FOR IMMEDIATE RELEASE

 

January 25, 2018 – 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 December 31, 2017 of $157,000 compared to $2,346,000 earned in the corresponding period of 2016.   The decrease in earnings is due to the $3,060,000 of non-recurring additional tax expense attributable to the revaluation of the Company's net deferred tax asset as a result of the Tax Cuts and Jobs Act (the "Act").  The Company's core operating results (which excludes the non-recurring tax expense related to the revaluation of the deferred tax asset) for the three month period improved $871,000 to $3,217,000.  For the year ended December 31, 2017, net income totaled $8,198,000, an increase of $1,487,000 from the $6,711,000 earned in the prior year. For the year of 2017, the Company's core operating results increased $4,547,000 to $11,258,000.

 

On December 22, 2017, the President signed the Act into law.  Among other things, the Act reduced the corporate tax rate from a maximum of 35% to a flat 21% rate effective January 1, 2018.  Prior to December 22, 2017, the Company had a net deferred tax asset totaling $7.6 million, based on the pre-Act federal tax rate of 35%.  As a result of the reduction in the corporate income tax rate to 21%, the Company revalued its net deferred tax asset as of December 31, 2017, which resulted in a

 

 

 

$3,060,000 reduction in its value.  The reduction in the value of the net deferred tax asset has been recorded as additional income tax expense in the fourth quarter of 2017.    Beginning in 2018, the Company's earnings are expected to benefit from the lower corporate income tax rate.

 

Earnings per share (fully diluted) were $0.03 ($0.51 core operating results per diluted share) and $0.37 for the three-month periods ended December 31, 2017 and 2016, respectively, after adjusting for the 50% stock dividend declared in August, 2017.  Net interest income before the provision for loan losses increased $433,000 compared to the same period of last year due to higher loan volume, while other income increased $264,000 due to a larger customer base.  A provision for loan losses of $400,000 was recorded in the current three-month period compared to $450,000 in the same period of last year. Other expenses decreased $682,000 due to a reduction in Pennsylvania bank shares tax expense and $142,000 of merger related expenses recorded in the 2016 period.  For the year ended December 31, 2017, net income totaled $8,198,000, an increase of $1,487,000 from the $6,711,000 earned in the prior year.  The Company's core operating results for the year increased $4,547,000 to $11,258,000.  Earnings increased as a result of the acquisition of Delaware Bancshares, Inc. ("Delaware") in the third quarter of 2016.  Earnings per share on a fully diluted basis were $1.31 for 2017 ($1.80 core operating results per diluted share) compared to $1.15 in 2016, after adjusting for the 50% stock dividend declared in 2017.  The return on average assets for the year was 0.73% with a return on average equity of 7.04% compared to 0.74% and 6.17%, respectively, in 2016.  Core operating results reflected a return on average assets of 1.02% for 2017 and a return on average equity of 10.39%.

 

 

 

Total assets were $1.1 billion as of December 31, 2017.  Loans receivable totaled $764.1 million as of December 31, 2017, with total deposits of $929.4 million and stockholders' equity of $115.7 million.

 

Loans receivable increased $50.2 million, or 7.0%, from the prior year-end due primarily to a $22.7 million increase in commercial real estate loans.  Consumer loans including residential mortgage loans increased $15.5 million in 2017 while other commercial loans increased $12.0 million.  For the three months and year ended December 31, 2017, net charge-offs totaled $527,000 and $1,029,000, respectively, compared to $151,000 and $2,885,000, respectively, for the corresponding periods in 2016.  As of December 31, 2017, the allowance for loan losses totaled $7,634,000 and 1.00% of total loans compared to $6,463,000 and 0.91% of total loans at December 31, 2016.  Additionally, as of December 31, 2017 the allowance for loan losses represented 308% of total non-performing loans, compared to 356% as of December 31, 2016.

