NORWOOD FINANCIAL CORP - FORM 8-K - EX-99.1 - EXHIBIT 99.1

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8-K - 8-K - NORWOOD FINANCIAL CORP	form8k.htm

Exhibit 99.1

FOR IMMEDIATE RELEASE

NORWOOD FINANCIAL CORP

ANNOUNCES SECOND QUARTER EARNINGS

Honesdale, Pennsylvania - July 26, 2018

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 June 30, 2018 of $3,513,000. This represents an increase of $789,000 or 29.0%, from the $2,724,000 earned in the similar period of 2017. Earnings per share (fully diluted) were $0.56 in the 2018 period, increasing from the $0.43 earned in the similar period of 2017 after adjusting for the 50% stock dividend declared in August 2017. Annualized return on average assets for the three months ended June 30, 2018 was 1.23% with an annualized return on average equity of 12.25%. Net income for the six months ended June 30, 2018 totaled $6,642,000, which is $1,542,000 higher than the same six-month period of last year due primarily to improved net interest income. Earnings per share (fully diluted) for the six months ended June 30, 2018 and 2017, totaled $1.06 and $0.81 per share, respectively, after adjusting for the 50% stock dividend.

Total assets as of June 30, 2018 were $1.151 billion with loans receivable of $803.8 million, deposits of $950.9 million and stockholders’ equity of $115.5 million. Loans receivable increased $68.7 million since June 30, 2017 while total deposits increased $18.4 million.

Non-performing assets, which include non-performing loans and foreclosed assets, totaled $2.7 million and represented 0.23% of total assets as of June 30, 2018 compared to $7.1 million, or 0.63% of total assets, as of June 30, 2017. The decrease was due primarily to a $3.1 million reduction in foreclosed real estate due to sales. The allowance for loan losses totaled $8,326,000 as of June 30, 2018 and represented 1.04% of total loans outstanding, compared to $7,419,000 and 1.01%, respectively, on June 30, 2017. As of June 30, 2018, the reserve for loan losses was 655% of nonperforming loans compared to 308% on December 31, 2017 and 288% on June 30, 2017.

For the three months ended June 30, 2018, net interest income, on a fully taxable equivalent basis (fte), totaled $9,484,000, an increase of $285,000 compared to the similar period in 2017 despite a lower tax-equivalent adjustment. A $63.9 million increase in average loans outstanding contributed to the increased income. Net interest margin (fte) for the 2018 period was 3.54%, equal to the corresponding 2017 period. The tax-equivalent yield on interest-earning assets increased 10 basis points to 4.00% compared to the prior year while the cost of interest-bearing liabilities increased 14 basis points to 0.60%. Net interest income (fte) for the six months ended June 30, 2018 totaled $18,567,000, which was $324,000 higher than the similar period in 2017 due to the higher volume of earning assets. The net interest margin (fte) was 3.50% in the 2018 period and 3.53% during the first six months of 2017. The decrease in the net interest margin (fte) reflects the lower tax-equivalent adjustment resulting from the reduced corporate tax rate.

Other income for the three months ended June 30, 2018 totaled $1,774,000 compared to $1,656,000 for the similar period in 2017. The increase can be attributed to a higher level of service charges and fees. Net gains from the sale of loans and securities decreased $40,000. For the six months ended June 30, 2018, other income totaled $3,468,000 compared to $3,299,000 in the 2017 period. Service charges and fees increased $131,000 and net gains from the sale of loans and securities increased $96,000, while the 2017 period included a non-recurring gain of $209,000 related to the sale of a branch office.

Other expenses totaled $6,353,000 for the three months ended June 30, 2018, an increase of $223,000, or 3.6%, compared to the $6,130,000 reported in the similar period of 2017. Salaries and employee benefits rose $194,000 over the same period of last year while all other expenses increased $29,000, net. For the six months ended June 30, 2018, other expenses totaled $12,600,000 compared to $12,744,000 for the similar period in 2017. The decrease was due to a $629,000 reduction in foreclosed real estate costs, while all other expenses increased $485,000, or 4.0%, net.

