PWOD Penns Woods Bancorp Inc

Penns Woods Bancorp, Inc. (NASDAQ: PWOD)

Penns Woods Bancorp, Inc., supported by loan and deposit growth, achieved net income of $3.9 million for the three months ended March 31, 2019, resulting in basic and diluted earnings per share of $0.84.

Highlights

• Net income, as reported under GAAP, for the three months ended March 31, 2019 was $3.9 million, compared to $3.2 million for the same period of 2018.  Results for the three months ended March 31, 2019 compared to 2018 were impacted by an increase in after-tax securities gains of $84,000 (from a loss of $32,000 to a gain of $52,000) for the three month periods. 
• Basic and diluted earnings per share for the three months ended March 31, 2019 was $0.84, an increase in basic and diluted earnings per share of $0.16 as compared to the three months ended March 31, 2018. 
• Return on average assets was 0.95% for the three months ended March 31, 2019, compared to 0.86% for the corresponding period of 2018. 
• Return on average equity was 10.93% for the three months ended March 31, 2019, compared to 9.18% for the corresponding period of 2018.

Net Income

Net income from core operations (“adjusted earnings”), which is a non-generally accepted accounting principles (GAAP) measure of net income excluding net securities gains or losses, was $3.9 million for the three months ended March 31, 2019 compared to $3.2 million for the same period of 2018.  Operating earnings per share for the three months ended March 31, 2019 was $0.83 basic and diluted, an increase from $0.69 basic and diluted operating earnings per share for the same period of 2018.  Operating return on average assets and operating return on average equity were 0.94% and 10.79% for the three months ended March 31, 2019, compared to 0.87% and 9.27% for the corresponding periods of 2018.

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 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 months ended March 31, 2019 was 3.37%, compared to 3.31% for the corresponding period of 2018.  The increase in the net interest margin was driven by an increase in the yield on earning assets of 45 basis points ("bps") for the three  month period. The impact of the increase in yield on earning assets was limited by the increase in rate paid on interest-bearing liabilities of 48 bps for the three month period. The increase in the yield on earning assets was driven by an increase in the loan portfolio yield in conjunction with an increase in the average loan portfolio of $122.5 million. The loan growth was primarily funded by an increase in average total deposits of $96.7 million along with growth in average total borrowings of $63.9 million for the three month period.

Assets

Total assets increased $178.0 million to $1.7 billion at March 31, 2019 compared to March 31, 2018.  Net loans increased $102.8 million to $1.4 billion at March 31, 2019 compared to March 31, 2018, primarily due to campaigns related to increasing home equity product market share and indirect auto lending. The investment portfolio increased $26.8 million from March 31, 2018 to March 31, 2019 due to increases in the taxable municipal portfolio and restricted stock.

Non-performing Loans

The ratio of non-performing loans to total loans ratio increased to 1.14% at March 31, 2019 from 0.58% at March 31, 2018 as non-performing loans have increased to $15.8 million at March 31, 2019 from $7.6 million at March 31, 2018 primarily due to a commercial loan relationship that became non-performing during the last three months of 2018. 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 $405,000 for the three months ended March 31, 2019 minimally impacted the allowance for loan losses, which was 1.00% of total loans at March 31, 2019. The majority of the loans charged-off had a specific allowance within the allowance for loan losses.

Deposits

Deposits increased $116.6 million to $1.3 billion at March 31, 2019 compared to March 31, 2018.  Noninterest-bearing deposits increased $17.4 million to $321.7 million at March 31, 2019 compared to March 31, 2018.  Driving deposit growth is our commitment to easy-to-use products, community involvement, emphasis on customer service, and the opening of a new branch in Pittston, Pennsylvania.  Deposit gathering efforts have centered on core deposits as building customer relationships remains the focus.  The time deposit portfolio has increased as time deposits have been used as a customer attraction tool.  This has led to the average maturity of the time deposit portfolio being lengthened.

Shareholders’ Equity

Shareholders’ equity increased $8.9 million to $147.0 million at March 31, 2019 compared to March 31, 2018. The change in accumulated other comprehensive loss from $6.6 million at March 31, 2018 to $5.0 million at March 31, 2019 is a result of an increase in unrealized gains on available for sale securities (from an unrealized loss of $1,739,000 at March 31, 2018 to an unrealized gain of $197,000 at March 31, 2019). The amount of accumulated other comprehensive loss at March 31, 2019 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 $353,000. The current level of shareholders’ equity equates to a book value per share of $31.33 at March 31, 2019 compared to $29.45 at March 31, 2018 and an equity to asset ratio of 8.62% at March 31, 2019, compared to 9.05% at March 31, 2018.  Excluding goodwill and intangibles, book value per share was $27.45 at March 31, 2019, compared to $25.51 at March 31, 2018.  Dividends declared for the three months ended March 31, 2019 and 2018 were $0.47 per share.