 

Net interest income, on a fully taxable equivalent basis (fte), totaled $9,428,000 for the three months ended December 31, 2017, an increase of $437,000 compared to the same period in 2016.  Net interest margin (fte) for the three months ended December 31, 2017 was 3.58% increasing from 3.49% for the similar period in 2016.  The increase in net interest margin was principally due to a $52.1 million increase in average loans outstanding and a fifteen basis point increase in the yield on earning assets.  The increase in the yield on earning assets was partially offset by a ten basis point increase in the cost of interest-bearing liabilities. For the year, net interest income (fte) totaled $37,090,000, an increase of $6,751,000 compared to 2016.  The increase was principally due to earnings from the acquisition of Delaware in 2016.  The net

 

 

 

interest margin (fte) declined 4 basis points to 3.56% in 2017 due primarily to the mix and yield of assets and liabilities acquired from Delaware.

 

Other income for the three months ended December 31, 2017 totaled $1,754,000 compared to $1,490,000 for the similar period in 2016.  Gains on the sale of securities increased $166,000, while all other items of other income increased $98,000 in the aggregate due primarily to service charges and fees.  Other income for the year ended December 31, 2017 totaled $6,911,000 compared to $5,179,000 in 2016, an increase of $1,732,000.  Gains on the sale of loans and investment securities increased $77,000 in the aggregate, while all other items of other income increased $1,655,000, net due primarily to the acquisition.

 

Other expenses totaled $5,886,000 for the three months ended December 31, 2017, compared to $6,568,000 in the similar period of 2016.   The $682,000 decrease includes a $228,000 reduction in taxes, other than income, and a $97,000 decrease in salaries and benefits costs.  Additionally, the 2016 period includes $142,000 of merger-related costs.  For the year ended December 31, 2017, other expenses totaled $24,870,000 compared to $23,124,000 for 2016, an increase of $1,746,000 due primarily to the cost of operating the new community offices for a full year.  The 2016 period includes $1.8 million of merger-related expenses.

 

Mr. Critelli commented, "In 2017, our core operating results, which excludes the $3,060,000 of non-recurring tax expense resulting from the revaluation of our net deferred tax asset as required by the Tax Cuts and Jobs Act, totaled $11.3 million which was a $4.6 million improvement over the $6.7 million earned in 2016.  Our core Return on Average Assets was 1.02% and the core Return on Average Equity was 10.39%,

 

 

 

both in-line with our projections for the year.  During 2017, our cash dividend per share increased to $0.87 per share from $0.83 per share, after adjusting for the 50% stock dividend paid to stockholders in the third quarter of 2017.  Our year-end stock price of $33.00 per share represents an increase of over 49% in the market value of our stock during 2017, while our earnings per share also improved to $1.31 ($1.80 core operating results per diluted share) from $1.15 in 2016, after adjusting for the 50% stock dividend.  The Company expects the Act will have a positive impact on our earnings in 2018.  We were pleased to open our new office in Clarks Summit in December and look forward to the relocation of the Roscoe, New York office to a more modern and accessible facility in the spring.  Please know that we continue to search out opportunities available to us, and look forward to serving our growing base of stockholders and customers."

 

Norwood Financial Corp., through its subsidiary Wayne Bank, operates fourteen offices in Northeastern Pennsylvania and twelve offices in Delaware and Sullivan Counties, New York.  The New York offices represent locations that were assumed through the acquisition of Delaware Bancshares, Inc. and its wholly-owned subsidiary, NBDC Bank.  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, 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 interest income and net interest income, which is a non-GAAP (Generally Accepted Accounting Principles) financial measure.  Tax-equivalent net interest income is derived from GAAP interest income and net interest income using an assumed tax rate of 34%.  We believe the presentation of interest income on a tax–equivalent basis ensures comparability of interest income arising from both taxable and tax-exempt sources and is consistent with industry practice.  This release also references core operating results, which is also a non-GAAP financial measure.  Core operating results excludes the $3,060,000 of non-recurring additional income tax expense resulting from the revaluation of our net deferred tax asset as required by the Tax Cuts and Jobs Act.  We believe this presentation provides the reader with a more concise understanding of the impact from the required revaluation of deferred tax assets and facilitates period-to-period comparisons.

