Penns Woods Bancorp, Inc. Reports Fourth Quarter 2017 Earnings

WILLIAMSPORT, Pa., Jan. 30, 2018 (GLOBE NEWSWIRE) -- Penns Woods Bancorp, Inc. (NASDAQ:PWOD)

Penns Woods Bancorp, Inc., supported by loan and deposit growth, achieved net income of $9.8 million, for the twelve months ended December 31, 2017 resulting in basic and dilutive earnings per share of $2.08.

Highlights

• On December 22, 2017, H.R.1, known as the “Tax Cuts and Jobs Act,” was signed into law.  H.R.1, among other things, reduces the corporate income tax rate to 21%, effective January 1, 2018. As a result of passage of the new tax law, the revaluation of our net deferred tax assets (DTA) resulted in a write-down of $2.7 million. This is a one-time non-cash charge to the income tax provision that negatively impacted earnings per share by $0.58 per diluted share based on the weighted average share outstanding for the twelve months ended December 31, 2017.
  
  
• Net income from core operations (“operating earnings”), which is a non-generally accepted accounting principles (GAAP) measure of net income excluding certain non-recurring items, which for the period ended December 31, 2017 include net securities gains and the impact of the deferred tax asset revaluation, was $3.4 million for the three months ended December 31, 2017 compared to $2.7 million for the same period of 2016.  Operating earnings increased to $12.1 million for the twelve months ended December 31, 2017 compared to $11.4 million for the same period of 2016.  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 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 December 31, 2017 was $0.72 for basic and $0.71 dilutive, an increase from $0.56 for basic and dilutive for the same period of 2016.  Operating earnings per share for the twelve months ended December 31, 2017 was $2.57 basic and dilutive compared to $2.40 basic and dilutive for the same period of 2016.
  
  
• Return on average assets was 0.20%  for the three months ended December 31, 2017 compared to 0.87% for the corresponding period of 2016.  Return on average assets was 0.69% for the twelve months ended December 31, 2017 compared to 0.93% for the corresponding period of 2016.
  
  
• Return on average equity was 2.00% for the three months ended December 31, 2017 compared to 8.43% for the corresponding period of 2016.  Return on average equity was 6.91% for the twelve months ended December 31, 2017 compared to 8.96% for the corresponding period of 2016.

“The three and twelve month periods were negatively impacted by the Tax Cuts and Jobs Act as the passage of the act which reduces corporate tax rates beginning in 2018 required a write-down of the future benefit of our net deferred tax assets of $2.7 million or $0.58 per share.  At our current level of operating earnings, we estimate to recoup the impact of the write-down in fifteen to eighteen months due to the incremental benefit of lower tax rates,” said Richard A. Grafmyre, CFP®, 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 and twelve months ended December 31, 2017 was $716,000 and $9.8 million compared to $2.9 million and $12.5 million for the same period of 2016. Results for the three and twelve months ended December 31, 2017 compared to 2016 were impacted by a decrease in after-tax securities gains of $220,000 (from a gain of $291,000 to a gain of $71,000) for the three month periods and a decrease in after-tax securities gains of $711,000 (from a gain of $1.1 million to a gain of $391,000) for the twelve month periods.  The impact for the three and twelve month periods ended December 31, 2017 of the Tax Cuts and Jobs Act was a write-down in the valuation of the net deferred tax assets of $2.7 million.  Earnings per share for the three months ended December 31, 2017 was $0.16 basic and $0.15 diluted, a change from the 2016 basic and diluted earnings per share of $0.62.  Basic and diluted earnings per share for the twelve months ended December 31, 2017 was $2.08 compared to $2.64 for the corresponding period of 2016.  Return on average assets and return on average equity were 0.20% and 2.00% for the three months ended December 31, 2017 compared to 0.87% and 8.43% for the corresponding period of 2016.  Return on average assets and return on average equity were 0.69% and 6.91% for the twelve months ended December 31, 2017 compared to 0.93% and 8.96% for the corresponding period of 2016.

Net Interest Margin

The net interest margin for the three and twelve months ended December 31, 2017 was 3.48% and 3.47% compared to 3.38% and 3.44% for the corresponding period of 2016.  The increase in the net interest margin for the twelve month period was limited by a decreasing yield on the investment portfolio as higher yielding bonds continue to be redeemed at their call date and our strategic decision to continue repositioning the portfolio through active management.  The impact of the declining investment portfolio yield and decreasing investment portfolio balance was offset by a 13.85% growth in gross loans from December 31, 2016 to December 31, 2017.  The loan growth was primarily funded by an increase in short term borrowings and growth in core deposits of $40.0 million.  Core deposits represent a lower cost funding source than time deposits and comprise 79.98% of total deposits at December 31, 2017 and 80.06% at December 31, 2016. 

Assets

Total assets increased $125.9 million to $1.5 billion at December 31, 2017 compared to December 31, 2016.  Net loans increased $151.5 million to $1.2 billion at December 31, 2017 compared to December 31, 2016 primarily due to campaigns related to increasing home equity product market share during 2017 and indirect auto lending.  The investment portfolio decreased $8.9 million from December 31, 2016 to December 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 ratio of non-performing loans to total loans ratio decreased to 0.58% at December 31, 2017 from 1.06% December 31, 2016 as non-performing loans have decreased to $7.3 million at December 31, 2017 from $11.6 million at December 31, 2016. The level of non-performing loans decreased as a large non-performing loan was paid-off during the quarter ended September 30, 2017.  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 $768,000 for the twelve months ended December 31, 2017 minimally impacted the allowance for loan losses which was 1.03% of total loans at December 31, 2017.  The majority of the loans charged-off had a specific allowance within the allowance for loan losses.

Deposits

Deposits increased $51.1 million to $1.1 billion at December 31, 2017 compared to December 31, 2016.  Core deposits (total deposits excluding time deposits) increased $40.0 million due to our commitment to building complete banking relationships with our customers.  Noninterest-bearing deposits remained stable at $303.3 million at December 31, 2017 compared to December 31, 2016.  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 $55,000 to $138.2 million at December 31, 2017 compared to December 31, 2016.  Accumulated other comprehensive loss remained constant at $4.9 million at December 31, 2016 and December 31, 2017.  The component of other accumulated comprehensive loss associated with unrealized losses on available for sale securities decreased from an unrealized loss of  $639,000 at December 31, 2016 to an unrealized loss of $54,000 at December 31, 2017.  The amount of accumulated other comprehensive loss at December 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 $179,000.  In addition, the Tax Cuts and Jobs Act resulted in an additional loss of $810,000 related to the defined benefit pension plan component of accumulated other comprehensive loss.  The current level of shareholders’ equity equates to a book value per share of $29.47 at December 31, 2017 compared to $29.20 at December 31, 2016 and an equity to asset ratio of 9.37% at December 31, 2017 compared to 10.25% at December 31, 2016.  Excluding goodwill and intangibles, book value per share was $25.51 at December 31, 2017 compared to $25.21 at December 31, 2016.  Dividends declared for the twelve months ended December 31, 2017 and 2016 were $1.88 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.

The Company’s revaluation of its net deferred tax assets is management's reasonable estimate based on current guidance from authoritative sources.  The final impact of the tax reform may differ from these estimates, due to, among other things, changes in interpretations and assumptions made by management and is subject to further clarifications and guidance. The reduction of the Company’s net deferred tax assets may vary materially from the amount reported. The Company does not anticipate future cash expenditures as a result of the reduction to the net deferred tax assets.

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

* Core deposits are defined as total deposits less time deposits