Norwood Financial Corp Announces Second Quarter Earnings

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| Source: Norwood Financial Corp

HONESDALE, Pa., July 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 for the three months ended June 30, 2014 of $2,034,000. This represents an increase of $195,000, or 10.6%, from the $1,839,000 earned in the similar period of 2013 due primarily to a decrease in the provision for loan losses and a higher level of gains on sales of securities. Earnings per share (fully diluted) were $.56 in the 2014 period, increasing from the $.51 earned in the similar period of 2013. Annualized return on average assets for the three months ended June 30, 2014 was 1.15% with an annualized return on average equity of 8.49%. Net income for the six months ended June 30, 2014 totaled $3,998,000, which is $149,000 lower than the same six-month period of last year due primarily to proceeds on life insurance received in the first quarter of 2013. Earnings per share (fully diluted) for the six months ended June 30, 2014 and 2013 totaled $1.10 and $1.14 per share, respectively.

Total assets as of June 30, 2014 were $716.9 million with loans receivable of $502.3 million, deposits of $554.7 million and stockholders' equity of $96.2 million.

Loans receivable increased $21.6 million since June 30, 2013. Commercial loans increased $18.2 million which includes a $10.7 million increase in municipal financing and a $2.5 million increase in real estate related loans. Retail loans grew $3.4 million during the period due to growth in home equity lending and indirect auto loans. The Company also sold $4.6 million of fixed-rate residential mortgages during the period, principally with 30-year terms, for purposes of interest rate risk management. Total deposits increased $4.6 million over the past twelve months which includes a $10.1 million increase in non-interest bearing demand deposits. Stockholders' equity increased $5.7 million over the past year, due principally to the retention of earnings.

Non-performing assets, which include non-performing loans and foreclosed assets, totaled $11.8 million and represented 1.65% of total assets as of June 30, 2014 compared to $12.9 million, or 1.85% of total assets, as of June 30, 2013. Net charge-offs were $537,000 for the quarter and totaled $937,000 for the six months ended June 30, 2014 compared to $777,000 and $1,353,000, respectively, for the similar periods in 2013. Based on the levels of non-performing assets and net charge-offs, the Company determined that it was appropriate to provide $420,000 and $840,000 for potential future loan losses for the three and six month periods ended June 30, 2014, respectively, compared to $800,000 and $1.6 million, respectively, for the similar periods in 2013. The allowance for loan losses totaled $5,611,000 as of June 30, 2014 and represented 1.12% of total loans outstanding, compared to $5,749,000 and 1.20% on June 30, 2013.

For the three months ended June 30, 2014, net interest income, on a fully taxable equivalent basis (fte), totaled $6,489,000, an increase of $59,000 compared to the similar period in 2013. Net interest margin (fte) for the 2014 period was 3.91% decreasing from 3.99% for the similar period in 2013 due to a decrease of 16 basis points in the yield on interest-earning assets which more than offset the 9 basis point decrease in the cost of funds. The reduced margin was due primarily to a 37 basis point decrease in the yield earned on loans as new growth and modifications of existing credits continues to negatively impact the net interest margin. Net interest income (fte) for the six months ended June 30, 2014 totaled $12,951,000, which was $134,000 higher than the similar period in 2013. The net interest margin (fte) was 3.91% in the 2014 period and 4.03% during the first six months of 2013. Decreasing yields on loans contributed to the reduced net interest margin.

Other income for the three months ended June 30, 2014 totaled $1,468,000 compared to $1,212,000 for the similar period in 2013. Net gains from securities sales increased $255,000 compared to the prior-year period. For the six months ended June 30, 2014, other income totaled $2,521,000 compared to $3,089,000 in the 2013 period. Other income in the 2013 period includes a non-recurring gain of $770,000 from proceeds on a bank-owned life insurance policy. Gains on the sales of investment securities totaled $603,000 on sales of $31.9 million for the 2014 period compared to $392,000 on sales of $15.3 million in the 2013 period.

