,009,898 and 5,007,109 shares   41,748     41,729     0.05 %
Additional paid-in capital    50,207     50,091     0.23 %
Retained earnings    63,824     62,071     2.82 %
Accumulated other comprehensive loss:            
Net unrealized loss on available for sale securities   (666 )   (281 )   137.01 %
Defined benefit plan    (4,886 )   (4,263 )   (14.61 )%
Treasury stock at cost, 320,150 and 272,452 shares   (12,115 )   (10,234 )   18.38 %
TOTAL PENNS WOODS BANCORP, INC. SHAREHOLDERS' EQUITY   138,112     139,113     (0.72 )%
Non-controlling interest   1         100.00 %
TOTAL SHAREHOLDERS' EQUITY   138,113     139,113     (0.72 )%
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $ 1,526,745     $ 1,400,708     9.00 %


PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)

    Three Months Ended March 31,
(In Thousands, Except Per Share Data)   2018   2017   % Change
INTEREST AND DIVIDEND INCOME:            
Loans including fees   $ 12,193     $ 10,627     14.74 %
Investment securities:            
Taxable   546     542     0.74 %
Tax-exempt   241     298     (19.13 )%
Dividend and other interest income   221     215     2.79 %
TOTAL INTEREST AND DIVIDEND INCOME   13,201     11,682     13.00 %
             
INTEREST EXPENSE:            
Deposits   1,222     902     35.48 %
Short-term borrowings   224     4     5,500.00 %
Long-term borrowings   602     440     36.82 %
TOTAL INTEREST EXPENSE   2,048     1,346     52.15 %
             
NET INTEREST INCOME   11,153     10,336     7.90 %
             
PROVISION FOR LOAN LOSSES   160     330     (51.52 )%
             
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES   10,993     10,006     9.86 %
             
NON-INTEREST INCOME:            
Service charges   551     528     4.36 %
Debt securities gains, available for sale   5     197     (97.46 )%
Equity securities losses   (34 )       (100.00 )%
Securities (losses) gains, trading   (11 )   2     (650.00 )%
Bank-owned life insurance   173     172     0.58 %
Gain on sale of loans   255     358     (28.77 )%
Insurance commissions   117     191     (38.74 )%
Brokerage commissions   343     331     3.63 %
Debit card income   519     434     19.59 %
Other   410     438     (6.39 )%
TOTAL NON-INTEREST INCOME   2,328     2,651     (12.18 )%
             
NON-INTEREST EXPENSE:            
Salaries and employee benefits   5,048     4,770     5.83 %
Occupancy   741     638     16.14 %
Furniture and equipment   747     649     15.10 %
Software Amortization   65     273     (76.19 )%
Pennsylvania shares tax   277     238     16.39 %
Professional Fees   566     437     29.52 %
Federal Deposit Insurance Corporation deposit insurance   202     170     18.82 %
Debit Card Expense   158     159     (0.63 )%
Marketing   251     171     46.78 %
Intangible amortization   80     90     (11.11 )%
Other   1,389     1,390     (0.07 )%
TOTAL NON-INTEREST EXPENSE   9,524     8,985     6.00 %
INCOME BEFORE INCOME TAX PROVISION   3,797     3,672     3.40 %
INCOME TAX PROVISION   589     986     (40.26 )%
NET INCOME   $ 3,208     $ 2,686     19.43 %
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS'   $ 3,208     $ 2,686     19.43 %
             
EARNINGS PER SHARE - BASIC   $ 0.68     $ 0.57     19.30 %
EARNINGS PER SHARE - DILUTED   $ 0.68     $ 0.56     21.43 %
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC   4,689,376     4,734,805     (0.96 )%
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED   4,689,376     4,761,305     (1.51 )%
DIVIDENDS DECLARED PER SHARE   $ 0.47     $ 0.47     %


