PWOD Penns Woods Bancorp Inc

Penns Woods Bancorp, Inc. (NASDAQ: PWOD)

Penns Woods Bancorp, Inc. achieved net income of $3.4 million for the three months ended March 31, 2021, resulting in basic and diluted earnings per share of $0.49.

Highlights

• Net income, as reported under GAAP, for the three months ended March 31, 2021 was $3.4 million compared to $3.1 million for the same period of 2020. Results for the three months ended March 31, 2021 compared to 2020 were impacted by an increase in after-tax securities gains of $72,000 (from a gain of $22,000 to a gain of $94,000) for the three month period.
• Gain on sale of loans increased $464,000 for the three months ended March 31, 2021, to $908,000, compared to $444,000 for the 2020 period. The increase is the result of a significant increase in the number of consumers who are refinancing their mortgage due to the current low interest rate environment.
• The provision for loan losses decreased $235,000 for the three months ended March 31, 2021, to $515,000, compared to $750,000 for the 2020 period. The provision for loan losses was elevated in 2020 due primarily to the uncertainty caused by the COVID-19 pandemic.
• Basic and diluted earnings per share for the three months ended March 31, 2021 was $0.49. Basic earnings per share for the three months ended March 31, 2020 was $0.44 with diluted earnings per share of $0.43.
• Return on average assets was 0.75% for the three months ended March 31, 2021, compared to 0.74% for the corresponding period of 2020.
• Return on average equity was 8.59% for the three months ended March 31, 2021, compared to 7.83% for the corresponding period of 2020.

COVID-19 Activity

• Approximately one third of employees working remotely.
• As of March 31, 2021, loan modification/deferral program in place to defer payments up to 180 days for principal and/or interest with only $12.3 million in loan principal remaining in deferral.
• All COVID-19 related loan deferrals meet the requirements to not be considered a troubled debt restructuring.
• Participated in the Paycheck Protection Program ("PPP") by primarily utilizing third parties to service and place the loans.
• Significantly reduced deposit rates during the latter half of March 2020 continuing through December 2020.
• Total paycheck protection program loans originated to be held on balance sheet at March 31, 2021 total $19.8 million.

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 $3.3 million for the three months ended March 31, 2021 compared to $3.1 million for the same period of 2020. Core earnings per share for the three months ended March 31, 2021 were $0.47 basic and diluted, compared to $0.44 basic and $0.43 diluted core earnings per share for the same period of 2020. Core return on average assets and core return on average equity were 0.73% and 8.35% for the three months ended March 31, 2021, compared to 0.73% and 7.77% for the corresponding period of 2020. 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 months ended March 31, 2021 was 2.88%, compared to and 3.19% for the corresponding period of 2020. The decrease in the net interest margin was driven by a decrease in the yield of the loan portfolio of 31 basis points ("bps"), while the investment portfolio yield declined 77 bps, respectively, during the current low interest rate environment. Further compressing the net interest margin was the significant increase of interest-bearing deposits. These deposits carry a current yield of a few basis points as commercial customers have received PPP funding and retail customers have received stimulus funding. Rates paid on interest-bearing deposit liabilities decreased 60 bps as rates paid were decreased significantly during 2020 due to the economic impact of COVID-19 prolonging the low interest rate environment. These deposit rate decreases have partially offset the decline in earning asset yield.

Assets

Total assets increased $207.7 million to $1.9 billion at March 31, 2021 compared to March 31, 2020.  Cash and cash equivalents increased significantly due to deposit growth resulting from the various economic recovery programs instituted at the state and federal levels that impacted both commercial and retail customers, coupled with customers becoming more risk adverse and seeking safety in a bank deposit. Net loans decreased $15.2 million to $1.3 billion at March 31, 2021 compared to March 31, 2020, as the COVID-19 business and travel restrictions curtailed various lending activities such as indirect auto, home equity, and commercial. Lending activity began to rebound as business and travel restrictions were lessened during the second half of 2020 and continues to rebound in 2021. The investment portfolio increased $11.8 million from March 31, 2020 to March 31, 2021 as a portion of the excess cash liquidity was invested into short-term municipal bonds.

