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Penns Woods Bancorp, Inc. Reports First Quarter 2017 Earnings

WILLIAMSPORT, Pa., April 18, 2017 (GLOBE NEWSWIRE) -- Penns Woods Bancorp, Inc. (NASDAQ:PWOD)

Penns Woods Bancorp, Inc. continued its solid earnings, supported by loan and deposit growth, achieving net income of $2,686,000 for the three months ended March 31, 2017 resulting in basic and dilutive earnings per share of $0.57 and $0.56 respectively.

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, was $2,555,000 for the three months ended March 31, 2017 compared to $2,764,000 for the same period of 2016. The decline was attributable to 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 increased due to the conclusion of the ten year tax credit generation period of several low income elderly housing projects in our market footprint in which the company participates.

  • Operating earnings per share for the three months ended March 31, 2017 were $0.54 for both basic and dilutive, a decrease from $0.58 for basic and dilutive for the same period of 2016.

  • Return on average assets was 0.79% for the three months ended March 31, 2017 compared to 0.94% for the corresponding period of 2016.

  • Return on average equity was 7.69% for the three months ended March 31, 2017 compared to 8.95% for the corresponding period of 2016.

“The focus during the first quarter of 2017 can be summed up in a single word, future. The earning asset portfolio continued to add high quality assets while shifting revenue generation from the investment portfolio to loan portfolio. The indirect auto lending program that started in 2016 in a limited market area has been a success and will be expanded to the entire market area during the second quarter. While the balance sheet was preparing for the future, so was the branch network. Numerous maintenance projects to allow for a more efficient customer experience have been completed or are in process, including a complete remodel of the Williamsport lobby and customer service areas. Site preparation was started on two branch sites and two other sites are in the design phase. Preparing the organization for the future, whether in the form of new product implementation, infrastructure additions and improvements, or the addition of team members does cause a short-term drag on earnings. However, our outlook is not focused solely on tomorrow but rather building towards the long-term success of the company,” 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, 2017 was $2,686,000 compared to $3,078,000 for the same period of 2016. Results for the three months ended March 31, 2017 compared to 2016 were impacted by a decrease in after-tax securities gains of $183,000 (from a gain of $314,000 to a gain of $131,000) for the three month periods. Basic and dilutive earnings per share for the three months ended March 31, 2017 were $0.57 and $0.56 compared to $0.65 basic and dilutive for the corresponding period of 2016. Return on average assets and return on average equity were 0.79% and 7.69% for the three months ended March 31, 2017 compared to 0.94% and 8.95% for the corresponding period of 2016.

Net Interest Margin

The net interest margin for the three months ended March 31, 2017 was 3.40% compared to 3.57% for the corresponding period of 2016. The decline in the net interest margin was driven by a decreasing yield on the investment portfolio due to the continued lower than historical rate environment that limits the yield that we can acquire into the portfolio and our strategic decision to continue repositioning the portfolio through active management in anticipation of a steadily rising rate environment. The impact of the declining investment portfolio yield and decreasing investment portfolio balance was partially offset by a 6.71% growth in gross loans from March 31, 2016 to March 31, 2017. 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 82.32% of total deposits at March 31, 2017 and 79.22% at March 31, 2016.

Assets

Total assets increased $82,571,000 to $1,400,708,000 at March 31, 2017 compared to March 31, 2016. Net loans increased $69,325,000 to $1,098,195,000 at March 31, 2017 compared to March 31, 2016 primarily due to campaigns related to increasing home equity product market share during 2016 and 2017, growth in the commercial loan portfolio, and the introduction of indirect auto lending during the third quarter of 2016. The investment portfolio decreased $16,859,000 from March 31, 2016 to March 31, 2017 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 non-performing loans to total loans ratio decreased to 0.98% at March 31, 2017 from 1.12% at March 31, 2016 as non-performing loans have decreased to $10,870,000 at March 31, 2017 from $11,648,000 at March 31, 2016. The majority of non-performing loans are centered on 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 $321,000 for the three months ended March 31, 2017 minimally impacted the allowance for loan losses which was 1.16% of total loans at March 31, 2017. The majority of the loans charged-off had a specific allowance within the allowance for loan losses.

