PENNS WOODS BANCORP INC - FORM 8-K - EX-99.1 - EXHIBIT 99.1

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8-K - 8-K - PENNS WOODS BANCORP INC	a20181q18-8xk.htm

Exhibit 99.1

Press Release — For Immediate Release

April 19, 2018

Penns Woods Bancorp, Inc. Reports First Quarter 2018 Earnings

Williamsport, PA — April 19, 2018 - 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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