Non-performing Loans

The ratio of non-performing loans to total loans ratio decreased to 0.69% at March 31, 2021 from 0.84% at March 31, 2020 as non-performing loans have decreased to $9.3 million at March 31, 2021 from $11.3 million at March 31, 2020 primarily due to a commercial loan relationship that was paid-off during the fourth quarter of 2020. 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 $116,000 for the three months ended March 31, 2021 impacted the allowance for loan losses, which was 1.06% of total loans at March 31, 2021 compared to 0.93% at March 31, 2020

Deposits

Deposits increased $237.6 million to $1.6 billion at March 31, 2021 compared to March 31, 2020. Noninterest-bearing deposits increased $146.2 million to $478.9 million at March 31, 2021 compared to March 31, 2020.  Driving deposit growth was the receipt of PPP funding by commercial customers, stimulus funding by retail customers, and customers becoming more risk averse and seeking safety in a bank deposit. Emphasis remains on increasing the utilization of electronic (internet and mobile) deposit banking among our customers. Utilization of internet and mobile banking has increased since the start of 2020 due to these efforts coupled with a change in consumer behavior due to the business and travel restrictions caused by the COVID-19 pandemic.

Shareholders’ Equity

Shareholders’ equity increased $7.5 million to $164.1 million at March 31, 2021 compared to March 31, 2020.  Accumulated other comprehensive loss of $2.5 million at March 31, 2021 increased from a loss of $2.2 million at March 31, 2020 primarily as a result of a change in the net excess of the projected benefit obligations under the defined benefit plan over the fair value of the plan’s assets, resulting in an increase in the net loss of $361,000, offset by an increase in unrealized gains on available for sale securities (from an unrealized gain of $3.0 million at March 31, 2020 to an unrealized gain of $3.1 million at March 31, 2021). The current level of shareholders’ equity equates to a book value per share of $23.25 at March 31, 2021 compared to $22.23 at March 31, 2020, and an equity to asset ratio of 8.65% at March 31, 2021 compared to 9.27% at March 31, 2020. Dividends declared for the three months ended March 31, 2021 and 2020 were $0.32 per share, respectively.

Penns Woods Bancorp, Inc. is the parent company of Jersey Shore State Bank, which operates eighteen 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.  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; (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, 2020.

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)		2021				2020				% Change
ASSETS:
Noninterest-bearing balances		$	28,539			$	29,572			(3.49	)	%
Interest-bearing balances in other financial institutions		249,149				48,189				417.02		%
Total cash and cash equivalents		277,688				77,761				257.10		%
Investment debt securities, available for sale, at fair value		166,895				155,522				7.31		%
Investment equity securities, at fair value		1,265				1,281				(1.25	)	%
Investment securities, trading		44				37				18.92		%
Restricted investment in bank stock, at fair value		15,032				14,611				2.88		%
Loans held for sale		2,568				4,294				(40.20	)	%
Loans		1,335,899				1,349,400				(1.00	)	%
Allowance for loan losses		(14,202		)		(12,500		)		13.62		%
Loans, net		1,321,697				1,336,900				(1.14	)	%
Premises and equipment, net		34,910				33,170				5.25		%
Accrued interest receivable		8,583				5,307				61.73		%
Bank-owned life insurance		33,839				29,228				15.78		%
Goodwill		17,104				17,104				—		%
Intangibles		618				836				(26.08	)	%
Operating lease right of use asset		3,088				3,278				(5.80	)	%
Deferred tax asset		3,717				3,281				13.29		%
Other assets		9,144				5,898				55.04		%
TOTAL ASSETS		$	1,896,192			$	1,688,508			12.30		%
LIABILITIES:
Interest-bearing deposits		$	1,085,448			$	993,975			9.20		%
Noninterest-bearing deposits		478,916				332,759				43.92		%
Total deposits		1,564,364				1,326,734				17.91		%
Short-term borrowings		6,650				17,741				(62.52	)	%
Long-term borrowings		141,094				171,903				(17.92	)	%
Accrued interest payable		988				1,635				(39.57	)	%
Operating lease liability		3,130				3,299				(5.12	)	%
Other liabilities		15,903				10,608				49.92		%
TOTAL LIABILITIES		1,732,129				1,531,920				13.07		%
SHAREHOLDERS’ EQUITY:
Preferred stock, no par value, 3,000,000 shares authorized; no shares issued		—				—				n/a
Common stock, par value $5.55, 22,500,000 shares authorized; 7,537,242 and   7,521,491 shares issued; 7,057,017 and 7,041,266 shares outstanding		41,873				41,786				0.21		%
Additional paid-in capital		52,818				51,701				2.16		%
Retained earnings		83,948				77,403				8.46		%
Accumulated other comprehensive (loss) gain:
Net unrealized gain on available for sale securities		3,095				2,986				3.65		%
Defined benefit plan		(5,560		)		(5,199		)		(6.94	)	%
Treasury stock at cost, 480,225		(12,115		)		(12,115		)		—		%
TOTAL PENNS WOODS BANCORP, INC. SHAREHOLDERS' EQUITY		164,059				156,562				4.79		%
Non-controlling interest		4				26				(84.62	)	%
TOTAL SHAREHOLDERS' EQUITY		164,063				156,588				4.77		%
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	1,896,192			$	1,688,508			12.30		%