Mr. Critelli commented, “Our earnings for the first half of 2018 have increased significantly over the first six months of last year. Pre-tax income has improved 21.6%, while net income increased 30.2%, reflecting the benefit of the reduced corporate tax rate. Our key performance metrics improved over the first quarter of the year, annualized loan growth exceeded 10.0%, operating expenses remain well controlled 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 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 net interest income, which is a non-GAAP (Generally Accepted Accounting Principles) financial measure. Tax-equivalent net interest income was derived from GAAP net interest income 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 taxable equivalent basis:

	Three months ended June 30				Six months ended June 30
(dollars in thousands)	2018		2017		2018		2017

Net Interest Income	$	9,215	$	8,656	$	18,022	$	17,154
Taxable equivalent basis adjustment using marginal tax rate		269		543		545		1,089
Net interest income on a fully taxable equivalent basis	$	9,484	$	9,199	$	18,567	$	18,243

This release also references average tangible equity, which is also a non-GAAP financial measure. Average tangible equity is calculated by deducting average goodwill and other intangible assets from average stockholders’ equity. The Company believes that disclosure of tangible equity ratios enhances investor understanding of our financial position and improves the comparability of our financial data.

The following reconciles average equity to average tangible equity:

	Three months ended June 30						Six months ended June 30
(dollars in thousands)	2018			2017			2018			2017

Average equity	$	115,042		$	115,690		$	115,180		$	114,237
Goodwill and other intangibles		(11,738	)		(11,878	)		(11,755	)		(11,997	)
Average tangible equity	$	103,387		$	103,812		$	103,425		$	102,240

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)

	June 30
	2018			2017
ASSETS
Cash and due from banks	$	15,193		$	16,055
Interest-bearing deposits with banks		914			348
Cash and cash equivalents		16,107			16,403

Securities available for sale		259,442			300,667
Loans receivable		803,773			735,026
Less: Allowance for loan losses		8,326			7,419
Net loans receivable		795,447			727,607
Regulatory stock, at cost		2,313			2,435
Bank premises and equipment, net		13,894			12,953
Bank owned life insurance		37,485			36,575
Foreclosed real estate owned		1,386			4,523
Accrued interest receivable		3,672			3,417
Goodwill		11,331			11,331
Other intangible assets		394			531
Deferred tax asset		5,885			8,181
Other assets		3,237			2,690
TOTAL ASSETS	$	1,150,593		$	1,127,313

LIABILITIES
Deposits:
Non-interest bearing demand	$	216,472		$	200,364
Interest-bearing		734,417			732,107
Total deposits		950,889			932,471
Short-term borrowings		43,325			42,192
Other borrowings		30,283			25,330
Accrued interest payable		1,461			942
Other liabilities		9,102			10,211
TOTAL LIABILITIES		1,035,060			1,011,146

STOCKHOLDERS' EQUITY
Common Stock, $.10 par value, authorized 10,000,000 shares issued: 2018: 6,266,388 shares, 2017: 6,247,085 shares		627			416
Surplus		47,815			47,645
Retained earnings		74,315			69,660
Treasury stock, at cost: 2018: 5,729 shares, 2017: 849 shares		(188	)		(22	)
Accumulated other comprehensive loss		(7,036	)		(1,532	)
TOTAL STOCKHOLDERS' EQUITY		115,533			116,167

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,150,593		$	1,127,313

NORWOOD FINANCIAL CORP.

Consolidated Statements of Income

(dollars in thousands, except per share data)

(unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
INTEREST INCOME
Loans receivable, including fees	$	8,857	$	7,925	$	17,344	$	15,731
Securities		1,536		1,633		3,060		3,251
Other		43		24		61		35
Total Interest income		10,436		9,582		20,465		19,017

INTEREST EXPENSE
Deposits		1,052		797		2,082		1,563
Short-term borrowings		38		28		90		56
Other borrowings		131		101		271		244
Total Interest expense		1,221		926		2,443		1,863
NET INTEREST INCOME		9,215		8,656		18,022		17,154
PROVISION FOR LOAN LOSSES		425		600		975		1,200
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		8,790		8,056		17,047		15,954

OTHER INCOME
Service charges and fees		1,101		1,016		2,082		1,951
Income from fiduciary activities		175		128		311		235
Net realized gains on sales of securities		58		31		200		37
Gains on sales of loans, net		-		67		-		67
Gains on sale of deposits		-		-		-		209
Earnings and proceeds on life insurance policies		279		275		552		530
Other		161		139		323		270
Total other income		1,774		1,656		3,468		3,299

OTHER EXPENSES
Salaries and employee benefits		3,406		3,212		6,868		6,430
Occupancy, furniture and equipment		857		809		1,749		1,720
Data processing and related operations		340		324		658		668
Taxes, other than income		153		227		327		460
Professional fees		229		240		459		489
FDIC Insurance assessment		86		91		178		186
Foreclosed real estate		114		152		95		724
Amortization of intangibles		33		39		68		80
Other		1,135		1,036		2,198		1,987
Total other expenses		6,353		6,130		12,600		12,744

INCOME BEFORE TAX		4,211		3,582		7,915		6,509
INCOME TAX EXPENSE		698		858		1,273		1,409
NET INCOME	$	3,513	$	2,724	$	6,642	$	5,100

Basic earnings per share *	$	0.57	$	0.44	$	1.07	$	0.82

Diluted earnings per share *	$	0.56	$	0.43	$	1.06	$	0.81

* Per share data for 2017 has been restated to give retroactive effect to the 50% stock dividend declared August 8, 2017.

NORWOOD FINANCIAL CORP.

Financial Highlights (Unaudited)

(dollars in thousands, except per share data)

For the Three Months Ended June 30	2018			2017

Net interest income	$	9,215		$	8,656
Net income		3,513			2,724

Net interest spread (fully taxable equivalent)		3.40	%		3.44	%
Net interest margin (fully taxable equivalent)		3.54	%		3.54	%
Return on average assets		1.23	%		0.97	%
Return on average equity		12.25	%		9.45	%
Return on average tangible equity		13.64	%		10.53	%
Basic earnings per share *	$	0.57		$	0.44
Diluted earnings per share *	$	0.56		$	0.43

For the Six Months Ended June 30	2018			2017

Net interest income	$	18,022		$	17,154
Net income		6,642			5,100

Net interest spread (fully taxable equivalent)		3.35	%		3.42	%
Net interest margin (fully taxable equivalent)		3.50	%		3.53	%
Return on average assets		1.18	%		0.92	%
Return on average equity		11.63	%		9.00	%
Return on average tangible equity		12.95	%		10.06	%
Basic earnings per share *	$	1.07		$	0.82
Diluted earnings per share *	$	1.06		$	0.81

As of June 30

Total assets	$	1,150,593		$	1,127,313
Total loans receivable		803,773			735,026
Allowance for loan losses		8,326			7,419
Total deposits		950,889			932,471
Stockholders' equity		115,533			116,167
Trust assets under management		158,117			146,307

Book value per share *	$	18.35		$	18.29
Tangible book value per share *	$	16.47		$	16.37
Equity to total assets		10.04	%		10.30	%
Allowance to total loans receivable		1.04	%		1.01	%
Nonperforming loans to total loans		0.16	%		0.35	%
Nonperforming assets to total assets		0.23	%		0.63	%

* Per share data for 2017 has been restated to give retroactive effect to the 50% stock dividend declared August 8, 2017.

NORWOOD FINANCIAL CORP.

Consolidated Balance Sheets (unaudited)

(dollars in thousands)

	June 30 2018		March 31 2018		December 31 2017		September 30 2017		June 30 2017
ASSETS
Cash and due from banks	$	15,193	$	10,103	$	16,212	$	13,947	$	16,055
Interest-bearing deposits with banks		914		2,039		485		368		348
Cash and cash equivalents		16,107		12,142		16,697		14,315		16,403

Securities available for sale		259,442		265,862		281,121		285,706		300,667
Loans receivable		803,773		775,681		764,092		756,014		735,026
Less: Allowance for loan losses		8,326		8,099		7,634		7,760		7,419
Net loans receivable		795,447		767,582		756,458		748,254		727,607
Regulatory stock, at cost		2,313		2,545		3,505		3,115		2,435
Bank owned life insurance		37,485		37,270		37,060		36,839		36,575
Bank premises and equipment, net		13,894		13,808		13,864		12,922		12,953
Foreclosed real estate owned		1,386		1,436		1,661		4,243		4,523
Goodwill and other intangibles		11,725		11,758		11,793		11,827		11,862
Other assets		12,794		14,634		10,757		14,732		14,288
TOTAL ASSETS	$	1,150,593	$	1,127,037	$	1,132,916	$	1,131,953	$	1,127,313

