Net Income

Net income from core operations (“core earnings”), which is a non-generally accepted accounting principles (GAAP) measure of net income excluding net securities gains or losses, was $5.6 million and $16.7 million for the three and twelve months ended December 31, 2023 compared to $5.1 million and $18.2 million for the same periods of 2022. Basic and diluted core earnings per share (non-GAAP) for the three and twelve months ended December 31, 2023 were $0.77 and $2.36, respectively, while basic and diluted core earnings per share for the same periods of 2022 were $0.71 and $2.58. Annualized core return on average assets and core return on average equity (non-GAAP) were 1.02% and 12.63% for the three months ended December 31, 2023, compared to 1.04% and 12.25% for the corresponding periods of 2022. Core return on average assets and core return on average equity (non-GAAP) were 0.79% and 9.93% for the twelve months ended December 31, 2023 compared to 0.94% and 11.22% for the corresponding periods of 2022. A reconciliation of the non-GAAP financial measures of core earnings, core return on assets, core return on equity, and core earnings per share described in this press release to the comparable GAAP financial measures is included at the end of this press release.

Net Interest Margin

The net interest margin for the three and twelve months ended December 31, 2023 was 2.73% and 2.80%, compared to 3.42% and 3.24% for the corresponding periods of 2022. The decrease in the net interest margin for the three and twelve month periods was driven by an increase in the rate paid on interest-bearing liabilities of 215 and 197 basis points ("bps"), respectively. The FOMC rate increases during 2022 and 2023 contributed to the increases in rate paid on interest-bearing liabilities as the rate paid on short-term borrowings increased 165 bps and 192 bps for the three and twelve month periods ended December 31, 2023 compared to the same periods of 2022. Short-term borrowings increased in volume and rate paid as this funding source was utilized to provide funding for the growth in the loan portfolio, resulting in an increase of $1.3 million and $7.4 million, respectively, in expense for the three and twelve month periods ended December 31, 2023 compared to the same periods of 2022. The rate paid on interest-bearing deposits increased 207 and 168 bps for the three and twelve month periods ended December 31, 2023 compared to the corresponding periods of 2022 due to the FOMC rate actions and an increase in competition for deposits. The rates paid on time deposits significantly contributed to the increase in funding costs as rates paid for the three and twelve month periods ended December 31, 2023 compared to the same periods of 2022 increased 324 bps and 282 bps, respectively, as deposit gathering campaigns initiated in the latter part of 2022 continued throughout 2023. In addition, brokered deposits have been utilized to assist with the funding of the loan portfolio growth and contributed to the increase in time deposit funding costs. Partially offsetting the increase in funding cost was an increase in the yield on interest-earning assets and growth in the average balance of the earning assets portfolio compared to the same periods in 2022. The average loan portfolio balance increased $220.6 million and $263.7 million for the three and twelve month periods as the average yield on the portfolio increased 96 and 81 bps for the same periods. The three and twelve month periods ended December 31, 2023 were impacted by an increase of 81 and 94 bps in the yield earned on the securities portfolio as legacy securities matured with the funds reinvested at higher rates.

Assets

Total assets increased to $2.2 billion at December 31, 2023, an increase of $204.7 million compared to December 31, 2022.  Net loans increased $204.2 million to $1.8 billion at December 31, 2023 compared to December 31, 2022, as continued emphasis was placed on commercial loan growth coupled with growth in indirect auto lending. The investment portfolio increased $2.4 million from December 31, 2022 to December 31, 2023 as restricted investment in bank stock increased $5.2 million resulting from the requirement to hold additional stock in the Federal Home Loan Bank of Pittsburgh ("FHLB") due to an increase in the level of borrowings from the FHLB. The increase in total borrowings of $142.4 million to $398.5 million at December 31, 2023 was utilized to provide funding for the growth in the loan portfolio.

Non-performing Loans

The ratio of non-performing loans to total loans ratio decreased to 0.17% at December 31, 2023 from 0.30% at December 31, 2022, as non-performing loans decreased to $3.1 million at December 31, 2023 from $4.9 million at December 31, 2022. 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 been classified as individually evaluated loans that have a specific allocation recorded within the allowance for credit losses. Net loan recoveries of $525,000 for the twelve months ended December 31, 2023 impacted the allowance for credit losses, which was 0.62% of total loans at December 31, 2023 compared to 0.95% at December 31, 2022 (prior to the adoption of CECL).

Deposits

Deposits increased $33.0 million to $1.6 billion at December 31, 2023 compared to December 31, 2022. Noninterest-bearing deposits decreased $47.9 million to $471.2 million at December 31, 2023 compared to December 31, 2022.  Core deposits declined as deposits migrated from core deposit accounts into time deposits as market rates increased due to the FOMC rate increases and increased competition for deposits. Core deposit gathering efforts remained focused on increasing the utilization of electronic (internet and mobile) deposit banking by our customers. Interest-bearing deposits increased $80.9 million from December 31, 2022 to December 31, 2023 primarily due to increased utilization of brokered deposits of $116.4 million as this funding source was utilized to supplement funding loan portfolio growth, while reducing the need to draw upon available borrowing lines. A campaign to attract time deposits with a maturity of five to twenty-four months commenced during the latter part of 2022 and has continued during 2023 with current efforts centered on five to ten months.

Shareholders’ Equity

Shareholders’ equity increased $23.9 million to $191.6 million at December 31, 2023 compared to December 31, 2022.  During the twelve months ended December 31, 2023 the Company sold 420,069 shares of common stock, for net proceeds of $8.3 million, in a registered at-the-market offering. An additional 17,929 shares for net proceeds of $406,000 were issued as part of the Dividend Reinvestment Plan during the twelve months ended December 31, 2023. Accumulated other comprehensive loss of $9.2 million at December 31, 2023 decreased from a loss of $14.0 million at December 31, 2022 as a result of a decrease in net unrealized loss on available for sale securities to $6.4 million at December 31, 2023 from a net unrealized loss of $9.8 million at December 31, 2022 coupled with a decrease in loss of $1.4 million in the defined benefit plan obligation. The current level of shareholders’ equity equates to a book value per share of $25.51 at December 31, 2023 compared to $23.76 at December 31, 2022, and an equity to asset ratio of 8.69% at December 31, 2023 and 8.40% at December 31, 2022. Dividends declared for the twelve months ended December 31, 2023 and 2022 were $1.28 per share.

Penns Woods Bancorp, Inc. is the parent company of Jersey Shore State Bank, which operates sixteen branch offices providing financial services in Lycoming, Clinton, Centre, Montour, Union, and Blair Counties, and Luzerne Bank, which operates eight branch offices providing financial services in Luzerne County, and United Insurance Solutions, LLC, which offers insurance products.  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 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; (v) the effects of health emergencies, including the spread of infectious diseases or pandemics; or (vi) 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, 2022.

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.

1. Information on this table has been calculated using average daily balance sheets to obtain average balances.
   

2. Non-accrual loans have been included with loans for the purpose of analyzing net interest earnings.
   

3. Income and rates on fully taxable equivalent basis include an adjustment for the difference between annual income         
   from tax-exempt obligations and the taxable equivalent of such income at the standard tax rate of 21%

1. Information on this table has been calculated using average daily balance sheets to obtain average balances.
   

2. Non-accrual loans have been included with loans for the purpose of analyzing net interest earnings.
   

3. Income and rates on fully taxable equivalent basis include an adjustment for the difference between annual income         
   from tax-exempt obligations and the taxable equivalent of such income at the standard tax rate of 21%