Norwood Financial Corp. Announces First Quarter Earnings

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| Source: Norwood Financial Corp

HONESDALE, Pa., April 21, 2014 (GLOBE NEWSWIRE) -- Lewis J. Critelli, President and Chief Executive Officer of Norwood Financial Corp. (Nasdaq:NWFL) and its subsidiary, Wayne Bank, announced earnings of $1,964,000 for the three months ended March 31, 2014 which represents a decrease from the $2,308,000 recorded during the same three month period of last year. Earnings in 2013 were higher due to $770,000 of proceeds from a bank-owned life insurance policy that was recorded in the first quarter of 2013, some of which was offset by higher core earnings in the current year. Earnings per share on a fully diluted basis were $.54 in the first quarter of this year compared to $.63 in the first quarter of 2013. The annualized return on average assets was 1.13% in the first quarter of 2014 and the annualized return on average equity was 8.46%.

Total assets were $703.2 million as of March 31, 2014, an increase of $22.5 million compared to the prior year total. Total loans increased $17.3 million compared to March 31, 2013 notwithstanding the sale of $1.0 million of residential mortgage loans to reduce the Company's interest rate risk position during the current year. Residential mortgage loan balances increased $3.2 million, commercial financing increased $11.2 million, construction loans increased $6.7 million and installment loans grew $1.3 million, while commercial real estate loans have decreased $5.1 million compared to the prior year. Total deposits increased $4.4 million over the past twelve months which includes a $9.0 million increase in non-interest bearing demand deposits. Stockholders' equity increased $1.3 million during the past year, due principally to the retention of earnings.

Non-performing assets totaled $10.9 million or 1.55% of total assets at March 31, 2014 comprised of $9.5 million of non-performing loans and $1.4 million of foreclosed real estate owned, compared to $10.6 million of non-performing assets or 1.48% of total assets at December 31, 2013. The increase recorded during the quarter includes the transfer of four properties into foreclosed real estate owned with a carrying value of $383,000. As of March 31, 2013, non-performing assets totaled $13.7 million. Net charge-offs for the three month period ending March 31, 2014 were $400,000 which represents a decrease compared to $576,000 of net charge-offs in the first quarter of last year. Based on the current composition of the loan portfolio, management determined that it would be prudent to provide additional reserves and added $420,000 to the allowance for loan losses compared to $800,000 during the same period of last year. The decrease in the provision for loan losses reflects the lower levels of net charge-offs and non-performing assets. The allowance for loan losses was 1.15% of total loans outstanding on March 31, 2014 compared to 1.13% on December 31, 2013 and 1.20% on March 31, 2013.

Net interest income (fully taxable equivalent) was $6,462,000 during the first quarter of 2014 which is $75,000 higher than the comparable three month period of last year. The net interest margin was negatively impacted by lower rates on new loan closings, but a $22.0 million increase in average loans outstanding helped to offset much of the decrease due to pricing. A $14.9 million increase in average securities added $135,000 of additional earnings. The yield on interest earning assets decreased two basis points compared to the prior quarter while the cost of funds decreased three basis points. As a result, the net interest margin (fte) remained stable at 3.91% compared to the quarter ended December 31, 2013. In comparison to the quarter ended March 31, 2013, the net interest margin (fte) declined from 4.07% to 3.91% due to the downward repricing of the balance sheet.

Other income totaled $1,053,000 in the first quarter of 2014 compared to $1,877,000 during the same period of last year. The $824,000 decrease in other income reflects $770,000 of proceeds from a bank-owned life insurance policy recorded in 2013. During the current period, the Company recognized a net gain of $95,000 from the sale of securities compared to $138,000 in the prior-year period.

Operating expenses totaled $4,132,000 in the first quarter and were $169,000, or 3.9%, lower than the same period of last year. Foreclosed real estate costs provided the majority of the decrease and were $126,000 lower than the first quarter of last year while all other operating costs decreased $43,000, net.

Mr. Critelli stated that, "Our first quarter results provide a good start for 2014. While net income was down due to a non-recurring gain recognized in the first quarter of last year, our core earnings improved due to increased net interest income and reduced operating expenses. We are continuing to work our way through credit quality issues that have been brought on by the prolonged economic downturn, and improving our credit quality will remain a top priority in 2014. Our net interest margin continues to exceed peer banks, and our capital base continues to exceed peer and "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 as the economy slowly recovers from the recent downturn."

