NORWOOD FINANCIAL CORP - FORM 8-K - EX-99.1 - THIRD QUARTER EARNINGS RELEASE

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8-K - FORM 8-K - NORWOOD FINANCIAL CORP	f8k_103015-0160.htm

FOR IMMEDIATE RELEASE

NORWOOD FINANCIAL CORP

ANNOUNCES THIRD QUARTER EARNINGS

October 30, 2015 - Honesdale, Pennsylvania

Lewis J. Critelli, President and Chief Executive Officer of Norwood Financial Corp. (Nasdaq Global Market-NWFL) and its subsidiary, Wayne Bank, announced earnings for the three months ended September 30, 2015 of $1,777,000. This represents a $341,000 decrease from the $2,118,000 earned in the same three-month period of 2014 due to a reduced level of gains from securities sales and a $300,000 increase in the provision for loan losses. Earnings per share (fully diluted) were $.48 in the 2015 period, decreasing from the $.58 earned in the similar period of last year. Net income for the nine months ended September 30, 2015 totaled $5,781,000, which is $335,000 lower than the same period of 2014 primarily due to an additional $500,000 provision to the allowance for loan losses. Earnings per share (fully diluted) for the nine months ended September 30, 2015 totaled $1.57 per share compared to $1.68 per share in the 2014 period. The annualized return on average assets and average equity for the nine month period was 1.05% and 7.65%, respectively.

Total assets as of September 30, 2015 were $749.3 million with loans receivable of $543.5 million, deposits of $571.3 million and stockholders’ equity of $101.9 million. Total assets have increased $31.1 million during the past twelve months due primarily to growth in loans which increased $42.7 million, including a $31.0 million increase in commercial lending. Total deposits increased $23.0 million over the past twelve months including a $13.0 million increase in non-interest bearing demand deposits. Stockholders’ equity

increased $4.5 million over the past year due principally to the retention of earnings and an increase in accumulated other comprehensive income.

Non-performing assets, which include non-performing loans and foreclosed real estate owned, totaled $10.5 million or 1.40% of total assets as of September 30, 2015 compared to $12.1 million or 1.62% of assets as of June 30, 2015 and $10.9 million or 1.52% of total assets as of September 30, 2014. Net charge-offs were $921,000 for the quarter and totaled $1,889,000 for the nine months ended September 30, 2015 compared to $380,000 and $1,317,000, respectively, for the similar periods in 2014. Based on management’s analysis, the Company added $720,000 and $1,760,000 to the allowance for loan losses for the three and nine month periods ended September 30, 2015, respectively, compared to $420,000 and $1,260,000, respectively, for the similar periods in 2014. The increase in the provision for loan losses reflects the higher level of charge-offs in 2015 as well as growth of the loan portfolio. The allowance for loan losses totaled $5,747,000 as of September 30, 2015 and represented 1.06% of total loans, compared to $5,651,000 as of September 30, 2014 and 1.13% of total loans.

For the three months ended September 30, 2015, net interest income, on a fully taxable equivalent basis (fte), totaled $6,413,000, which represents a decrease of $54,000 compared to the similar period in 2014. Net interest margin (fte) for the 2015 period was 3.68% compared to 3.92% for the similar period in 2014 due primarily to a 32 basis point decrease in average loan yields reflecting growth and repricing at current market rates. Net interest income (fte) for the nine months ended September 30, 2015 totaled $19,405,000, a decrease of $13,000 compared to the similar period in 2014. Net interest margin (fte) year-to-date for the 2015 period was 3.76% compared to 3.91% in 2014.

Other income for the three months ended September 30, 2015 totaled $1,071,000 compared to $1,262,000 for the similar period in 2014. The decrease was due to reduced gains on the sales of investment securities during the period. For the nine months ended September 30, 2015, other income totaled $3,483,000 compared to $3,783,000 in the 2014 period. Gains on the sales of investment securities totaled $508,000 on sales of $28.3 million for the 2015 year-to-date period compared to $904,000 on sales of $38.2 million in the corresponding 2014 period. Excluding gains from the sales of securities, other income improved $96,000 over the first nine months of 2014.

Other expenses totaled $4,070,000 for the three months ended September 30, 2015, compared to $4,124,000 in the similar period of 2014. Foreclosed real estate costs decreased $224,000 compared to the same three-month period of last year. For the nine months ended September 30, 2015, other expenses totaled $12,425,000 compared to $12,729,000 for the similar period in 2014, a decrease of $304,000, which includes a $297,000 decrease in foreclosed real estate costs. All other operating expenses decreased $7,000, net.

Mr. Critelli commented, “Our earnings in 2015 have been impacted by credit quality issues resulting from the extended period of stress on our local economy and lower real estate values. Working with borrowers experiencing cash flow problems will remain a top priority as we make our way through this challenging economic environment. The ongoing low level of interest rates and the competitive lending environment also continue to place pressure on our net interest margin; however, our year-to-date margin and our capital levels remain well above peer and operating expenses are well controlled. We look forward to serving our growing base of stockholders and customers, as the local economy in Northeast Pennsylvania recovers from the extended economic downturn.”

Norwood Financial Corp., through its subsidiary Wayne Bank, operates fifteen offices in Wayne, Pike, Monroe and Lackawanna Counties, Pennsylvania. The Company’s stock is traded 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, 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 interest income and net interest income, which are non-GAAP (Generally Accepted Accounting Principles) financial measures. Tax-equivalent interest income and net interest income are derived from GAAP interest income and net interest income using an assumed tax rate of 34%. We believe the presentation of interest income and net interest income on a tax–equivalent basis ensures comparability of interest income and 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 September 30				Nine months ended September 30
	2015		2014		2015		2014
Net interest income	$	6,053	$	6,154	$	18,409	$	18,454
Tax equivalent basis adjustment using 34% marginal tax rate		360		313		996		964
Net interest income on a fully taxable equivalent basis	$	6,413	$	6,467	$	19,405	$	19,418

Contact: William S. Lance

Executive Vice President &

Chief Financial Officer

NORWOOD FINANCIAL CORP

570-253-8505

www.waynebank.com


NORWOOD FINANCIAL CORP.
Consolidated Balance Sheets
(dollars in thousands, except share data)
(unaudited)
	September 30
	2015			2014
ASSETS
Cash and due from banks	$	11,164		$	13,105
Interest-bearing deposits with banks		552			158
Cash and cash equivalents		11,716			13,263

Securities available for sale		153,305			158,701
Loans receivable		543,536			500,844
Less: Allowance for loan losses		5,747			5,651
Net loans receivable		537,789			495,193
Regulatory stock, at cost		2,488			3,210
Bank premises and equipment, net		6,503			6,825
Bank owned life insurance		18,686			18,143
Foreclosed real estate owned		1,345			4,962
Accrued interest receivable		2,499			2,367
Goodwill		9,715			9,715
Other intangible assets		309			418
Deferred tax asset		3,345			3,691
Other assets		1,629			1,725
TOTAL ASSETS	$	749,329		$	718,213

LIABILITIES
Deposits:
Non-interest bearing demand	$	115,313		$	102,343
Interest-bearing		456,040			445,995
Total deposits		571,353			548,338
Short-term borrowings		41,546			44,704
Other borrowings		29,162			22,592
Accrued interest payable		996			975
Other liabilities		4,332			4,197
TOTAL LIABILITIES		647,389			620,806

STOCKHOLDERS' EQUITY
Common Stock, $.10 par value, authorized 10,000,000 shares
issued: 2015: 3,718,018 shares, 2014: 3,708,718 shares		372			371
Surplus		35,310			35,143
Retained earnings		66,431			63,637
Treasury stock, at cost: 2015: 33,299 shares, 2014: 63,019 shares		(894	)		(1,673	)
Accumulated other comprehensive income (loss)		721			(71	)
TOTAL STOCKHOLDERS' EQUITY		101,940			97,407

TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	749,329		$	718,213


NORWOOD FINANCIAL CORP.
Consolidated Statements of Income
(dollars in thousands, except per share data)
(unaudited)
	Three Months Ended September 30,					Nine Months Ended September 30,
	2015		2014			2015		2014
INTEREST INCOME
Loans receivable, including fees	$	5,958	$	5,972		$	17,943	$	17,885
Securities		911		968			2,884		2,981
Other		3		1			15		3
Total Interest income		6,872		6,941			20,842		20,869