During the second quarter of 2019, the Company expects to offer approximately $10.0 million of a new series of non-cumulative, preferred stock to a limited number of accredited investors in a private placement transaction.  The preferred stock would be structured to qualify as Tier 1 capital for bank regulatory purposes.  The proceeds of the offering would be used for general corporate purposes, including funding organic growth.  There can be no assurance that the offering will be completed during the second quarter of 2019 or otherwise.  Any shares of preferred stock offered and sold will not be registered under the Securities Act of 1933 and may not be offered or sold absent registration or an applicable exemption from registration requirements.

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.  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; 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, 2018.

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)		2019				2018				% Change
ASSETS:
Noninterest-bearing balances		$	31,211			$	18,940			64.79	%
Interest-bearing balances in other financial institutions		42,385				18,452				129.70	%
Total cash and cash equivalents		73,596				37,392				96.82	%
Investment debt securities, available for sale, at fair value		141,762				116,444				21.74	%
Investment equity securities, at fair value		1,819				2,482				(26.71	)%
Investment securities, trading		42				159				(73.58	)%
Restricted investment in bank stock, at fair value		15,725				13,483				16.63	%
Loans held for sale		1,787				748				138.90	%
Loans		1,384,470				1,280,748				8.10	%
Allowance for loan losses		(13,792		)		(12,836		)		7.45	%
Loans, net		1,370,678				1,267,912				8.11	%
Premises and equipment, net		33,270				27,587				20.60	%
Accrued interest receivable		5,542				4,456				24.37	%
Bank-owned life insurance		28,812				28,169				2.28	%
Goodwill		17,104				17,104				—	%
Intangibles		1,091				1,382				(21.06	)%
Operating lease right of use asset		4,239				—				n/a
Deferred tax asset		4,241				4,721				(10.17	)%
Other assets		5,000				4,706				6.25	%
TOTAL ASSETS		$	1,704,708			$	1,526,745			11.66	%
LIABILITIES:
Interest-bearing deposits		$	987,404			$	888,193			11.17	%
Noninterest-bearing deposits		321,657				304,261				5.72	%
Total deposits		1,309,061				1,192,454				9.78	%
Short-term borrowings		84,499				59,305				42.48	%
Long-term borrowings		144,631				123,970				16.67	%
Accrued interest payable		1,278				793				61.16	%
Operating lease liability		4,241				—				n/a
Other liabilities		13,962				12,110				15.29	%
TOTAL LIABILITIES		1,557,672				1,388,632				12.17	%
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; 5,012,273 and 5,009,898 shares issued; 4,691,752 and 4,689,748 outstanding		41,767				41,748				0.05	%
Additional paid-in capital		50,890				50,199				1.38	%
Retained earnings		71,526				64,905				10.20	%
Accumulated other comprehensive loss:
Net unrealized gain (loss) on available for sale securities		197				(1,739		)		111.33	%
Defined benefit plan		(5,239		)		(4,886		)		(7.22	)%
Treasury stock at cost, 320,150		(12,115		)		(12,115		)		—	%
TOTAL PENNS WOODS BANCORP, INC. SHAREHOLDERS' EQUITY		147,026				138,112				6.45	%
Non-controlling interest		10				1				900.00	%
TOTAL SHAREHOLDERS' EQUITY		147,036				138,113				6.46	%
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	1,704,708			$	1,526,745			11.66	%

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

		Three Months Ended March 31,
(In Thousands, Except Per Share Data)		2019				2018				% Change
INTEREST AND DIVIDEND INCOME:
Loans including fees		$	14,869			$	12,193			21.95	%
Investment securities:
Taxable		934				546				71.06	%
Tax-exempt		174				241				(27.80	)%
Dividend and other interest income		457				221				106.79	%
TOTAL INTEREST AND DIVIDEND INCOME		16,434				13,201				24.49	%
INTEREST EXPENSE:
Deposits		2,300				1,222				88.22	%
Short-term borrowings		605				224				170.09	%
Long-term borrowings		851				602				41.36	%
TOTAL INTEREST EXPENSE		3,756				2,048				83.40	%
NET INTEREST INCOME		12,678				11,153				13.67	%
PROVISION FOR LOAN LOSSES		360				160				125.00	%
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		12,318				10,993				12.05	%
NON-INTEREST INCOME:
Service charges		562				551				2.00	%
Debt securities gains, available for sale		13				(9		)		(244.44	)%
Equity securities gains (losses)		43				(34		)		226.47	%
Securities gains (losses), trading		10				3				(233.33	)%
Bank-owned life insurance		168				173				(2.89	)%
Gain on sale of loans		316				255				23.92	%
Insurance commissions		134				117				14.53	%
Brokerage commissions		323				343				(5.83	)%
Debit card income		310				333				(6.91	)%
Other		375				349				7.45	%
TOTAL NON-INTEREST INCOME		2,254				2,081				8.31	%
NON-INTEREST EXPENSE:
Salaries and employee benefits		5,501				5,048				8.97	%
Occupancy		779				741				5.13	%
Furniture and equipment		752				747				0.67	%
Software Amortization		207				65				218.46	%
Pennsylvania shares tax		293				277				5.78	%
Professional Fees		522				566				(7.77	)%
Federal Deposit Insurance Corporation deposit insurance		268				202				32.67	%
Marketing		102				251				(59.36	)%
Intangible amortization		71				80				(11.25	)%
Other		1,319				1,300				1.46	%
TOTAL NON-INTEREST EXPENSE		9,814				9,277				5.79	%
INCOME BEFORE INCOME TAX PROVISION		4,758				3,797				25.31	%
INCOME TAX PROVISION		812				589				37.86	%
NET INCOME		$	3,946			$	3,208			23.00	%
Earnings attributable to noncontrolling interest		2				(1		)		300.00	%
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS'		$	3,944			$	3,209			22.90	%
EARNINGS PER SHARE - BASIC		$	0.84			$	0.68			23.53	%
EARNINGS PER SHARE - DILUTED		$	0.84			$	0.68			23.53	%
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC		4,691,752				4,689,376				0.05	%
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED		4,691,752				4,689,376				0.05	%
DIVIDENDS DECLARED PER SHARE		$	0.47			$	0.47			—	%

PENNS WOODS BANCORP, INC.AVERAGE BALANCES AND INTEREST RATES

		Three Months Ended
		March 31, 2019											March 31, 2018
(Dollars in Thousands)		AverageBalance				Interest				AverageRate			AverageBalance				Interest				AverageRate
ASSETS:
Tax-exempt loans		$	72,714			$	539			3.01	%		$	75,448			$	567			3.05	%
All other loans		1,311,315				14,443				4.47	%		1,186,117				11,745				4.02	%
Total loans		1,384,029				14,982				4.39	%		1,261,565				12,312				3.96	%
Taxable securities		126,033				1,350				4.28	%		84,267				759				3.60	%
Tax-exempt securities		26,711				220				3.29	%		42,160				305				2.89	%
Total securities		152,744				1,570				4.11	%		126,427				1,064				3.37	%
Interest-bearing deposits		6,534				41				2.54	%		2,167				8				1.50	%
Total interest-earning assets		1,543,307				16,593				4.35	%		1,390,159				13,384				3.90	%
Other assets		111,600											97,606
TOTAL ASSETS		$	1,654,907										$	1,487,765
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Savings		$	166,927			30				0.07	%		$	163,037			16				0.04	%
Super Now deposits		231,508				379				0.66	%		227,086				207				0.37	%
Money market deposits		241,402				472				0.79	%		236,443				210				0.36	%
Time deposits		299,644				1,419				1.92	%		236,116				789				1.36	%
Total interest-bearing deposits		939,481				2,300				0.99	%		862,682				1,222				0.57	%
Short-term borrowings		96,029				605				2.56	%		61,803				224				1.45	%
Long-term borrowings		144,191				851				2.23	%		114,526				602				2.10	%
Total borrowings		240,220				1,456				2.36	%		176,329				826				1.87	%
Total interest-bearing liabilities		1,179,701				3,756				1.27	%		1,039,011				2,048				0.79	%
Demand deposits		313,112											293,227
Other liabilities		17,776											15,786
Shareholders’ equity		144,318											139,741
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	1,654,907										$	1,487,765
Interest rate spread										3.08	%										3.11	%
Net interest income/margin						$	12,837			3.37	%						$	11,336			3.31	%

		Three Months Ended March 31,
		2019				2018
Total interest income		$	16,434			$	13,201
Total interest expense		3,756				2,048
Net interest income		12,678				11,153
Tax equivalent adjustment		159				183
Net interest income (fully taxable equivalent)		$	12,837			$	11,336

