Norwood Financial Corp Announces Earnings for the Fourth Quarter and Year

HONESDALE, Pa., Jan. 22, 2014 (GLOBE NEWSWIRE) -- Lewis J. Critelli, President and Chief Executive Officer of Norwood Financial Corp (Nasdaq:NWFL) and its subsidiary Wayne Bank announced earnings today for the three months ended December 31, 2013 of $2,181,000. This represents an increase of $422,000, or 24%, from the $1,759,000 earned in the comparable period of 2012 due primarily to lower loan loss provisions and increased gains on sales of securities. Earnings per share (fully diluted) were $.60 and $.48 for the three-month periods ended December 31, 2013 and 2012, respectively, after giving retroactive effect to the 10% stock dividend declared during the first quarter of 2013. Net interest income before the provision for loan losses improved $66,000 over the same period of last year, while other income increased $194,000 primarily due to increased gains on sales of securities. The provision for loan losses was $400,000 in the current three-month period compared to $800,000 in the same period of last year, while operating expenses increased $45,000. Annualized return on average assets for the current quarter was 1.23% with an annualized return on equity of 9.33%. For the year ended December 31, 2013, net income totaled a record level of $8,465,000, an increase of $62,000 over the $8,403,000 earned in the prior year as an increase in other income and a reduction in income tax expense offset increased operating expenses. Earnings per share on a fully diluted basis were $2.33 for 2013, compared to $2.33 in 2012 after adjusting for the stock dividend. The return on average assets for the year was 1.23% with a return on average equity of 9.13% compared to 1.23% and 9.22%, respectively, in 2012.

Total assets were $711.2 million as of December 31, 2013. Loans receivable totaled $503.1 million as of December 31, 2013, with total deposits of $541.2 million and stockholders' equity of $91.9 million. The Company's capital position remains "well capitalized" in accordance with risk-based capital guidelines established by federal bank regulators.

Loans receivable grew $26.4 million from the prior year-end due primarily to growth in commercial loans and residential mortgage loans, notwithstanding the sale of $4.0 million of fixed rate residential mortgages for purposes of interest rate risk management. Residential mortgage loans increased $8.8 million, which is net of loans sold as mentioned above. Total commercial loans grew $9.3 million in 2013, while other retail and construction loans increased $8.3 million. As of December 31, 2013, total non-performing loans were $9.5 million and represented 1.90% of total loans compared to $13.2 million, or 2.77% as of December 31, 2012. For the three months and year ended December 31, 2013, net charge-offs totaled $251,000 and $2,194,000, respectively, compared to $639,000 and $2,406,000, respectively, for the corresponding periods in 2012. Based on the level of charge-offs and non-performing loans, the Company determined that it would be appropriate to provide $400,000 and $2,400,000 for potential future losses for the three and twelve month periods, respectively, compared to $800,000 in the similar quarter of last year and $2,450,000 for the year of 2012. As of December 31, 2013, the allowance for loan losses totaled $5,708,000 and 1.13% of total loans compared to $5,502,000 and 1.15% of total loans at December 31, 2012. 

Net interest income (fully taxable equivalent) totaled $6,461,000 for the three months ended December 31, 2013, an increase of $84,000 compared to the same period in 2012. Net interest margin (fte) for the three months ended December 31, 2013 was 3.91% decreasing from 3.98% for the similar period in 2012. The decrease in net interest margin was principally due to growth and reinvestment at historically low interest rate levels which resulted in a 22 basis point decrease in the yield earned on assets compared to an 18 basis point reduction in the cost of interest bearing liabilities. For the year, net interest income (fte) totaled $25,857,000, a decrease of $149,000 compared to 2012. The net interest margin (fte) declined 10 basis points to 4.00% in 2013. 

Other income for the three months ended December 31, 2013 totaled $1,310,000 compared to $1,116,000 for the similar period in 2012. The increase was due primarily to a $191,000 increase in gains on sales of securities. Other income for the year ended December 31, 2013 totaled $5,615,000 compared to $5,206,000 in 2012, an increase of $409,000. Gains on the sale of loans and investment securities decreased $637,000 in the aggregate while earnings and proceeds received on bank owned life insurance policies increased $847,000 in 2013. All other service charges and fees improved $199,000, or 6.6% over the 2012 total.  The 2013 period includes $112,000 in gains on sales of loans and servicing rights on the sale of $4.0 million of residential mortgage loans compared to $211,000 in similar gains on sales of $7.0 million of mortgage loans and servicing rights in the 2012 period.

Other expenses totaled $4,098,000 for the three months ended December 31, 2013, compared to $4,053,000 in the similar period of 2012. Salaries and benefit costs decreased $94,000 and professional fees declined $81,000 compared to the same period of last year while all other operating expenses increased $220,000, net.  For the year ended December 31, 2013, other expenses totaled $16,705,000 compared to $16,081,000 for the similar period in 2012, an increase of $624,000. Employment and occupancy costs rose a combined $185,000 over the 2012 period, while professional fees declined $185,000. All other expenses increased $624,000, net compared to 2012 due primarily to a $350,000 increase in foreclosed real estate expenses.

Mr. Critelli commented, "We are pleased with the results we achieved in 2013, which represents a record level of earnings in a very challenging economic environment. We increased our cash dividend for the twenty-second consecutive year to $1.16 per share, which results in a dividend yield in excess of 4.00% annually based on our recent closing stock price, and rewarded our shareholders with a 10% stock dividend in the first quarter of 2013.  We recorded a Return on Assets of 1.23% and maintained a net interest margin of 4.00% for the year. We also managed to reduce our level of non-performing loans from 2.77% of total loans to 1.90% and maintain our capital levels in excess of the "Well Capitalized" levels established by our regulators. As we continue to work our way through the credit quality issues brought on by the prolonged economic downturn, we will remain diligent in controlling and minimizing credit related costs brought on us by our ailing economy.   We believe that we are well positioned to take advantage of the opportunities available to us, and we look forward to serving our growing customer base as the economy rebounds from the extended economic downturn."

Norwood Financial Corp., through its subsidiary Wayne Bank, operates sixteen 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, risks associated with the acquisition of North Penn Bancorp, the ability to control costs and expenses, demand for real estate 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 is derived from GAAP interest income and net interest income using an assumed tax rate of 34%. 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 fully taxable equivalent basis: