Norwood Financial Corp Announces Earnings for the Fourth Quarter and Year

HONESDALE, Pa., Jan. 24, 2019 (GLOBE NEWSWIRE) — 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, 2018 of $3,299,000 compared to $157,000 earned in the corresponding period of 2017. The increase in earnings is due primarily to the $545,000 improvement in net interest income and the $3,060,000 of non-recurring additional tax expense recorded in the fourth quarter of 2017 resulting from the enactment of the Tax Cuts and Jobs Act (the “Act”). For the year ended December 31, 2018, net income totaled $13,651,000, an increase of $5,453,000 from the $8,198,000 earned in the prior year. The increase reflects improvement in net interest income and other income, as well as a reduction in the provision for loan losses. Income tax expense was reduced $3,998,000 due to the non-recurring expense recognized in 2017 combined with the impact of the reduced corporate tax rate. In 2018, income before tax improved $1,455,000, or 9.9%.        

Earnings per share (fully diluted) were $0.53 and $0.03 for the three-month periods ended December 31, 2018 and 2017, respectively. For the year, earnings per share on a fully diluted basis were $2.17 for 2018 compared to $1.31 in 2017. The return on average assets for the year was 1.19% with a return on average equity of 11.71% compared to 0.73% and 7.04%, respectively, in 2017. 

Total assets were $1.185 billion as of December 31, 2018. Loans receivable totaled $850.2 million as of December 31, 2018, with total deposits of $946.8 million and stockholders’ equity of $122.3 million.

Loans receivable increased $86.1 million, or 11.3%, from the prior year-end due primarily to a $41.0 million increase in consumer loans and a $31.9 million increase in commercial real estate loans. Other commercial loans increased $13.1 million. For the three months and year ended December 31, 2018, net charge-offs totaled $203,000 and $907,000, respectively, compared to $527,000 and $1,029,000, respectively, for the corresponding periods in 2017. 

Net interest income, on a fully taxable equivalent basis (fte), totaled $9,687,000 for the three months ended December 31, 2018, an increase of $259,000 compared to the same period in 2017 despite the lower tax-equivalent adjustment resulting from the Act. For the year, net interest income (fte) totaled $37,899,000, an increase of $809,000 compared to 2017 due primarily to the higher volume of earning assets, including a $63.2 million increase in average loans outstanding. 

Other income for the three months ended December 31, 2018 totaled $1,600,000 compared to $1,754,000 for the similar period in 2017. Gains on the sale of securities decreased $181,000, while all other items of other income increased $27,000 in the aggregate due primarily to service charges and fees. Other income for the year ended December 31, 2018 totaled $7,065,000 compared to $6,911,000 in 2017, an increase of $154,000. Gains on the sale of loans and investment securities decreased $187,000 in the aggregate, while all other items of other income increased $341,000, net. 

Other expenses totaled $6,803,000 for the three months ended December 31, 2018, compared to $5,886,000 in the similar period of 2017. The $917,000 increase includes a $364,000 increase in salaries and benefits costs. All other operating expenses increased $553,000, net. For the year ended December 31, 2018, other expenses totaled $25,975,000 compared to $24,870,000 for 2017, an increase of $1,105,000. An increase of $1,170,000 in salaries and benefits was largely offset by reduced expenses on foreclosed real estate.  All other operating expenses increased $927,000, net. 

Mr. Critelli commented, “In 2018, our earnings increased $5,453,000 over the 2017 level which included the $3,060,000 of non-recurring tax expense resulting from the Tax Cuts and Jobs Act. Our income before taxes improved $1,455,000, or 9.9%. Our Return on Average Assets was 1.19% and our Return on Average Equity was 11.71%, both well above last year’s level. Our cash dividend of $0.24 per share declared in the fourth quarter of 2018 represents a 9.1% increase over the same period of last year. Earnings per share (fully diluted) also improved to $2.17 from $1.31 in 2017. Our loan growth exceeded 11%, operating expenses remain well controlled, and our capital base remains above regulatory “Well Capitalized” targets. 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 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 and trade 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 21% for 2018 and 34% for 2017. 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. 

The following table reconciles net interest income to net interest income on a tax-equivalent basis:

(dollars in thousands) Three months ended December 31     Year ended December 31
      2018       2017       2018       2017
Net interest income $ 9,429   $ 8,884   $ 36,839   $ 34,908
Tax equivalent basis adjustment
   using 34% marginal tax rate
  258     544     1,060     2,182
Net interest income on a fully
  taxable equivalent basis
$ 9,687   $ 9,428   $ 37,899   $ 37,090

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 December 31,       Year ended December 31,  
(dollars in thousands)   2018     2017     2018     2017  
                                 
Average equity   $ 118,442     $ 118,661     $ 116,538     $ 116,407  
                                 
Goodwill and other     (11,678 )     (11,806 )     (11,723 )     (11,910 )
Intangibles                                
                                 
Average tangible equity   $ 106,764     $ 106,855     $ 104,815     $ 104,497  
                                 

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            
  2018     2017              
                       
ASSETS                    
  Cash and due from banks  $ 18,039    $ 16,212              
  Interest-bearing deposits with banks   309     485              
  Cash and cash equivalents   18,348     16,697              
                   
  Securities available for sale   243,277     281,121              
  Loans receivable    850,182     764,092              
  Less: Allowance for loan losses   8,452     7,634              
  Net loans receivable   841,730     756,458              
  Regulatory stock, at cost   3,926     3,505              
  Bank premises and equipment, net   13,846     13,864              
  Bank owned life insurance   37,932     37,060              
  Foreclosed real estate owned   1,115     1,661              
  Accrued interest receivable   3,776     3,716              
  Goodwill   11,331     11,331              
  Other intangible assets   336     462              
  Deferred tax asset   5,594     4,781              
  Other assets   3,348     2,260              
  TOTAL ASSETS  $ 1,184,559    $ 1,132,916              
                         
                   
LIABILITIES                    
  Deposits:                    
  Non-interest bearing demand   $ 201,457    $ 205,138              
  Interest-bearing    745,323     724,246              
  Total deposits   946,780     929,384              
  Short-term borrowings   53,046     42,530              
  Other borrowings   52,284     35,945              
  Accrued interest payable   1,806     1,434              
  Other liabilities   8,358     7,884              
  TOTAL LIABILITIES   1,062,274     1,017,177              
                   
STOCKHOLDERS’ EQUITY                    
  Common Stock, $.10 par value, authorized 10,000,000 shares                    
  issued:  2018: 6,295,113 shares, 2017:  6,256,063 shares   630     626              
  Surplus   48,322     47,431              
  Retained earnings   78,434     70,426              
  Treasury stock, at cost: 2018: 2,470 shares, 2017: 2,608 shares   (81)     (77)              
  Accumulated other comprehensive loss   (5,020)     (2,667)              
  TOTAL STOCKHOLDERS’ EQUITY   122,285     115,739              
                         
                   
  TOTAL LIABILITIES AND                    
  STOCKHOLDERS’ EQUITY  $ 1,184,559    $ 1,132,916              
                         
                   
                     
                     
                   
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,
  2018     2017         2018     2017
INTEREST INCOME        
  Loans receivable, including fees $ 9,759   $ 8,503       $ 36,404   $ 32,524
  Securities   1,476     1,560         6,019     6,416
  Other   10     12         73     48
  Total Interest income   11,245     10,075         42,496     38,988
                     
INTEREST EXPENSE                    
  Deposits   1,446     985         4,644     3,377
  Short-term borrowings   122     61         323     199
  Other borrowings   248     145         690     504
  Total Interest expense   1,816     1,191         5,657     4,080
NET INTEREST INCOME   9,429     8,884         36,839     34,908
PROVISION FOR LOAN LOSSES   375     400         1,725     2,200
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES   9,054     8,484         35,114     32,708
                     
OTHER INCOME                    
  Service charges and fees   1,085     1,023         4,295     4,079
  Income from fiduciary activities   126     116         589     510
  Net realized gains on sales of securities     –       181           213       348
  Gains on sales of loans, net      –       –           15       67
  Gains on sale of deposits     –       –           –       209
  Earnings and proceeds on life insurance policies   277     283         1,126     1,133
  Other    112     151         827     565
  Total other income   1,600     1,754         7,065     6,911
                     
OTHER EXPENSES                    
  Salaries and  employee benefits   3,575     3,211         14,020     12,850
  Occupancy, furniture and equipment   1,036     841         3,695     3,361
  Data processing  and related operations   400     332         1,427     1,353
  Taxes, other than income   92     (32)         572     661
  Professional fees   232     243         993     949
  FDIC Insurance assessment   83     94         347     377
  Foreclosed real estate    104     136         172     1,164
  Amortization of intangibles   29     35         126     150
  Other    1,252     1,026         4,623     4,005
  Total other expenses   6,803     5,886         25,975     24,870
                     
INCOME BEFORE TAX   3,851     4,352         16,204     14,749
INCOME TAX EXPENSE    552     4,195         2,553     6,551
NET INCOME $ 3,299    $ 157       $ 13,651    $ 8,198
                           
                     
Basic earnings per share  $ 0.53   $ 0.03       $ 2.19   $ 1.32
                           
                     
Diluted earnings per share  $ 0.53   $ 0.03       $ 2.17   $ 1.31
                           
               
             
                     
NORWOOD FINANCIAL CORP.                
Financial Highlights (Unaudited)                    
(dollars in thousands, except per share data)                    
                     
For the Three Months Ended December 31   2018     2017              
                         
                   
Net interest income  $ 9,429    $ 8,884              
Net income   3,299     157              
                   
Net interest spread (fully taxable equivalent)   3.33%     3.43%              
Net interest margin (fully taxable equivalent)   3.54%     3.58%              
Return on average assets   1.12%     0.05%              
Return on average equity   11.05%     0.52%              
Return on average tangible equity   12.26%     0.58%              
Basic earnings per share   $ 0.53    $ 0.03              
Diluted earnings per share   $ 0.53    $ 0.03              
                     
For the Twelve Months Ended December 31   2018     2017              
                         
                   
Net interest income  $ 36,839    $ 34,908              
Net income   13,651     8,198              
                   
Net interest spread (fully taxable equivalent)   3.36%     3.44%              
Net interest margin (fully taxable equivalent)   3.53%     3.56%              
Return on average assets   1.19%     0.73%              
Return on average equity   11.71%     7.04%              
Return on average tangible equity   13.02%     7.85%              
Basic earnings per share   $ 2.19    $ 1.32              
Diluted earnings per share   $ 2.17    $ 1.31              
                     
As of December 31                
               
Total assets  $ 1,184,559    $ 1,132,916              
Total loans receivable   850,182     764,092              
Allowance for loan losses   8,452     7,634              
Total deposits   946,780     929,384              
Stockholders’ equity   122,285     115,739              
Trust assets under management   151,224     157,838              
               
Book value per share   $ 19.43    $ 18.61              
Tangible book value per share   $ 17.58    $ 16.71              
Equity to total assets   10.32%     10.22%              
Allowance to total loans receivable   0.99%     1.00%              
Nonperforming loans to total loans    0.13%     0.32%              
Nonperforming assets to total assets   0.19%     0.37%              
                   
             
                   
NORWOOD FINANCIAL CORP.                    
Consolidated Balance Sheets (unaudited)            
(dollars in thousands)  
    December 31       September 30       June 30       March 31       December 31
  2018     2018     2018     2018     2017
ASSETS  
  Cash and due from banks  $ 18,039    $ 17,073    $ 15,193    $ 10,103    $ 16,212
  Interest-bearing deposits with banks   309     295     914     2,039     485
  Cash and cash equivalents   18,348     17,368     16,107     12,142     16,697
                   
  Securities available for sale   243,277     247,517     259,442     265,862     281,121
  Loans receivable    850,182     819,197     803,773     775,681     764,092
  Less: Allowance for loan losses   8,452     8,280     8,326     8,099     7,634
  Net loans receivable   841,730     810,917     795,447     767,582     756,458
  Regulatory stock, at cost   3,926     3,261     2,313     2,545     3,505
  Bank owned life insurance   37,932     37,718     37,485     37,270     37,060
  Bank premises and equipment, net   13,846     13,797     13,894     13,808     13,864
  Foreclosed real estate owned   1,115     1,209     1,386     1,436     1,661
  Goodwill and other intangibles   11,667     11,695     11,725     11,758     11,793
  Other assets   12,718     13,266     12,794     14,634     10,757
                             
                             
                             
