Penns Woods Bancorp : Reports Fourth Quarter 2019 Earnings

Williamsport, PA - January 28, 2020 - Penns Woods Bancorp, Inc. (NASDAQ: PWOD)

Penns Woods Bancorp, Inc., supported by deposit growth, achieved net income of $15.7 million for the twelve months ended December 31, 2019, resulting in basic and diluted earnings per share of $2.23 and $2.06, respectively.

Highlights

• Net income, as reported under GAAP, for the three and nine months ended December 31, 2019 was $2.8 million and $15.7 million, compared to $4.2 million and $14.7 million for the same periods of 2018. Results for the three and twelve months ended December 31, 2019 compared to 2018 were impacted by an increase in after-tax securities gains of $516,000 (from a loss of $130,000 to a gain of $386,000) for the three month periods and $760,000 (from a loss of $169,000 to a gain of $591,000) for the twelve month periods. In addition, during the three and twelve months ended December 31, 2019 a loss of $682,000 was incurred related to the sale of two former branch locations as these locations were replaced with the opening of two high profile locations in their market area during 2019.

• During the three and twelve months ended December 31, 2019 the Company incurred a partial charge off of a commercial relationship of $3.7 million resulting in an additional provision for loan losses of $1.4 million.

• Basic and diluted earnings per share for the three months ended December 31, 2019 were $0.40 and $0.39, respectively, compared to basic and diluted earnings per share of $0.59 for the three months ended December 31, 2018.

• Basic and diluted earnings per share for the twelve months ended December 31, 2019 were $2.23 and $2.06, respectively, compared to basic and diluted earnings per share of $2.09 for the twelve months ended December 31, 2018.

• Return on average assets was 0.68% for the three months ended December 31, 2019, compared to 1.02% for the corresponding period of 2018. Return on average assets was 0.94% for the twelve months ended December 31, 2019, compared to 0.94% for the corresponding period of 2018.

• Return on average equity was 7.22% for the three months ended December 31, 2019, compared to 11.77% for the corresponding period of 2018. Return on average equity was 10.54% for the twelve months ended December, 2019, compared to 10.72% for the corresponding period of 2018.

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 $2.4 million for the three months ended December 31, 2019 compared to $4.3 million for the same period of 2018. Core earnings increased to $15.1 million for the twelve months ended December 31, 2019, compared to $14.9 million for the same period of 2018. Core earnings per share for the three months ended December 31, 2019 was $0.35 basic and $0.33 diluted, compared to $0.61 basic and diluted core earnings per share for the same period of 2018. Core earnings per share for the twelve months ended December 31, 2019 was $2.14 basic and $1.98 diluted, compared to $2.11 basic and diluted for the same period of 2018. Core return on average assets and core return on average equity were 0.59% and 6.23% for the three months ended December 31, 2019, compared to 1.05% and 12.12% for the corresponding period of 2018. Core return on average assets and core return on average equity were 0.90% and 10.14% for the twelve months ended December 31, 2019 compared to 0.95% and 10.84% for the corresponding period of 2018. 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, 2019 was 3.22% and 3.31%, compared to 3.33% and 3.31% for the corresponding periods of 2018. The decrease in the net interest margin was driven by an increase in the rate paid on interest-bearing liabilities of 37 bps and 44 bps for the three and twelve month periods. The increase was driven by an increase in the rate paid on time deposits as time deposits were utilized as an attraction tool and to manage the duration of the interest-bearing liabilities portfolio. Partially offsetting the increase in the rate paid on interest-bearing liabilities was an increase in the yield on earning assets of 2 and 27 basis points ('bps') for the three and twelve month periods. The increase in the yield on earning assets was driven by an increase in the loan portfolio yield. Growth in the average balance of the investment portfolio of $17.7 million and $23.4 million for the three and nine month periods aided in limiting the impact of increased funding costs.Assets

Total assets decreased $19.4 million to $1.7 billion at December 31, 2019 compared to December 31, 2018. Net loans decreased $27.3 million to $1.3 billion at December 31, 2019 compared to December 31, 2018, as the municipal loan portfolio decreased and the indirect auto lending portfolio remained constant. The investment portfolio increased $8.5 million from December 31, 2018 to December 31, 2019 due to increases in the corporate portfolio.

Non-performing Loans

The ratio of non-performing loans to total loans ratio decreased to 0.94% at December 31, 2019 from 1.20% at December 31, 2018 as non-performing loans have decreased to $12.8 million at December 31, 2019 from $16.6 million at December 31, 2018 primarily due to a commercial loan relationship that became non-performing during the fourth quarter of 2018 and was partially charged-off during the fourth quarter of 2019 resulting in an additional provision for loan losses of $1.4 million. 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 $4.1 million and $4.7 million for the three and twelve months ended December 31, 2019 impacted the allowance for loan losses, which was 0.88% of total loans at December 31, 2019 compared to 1.00% at December 31, 2008.

Deposits

Deposits increased $104.1 million to $1.3 billion at December 31, 2019 compared to December 31, 2018. Noninterest-bearing deposits increased $13.9 million to $334.7 million at December 31, 2019 compared to December 31, 2018. Driving deposit growth is our commitment to easy-to-use products, community involvement, and emphasis on customer service. 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. The increase in deposits has resulted in a significant reduction in the use of short-term borrowings.

Shareholders' Equity

Shareholders' equity increased $11.4 million to $155.0 million at December 31, 2019 compared to December 31, 2018. The change in accumulated other comprehensive loss from $6.6 million at December 31, 2018 to $2.8 million at December 31, 2019 is a result of an increase in unrealized gains on available for sale securities (from an unrealized loss of $1.4 million at December 31, 2018 to an unrealized gain of $2.5 million at December 31, 2019). The amount of accumulated other comprehensive loss at December 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 a decrease in the net loss of $44,000. The current level of shareholders' equity equates to a book value per share of $22.01 at December 31, 2019 compared to $20.39 at December 31, 2018, and an equity to asset ratio of 9.31% at December 31, 2019 compared to 8.52% at December 31, 2018. Dividends declared for the twelve months ended December 31, 2019 and 2018 were $1.25 per share.

On September 30, 2019, the Company completed a three-for-two stock split (the 'Stock Split') of the Company's common stock. As a result of the Stock Split, effective at 11:59 p.m. on September 30, 2019, each share of the Company's common stock issued at that time was changed into one and one-half shares of the Company's common stock with a stated par value of $5.55 per share. All share and per share amounts in this release, including in the accompanying financial statements and information, have been restated for all periods presented to give retroactive effect to the Stock Split.

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: [e-mail]

THIS INFORMATION IS SUBJECT TO YEAR-END AUDIT ADJUSTMENT