Norwood Financial Corp. is the parent company of Wayne Bank which operates from sixteen offices throughout 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 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:

(dollars in thousands) Three months ended March 31,
  2014 2013
Net interest income $6,145 $6,101
Tax equivalent basis adjustment using 34% marginal   tax rate 317 286
Net interest income on a fully taxable equivalent basis  $6,462 $6,387
     
NORWOOD FINANCIAL CORP.    
Consolidated Balance Sheets     
(dollars in thousands, except share data)    
 (unaudited)    
  March 31
  2014 2013
ASSETS    
 Cash and due from banks  $ 8,607  $ 6,763
 Interest-bearing deposits with banks 142 9,182
 Cash and cash equivalents 8,749 15,945
     
 Securities available for sale 156,165 148,598
 Securities held to maturity, fair value 2014: $176 and 2013: $175 175 173
 Loans receivable (net of unearned Income) 496,016 478,663
 Less: Allowance for loan losses 5,727 5,726
 Net loans receivable 490,289 472,937
 Regulatory stock, at cost 2,741 2,533
 Bank premises and equipment, net 7,031 7,191
 Bank owned life insurance 17,930 14,402
 Foreclosed real estate owned 1,364 1,099
 Accrued interest receivable 2,330 2,456
 Goodwill 9,715 9,715
 Other intangible assets 477 610
 Deferred tax asset 4,294 2,724
 Other assets 1,974 2,370
 TOTAL ASSETS  $ 703,234  $ 680,753
     
LIABILITIES    
 Deposits:    
Non-interest bearing demand   $ 93,400  $ 84,357
Interest-bearing  446,676 451,275
 Total deposits 540,076 535,632
 Short-term borrowings 40,373 21,859
 Other borrowings 23,373 25,343
 Accrued interest payable 973 1,082
 Other liabilities 4,239 3,917
 TOTAL LIABILITIES 609,034 587,833
     
STOCKHOLDERS' EQUITY    
 Common Stock, $.10 par value, authorized 10,000,000 shares    
 issued: 2014: 3,708,718 shares, 2013: 3,709,034 shares 371 371
 Surplus 35,050 34,912
 Retained earnings 61,671 57,847
 Treasury stock, at cost: 2014: 71,297 shares, 2013: 80,438 shares (1,892) (2,345)
 Accumulated other comprehensive income (loss) (1,000) 2,135
 TOTAL STOCKHOLDERS' EQUITY 94,200 92,920
     
 TOTAL LIABILITIES AND    
 STOCKHOLDERS' EQUITY  $ 703,234  $ 680,753
     
NORWOOD FINANCIAL CORP.    
Consolidated Statements of Income     
(dollars in thousands, except per share data)    
 (unaudited)    
  Three Months Ended March 31
  2014 2013
INTEREST INCOME    
 Loans receivable, including fees  $ 5,980  $ 6,186
 Securities 987 868
 Other 1 3
 Total Interest income 6,968 7,057
     
INTEREST EXPENSE    
 Deposits 635 754
 Short-term borrowings 22 12
 Other borrowings 166 190
 Total Interest expense 823 956
NET INTEREST INCOME 6,145 6,101
PROVISION FOR LOAN LOSSES 420 800
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 5,725 5,301
     
OTHER INCOME    
 Service charges and fees 576 592
 Income from fiduciary activities 104 85
 Net realized gains on sales of securities 95 138
 Gains on sale of loans  39 11
 Earnings and proceeds on life insurance policies 168 925
 Other  71 126
 Total other income 1,053 1,877
     
OTHER EXPENSES    
 Salaries and employee benefits 2,165 2,211
 Occupancy, furniture and equipment 578 529
 Data processing related 212 221
 Taxes, other than income 165 174
 Professional Fees 165 187
 FDIC Insurance assessment 114 111
 Foreclosed real estate owned 65 191
 Other  668 677
 Total other expenses 4,132 4,301
     
INCOME BEFORE TAX 2,646 2,877
INCOME TAX EXPENSE 682 569
NET INCOME  $ 1,964  $ 2,308
     
Basic earnings per share   $ 0.54  $ 0.64
     
Diluted earnings per share   $ 0.54  $ 0.63
     
NORWOOD FINANCIAL CORP.    
Financial Highlights (Unaudited)    
(dollars in thousands, except per share data)    
     
For the Three Months Ended March 31 2014 2013
     
Net interest income  $ 6,145  $ 6,101
Net income 1,964 2,308
     
Net interest spread (fully taxable equivalent) 3.77% 3.91%
Net interest margin (fully taxable equivalent) 3.91% 4.07%
Return on average assets 1.13% 1.39%
Return on average equity 8.46% 10.02%
Basic earnings per share   $ 0.54  $ 0.64
Diluted earnings per share   $ 0.54  $ 0.63
     
     
As of March 31    
     
Total assets  $ 703,234  $ 680,753
Total loans receivable 496,016 478,663
Allowance for loan losses 5,727 5,726
Total deposits 540,076 535,632
Stockholders' equity 94,200 92,920
Trust assets under management 129,739 118,091
     
Book value per share   $ 25.88  $ 25.66
Equity to total assets 13.40% 13.65%
Allowance to total loans receivable 1.15% 1.20%
Nonperforming loans to total loans  1.92% 2.63%
Nonperforming assets to total assets 1.55% 2.01%
           
NORWOOD FINANCIAL CORP.          
Consolidated Balance Sheets (unaudited)          
(dollars in thousands)          
   March 31
2014
December 31
2013
September 30
2013
June 30
2013
March 31
2013
ASSETS          
 Cash and due from banks  $ 8,607  $ 7,528  $ 15,193  $ 9,872  $ 6,763
 Interest-bearing deposits with banks 142 335 12,221 17,425 9,182
 Cash and cash equivalents 8,749 7,863 27,414 27,297 15,945
           