PENNS WOODS BANCORP, INC.CONSOLIDATED STATEMENT OF INCOME(UNAUDITED)
		Three Months Ended March 31,
(In Thousands, Except Per Share Data)		2021				2020				% Change
INTEREST AND DIVIDEND INCOME:
Loans including fees		$	13,345			$	14,657			(8.95	)	%
Investment securities:
Taxable		819				1,010				(18.91	)	%
Tax-exempt		171				145				17.93		%
Dividend and other interest income		260				349				(25.50	)	%
TOTAL INTEREST AND DIVIDEND INCOME		14,595				16,161				(9.69	)	%
INTEREST EXPENSE:
Deposits		1,684				3,035				(44.51	)	%
Short-term borrowings		2				22				(90.91	)	%
Long-term borrowings		839				943				(11.03	)	%
TOTAL INTEREST EXPENSE		2,525				4,000				(36.88	)	%
NET INTEREST INCOME		12,070				12,161				(0.75	)	%
PROVISION FOR LOAN LOSSES		515				750				(31.33	)	%
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		11,555				11,411				1.26		%
NON-INTEREST INCOME:
Service charges		383				549				(30.24	)	%
Debt securities gains, available for sale		138				21				557.14		%
Equity securities (losses) gains		(23		)		20				(215.00	)	%
Securities gains (losses), trading		4				(14		)		128.57		%
Bank-owned life insurance		173				192				(9.90	)	%
Gain on sale of loans		908				444				104.50		%
Insurance commissions		157				127				23.62		%
Brokerage commissions		219				369				(40.65	)	%
Debit card income		380				274				38.69		%
Other		275				455				(39.56	)	%
TOTAL NON-INTEREST INCOME		2,614				2,437				7.26		%
NON-INTEREST EXPENSE:
Salaries and employee benefits		5,598				5,667				(1.22	)	%
Occupancy		976				702				39.03		%
Furniture and equipment		809				860				(5.93	)	%
Software amortization		198				250				(20.80	)	%
Pennsylvania shares tax		352				285				23.51		%
Professional fees		583				622				(6.27	)	%
Federal Deposit Insurance Corporation deposit insurance		221				194				13.92		%
Marketing		63				53				18.87		%
Intangible amortization		53				62				(14.52	)	%
Other		1,098				1,415				(22.40	)	%
TOTAL NON-INTEREST EXPENSE		9,951				10,110				(1.57	)	%
INCOME BEFORE INCOME TAX PROVISION		4,218				3,738				12.84		%
INCOME TAX PROVISION		771				661				16.64		%
NET INCOME		$	3,447			$	3,077			12.02		%
Earnings attributable to noncontrolling interest		6				4				50.00		%
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS'		$	3,441			$	3,073			11.98		%
EARNINGS PER SHARE - BASIC		$	0.49			$	0.44			11.36		%
EARNINGS PER SHARE - DILUTED		$	0.49			$	0.43			13.95		%
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC		7,055,116				7,040,740				0.20		%
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED		7,055,116				7,102,990				(0.67	)	%
DIVIDENDS DECLARED PER SHARE		$	0.32			$	0.32			—		%

