Penns Woods Bancorp(PWOD) - 2021 Q3 - Quarterly Report

Part I Financial Statements This section presents the unaudited consolidated financial statements for Penns Woods Bancorp, Inc., detailing financial position, performance, and cash flows, with total assets reaching $1.91 billion Consolidated Balance Sheet Total assets increased to $1.91 billion as of September 30, 2021, driven by higher cash and deposits, with total liabilities reaching $1.74 billion Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | Sep 30, 2021 (thousands) | Dec 31, 2020 (thousands) | Change ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Cash and Cash Equivalents | $281,647 | $213,358 | $68,289 | 32.0% | | Loans, net | $1,332,668 | $1,330,524 | $2,144 | 0.2% | | Total Assets | $1,910,791 | $1,834,643 | $76,148 | 4.2% | | Total Deposits | $1,593,019 | $1,494,443 | $98,576 | 6.6% | | Total Liabilities | $1,742,310 | $1,670,497 | $71,813 | 4.3% | | Total Shareholders' Equity | $168,481 | $164,146 | $4,335 | 2.6% | Consolidated Statement of Income Net income for the nine months ended September 30, 2021, was $11.17 million, a slight decrease from the prior year, with diluted EPS at $1.58 Income Statement Summary (in thousands, except per share data) | Metric | Nine Months Ended Sep 30, 2021 (thousands) | Nine Months Ended Sep 30, 2020 (thousands) | Change ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $36,797 | $36,256 | $541 | 1.5% | | Provision for Loan Losses | $940 | $2,040 | ($1,100) | -53.9% | | Total Non-Interest Income | $8,474 | $9,093 | ($619) | -6.8% | | Total Non-Interest Expense | $30,646 | $29,428 | $1,218 | 4.1% | | Consolidated Net Income | $11,169 | $11,318 | ($149) | -1.3% | | Diluted EPS | $1.58 | $1.61 | ($0.03) | -1.9% | - Dividends declared per share remained constant at $0.96 for the nine-month periods of both 2021 and 2020[12] Consolidated Statement of Cash Flows Cash and cash equivalents increased by $68.3 million for the nine months ended September 30, 2021, driven by financing activities Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Activity | 2021 (thousands) | 2020 (thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $12,387 | $14,901 | | Net cash used for investing activities | ($10,225) | ($109) | | Net cash provided by financing activities | $66,127 | $162,891 | | Net Increase in Cash and Cash Equivalents | $68,289 | $177,683 | Notes to Consolidated Financial Statements Detailed notes cover accounting policies, CECL adoption, investment and loan portfolios, off-balance sheet arrangements, fair value measurements, and COVID-19 loan modifications - The company is preparing for the adoption of ASU 2016-13 (CECL), effective for fiscal years beginning after December 15, 2022[31] Loan Portfolio Composition (in thousands) | Loan Category | Sep 30, 2021 (thousands) | Dec 31, 2020 (thousands) | | :--- | :--- | :--- | | Commercial, financial, and agricultural | $179,648 | $164,743 | | Real estate mortgage: Residential | $587,925 | $589,721 | | Real estate mortgage: Commercial | $377,010 | $373,188 | | Consumer automobile loans | $146,663 | $156,403 | | Other | $55,685 | $59,249 | | Total Loans | $1,346,931 | $1,343,304 | - As of September 30, 2021, 14 loans with an aggregate balance of $1.346 million remained in deferral under the COVID-19 relief program, not classified as Troubled Debt Restructurings[81] Off-Balance Sheet Commitments (in thousands) | Instrument | Sep 30, 2021 (thousands) | Dec 31, 2020 (thousands) | | :--- | :--- | :--- | | Commitments to extend credit | $236,397 | $198,512 | | Standby letters of credit | $9,949 | $10,120 | | Total | $246,346 | $208,632 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial results, highlighting increased core earnings, net interest margin compression, reduced loan loss provisions, and strong capital adequacy and liquidity Earnings Summary GAAP net income slightly decreased to $11.15 million, while non-GAAP core earnings increased to $10.92 million, indicating stronger operational performance Reconciliation of GAAP to Non-GAAP Core Earnings (Nine Months Ended Sep 30, in thousands) | Metric | 2021 (thousands) | 2020 (thousands) | | :--- | :--- | :--- | | GAAP net income | $11,154 | $11,305 | | Less: net securities gains, net of tax | $236 | $975 | | Non-GAAP core earnings | $10,918 | $10,330 | Net Interest Margin The net interest margin compressed to 2.84% for the nine months ended September 30, 2021, due to lower asset yields, partially offset by reduced deposit rates Net Interest Margin Analysis (Nine Months Ended Sep 30) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Average Rate on Interest-Earning Assets | 3.37% | 3.89% | | Average Rate on Interest-Bearing Liabilities | 0.76% | 1.25% | | Net Interest Margin (FTE) | 2.84% | 2.97% | Provision for Loan Losses The provision for loan losses significantly decreased to $0.94 million, reflecting economic improvement and a stable loan portfolio, with nonperforming loans also declining Credit Quality Metrics | Metric | Sep 30, 2021 | Sep 30, 2020 | | :--- | :--- | :--- | | Provision for Loan Losses (YTD) | $940,000 | $2,040,000 | | Nonperforming Loans | $7,763,000 | $10,553,000 | | Allowance for Loan Losses / Total Loans | 1.08% | 1.03% (as of 12/31/20) | | Allowance for Loan Losses / Nonperforming Loans | 187.52% | 127.25% | Non-interest Income and Expense Total non-interest income decreased by $0.6 million, while total non-interest expense increased by $1.2 million, driven by higher operational costs - Key drivers of non-interest income change (YTD 2021 vs 2020) were a decrease in gain on sale of loans (-$0.9 million) and brokerage commissions (-$0.1 million), offset by increases in debit card income (+$0.2 million) and other income (+$0.9 million)[157][159] - The increase in non-interest expense (YTD 2021 vs 2020) was mainly due to higher salaries and benefits (+$0.7 million), occupancy (+$0.5 million), and marketing (+$0.3 million)[160][162] Financial Condition Analysis The company maintained a strong financial condition with increased deposits of $98.6 million, reduced borrowings, and capital ratios comfortably exceeding regulatory minimums - Deposit growth of $98.6 million since year-end 2020 was a key driver of balance sheet changes, attributed to PPP and stimulus funding and a customer preference for safe bank deposits[174] Company Capital Ratios | Ratio | Sep 30, 2021 | Well-Capitalized Minimum | | :--- | :--- | :--- | | Common Equity Tier 1 Capital Ratio | 10.88% | 6.50% | | Tier 1 Capital Ratio | 10.88% | 8.00% | | Total Capital Ratio | 11.54% | 10.00% | | Tier 1 Leverage Ratio | 8.29% | 5.00% | - The company has a total borrowing capacity of $576.2 million at the FHLB and additional credit lines of $100 million, with only $118 million in FHLB borrowings outstanding, indicating significant available liquidity[191] Interest Rate Sensitivity The company maintains an asset-sensitive balance sheet, with a 100 basis point upward rate shock projected to increase net interest income by 9.20% over twelve months Net Interest Income Rate Shock Forecast (12-Month) | Rate Shock (Basis Points) | Change in Net Interest Income (%) | | :--- | :--- | | +400 | +34.43% | | +200 | +18.20% | | +100 | +9.20% | | Static | — | | -100 | -7.10% | | -200 | -13.02% | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are interest rate and liquidity risks, with no substantial changes in profile or management strategies since year-end 2020 - The company's primary market risks are identified as interest rate risk and liquidity risk, with no substantial changes in exposure or management approach since the end of 2020[200] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2021[201] - No material changes to internal control over financial reporting occurred during the quarter ended September 30, 2021[202] Part II Legal Proceedings The company reports no material legal proceedings requiring disclosure for the period - None[204] Risk Factors The company refers to risk factors detailed in its 2020 Annual Report on Form 10-K, with no material changes reported during the quarter - The report refers to the risk factors detailed in the company's Annual Report on Form 10-K for the year ended December 31, 2020[205] Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase common stock during Q3 2021, with 353,000 shares remaining available under the repurchase plan Share Repurchase Activity (Q3 2021) | Period | Shares Purchased | | :--- | :--- | | July 2021 | 0 | | August 2021 | 0 | | September 2021 | 0 | - The maximum number of shares remaining for repurchase under the existing program is 353,000[207]