PENNS WOODS BANCORP, INC.
AVERAGE BALANCES AND INTEREST RATES

    Three Months Ended
    March 31, 2018   March 31, 2017
(Dollars in Thousands)   Average
Balance
  Interest   Average
Rate
  Average
Balance
  Interest   Average
Rate
ASSETS:                        
Tax-exempt loans   $ 75,448     $ 567     3.05 %   $ 42,232     $ 417     4.00 %
All other loans   1,186,117     11,745     4.02 %   1,057,495     10,352     3.97 %
Total loans   1,261,565     12,312     3.96 %   1,099,727     10,769     3.97 %
                         
Taxable securities   84,267     759     3.60 %   89,317     685     3.07 %
Tax-exempt securities   42,160     305     2.89 %   46,673     452     3.87 %
Total securities   126,427     1,064     3.37 %   135,990     1,137     3.34 %
                         
Interest-bearing deposits   2,167     8     1.50 %   33,167     72     0.88 %
                         
Total interest-earning assets   1,390,159     13,384     3.90 %   1,268,884     11,978     3.82 %
                         
Other assets   97,606             99,537          
                         
TOTAL ASSETS   $ 1,487,765             $ 1,368,421          
                         
LIABILITIES AND SHAREHOLDERS' EQUITY:                        
Savings   $ 163,037     16     0.04 %   $ 156,423     15     0.04 %
Super Now deposits   227,086     207     0.37 %   189,299     106     0.23 %
Money market deposits   236,443     210     0.36 %   262,883     191     0.29 %
Time deposits   236,116     789     1.36 %   210,052     590     1.14 %
Total interest-bearing deposits   862,682     1,222     0.57 %   818,657     902     0.45 %
                         
Short-term borrowings   61,803     224     1.45 %   11,349     4     0.14 %
Long-term borrowings   114,526     602     2.10 %   82,554     440     2.13 %
Total borrowings   176,329     826     1.87 %   93,903     444     1.89 %
                         
Total interest-bearing liabilities   1,039,011     2,048     0.79 %   912,560     1,346     0.60 %
                         
Demand deposits   293,227             300,102          
Other liabilities   15,786             16,074          
Shareholders' equity   139,741             139,685          
                         
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $ 1,487,765             $ 1,368,421          
Interest rate spread           3.11 %           3.22 %
Net interest income/margin       $ 11,336     3.31 %       $ 10,632     3.40 %


    Three Months Ended March 31,
    2018   2017
Total interest income   $ 13,201     $ 11,682  
Total interest expense    2,048     1,346  
Net interest income   11,153     10,336  
Tax equivalent adjustment   183     296  
Net interest income (fully taxable equivalent)   $ 11,336     $ 10,632  


(Dollars in Thousands, Except Per Share Data)   Quarter Ended
    3/31/2018   12/31/2017   9/30/2017   6/30/2017   3/31/2017
Operating Data                    
Net income    $ 3,208     $ 716     $ 3,284     $ 3,086     $ 2,686  
Net interest income    11,153     11,468     11,452     10,824     10,336  
Provision for loan losses   160     125     60     215     330  
Net security (losses) gains    (40 )   107     298     (12 )   199  
Non-interest income, ex. net security (losses) gains    2,368     2,482     2,442     2,775     2,452  
Non-interest expense    9,524     9,248     9,566     9,063     8,985  
                     
Performance Statistics                    
Net interest margin    3.31 %   3.48 %   3.57 %   3.44 %   3.40 %
Annualized return on average assets    0.86 %   0.20 %   0.93 %   0.88 %   0.79 %
Annualized return on average equity    9.18 %   2.00 %   9.43 %   8.79 %   7.69 %
Annualized net loan charge-offs to average loans    0.06 %   0.07 %   0.08 %   %   0.12 %
Net charge-offs   182     200     236     11     321  
Efficiency ratio    69.8 %   65.7 %   68.3 %   65.9 %   69.6 %
                     