INTEREST EXPENSE
Deposits		611		600			1,833		1,852
Short-term borrowings		19		19			47		62
Other borrowings		189		168			553		501
Total Interest expense		819		787			2,433		2,415
NET INTEREST INCOME		6,053		6,154			18,409		18,454
PROVISION FOR LOAN LOSSES		720		420			1,760		1,260
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		5,333		5,734			16,649		17,194

OTHER INCOME
Service charges and fees		595		587			1,789		1,746
Income from fiduciary activities		126		125			341		328
Net realized gains on sales of securities		63		301			508		904
Gains (losses) on sales of loans, net		13		(15	)		43		50
Earnings and proceeds on life insurance policies		167		170			497		514
Other		107		94			305		241
Total other income		1,071		1,262			3,483		3,783

OTHER EXPENSES
Salaries and employee benefits		2,175		2,028			6,383		6,364
Occupancy, furniture and equipment		473		505			1,571		1,601
Data processing related		247		240			682		680
Taxes, other than income		175		161			525		488
Professional fees		140		136			447		475
FDIC Insurance assessment		119		104			278		320
Foreclosed real estate owned		47		271			436		733
Other		694		679			2,103		2,068
Total other expenses		4,070		4,124			12,425		12,729

INCOME BEFORE TAX		2,334		2,872			7,707		8,248
INCOME TAX EXPENSE		557		754			1,926		2,132
NET INCOME	$	1,777	$	2,118		$	5,781	$	6,116

Basic earnings per share	$	0.48	$	0.58		$	1.57	$	1.68

Diluted earnings per share	$	0.48	$	0.58		$	1.57	$	1.68


NORWOOD FINANCIAL CORP.
Financial Highlights (Unaudited)
(dollars in thousands, except per share data)

For the Three Months Ended September 30	2015			2014

Net interest income	$	6,053		$	6,154
Net income		1,777			2,118

Net interest spread (fully taxable equivalent)		3.53	%		3.78	%
Net interest margin (fully taxable equivalent)		3.68	%		3.92	%
Return on average assets		0.95	%		1.18	%
Return on average equity		6.95	%		8.62	%
Basic earnings per share	$	0.48		$	0.58
Diluted earnings per share	$	0.48		$	0.58

For the Nine Months Ended September 30

Net interest income	$	18,409		$	18,454
Net income		5,781			6,116

Net interest spread (fully taxable equivalent)		3.62	%		3.77	%
Net interest margin (fully taxable equivalent)		3.76	%		3.91	%
Return on average assets		1.05	%		1.15	%
Return on average equity		7.65	%		8.53	%
Basic earnings per share	$	1.57		$	1.68
Diluted earnings per share	$	1.57		$	1.68

As of September 30

Total assets	$	749,329		$	718,213
Total loans receivable		543,536			500,844
Allowance for loan losses		5,747			5,651
Total deposits		571,353			548,338
Stockholders' equity		101,940			97,407
Trust assets under management		127,815			132,652

Book value per share	$	27.42		$	26.30
Equity to total assets		13.60	%		13.56	%
Allowance to total loans receivable		1.06	%		1.13	%
Nonperforming loans to total loans		1.69	%		1.18	%
Nonperforming assets to total assets		1.40	%		1.52	%


NORWOOD FINANCIAL CORP.
Consolidated Balance Sheets (unaudited)
(dollars in thousands)
	September 30		June 30		March 31		December 31		September 30
	2015		2015		2015		2014		2014
ASSETS
Cash and due from banks	$	11,164	$	8,505	$	7,658	$	8,081	$	13,105
Interest-bearing deposits with banks		552		11,937		11,969		4,295		158
Cash and cash equivalents		11,716		20,442		19,627		12,376		13,263