Deposits

Deposits increased $101,083,000 to $1,160,664,000 at March 31, 2017 compared to March 31, 2016. Core deposits (total deposits excluding time deposits) increased $116,092,000 due to our commitment to building complete banking relationships with our customers. Noninterest-bearing deposits increased $43,030,000 to $312,392,000 at March 31, 2017 compared to March 31, 2016. 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 $1,450,000 to $139,113,000 at March 31, 2017 compared to March 31, 2016. The change in accumulated other comprehensive loss from $2,708,000 at March 31, 2016 to $4,544,000 at March 31, 2017 is a result of an increase in unrealized losses on available for sale securities from an unrealized gain of $1,324,000 at March 31, 2016 to an unrealized loss of $281,000 at March 31, 2017. The amount of accumulated other comprehensive loss at March 31, 2017 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 $231,000 to $4,263,000 at March 31, 2017. The current level of shareholders’ equity equates to a book value per share of $29.38 at March 31, 2017 compared to $29.09 at March 31, 2016 and an equity to asset ratio of 9.93% at March 31, 2017 compared to 10.44% at March 31, 2016. Excluding goodwill and intangibles, book value per share was $25.41 at March 31, 2017 compared to $25.03 at March 31, 2016. Dividends declared for the three months ended March 31, 2017 and 2016 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, 2016.

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) 2017 2016 % Change
ASSETS
Noninterest-bearing balances $22,494 $22,371 0.55%
Interest-bearing balances in other financial institutions 53,166 24,754 114.78%
Total cash and cash equivalents 75,660 47,125 60.55%
Investment securities, available for sale, at fair value 136,910 153,709 (10.93)%
Investment securities, trading 60 (100.00)%
Loans held for sale 1,221 514 137.55%
Loans 1,111,100 1,041,252 6.71%
Allowance for loan losses (12,905) (12,382) 4.22%
Loans, net 1,098,195 1,028,870 6.74%
Premises and equipment, net 24,431 22,158 10.26%
Accrued interest receivable 3,945 3,878 1.73%
Bank-owned life insurance 27,521 26,867 2.43%
Investment in limited partnerships 540 746 (27.61)%
Goodwill 17,104 17,104 %
Intangibles 1,709 2,078 (17.76)%
Deferred tax asset 8,039 8,426 (4.59)%
Other assets 5,433 6,602 (17.71)%
TOTAL ASSETS $1,400,708 $1,318,137 6.26%
LIABILITIES
Interest-bearing deposits $848,272 $790,219 7.35%
Noninterest-bearing deposits 312,392 269,362 15.97%
Total deposits 1,160,664 1,059,581 9.54%
Short-term borrowings 8,589 15,874 (45.89)%
Long-term borrowings 75,998 91,025 (16.51)%
Accrued interest payable 387 439 (11.85)%
Other liabilities 15,957 13,555 17.72%
TOTAL LIABILITIES 1,261,595 1,180,474 6.87%
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; 5,007,569 and 5,005,534 shares issued 41,729 41,713 0.04%
Additional paid-in capital 50,091 50,004 0.17%
Retained earnings 62,071 58,888 5.41%
Accumulated other comprehensive loss:
Net unrealized (loss) gain on available for sale securities (281) 1,324 (121.22)%
Defined benefit plan (4,263) (4,032) (5.73)%
Treasury stock at cost, 272,452 and 272,452 shares (10,234) (10,234) %
TOTAL SHAREHOLDERS’ EQUITY 139,113 137,663 1.05%
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $1,400,708 $1,318,137 6.26%


PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
Three Months Ended March 31,
(In Thousands, Except Per Share Data) 2017 2016 % Change
INTEREST AND DIVIDEND INCOME:
Loans including fees $10,627 $10,355 2.63%
Investment securities:
Taxable 542 622 (12.86)%
Tax-exempt 298 475 (37.26)%
Dividend and other interest income 215 274 (21.53)%
TOTAL INTEREST AND DIVIDEND INCOME 11,682 11,726 (0.38)%
INTEREST EXPENSE:
Deposits 902 834 8.15%
Short-term borrowings 4 26 (84.62)%
Long-term borrowings 440 492 (10.57)%
TOTAL INTEREST EXPENSE 1,346 1,352 (0.44)%
NET INTEREST INCOME 10,336 10,374 (0.37)%
PROVISION FOR LOAN LOSSES 330 350 (5.71)%
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 10,006 10,024 (0.18)%
NON-INTEREST INCOME:
Service charges 528 532 (0.75)%
Securities gains, available for sale 197 435 (54.71)%
Securities gains, trading 2 40 (95.00)%
Bank-owned life insurance 172 184 (6.52)%
Gain on sale of loans 358 467 (23.34)%
Insurance commissions 191 206 (7.28)%
Brokerage commissions 331 255 29.80%
Other 872 878 (0.68)%
TOTAL NON-INTEREST INCOME 2,651 2,997 (11.54)%
NON-INTEREST EXPENSE:
Salaries and employee benefits 4,770 4,580 4.15%
Occupancy 638 541 17.93%
Furniture and equipment 649 701 (7.42)%
Pennsylvania shares tax 238 258 (7.75)%
Amortization of investments in limited partnerships 46 152 (69.74)%
Federal Deposit Insurance Corporation deposit insurance 170 232 (26.72)%
Marketing 171 210 (18.57)%
Intangible amortization 90 87 3.45%
Other 2,213 2,300 (3.78)%
TOTAL NON-INTEREST EXPENSE 8,985 9,061 (0.84)%
INCOME BEFORE INCOME TAX PROVISION 3,672 3,960 (7.27)%
INCOME TAX PROVISION 986 882 11.79%
NET INCOME $2,686 $3,078 (12.74)%
EARNINGS PER SHARE - BASIC $0.57 $0.65 (12.31)%
EARNINGS PER SHARE - DILUTED $0.56 $0.65 (13.85)%
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 4,734,805 4,740,503 (0.12)%
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 4,761,305 4,740,503 0.44%
DIVIDENDS DECLARED PER SHARE $0.47 $0.47 %


PENNS WOODS BANCORP, INC.
AVERAGE BALANCES AND INTEREST RATES
Three Months Ended
March 31, 2017 March 31, 2016
(Dollars in Thousands) Average
Balance
Interest Average
Rate
Average
Balance
Interest Average
Rate
ASSETS:
Tax-exempt loans $42,232 $417 4.00% $54,014 $535 3.98%
All other loans 1,057,495 10,352 3.97% 988,632 10,002 4.07%
Total loans 1,099,727 10,769 3.97% 1,042,646 10,537 4.06%
Taxable securities 89,317 685 3.07% 99,032 885 3.57%
Tax-exempt securities 46,673 452 3.87% 63,373 720 4.54%
Total securities 135,990 1,137 3.34% 162,405 1,605 3.95%
Interest-bearing deposits 33,167 72 0.88% 12,693 11 0.35%
Total interest-earning assets 1,268,884 11,978 3.82% 1,217,744 12,153 4.01%
Other assets 99,537 96,462
TOTAL ASSETS $1,368,421 $1,314,206
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Savings $156,423 15 0.04% $148,856 14 0.04%
Super Now deposits 189,299 106 0.23% 188,147 125 0.27%
Money market deposits 262,883 191 0.29% 219,240 139 0.25%
Time deposits 210,052 590 1.14% 220,554 556 1.01%
Total interest-bearing deposits 818,657 902 0.45% 776,797 834 0.43%
Short-term borrowings 11,349 4 0.14% 28,410 26 0.36%
Long-term borrowings 82,554 440 2.13% 91,025 492 2.14%
Total borrowings 93,903 444 1.89% 119,435 518 1.72%
Total interest-bearing liabilities 912,560 1,346 0.60% 896,232 1,352 0.60%
Demand deposits 300,102 265,053
Other liabilities 16,074 15,406
Shareholders’ equity 139,685 137,515
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $1,368,421 $1,314,206
Interest rate spread 3.22% 3.41%
Net interest income/margin $10,632 3.40% $10,801 3.57%


Three Months Ended March 31,
2017 2016
Total interest income $11,682 $11,726
Total interest expense 1,346 1,352
Net interest income 10,336 10,374
Tax equivalent adjustment 296 427
Net interest income (fully taxable equivalent) $10,632 $10,801


