Norwood Financial Corp Announces Earnings for the Fourth Quarter and Year

HONESDALE, Pa, Jan. 25, 2018 (GLOBE NEWSWIRE) -- Lewis J. Critelli, President and Chief Executive Officer of Norwood Financial Corp (Nasdaq: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.

The following table reconciles net interest income to net interest income on a fully taxable equivalent basis:

(dollars in thousands)Three months ended December 31Year 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
544540 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:

(dollars in thousands)Three months ended December 31Year ended December 31
2017 2016 2017 2016
Net income$157$2,346$8,198$6,711
Add: deferred tax revaluation charge3,060 3,060
Core operating results$3,217$2,346$11,258$6,711


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,
20172016 20172016
INTEREST INCOME
Loans receivable, including fees $8,503$7,858 $32,524 $27,611
Securities1,5601,584 6,4164,591
Other1214 4842
Total Interest income10,0759,456 38,98832,244
INTEREST EXPENSE
Deposits985765 3,3772,603
Short-term borrowings6132 199174
Other borrowings145208 504877
Total Interest expense1,1911,005 4,0803,654
NET INTEREST INCOME8,8848,451 34,90828,590
PROVISION FOR LOAN LOSSES400450 2,2002,050
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES8,4848,001 32,70826,540
OTHER INCOME
Service charges and fees1,023951 4,0792,951
Income from fiduciary activities116107 510449
Net realized gains on sales of securities181 15 348284
Gains on sales of loans, net - - 6754
Earnings and proceeds on life insurance policies283272 1,133888
Other 151145 774553
Total other income1,7541,490 6,9115,179
OTHER EXPENSES
Salaries and employee benefits3,2113,308 12,85010,928
Occupancy, furniture and equipment841889 3,3612,625
Data processing and related operations332388 1,3531,337
Taxes, other than income(32)196 661731
Professional fees243320 949836
FDIC Insurance assessment9410 377412
Foreclosed real estate 13698 1,164680
Amortization of intangibles357 150122
Merger related -142 -1,806
Other 1,0261,210 4,0053,647
Total other expenses5,8866,568 24,87023,124
INCOME BEFORE TAX4,3522,923 14,7498,595
INCOME TAX EXPENSE 4,195577 6,5511,884
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
* Per share data 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 December 3120172016
Net interest income$8,884$8,451
Net income1572,346
Net interest spread (fully taxable equivalent)3.43%3.38%
Net interest margin (fully taxable equivalent)3.58%3.49%
Return on average assets0.05%0.83%
Return on average equity0.52%8.17%
Basic earnings per share *$0.03$0.38
Diluted earnings per share *$0.03$0.37
For the Twelve Months Ended December 3120172016
Net interest income$34,908$28,590
Net income8,1986,711
Net interest spread (fully taxable equivalent)3.44%3.46%
Net interest margin (fully taxable equivalent)3.56%3.60%
Return on average assets0.73%0.74%
Return on average equity7.04%6.17%
Return on tangible equity7.85%6.84%
Basic earnings per share *$1.32$1.16
Diluted earnings per share *$1.31$1.15
As of December 31
Total assets$1,132,916$1,111,183
Total loans receivable764,092713,889
Allowance for loan losses7,6346,463
Total deposits929,384925,385
Stockholders' equity115,739111,079
Trust assets under management157,838138,167
Book value per share *$18.61$17.43
Tangible book value per share *$16.71$15.67
Equity to total assets10.22%10.00%
Allowance to total loans receivable1.00%0.91%
Nonperforming loans to total loans 0.32%0.25%
Nonperforming assets to total assets0.37%0.64%
* Per share data 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)
December 31 September 30 June 30 March 31 December 31
2017 2017 2017 2017 2016
ASSETS
Cash and due from banks $16,212 $13,947 $16,055 $12,057 $14,900
Interest-bearing deposits with banks 485 368 348 7,785 2,274
Cash and cash equivalents 16,697 14,315 16,403 19,842 17,174
Securities available for sale 281,121 285,706 300,667 295,801 302,564
Loans receivable 764,092 756,014 735,026 719,443 713,889
Less: Allowance for loan losses 7,634 7,760 7,419 6,901 6,463
Net loans receivable 756,458 748,254 727,607 712,542 707,426
Regulatory stock, at cost 3,505 3,115 2,435 1,939 2,119
Bank owned life insurance 37,060 36,839 36,575 36,352 36,133
Bank premises and equipment, net 13,864 12,922 12,953 13,073 13,531
Foreclosed real estate owned 1,661 4,243 4,523 4,703 5,302
Goodwill and other intangibles 11,793 11,827 11,862 11,902 12,291
Other assets 10,757 14,732 14,288 15,461 14,643
TOTAL ASSETS $1,132,916 $1,131,953 $1,127,313 $1,111,615 $1,111,183
LIABILITIES
Deposits:
Non-interest bearing demand $205,138 $212,844 $200,364 $192,735 $191,445
Interest-bearing deposits 724,246 711,178 732,107 738,678 733,940
Total deposits 929,384 924,022 932,471 931,413 925,385
Other borrowings 78,475 79,000 67,522 57,260 64,812
Other liabilities 9,318 11,239 11,153 9,990 9,907
TOTAL LIABILITIES 1,017,177 1,014,261 1,011,146 998,663 1,000,104
STOCKHOLDERS' EQUITY 115,739 117,692 116,167 112,952 111,079
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,132,916 $1,131,953 $1,127,313 $1,111,615 $1,111,183