 Securities available for sale 156,165 158,132 150,904 150,750 148,598
 Securities held to maturity 175 174 174 173 173
 Loans receivable (net of unearned income) 496,016 503,097 486,968 480,715 478,663
 Less: Allowance for loan losses 5,727 5,708 5,558 5,749 5,726
 Net loans receivable 490,289 497,389 481,410 474,966 472,937
 Regulatory stock, at cost 2,741 2,877 2,141 2,527 2,533
 Bank owned life insurance 17,930 17,790 14,653 14,527 14,402
 Bank premises and equipment, net 7,031 7,125 7,250 7,206 7,191
 Foreclosed real estate owned 1,364 1,009 993 1,297 1,099
 Goodwill and other intangibles 10,192 10,225 10,258 10,290 10,325
 Other assets 8,598 8,650 8,574 8,573 7,550
 TOTAL ASSETS  $ 703,234  $ 711,234  $ 703,771  $ 697,606  $ 680,753
           
LIABILITIES          
 Deposits:          
 Non-interest bearing demand   $ 93,400  $ 92,684  $ 101,632  $ 93,881  $ 84,357
 Interest-bearing deposits 446,676 448,498 447,066 456,269 451,275
 Total deposits 540,076 541,182 548,698 550,150 535,632
 Other borrowings 63,746 73,675 58,422 52,225 47,202
 Other liabilities 5,212 4,513 5,305 4,771 4,999
 TOTAL LIABILITIES 609,034 619,370 612,425 607,146 587,833
           
STOCKHOLDERS' EQUITY 94,200 91,864 91,346 90,460 92,920
           
 TOTAL LIABILITIES AND          
 STOCKHOLDERS' EQUITY  $ 703,234  $ 711,234  $ 703,771  $ 697,606  $ 680,753
           
NORWOOD FINANCIAL CORP.          
Consolidated Statements of Income (unaudited)          
(dollars in thousands, except per share data)          
           
Three months ended  March 31
2014
December 31
2013
September 30
2013
June 30
2013
March 31
2013
INTEREST INCOME          
Loans receivable, including fees  $ 5,980  $ 6,019  $ 6,202  $ 6,169  $ 6,186
Securities 987 972 939 877 868
Other 1 9 5 10 3
 Total interest income 6,968 7,000 7,146 7,056 7,057
           
INTEREST EXPENSE          
Deposits 635 674 701 719 754
Borrowings 188 181 175 193 202
 Total interest expense 823 855 876 912 956
NET INTEREST INCOME 6,145 6,145 6,270 6,144 6,101
PROVISION FOR LOAN LOSSES 420 400 400 800 800
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 5,725 5,745 5,870 5,344 5,301
           
OTHER INCOME          
Service charges and fees 575 578 614 620 592
Income from fiduciary activities 104 94 111 89 85
Net realized gains on sales of securities 95 291 198 254 138
Gains (losses) on sale of loans and servicing rights 39 121 (12) 1 11
Earnings and proceeds on life insurance  168 162 150 148 925
Other  71 64 155 100 126
 Total other income 1,052 1,310 1,216 1,212 1,877
           
OTHER EXPENSES          
Salaries and employee benefits 2,165 2,009 2,103 2,124 2,211
Occupancy, furniture and equipment, net 578 550 507 550 529
Foreclosed real estate owned 65 73 217 86 191
FDIC insurance assessment 114 109 114 110 111
Other  1,210 1,357 1,232 1,263 1,259
 Total other expenses 4,132 4,098 4,173 4,133 4,301
           
INCOME BEFORE TAX 2,645 2,957 2,913 2,423 2,877
INCOME TAX EXPENSE 682 776 777 584 569
NET INCOME  $ 1,963  $ 2,181  $ 2,136  $ 1,839  $ 2,308
           
Basic earnings per share   $ 0.54  $ 0.60  $ 0.59  $ 0.51  $ 0.64
           
Diluted earnings per share   $ 0.54  $ 0.60  $ 0.59  $ 0.51  $ 0.63
           
Book Value per share   $ 25.88  $ 25.43  $ 25.54  $ 24.98  $ 25.66
           
Return on average equity (annualized) 8.46% 9.33% 9.33% 7.87% 10.02%
Return on average assets (annualized) 1.13% 1.23% 1.22% 1.07% 1.39%
           
Net interest spread (fte) 3.77% 3.76% 3.89% 3.83% 3.91%
Net interest margin (fte) 3.91% 3.91% 4.05% 3.99% 4.07%
           
Allowance for loan losses to total loans 1.15% 1.13% 1.14% 1.20% 1.20%
Net charge-offs to average loans (annualized) 0.32% 0.21% 0.49% 0.65% 0.48%
Nonperforming loans to total loans 1.92% 1.90% 2.11% 2.41% 2.63%
Nonperforming assets to total assets 1.55% 1.48% 1.60% 1.85% 2.01%
William S. Lance
Executive Vice President &
Chief Financial Officer
NORWOOD FINANCIAL CORP.
570-253-8505
www.waynebank.com