  TOTAL ASSETS  $ 1,184,559    $ 1,156,748    $ 1,150,593    $ 1,127,037    $ 1,132,916
                             
                     
LIABILITIES                    
  Deposits:                    
  Non-interest bearing demand   $ 201,457    $ 218,979    $ 216,472    $ 204,027    $ 205,138
  Interest-bearing deposits   745,323     720,735     734,417     736,122     724,246
  Total deposits   946,780     939,714     950,889     940,149     929,384
  Borrowings   105,330     89,469     73,608     62,998     78,475
  Other liabilities   10,164     10,885     10,563     10,052     9,318
  TOTAL LIABILITIES   1,062,274     1,040,068     1,035,060     1,013,199     1,017,177
                   
STOCKHOLDERS’ EQUITY   122,285     116,680     115,533     113,838     115,739
                   
  TOTAL LIABILITIES AND                            
  STOCKHOLDERS’ EQUITY  $ 1,184,559    $ 1,156,748    $ 1,150,593    $ 1,127,037    $ 1,132,916
 
                   
                   
NORWOOD FINANCIAL CORP.  
Consolidated Statements of Income (unaudited)  
(dollars in thousands, except per share data)  
      December 31       September 30       June 30       March 31       December 31
Three months ended   2018     2018     2018     2018     2017
INTEREST INCOME                            
  Loans receivable, including fees  $ 9,759    $ 9,301    $ 8,857    $ 8,487    $ 8,503
  Securities   1,476     1,483     1,536     1,524     1,560
  Other   10     2     43     18     12
  Total interest income   11,245     10,786     10,436     10,029     10,075
                   
INTEREST EXPENSE                    
  Deposits   1,446     1,116     1,052     1,029     985
  Borrowings   370     282     169     193     206
  Total interest expense   1,816     1,398     1,221     1,222     1,191
NET INTEREST INCOME   9,429     9,388     9,215     8,807     8,884
PROVISION FOR LOAN LOSSES   375     375     425     550     400
NET INTEREST INCOME AFTER PROVISION                            
  FOR LOAN LOSSES   9,054     9,013     8,790     8,257     8,484
                   
OTHER INCOME                    
  Service charges and fees     1,085       1,129       1,101       980       1,023
  Income from fiduciary activities     126       151       175       137       116
  Net realized gains on sales of securities     –       13       58       142       181
  Gains on sales of loans, net     –       15       –       –       –
  Earnings and proceeds on life insurance policies     277       297       279       273       283
  Other      112       392       161       162       151
  Total other income   1,600     1,997     1,774     1,694     1,754
                   
OTHER EXPENSES                    
  Salaries and  employee benefits     3,575       3,577       3,406       3,462       3,211
  Occupancy, furniture and equipment, net     1,036       910       857       892       841
  Foreclosed real estate      104       (26)       114       (19)       136
  FDIC insurance assessment     83       87       86       92       94
  Other      2,005       2,024       1,890       1,821       1,604
  Total other expenses   6,803     6,572     6,353     6,248     5,886
                   
INCOME BEFORE TAX   3,851     4,438     4,211     3,703     4,352
INCOME TAX EXPENSE    552     728     698     574     4,195
NET INCOME  $ 3,299    $ 3,710    $ 3,513    $ 3,129    $ 157
                           
Basic earnings per share   $ 0.53    $ 0.59    $ 0.57    $ 0.50    $ 0.03
                             
Diluted earnings per share   $ 0.53    $ 0.58    $ 0.56    $ 0.50    $ 0.03
 
Book Value per share  $ 19.43   $ 18.49   $ 18.35   $ 18.45   $ 18.61
Tangible Book Value per share   17.58     16.62     16.47     16.56     16.71
                   
Return on average assets (annualized)   1.12%     1.28%     1.23%     1.13%     0.05%
Return on average equity (annualized)   11.02%     12.55%     12.25%     11.00%     0.52%
Return on average tangible equity (annualized)   12.23%     13.94%     13.64%     12.25%     0.58%
                   
Net interest spread (fte)   3.33%     3.40%     3.40%     3.31%     3.44%
Net interest margin (fte)   3.54%     3.57%     3.54%     3.46%     3.56%
                   
Allowance for loan losses to total loans   0.99%     1.01%     1.04%     1.04%     1.00%
Net charge-offs to average loans (annualized)   0.10%     0.21%     0.10%     0.04%     0.28%
Nonperforming loans to total loans   0.13%     0.14%     0.16%     0.22%     0.32%
Nonperforming assets to total assets   0.19%     0.20%     0.23%     0.28%     0.37%