Other expenses totaled $4,473,000 for the three months ended June 30, 2014, an increase of $340,000, from the $4,133,000 reported in the similar period of 2013. The increase was principally due to costs and write-downs on properties carried in foreclosed real estate owned. Excluding these costs, all other operating expenses increased $30,000, net. For the six months ended June 30, 2014, other expenses totaled $8,605,000 compared to $8,434,000 for the similar period in 2013, an increase of $171,000, or 2.0%. Foreclosed real estate expenses increased $184,000 over the first half of last year, accounting for the increase.

Mr. Critelli commented, "Our earnings for the second quarter reflect an increase of over 10% when compared to 2013. However, we are continuing to feel the negative impact of a slow economy, primarily in the cost of maintaining and disposing of foreclosed properties. Working with borrowers to resolve problem loans will remain a top priority throughout 2014. The ongoing low interest rates, and a competitive lending environment also continues to place pressure on our net interest margin. However, our year-to-date margin and capital levels remain well above peer. We look forward to serving our growing base of stockholders and customers as the Northeastern Pennsylvania economy slowly recovers from the extended downturn."

Norwood Financial Corp., is the parent company of Wayne Bank, which operates 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 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:

  Three months ended
June 30
Six months ended
June 30
(dollars in thousands) 2014  2013 2014 2013
         
Net Interest Income $ 6,155 $ 6,144 $ 12,300 $ 12,245
Taxable equivalent basis adjustment using 34% marginal tax rate 334 286 651 572
Net interest income on a fully taxable equivalent basis $ 6,489 $ 6,430 $ 12,951 $ 12,817
     
     
NORWOOD FINANCIAL CORP.    
Consolidated Balance Sheets    
(dollars in thousands, except share data)    
(unaudited)    
  June 30
  2014 2013
ASSETS    
Cash and due from banks  $ 12,196  $ 9,872
Interest-bearing deposits with banks 3,182 17,425
Cash and cash equivalents 15,378 27,297
     
Securities available for sale 154,925 150,750
Securities held to maturity, fair value 2014: $0 and 2013: $177 -- 173
Loans receivable (net of unearned Income) 502,316 480,715
Less: Allowance for loan losses 5,611 5,749
Net loans receivable 496,705 474,966
Regulatory stock, at cost 2,437 2,527
Bank premises and equipment, net 6,910 7,206
Bank owned life insurance 18,002 14,527
Foreclosed real estate owned 4,293 1,297
Accrued interest receivable 2,405 2,488
Goodwill 9,715 9,715
Other intangible assets 446 575
Deferred tax asset 3,764 4,454
Other assets 1,882 1,631
TOTAL ASSETS  $ 716,862  $ 697,606
     
LIABILITIES    
Deposits:    
Non-interest bearing demand  $ 103,954  $ 93,881
Interest-bearing 450,760 456,269
Total deposits 554,714 550,150
Short-term borrowings 38,009 32,075
Other borrowings 22,983 20,150
Accrued interest payable 937 1,037
Other liabilities 4,017 3,734
TOTAL LIABILITIES 620,660 607,146
     
STOCKHOLDERS' EQUITY    
Common Stock, $.10 par value, authorized 10,000,000 shares issued: 2014: 3,708,718 shares, 2013: 3,708,718 shares 371 371
Surplus 35,091 34,949
Retained earnings 62,613 58,626
Treasury stock, at cost: 2014: 70,747 shares, 2013: 86,749 shares (1,878) (2,299)
Accumulated other comprehensive income (loss) 5 (1,187)
TOTAL STOCKHOLDERS' EQUITY 96,202 90,460
     
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $ 716,862  $ 697,606
     
         
         
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
  2014 2013 2014 2013
INTEREST INCOME        
Loans receivable, including fees  $ 5,933  $ 6,169  $ 11,913  $ 12,355
Securities 1,025 877 2,013 1,746
Other 2 10 2 12
Total Interest income 6,960 7,056 13,928 14,113
         
INTEREST EXPENSE        
Deposits 618 719 1,253 1,473
Short-term borrowings 20 15 42 27
Other borrowings 167 178 333 368
Total Interest expense 805 912 1,628 1,868
NET INTEREST INCOME 6,155 6,144 12,300 12,245
PROVISION FOR LOAN LOSSES 420 800 840 1,600
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 5,735 5,344 11,460 10,645
         