 

 

(dollars in thousands)		Three months ended December 31								Year ended December 31
		2017				2016				2017				2016
Net interest income		$	8,884			$	8,451			$	34,908			$	28,590
Tax equivalent basis adjustment    using 34% marginal tax rate			544				540				2,182				1,749
Net interest income on a fully    taxable equivalent basis		$	9,428			$	8,991			$	37,090			$	30,339

 

The following table reconciles net income to core operating results:

 

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 and per share data)
(unaudited)
		December 31
		2017				2016
ASSETS
Cash and due from banks		$	16,212			$	14,900
Interest-bearing deposits with banks			485				2,274
Cash and cash equivalents			16,697				17,174
Securities available for sale			281,121				302,564
Loans receivable			764,092				713,889
Less: Allowance for loan losses			7,634				6,463
Net loans receivable			756,458				707,426
Regulatory stock, at cost			3,505				2,119
Bank premises and equipment, net			13,864				13,531
Bank owned life insurance			37,060				36,133
Foreclosed real estate owned			1,661				5,302
Accrued interest receivable			3,716				3,643
Goodwill			11,331				11,679
Other intangible assets			462				612
Deferred tax asset			4,522				8,989
Other assets			2,519				2,011
TOTAL ASSETS		$	1,132,916			$	1,111,183
LIABILITIES
Deposits:
Non-interest bearing demand		$	205,138			$	191,445
Interest-bearing			724,246				733,940
Total deposits			929,384				925,385
Short-term borrowings			42,530				32,811
Other borrowings			35,945				32,001
Accrued interest payable			1,434				1,069
Other liabilities			7,884				8,838
TOTAL LIABILITIES			1,017,177				1,000,104
STOCKHOLDERS' EQUITY
Common Stock, $.10 par value, authorized 10,000,000 shares
issued:  2017: 6,256,063 shares, 2016:  4,164,723 shares			626				416
Surplus			47,431				47,682
Retained earnings			70,426				67,225
Treasury stock, at cost: 2017: 2,608 shares, 2016: 4,509 shares			(77	)			(125	)
Accumulated other comprehensive loss			(2,667	)			(4,119	)
TOTAL STOCKHOLDERS' EQUITY			115,739				111,079
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY		$	1,132,916			$	1,111,183

NORWOOD FINANCIAL CORP.
Consolidated Statements of Income
(dollars in thousands, except per share data)
(unaudited)
		Three Months Ended December 31,								Twelve Months Ended December 31,
		2017				2016				2017				2016
INTEREST INCOME
Loans receivable, including fees		$	8,503			$	7,858			$	32,524			$	27,611
Securities			1,560				1,584				6,416				4,591
Other			12				14				48				42
Total Interest income			10,075				9,456				38,988				32,244
INTEREST EXPENSE
Deposits			985				765				3,377				2,603
Short-term borrowings			61				32				199				174
Other borrowings			145				208				504				877
Total Interest expense			1,191				1,005				4,080				3,654
NET INTEREST INCOME			8,884				8,451				34,908				28,590
PROVISION FOR LOAN LOSSES			400				450				2,200				2,050
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES			8,484				8,001				32,708				26,540
OTHER INCOME
Service charges and fees			1,023				951				4,079				2,951
Income from fiduciary activities			116				107				510				449
Net realized gains on sales of securities			181				15				348				284
Gains on sales of loans, net			-				-				67				54
Earnings and proceeds on life insurance policies			283				272				1,133				888
Other			151				145				774				553
Total other income			1,754				1,490				6,911				5,179
OTHER EXPENSES
Salaries and  employee benefits			3,211				3,308				12,850				10,928
Occupancy, furniture and equipment			841				889				3,361				2,625
Data processing  and related operations			332				388				1,353				1,337
Taxes, other than income			(32	)			196				661				731
Professional fees			243				320				949				836
FDIC Insurance assessment			94				10				377				412
Foreclosed real estate			136				98				1,164				680
Amortization of intangibles			35				7				150				122
Merger related			-				142				-				1,806
Other			1,026				1,210				4,005				3,647
Total other expenses			5,886				6,568				24,870				23,124
INCOME BEFORE TAX			4,352				2,923				14,749				8,595
INCOME TAX EXPENSE			4,195				577				6,551				1,884
NET INCOME		$	157			$	2,346			$	8,198			$	6,711
Basic earnings per share  *		$	0.03			$	0.38			$	1.32			$	1.16
Diluted earnings per share  *		$	0.03			$	0.37			$	1.31			$	1.15

---

---

---