Securities available for sale		153,305		151,304		155,674		156,395		158,701
Loans receivable		543,536		538,870		518,961		501,135		500,844
Less: Allowance for loan losses		5,747		5,947		6,007		5,875		5,651
Net loans receivable		537,789		532,923		512,954		495,260		495,193
Regulatory stock, at cost		2,488		2,240		1,838		1,714		3,210
Bank owned life insurance		18,686		18,551		18,417		18,284		18,143
Bank premises and equipment, net		6,503		6,555		6,632		6,734		6,825
Foreclosed real estate owned		1,345		1,382		1,698		3,726		4,962
Goodwill and other intangibles		10,024		10,049		10,076		10,104		10,133
Other assets		7,473		8,075		7,443		7,042		7,783
TOTAL ASSETS	$	749,329	$	751,521	$	734,359	$	711,635	$	718,213

LIABILITIES
Deposits:
Non-interest bearing demand	$	115,313	$	107,610	$	101,423	$	98,064	$	102,343
Interest-bearing deposits		456,040		468,004		468,783		461,880		445,995
Total deposits		571,353		575,614		570,206		559,944		548,338
Other borrowings		70,708		71,053		58,388		47,895		67,296
Other liabilities		5,328		4,936		5,314		4,755		5,172
TOTAL LIABILITIES		647,389		651,603		633,908		612,594		620,806

STOCKHOLDERS' EQUITY		101,940		99,918		100,451		99,041		97,407

TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	749,329	$	751,521	$	734,359	$	711,635	$	718,213


NORWOOD FINANCIAL CORP.
Consolidated Statements of Income (unaudited)
(dollars in thousands, except per share data)
	September 30			June 30			March 31			December 31			September 30
Three months ended	2015			2015			2015			2014			2014
INTEREST INCOME
Loans receivable, including fees	$	5,958		$	5,924		$	6,061		$	5,954		$	5,972
Securities		911			950			1,023			940			968
Other		3			8			4			4			1
Total interest income		6,872			6,882			7,088			6,898			6,941

INTEREST EXPENSE
Deposits		611			618			604			611			600
Borrowings		208			215			177			182			187
Total interest expense		819			833			781			793			787
NET INTEREST INCOME		6,053			6,049			6,307			6,105			6,154
PROVISION FOR LOAN LOSSES		720			420			620			420			420
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES		5,333			5,629			5,687			5,685			5,734

OTHER INCOME
Service charges and fees		595			622			572			604			587
Income from fiduciary activities		126			109			105			109			125
Net realized gains on sales of securities		63			134			311			265			301
Gains (losses) on sales of loans, net		13			12			18			82			(15	)
Earnings and proceeds on life insurance policies		167			166			165			171			170
Other		107			90			108			96			94
Total other income		1,071			1,133			1,279			1,327			1,262

OTHER EXPENSES
Salaries and employee benefits		2,175			2,071			2,137			2,252			2,028
Occupancy, furniture and equipment, net		473			542			556			516			505
Foreclosed real estate owned		47			232			158			822			271
FDIC insurance assessment		119			65			95			100			104
Other		1,256			1,258			1,241			1,307			1,216
Total other expenses		4,070			4,168			4,187			4,997			4,124

INCOME BEFORE TAX		2,334			2,594			2,779			2,015			2,872
INCOME TAX EXPENSE		557			631			738			474			754
NET INCOME	$	1,777		$	1,963		$	2,041		$	1,541		$	2,118

Basic earnings per share	$	0.48		$	0.53		$	0.55		$	0.42		$	0.58

Diluted earnings per share	$	0.48		$	0.53		$	0.55		$	0.42		$	0.58

Book Value per share	$	27.42		$	27.40		$	27.38		$	26.30		$	26.30

Return on average equity (annualized)		6.95	%		7.80	%		8.22	%		6.17	%		8.62	%
Return on average assets (annualized)		0.95	%		1.06	%		1.15	%		0.86	%		1.18	%

Net interest spread (fte)		3.53	%		3.53	%		3.80	%		3.72	%		3.78	%
Net interest margin (fte)		3.68	%		3.68	%		3.94	%		3.87	%		3.92	%

Allowance for loan losses to total loans		1.06	%		1.10	%		1.16	%		1.17	%		1.13	%
Net charge-offs to average loans (annualized)		0.68	%		0.37	%		0.39	%		0.16	%		0.30	%
Nonperforming loans to total loans		1.69	%		2.00	%		1.11	%		1.12	%		1.18	%
Nonperforming assets to total assets		1.40	%		1.62	%		1.01	%		1.31	%		1.52	%

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