OTHER INCOME        
Service charges and fees 583 620 1,159 1,221
Income from fiduciary activities 99 89 203 174
Net realized gains on sales of securities 509 254 603 392
Gains on sale of loans 26 1 66 3
Earnings and proceeds on life insurance policies 175 148 343 1,073
Other 76 100 147 226
Total other income 1,468 1,212 2,521 3,089
         
OTHER EXPENSES        
Salaries and employee benefits 2,172 2,124 4,336 4,335
Occupancy, furniture and equipment 518 550 1,096 1,079
Data processing related 229 230 441 452
Taxes, other than income 161 179 326 352
Professional Fees 174 172 340 359
FDIC Insurance assessment 102 110 216 221
Foreclosed real estate owned 396 86 461 277
Other 721 682 1,389 1,359
Total other expenses 4,473 4,133 8,605 8,434
         
INCOME BEFORE TAX 2,730 2,423 5,376 5,300
INCOME TAX EXPENSE 696 584 1,378 1,153
NET INCOME  $ 2,034  $ 1,839  $ 3,998  $ 4,147
         
Basic earnings per share  $ 0.56  $ 0.51  $ 1.10  $ 1.15
         
Diluted earnings per share  $ 0.56  $ 0.51  $ 1.10  $ 1.14
     
     
NORWOOD FINANCIAL CORP.    
Financial Highlights (Unaudited)    
(dollars in thousands, except per share data)    
     
For the Three Months Ended June 30 2014 2013
     
Net interest income  $ 6,155  $ 6,144
Net income 2,034 1,839
     
Net interest spread (fully taxable equivalent) 3.77% 3.83%
Net interest margin (fully taxable equivalent) 3.91% 3.99%
Return on average assets 1.15% 1.07%
Return on average equity 8.49% 7.87%
Basic earnings per share  $ 0.56  $ 0.51
Diluted earnings per share  $ 0.56  $ 0.51
     
     
For the Six Months Ended June 30    
     
Net interest income  $ 12,300  $ 12,245
Net income 3,998 4,147
     
Net interest spread (fully taxable equivalent) 3.77% 3.87%
Net interest margin (fully taxable equivalent) 3.91% 4.03%
Return on average assets 1.14% 1.22%
Return on average equity 8.48% 8.94%
Basic earnings per share  $ 1.10  $ 1.15
Diluted earnings per share  $ 1.10  $ 1.14
     
     
As of June 30    
     
Total assets  $ 716,862  $ 697,606
Total loans receivable 502,316 480,715
Allowance for loan losses 5,611 5,749
Total deposits 554,714 550,150
Stockholders' equity 96,202 90,460
Trust assets under management 132,760 120,802
     
Book value per share  $ 26.14  $ 24.98
Equity to total assets 13.42% 12.97%
Allowance to total loans receivable 1.12% 1.20%
Nonperforming loans to total loans 1.49% 2.41%
Nonperforming assets to total assets 1.65% 1.85%
           
           
NORWOOD FINANCIAL CORP.          
Consolidated Balance Sheets (unaudited)          
(dollars in thousands)          
           
  June 30
2014
March 31
2014
December 31
2013
September 30
2013
June 30
2013
ASSETS          
Cash and due from banks  $ 12,196  $ 8,607  $ 7,528  $ 15,193  $ 9,872
Interest-bearing deposits with banks 3,182 142 335 12,221 17,425
Cash and cash equivalents 15,378 8,749 7,863 27,414 27,297
           
Securities available for sale 154,925 156,165 158,132 150,904 150,750
Securities held to maturity -- 175 174 174 173
Loans receivable (net of unearned income) 502,316 496,016 503,097 486,968 480,715
Less: Allowance for loan losses 5,611 5,727 5,708 5,558 5,749
Net loans receivable 496,705 490,289 497,389 481,410 474,966
Regulatory stock, at cost 2,437 2,741 2,877 2,141 2,527
Bank owned life insurance 18,002 17,930 17,790 14,653 14,527
Bank premises and equipment, net 6,910 7,031 7,125 7,250 7,206
Foreclosed real estate owned 4,293 1,364 1,009 993 1,297
Goodwill and other intangibles 10,161 10,192 10,225 10,258 10,290
Other assets 8,051 8,598 8,650 8,574 8,573
TOTAL ASSETS  $ 716,862  $ 703,234  $ 711,234  $ 703,771  $ 697,606
           