(Dollars in Thousands, Except Per Share Data) Quarter Ended
3/31/2017 12/31/2016 9/30/2016 6/30/2016 3/31/2016
Operating Data
Net income $2,686 $2,948 $3,059 $3,390 $3,078
Net interest income 10,336 10,337 10,247 10,288 10,374
Provision for loan losses 330 330 258 258 350
Net security gains 199 441 261 492 475
Non-interest income, excluding net security gains 2,452 2,415 2,821 2,686 2,522
Non-interest expense 8,985 8,625 8,739 8,666 9,061
Performance Statistics
Net interest margin 3.40% 3.38% 3.37% 3.42% 3.57%
Annualized return on average assets 0.79% 0.87% 0.91% 1.00% 0.94%
Annualized return on average equity 7.69% 8.43% 8.69% 9.77% 8.95%
Annualized net loan charge-offs (recoveries) to average loans 0.12% 0.06% 0.02% 0.05% %
Net charge-offs (recoveries) 321 152 57 123 12
Efficiency ratio 69.6% 66.9% 66.2% 66.0% 69.6%
Per Share Data
Basic earnings per share $0.57 $0.62 $0.65 $0.72 $0.65
Diluted earnings per share 0.56 0.62 0.65 0.72 0.65
Dividend declared per share 0.47 0.47 0.47 0.47 0.47
Book value 29.38 29.20 29.56 29.45 29.09
Common stock price:
High 49.45 52.03 44.75 44.70 41.32
Low 43.28 41.00 40.34 37.82 36.73
Close 43.45 50.50 44.46 41.99 38.54
Weighted average common shares:
Basic 4,735 4,734 4,734 4,733 4,741
Fully Diluted 4,761 4,734 4,734 4,733 4,741
End-of-period common shares:
Issued 5,008 5,007 5,007 5,006 5,006
Treasury 272 272 272 272 272


(Dollars in Thousands, Except Per Share Data) Quarter Ended
3/31/2017 12/31/2016 9/30/2016 6/30/2016 3/31/2016
Financial Condition Data:
General
Total assets $1,400,708 $1,348,590 $1,347,412 $1,346,482 $1,318,137
Loans, net 1,098,195 1,080,785 1,056,762 1,041,602 1,028,870
Goodwill 17,104 17,104 17,104 17,104 17,104
Intangibles 1,709 1,799 1,889 1,979 2,078
Total deposits 1,160,664 1,095,214 1,088,297 1,084,867 1,059,581
Noninterest-bearing 312,392 303,277 295,599 274,002 269,362
Savings 159,652 153,788 150,822 152,540 153,217
NOW 205,011 174,653 175,767 190,890 190,168
Money Market 278,443 245,121 244,138 246,712 226,659
Time Deposits 205,166 218,375 221,971 220,723 220,175
Total interest-bearing deposits 848,272 791,937 792,698 810,865 790,219
Core deposits* 955,498 876,839 866,326 864,145 839,406
Shareholders’ equity 139,113 138,249 139,935 139,394 137,663
Asset Quality
Non-performing loans $10,870 $11,626 $11,530 $11,626 $11,648
Non-performing loans to total assets 0.78% 0.86% 0.86% 0.86% 0.88%
Allowance for loan losses 12,905 12,896 12,718 12,517 12,382
Allowance for loan losses to total loans 1.16% 1.18% 1.19% 1.19% 1.19%
Allowance for loan losses to non-performing loans 118.72% 110.92% 110.30% 107.66% 106.30%
Non-performing loans to total loans 0.98% 1.06% 1.08% 1.10% 1.12%
Capitalization
Shareholders’ equity to total assets 9.93% 10.25% 10.39% 10.35% 10.44%

* 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) 2017 2016
GAAP net income $2,686 $3,078
Less: net securities gains, net of tax 131 314
Non-GAAP operating earnings $2,555 $2,764
Three Months Ended March 31,
2017 2016
Return on average assets (ROA) 0.79% 0.94%
Less: net securities gains, net of tax 0.04% 0.10%
Non-GAAP operating ROA 0.75% 0.84%
Three Months Ended March 31,
2017 2016
Return on average equity (ROE) 7.69% 8.95%
Less: net securities gains, net of tax 0.37% 0.91%
Non-GAAP operating ROE 7.32% 8.04%
Three Months Ended March 31,
2017 2016
Basic earnings per share (EPS) $0.57 $0.65
Less: net securities gains, net of tax 0.03 0.07
Non-GAAP basic operating EPS $0.54 $0.58
Three Months Ended March 31,
2017 2016
Dilutive EPS $0.56 $0.65
Less: net securities gains, net of tax 0.02 0.07
Non-GAAP dilutive operating EPS $0.54 $0.58


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

Source:Penns Woods Bancorp, Inc.