Market Overview

Norwood Financial Corp. Announces First Quarter Earnings


HONESDALE, Pa., April 20, 2018 (GLOBE NEWSWIRE) -- Lewis J. Critelli, President and Chief Executive Officer of Norwood Financial Corp. (NASDAQ:NWFL) and its subsidiary, Wayne Bank, announced earnings of $3,129,000 for the three months ended March 31, 2018 which represents a $753,000, or 31.7%, increase from the $2,376,000 recorded during the same three-month period of last year.  The increase was principally due to a higher level of net interest income and reduced operating expenses.  Earnings per share on a fully diluted basis were $0.50 in the first quarter of this year compared to $0.38 in the first quarter of 2017, after adjusting for the 50% stock dividend declared in August, 2017.  The annualized return on average assets was 1.13% in the first quarter of 2018 and the annualized return on average equity was 11.00%, compared to 0.87% and 8.54%, respectively, in the first quarter of 2017.

Total assets were $1.127 billion as of March 31, 2018, an increase of $15.4 million compared to the prior year total.  Total loans increased $56.2 million compared to March 31, 2017, total deposits increased $8.7 million over the past twelve months, and stockholders' equity increased $886,000 during the past year. 

Non-performing assets totaled $3.1 million or 0.28% of total assets at March 31, 2018 comprised of $1.7 million of non-performing loans and $1.4 million of foreclosed real estate owned, compared to $4.1 million of non-performing assets or 0.37% of total assets at December 31, 2017.  As of March 31, 2017, non-performing assets totaled $6.7 million, or 0.60% of total assets.  Net charge-offs for the three-month period ending March 31, 2018 were $84,000 compared to $162,000 of net charge-offs in the first quarter of last year.  Based on management's analysis, the Company determined that it would be appropriate to provide additional reserves and added $550,000 to the allowance for loan losses in the current period compared to $600,000 during the same period of last year.  The allowance for loan losses was 1.04% of total loans outstanding on March 31, 2018 compared to 1.00% on December 31, 2017 and 0.96% on March 31, 2017.  As of March 31, 2018, the reserve for loan losses was 482% of non-performing loans, compared to 308% on December 31, 2017 and 345% on March 31, 2017.

Net interest income (fully taxable equivalent, or fte) was $9,083,000 during the first quarter of 2018 which is $40,000 higher than the comparable three-month period of last year, despite a lower tax-equivalent adjustment.  A $48.2 million increase in average loans outstanding contributed to the increased interest income.  Interest income fte was negatively impacted by the reduction in the corporate tax rate and a lower level of tax-exempt securities, as reflected in the $270,000 decrease in the tax-equivalent adjustment.  The fte yield on interest-earning assets improved 5 basis points compared to the prior year while the cost of funds increased 14 basis points.  As a result, the net interest margin (fte) decreased to 3.46% from 3.51% in the quarter ended March 31, 2017.  

Other income totaled $1,694,000 in the first quarter of 2018 compared to $1,643,000 during the same period of last year, notwithstanding a non-recurring gain of $209,000 in the 2017 period relating to the sale of the Bank's former West Scranton Office.  The increase is attributable to a $136,000 increase in net gains on sales of securities as well as a higher level of service charges and fees and increased earnings on life insurance policies.

Operating expenses totaled $6,248,000 in the first quarter and were $366,000 lower than the $6,614,000 recorded in the same period of last year due primarily to a $591,000 decrease in foreclosed real estate costs.  All other operating expenses increased $225,000, or 3.7%, net.

Mr. Critelli stated, "Our first quarter results provide a good start for 2018 and are in-line with our budget.  Our annualized loan growth was over 6%, our core operating expenses remain well controlled, the reduced corporate tax rate had a positive impact on earnings and our capital base remains above regulatory "Well Capitalized" targets.  We continue to search out opportunities available to us, and we look forward to serving our growing base of stockholders and customers."

Norwood Financial Corp. is the parent company of Wayne Bank, which operates from fourteen offices throughout Northeastern Pennsylvania and twelve offices in the Southern Tier of New York.  The Company's stock trades on the Nasdaq Global Market under the symbol "NWFL".

Forward-Looking Statements.
The Private Securities Litigation Reform Act of 1995 contains safe harbor provisions regarding forward-looking statements.  When used in this discussion, the words "believes", "anticipates", "contemplates", "expects", and similar expressions are intended to identify forward-looking statements.  Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from those projected.  Those risks and uncertainties include changes in federal and state laws, changes in interest rates, risks associated with the acquisition of Delaware Bancshares, Inc., the ability to control costs and expenses, demand for real estate, government fiscal policies, cybersecurity and general economic conditions.  The Company undertakes no obligation to publicly release the results of any revisions to those forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Non-GAAP Financial Measures
This release references tax-equivalent net interest income, which is a non-GAAP (Generally Accepted Accounting Principles) financial measure.  Tax-equivalent net interest income is derived from GAAP using an assumed tax rate of 21% for 2018 and 34% for 2017.  We believe the presentation of net interest income on a tax–equivalent basis ensures comparability of net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice.  The following reconciles net interest income to net interest income on a fully taxable-equivalent basis:

(dollars in thousands) Three months ended March 31,
  2018   2017
Net interest income $8,807   $8,497
Tax equivalent basis adjustment 276   546
Net interest income on a fully taxable equivalent basis $9,083   $9,043


William S. Lance
Executive Vice President &
Chief Financial Officer
Norwood Financial Corp

Consolidated Balance Sheets               
(dollars in thousands, except share and per share data)              
  March 31              
  2018    2017               
Cash and due from banks $ 10,103   $ 12,057                
Interest-bearing deposits with banks   2,039     7,785                
Cash and cash equivalents   12,142     19,842                
Securities available for sale   265,862     295,801                
Loans receivable   775,681     719,443                
Less: Allowance for loan losses   8,099     6,901                
Net loans receivable   767,582     712,542                
Regulatory stock, at cost   2,545     1,939                
Bank premises and equipment, net   13,808     13,073                
Bank owned life insurance   37,270     36,352                
Foreclosed real estate owned   1,436     4,703                
Accrued interest receivable   3,687     3,532                
Goodwill   11,331     11,331                
Other intangible assets   427     571                
Deferred tax asset   5,622     8,923                
Other assets   5,325     3,006                
TOTAL ASSETS $ 1,127,037   $ 1,111,615                
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