LIABILITIES          
Deposits:          
Non-interest bearing demand  $ 103,954  $ 93,400  $ 92,684  $ 101,632  $ 93,881
Interest-bearing deposits 450,760 446,676 448,498 447,066 456,269
Total deposits 554,714 540,076 541,182 548,698 550,150
Other borrowings 60,992 63,746 73,675 58,422 52,225
Other liabilities 4,954 5,212 4,513 5,305 4,771
TOTAL LIABILITIES 620,660 609,034 619,370 612,425 607,146
           
STOCKHOLDERS' EQUITY 96,202 94,200 91,864 91,346 90,460
           
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $ 716,862  $ 703,234  $ 711,234  $ 703,771  $ 697,606
           
           
NORWOOD FINANCIAL CORP.          
Consolidated Statements of Income (unaudited)          
(dollars in thousands, except per share data)          
           
Three months ended June 30
2014
March 31
2014
December 31
2013
September 30
2013
June 30
2013
INTEREST INCOME          
Loans receivable, including fees  $ 5,933  $ 5,980  $ 6,019  $ 6,202  $ 6,169
Securities 1,025 987 972 939 877
Other 2 1 9 5 10
Total interest income 6,960 6,968 7,000 7,146 7,056
           
INTEREST EXPENSE          
Deposits 618 635 674 701 719
Borrowings 187 188 181 175 193
Total interest expense 805 823 855 876 912
NET INTEREST INCOME 6,155 6,145 6,145 6,270 6,144
PROVISION FOR LOAN LOSSES 420 420 400 400 800
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 5,735 5,725 5,745 5,870 5,344
           
OTHER INCOME          
Service charges and fees 583 576 578 614 620
Income from fiduciary activities 99 104 94 111 89
Net realized gains on sales of securities 509 95 291 198 254
Gains (losses) on sale of loans and servicing rights 26 39 121 (12) 1
Earnings and proceeds on life insurance policies 175 168 162 150 148
Other 76 71 64 155 100
Total other income 1,468 1,053 1,310 1,216 1,212
           
OTHER EXPENSES          
Salaries and employee benefits 2,172 2,165 2,009 2,103 2,124
Occupancy, furniture and equipment, net 518 578 550 507 550
Foreclosed real estate owned 396 65 73 217 86
FDIC insurance assessment 102 114 109 114 110
Other 1,285 1,210 1,357 1,232 1,263
Total other expenses 4,473 4,132 4,098 4,173 4,133
           
INCOME BEFORE TAX 2,730 2,646 2,957 2,913 2,423
INCOME TAX EXPENSE 696 682 776 777 584
NET INCOME  $ 2,034  $ 1,964  $ 2,181  $ 2,136  $ 1,839
           
Basic earnings per share  $ 0.56  $ 0.54  $ 0.60  $ 0.59  $ 0.51
           
Diluted earnings per share  $ 0.56  $ 0.54  $ 0.60  $ 0.59  $ 0.51
           
Book Value per share  $ 26.14  $ 25.88  $ 25.43  $ 25.54  $ 24.98
           
Return on average equity (annualized) 8.49% 8.46% 9.33% 9.33% 7.87%
Return on average assets (annualized) 1.15% 1.13% 1.23% 1.22% 1.07%
           
Net interest spread (fte) 3.77% 3.77% 3.76% 3.89% 3.83%
Net interest margin (fte) 3.91% 3.91% 3.91% 4.05% 3.99%
           
Allowance for loan losses to total loans 1.12% 1.15% 1.13% 1.14% 1.20%
Net charge-offs to average loans (annualized) 0.43% 0.32% 0.21% 0.49% 0.65%
Nonperforming loans to total loans 1.49% 1.92% 1.90% 2.11% 2.41%
Nonperforming assets to total assets 1.65% 1.55% 1.48% 1.60% 1.85%
William S. Lance
Executive Vice President &
Chief Financial Officer
NORWOOD FINANCIAL CORP
570-253-8505
www.waynebank.com