PENNS WOODS BANCORP, INC.AVERAGE BALANCES AND INTEREST RATES
		Three Months Ended
		March 31, 2021											March 31, 2020
(Dollars in Thousands)		Average Balance				Interest				Average Rate			Average Balance				Interest				Average Rate
ASSETS:
Tax-exempt loans		$	45,534			$	349			3.11	%		$	52,979			$	404			3.07	%
All other loans		1,293,395				13,069				4.10	%		1,303,838				14,338				4.42	%
Total loans		1,338,929				13,418				4.06	%		1,356,817				14,742				4.37	%
Taxable securities		145,047				1,033				2.89	%		142,788				1,273				3.63	%
Tax-exempt securities		36,369				216				2.41	%		23,773				184				3.15	%
Total securities		181,416				1,249				2.79	%		166,561				1,457				3.56	%
Interest-bearing deposits		195,995				46				0.10	%		26,716				86				1.29	%
Total interest-earning assets		1,716,340				14,713				3.48	%		1,550,094				16,285				4.23	%
Other assets		124,074											112,219
TOTAL ASSETS		$	1,840,414										$	1,662,313
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Savings		$	214,636			44				0.08	%		$	177,840			91				0.21	%
Super Now deposits		289,236				267				0.37	%		219,826				424				0.78	%
Money market deposits		306,000				267				0.35	%		210,708				477				0.91	%
Time deposits		254,460				1,106				1.76	%		379,259				2,043				2.17	%
Total interest-bearing deposits		1,064,332				1,684				0.64	%		987,633				3,035				1.24	%
Short-term borrowings		5,680				2				0.14	%		10,847				22				0.85	%
Long-term borrowings		141,483				839				2.40	%		159,920				943				2.37	%
Total borrowings		147,163				841				2.32	%		170,767				965				2.28	%
Total interest-bearing liabilities		1,211,495				2,525				0.85	%		1,158,400				4,000				1.39	%
Demand deposits		445,759											326,817
Other liabilities		22,872											19,991
Shareholders’ equity		160,288											157,105
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	1,840,414										$	1,662,313
Interest rate spread										2.63	%										2.84	%
Net interest income/margin						$	12,188			2.88	%						$	12,285			3.19	%

		Three Months Ended March 31,
		2021				2020
Total interest income		$	14,595			$	16,161
Total interest expense		2,525				4,000
Net interest income		12,070				12,161
Tax equivalent adjustment		118				124
Net interest income (fully taxable equivalent)		$	12,188			$	12,285

(Dollars in Thousands, Except Per Share Data)		Quarter Ended
		3/31/2021				12/31/2020				9/30/2020				6/30/2020				3/31/2020
Operating Data
Net income		$	3,441			$	3,901			$	4,472			$	3,760			$	3,073
Net interest income		12,070				11,967				11,845				12,250				12,161
Provision for loan losses		515				585				645				645				750
Net security gains		119				374				1,011				196				27
Non-interest income, excluding net security gains		2,495				2,701				3,024				2,423				2,409
Non-interest expense		9,951				9,640				9,707				9,611				10,110
Performance Statistics
Net interest margin		2.88		%		2.81		%		2.76		%		3.01		%		3.19		%
Annualized return on average assets		0.75		%		0.85		%		0.97		%		0.85		%		0.74		%
Annualized return on average equity		8.59		%		9.55		%		11.05		%		9.60		%		7.83		%
Annualized net loan charge-offs to average loans		0.04		%		0.06		%		0.06		%		0.05		%		0.04		%
Net charge-offs		116				211				193				168				144
Efficiency ratio		67.96		%		65.36		%		64.89		%		65.10		%		68.96		%
Per Share Data
Basic earnings per share		$	0.49			$	0.55			$	0.63			$	0.53			$	0.44
Diluted earnings per share		0.49				0.55				0.63				0.53				0.43
Dividend declared per share		0.32				0.32				0.32				0.32				0.32
Book value		23.25				23.27				23.05				22.66				22.23
Common stock price:
High		27.78				27.30				22.83				27.75				35.36
Low		20.55				19.61				19.61				20.01				19.05
Close		24.09				26.01				19.85				22.71				24.30
Weighted average common shares:
Basic		7,055				7,050				7,045				7,042				7,041
Fully Diluted		7,055				7,050				7,045				7,042				7,103
End-of-period common shares:
Issued		7,537				7,533				7,528				7,523				7,521
Treasury		480				480				480				480				480