(Dollars in Thousands, Except Per Share Data)		Quarter Ended
		3/31/2019				12/31/2018				9/30/2018				6/30/2018				3/31/2018
Operating Data
Net income		$	3,944			$	4,189			$	3,826			$	3,480			$	3,209
Net interest income		12,678				12,699				12,255				11,703				11,153
Provision for loan losses		360				760				480				335				160
Net security gains (losses)		66				(165		)		(24		)		15				(40		)
Non-interest income, ex. net security gains (losses)		2,188				2,594				2,613				2,347				2,368
Non-interest expense		9,814				9,532				9,681				9,517				9,524
Performance Statistics
Net interest margin		3.37		%		3.33		%		3.30		%		3.32		%		3.31		%
Annualized return on average assets		0.95		%		1.02		%		0.96		%		0.91		%		0.86		%
Annualized return on average equity		10.93		%		11.77		%		10.94		%		10.07		%		9.18		%
Annualized net loan charge-offs to average loans		0.12		%		0.08		%		0.05		%		0.04		%		0.06		%
Net charge-offs		405				266				171				137				182
Efficiency ratio		65.5		%		61.9		%		64.6		%		67.2		%		69.8		%
Per Share Data
Basic earnings per share		$	0.84			$	0.89			$	0.82			$	0.74			$	0.68
Diluted earnings per share		0.84				0.89				0.82				0.74				0.68
Dividend declared per share		0.47				0.47				0.47				0.47				0.47
Book value		31.33				30.59				29.96				29.66				29.45
Common stock price:
High		44.50				44.18				46.27				46.92				45.56
Low		34.84				38.66				43.22				41.29				39.61
Close		41.10				40.24				43.45				44.78				42.31
Weighted average common shares:
Basic		4,692				4,691				4,691				4,690				4,689
Fully Diluted		4,692				4,691				4,691				4,703				4,689
End-of-period common shares:
Issued		5,012				5,012				5,011				5,011				5,010
Treasury		320				320				320				320				320

(Dollars in Thousands, Except Per Share Data)		Quarter Ended
		3/31/2019				12/31/2018				9/30/2018				6/30/2018				3/31/2018
Financial Condition Data:
General
Total assets		$	1,704,708			$	1,684,771			$	1,670,348			$	1,603,273			$	1,526,745
Loans, net		1,370,678				1,370,920				1,355,762				1,318,039				1,267,912
Goodwill		17,104				17,104				17,104				17,104				17,104
Intangibles		1,091				1,162				1,233				1,304				1,382
Total deposits		1,309,061				1,219,903				1,210,477				1,191,019				1,192,454
Noninterest-bearing		321,657				320,814				313,111				311,194				304,261
Savings		170,005				166,063				164,449				166,183				166,243
NOW		253,475				207,819				223,963				216,109				240,259
Money Market		244,753				238,596				238,131				245,081				235,381
Time Deposits		319,171				286,611				270,823				252,452				246,310
Total interest-bearing deposits		987,404				899,089				897,366				879,825				888,193
Core deposits*		989,890				933,292				939,654				938,567				946,144
Shareholders’ equity		147,026				143,536				140,538				139,134				138,112
Asset Quality
Non-performing loans		$	15,794			$	16,572			$	8,739			$	7,132			$	7,641
Non-performing loans to total assets		0.93		%		0.98		%		0.52		%		0.44		%		0.50		%
Allowance for loan losses		13,792				13,837				13,343				13,034				12,836
Allowance for loan losses to total loans		1.00		%		1.00		%		0.97		%		0.98		%		1.00		%
Allowance for loan losses to non-performing loans		87.32		%		83.50		%		152.68		%		182.75		%		167.99		%
Non-performing loans to total loans		1.14		%		1.20		%		0.64		%		0.54		%		0.58		%
Capitalization
Shareholders’ equity to total assets		8.62		%		8.52		%		8.41		%		8.68		%		9.05		%

* 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)		2019				2018
GAAP net income		$	3,944			$	3,209
Less: net securities gains (losses), net of tax		52				(32		)
Non-GAAP operating earnings		$	3,892			$	3,241
		Three Months Ended March 31,
		2019				2018
Return on average assets (ROA)		0.95		%		0.86		%
Less: net securities gains (losses), net of tax		0.01		%		(0.01		)%
Non-GAAP operating ROA		0.94		%		0.87		%
		Three Months Ended March 31,
		2019				2018
Return on average equity (ROE)		10.93		%		9.18		%
Less: net securities gains (losses), net of tax		0.14		%		(0.09		)%
Non-GAAP operating ROE		10.79		%		9.27		%
		Three Months Ended March 31,
		2019				2018
Basic earnings per share (EPS)		$	0.84			$	0.68
Less: net securities gains (losses), net of tax		0.01				(0.01		)
Non-GAAP basic operating EPS		$	0.83			$	0.69
		Three Months Ended March 31,
		2019				2018
Diluted EPS		$	0.84			$	0.68
Less: net securities gains (losses), net of tax		0.01				(0.01		)
Non-GAAP diluted operating EPS		$	0.83			$	0.69