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 2017 2017 2017 2017 2016
INTEREST INCOME
Loans receivable, including fees $8,503 $8,289 $7,925 $7,806 $7,858
Securities 1,560 1,605 1,633 1,618 1,584
Other 12 2 24 10 14
Total interest income 10,075 9,896 9,582 9,434 9,456
INTEREST EXPENSE
Deposits 985 828 797 766 765
Borrowings 206 198 129 171 240
Total interest expense 1,191 1,026 926 937 1,005
NET INTEREST INCOME 8,884 8,870 8,656 8,497 8,451
PROVISION FOR LOAN LOSSES 400 600 600 600 450
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 8,484 8,270 8,056 7,897 8,001
OTHER INCOME
Service charges and fees 1,023 1,105 1,016 936 951
Income from fiduciary activities 116 160 128 106 107
Net realized gains on sales of securities 181 129 31 6 15
Gains on sales of loans, net - - 67 - -
Earnings and proceeds on life insurance policies 283 320 275 255 272
Other 151 144 139 340 145
Total other income 1,754 1,858 1,656 1,643 1,490
OTHER EXPENSES
Salaries and employee benefits 3,211 3,209 3,212 3,219 3,308
Occupancy, furniture and equipment, net 841 799 809 911 889
Foreclosed real estate 136 303 152 572 98
FDIC insurance assessment 94 97 91 95 10
Merger related - - - - 142
Other 1,604 1,831 1,866 1,817 2,121
Total other expenses 5,886 6,239 6,130 6,614 6,568
INCOME BEFORE TAX 4,352 3,889 3,582 2,926 2,923
INCOME TAX EXPENSE 4,195 948 858 550 577
NET INCOME $157 $2,941 $2,724 $2,376 $2,346
Basic earnings per share $0.03 $0.47 $0.44 $0.38 $0.38
Diluted earnings per share $0.03 $0.47 $0.43 $0.38 $0.38
Book Value per share $18.61$18.46$18.29$18.06$17.43
Tangible Book Value per share 16.71 16.54 16.37 16.12 15.67
Return on average assets (annualized) 0.05% 1.03% 0.97% 0.87% 0.83%
Return on average equity (annualized) 0.52% 9.85% 9.45% 8.54% 8.17%
Net interest spread (fte) 3.44% 3.48% 3.44% 3.40% 3.38%
Net interest margin (fte) 3.56% 3.60% 3.54% 3.51% 3.49%
Allowance for loan losses to total loans 1.00% 1.03% 1.01% 0.96% 0.91%
Net charge-offs to average loans (annualized) 0.28% 0.14% 0.05% 0.09% 0.09%
Nonperforming loans to total loans 0.32% 0.27% 0.35% 0.28% 0.25%
Nonperforming assets to total assets 0.37% 0.55% 0.63% 0.60% 0.64%
* Per share data has been restated to give retroactive effect to the 50% stock dividend declared August 8, 2017.

Source:Norwood Financial Corp.