Per Share Data                    
Basic earnings per share    $ 0.68     $ 0.16     $ 0.70     $ 0.65     $ 0.57  
Diluted earnings per share    0.68     0.15     0.70     0.65     0.56  
Dividend declared per share    0.47     0.47     0.47     0.47     0.47  
Book value    29.45     29.47     29.79     29.53     29.38  
Common stock price:                    
High   45.56     49.79     46.47     43.60     49.45  
Low    39.61     45.65     41.08     38.17     43.28  
Close    42.31     46.58     46.47     41.18     43.45  
Weighted average common shares:                    
Basic    4,689     4,689     4,688     4,711     4,735  
Fully Diluted    4,689     4,782     4,688     4,711     4,761  
End-of-period common shares:                    
Issued    5,010     5,009     5,009     5,008     5,008  
Treasury   320     320     320     320     272  


(Dollars in Thousands, Except Per Share Data)   Quarter Ended
    3/31/2018   12/31/2017   9/30/2017   6/30/2017   3/31/2017
Financial Condition Data:                    
General                    
Total assets    $ 1,526,745     $ 1,474,492     $ 1,430,197     $ 1,395,364     $ 1,400,708  
Loans, net   1,267,912     1,232,268     1,176,781     1,125,976     1,098,195  
Goodwill   17,104     17,104     17,104     17,104     17,104  
Intangibles    1,382     1,462     1,543     1,623     1,709  
Total deposits    1,192,454     1,146,320     1,153,996     1,151,110     1,160,664  
Noninterest-bearing    304,261     303,316     310,830     300,054     312,392  
Savings   166,243     160,698     156,437     158,101     159,652  
NOW    240,259     215,021     203,744     199,917     205,011  
Money Market    235,381     237,818     274,528     287,140     278,443  
Time Deposits    246,310     229,467     208,457     205,898     205,166  
Total interest-bearing deposits    888,193     843,004     843,166     851,056     848,272  
                     
Core deposits*    946,144     916,853     945,539     945,212     955,498  
Shareholders' equity    138,112     138,192     139,669     138,440     139,113  
                     
Asset Quality                    
Non-performing loans   $ 7,641     $ 7,268     $ 8,317     $ 12,498     $ 10,871  
Non-performing loans to total assets    0.50 %   0.49 %   0.58 %   0.90 %   0.78 %
Allowance for loan losses    12,836     12,858     12,933     13,109     12,905  
Allowance for loan losses to total loans   1.00 %   1.03 %   1.09 %   1.15 %   1.16 %
Allowance for loan losses to non-performing loans    167.99 %   176.91 %   157.05 %   104.56 %   118.72 %
Non-performing loans to total loans   0.60 %   0.58 %   0.69 %   1.10 %   0.98 %
                     
Capitalization                    
Shareholders' equity to total assets    9.05 %   9.37 %   9.77 %   9.92 %   9.93 %

* 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)   2018   2017
GAAP net income    $ 3,208     $ 2,686  
Less: net securities (losses) gains, net of tax    (32 )   131  
Non-GAAP operating earnings    $ 3,240     $ 2,555  
         
    Three Months Ended March 31,
    2018   2017
Return on average assets (ROA)    0.86 %   0.79 %
Less: net securities (losses) gains, net of tax    (0.01 )%   0.04 %
Non-GAAP operating ROA    0.87 %   0.75 %
         
    Three Months Ended March 31,
    2018   2017
Return on average equity (ROE)    9.18 %   7.69 %
Less: net securities (losses) gains, net of tax    (0.09 )%   0.37 %
Non-GAAP operating ROE    9.27 %   7.32 %
         
    Three Months Ended March 31,
    2018   2017
Basic earnings per share (EPS)    $ 0.68     $ 0.57  
Less: net securities (losses) gains, net of tax    (0.01 )   0.03  
Non-GAAP basic operating EPS   $ 0.69     $ 0.54  
     
    Three Months Ended March 31,
    2018   2017
Dilutive EPS   $ 0.68     $ 0.56  
Less: net securities (losses) gains, net of tax    (0.01 )   0.02  
Non-GAAP dilutive operating EPS   $ 0.69     $ 0.54  

 

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