LIABILITIES
Deposits:
Non-interest bearing demand	$	216,472	$	204,027	$	205,138	$	212,844	$	200,364
Interest-bearing deposits		734,417		736,122		724,246		711,178		732,107
Total deposits		950,889		940,149		929,384		924,022		932,471
Other borrowings		73,608		62,998		78,475		79,000		67,522
Other liabilities		10,563		10,052		9,318		11,239		11,153
TOTAL LIABILITIES		1,035,060		1,013,199		1,017,177		1,014,261		1,011,146

STOCKHOLDERS' EQUITY		115,533		113,838		115,739		117,692		116,167

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,150,593	$	1,127,037	$	1,132,916	$	1,131,953	$	1,127,313

NORWOOD FINANCIAL CORP.

Consolidated Statements of Income (unaudited)

(dollars in thousands, except per share data)

Three months ended	June 30 2018			March 31 2018			December 31 2017			September 30 2017			June 30 2017
INTEREST INCOME
Loans receivable, including fees	$	8,857		$	8,487		$	8,503		$	8,289		$	7,925
Securities		1,536			1,524			1,560			1,605			1,633
Other		43			18			12			2			24
Total interest income		10,436			10,029			10,075			9,896			9,582

INTEREST EXPENSE
Deposits		1,052			1,029			985			828			797
Borrowings		169			193			206			198			129
Total interest expense		1,221			1,222			1,191			1,026			926
NET INTEREST INCOME		9,215			8,807			8,884			8,870			8,656
PROVISION FOR LOAN LOSSES		425			550			400			600			600
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		8,790			8,257			8,484			8,270			8,056

OTHER INCOME
Service charges and fees		1,101			980			1,023			1,105			1,016
Income from fiduciary activities		175			137			116			160			128
Net realized gains on sales of securities		58			142			181			129			31
Gains on sales of loans, net		-			-			-			-			67
Earnings and proceeds on life insurance policies		279			273			283			320			275
Other		161			162			151			144			139
Total other income		1,774			1,694			1,754			1,858			1,656

OTHER EXPENSES
Salaries and employee benefits		3,406			3,462			3,211			3,209			3,212
Occupancy, furniture and equipment, net		857			892			841			799			809
Foreclosed real estate		114			(19	)		136			303			152
FDIC insurance assessment		86			92			94			97			91
Other		1,890			1,821			1,604			1,831			1,866
Total other expenses		6,353			6,248			5,886			6,239			6,130

INCOME BEFORE TAX		4,211			3,703			4,352			3,889			3,582
INCOME TAX EXPENSE		698			574			4,195			948			858
NET INCOME	$	3,513		$	3,129		$	157		$	2,941		$	2,724

Basic earnings per share	$	0.57		$	0.50		$	0.03		$	0.47		$	0.44

Diluted earnings per share	$	0.56		$	0.50		$	0.03		$	0.47		$	0.43

Book Value per share	$	18.35		$	18.45		$	18.61		$	18.46		$	18.29
Tangible Book Value per share		16.47			16.56			16.71			16.54			16.37

Return on average assets (annualized)		1.23	%		1.13	%		0.05	%		1.03	%		0.97	%
Return on average equity (annualized)		12.25	%		11.00	%		0.52	%		9.85	%		9.45	%
Return on average tangible equity (annualized)		13.64	%		12.25	%		0.58	%		10.95	%		10.53	%

Net interest spread (fte)		3.40	%		3.31	%		3.44	%		3.48	%		3.44	%
Net interest margin (fte)		3.54	%		3.46	%		3.56	%		3.60	%		3.54	%

Allowance for loan losses to total loans		1.04	%		1.04	%		1.00	%		1.03	%		1.01	%
Net charge-offs to average loans (annualized)		0.10	%		0.04	%		0.28	%		0.14	%		0.05	%
Nonperforming loans to total loans		0.16	%		0.22	%		0.32	%		0.27	%		0.35	%
Nonperforming assets to total assets		0.23	%		0.28	%		0.37	%		0.55	%		0.63	%

* Per share data for the quarter ended June 30, 2017 has been restated to give retroactive effect to the 50% stock dividend declared August 8, 2017.

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