(Dollars in Thousands, Except Per Share Data)		Quarter Ended
		3/31/2021				12/31/2020				9/30/2020				6/30/2020				3/31/2020
Financial Condition Data:
General
Total assets		$	1,896,192			$	1,834,643			$	1,840,779			$	1,838,364			$	1,688,508
Loans, net		1,321,697				1,330,524				1,335,711				1,336,370				1,336,900
Goodwill		17,104				17,104				17,104				17,104				17,104
Intangibles		618				671				724				777				836
Total deposits		1,564,364				1,494,443				1,491,810				1,474,305				1,326,734
Noninterest-bearing		478,916				449,357				434,248				418,324				332,759
Savings		224,890				209,924				202,781				195,964				183,929
NOW		290,355				287,775				268,463				268,348				229,919
Money Market		324,207				283,742				274,480				247,753				204,832
Time Deposits		245,996				263,645				311,838				343,915				375,295
Total interest-bearing deposits		1,085,448				1,045,086				1,057,562				1,055,980				993,975
Core deposits*		1,318,368				1,230,798				1,179,972				1,130,389				951,439
Shareholders’ equity		164,059				164,142				162,422				159,578				156,562
Asset Quality
Non-performing loans		$	9,272			$	10,334			$	10,553			$	11,097			$	11,300
Non-performing loans to total assets		0.49		%		0.56		%		0.57		%		0.60		%		0.67		%
Allowance for loan losses		14,202				13,803				13,429				12,977				12,500
Allowance for loan losses to total loans		1.06		%		1.03		%		1.00		%		0.96		%		0.93		%
Allowance for loan losses to non-performing loans		153.17		%		133.57		%		127.25		%		116.94		%		110.62		%
Non-performing loans to total loans		0.69		%		0.77		%		0.78		%		0.82		%		0.84		%
Capitalization
Shareholders’ equity to total assets		8.65		%		8.95		%		8.82		%		8.68		%		9.27		%
* 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)		2021				2020
GAAP net income		$	3,441			$	3,073
Less: net securities gains, net of tax			94				22
Non-GAAP core earnings		$	3,347			$	3,051
		Three Months Ended March 31,
		2021				2020
Return on average assets (ROA)		0.75		%		0.74		%
Less: net securities gains, net of tax		0.02		%		0.01		%
Non-GAAP core ROA		0.73		%		0.73		%
		Three Months Ended March 31,
		2021				2020
Return on average equity (ROE)		8.59		%		7.83		%
Less: net securities gains, net of tax		0.24		%		0.06		%
Non-GAAP core ROE		8.35		%		7.77		%
		Three Months Ended March 31,
		2021				2020
Basic earnings per share (EPS)		$	0.49			$	0.44
Less: net securities gains, net of tax		0.02				—
Non-GAAP basic core EPS		$	0.47			$	0.44
		Three Months Ended March 31,
		2021				2020
Diluted EPS		$	0.49			$	0.43
Less: net securities gains, net of tax		0.02				—
Non-GAAP diluted core EPS		$	0.47			$	0.43

COVID-19 Loan Deferrals as of March 31, 2021
(In Thousands)		Amount
Commercial, financial, and agricultural		$	1,710
Real estate mortgage:
Residential		2,177
Commercial		8,307
Consumer automobile loans		96
Other consumer installment loans		55
Total loan deferrals		$	12,345