Norwood Financial Corp. Announces First Quarter Earnings

HONESDALE, Pa., April 22, 2016 (GLOBE NEWSWIRE) -- Lewis J. Critelli, President and Chief Executive Officer of Norwood Financial Corp. (Nasdaq:NWFL) and its subsidiary, Wayne Bank, announced earnings of $1,876,000 for the three months ended March 31, 2016 which represents a decrease from the $2,041,000 recorded during the same three-month period of last year.  The decrease was principally due to a higher level of gains on sales of securities in the 2015 period.  Earnings per share on a fully diluted basis were $0.51 in the first quarter of this year compared to $0.55 in the first quarter of 2015.  The annualized return on average assets was 1.00% in the first quarter of 2016 and the annualized return on average equity was 7.33%, compared to 1.15% and 8.22%, respectively, in the first quarter of 2015.

Total assets were $760.1 million as of March 31, 2016, an increase of $25.7 million, or 3.5%, compared to the prior year total.  Total loans increased $46.8 million compared to March 31, 2015 consisting of a $33.7 million increase in commercial lending and $13.1 million of growth in retail loans.  Total deposits decreased $9.7 million over the past twelve months due to a $25.8 million reduction in jumbo time certificates of deposit from local school districts related to delays in state funding.  All other deposits increased $16.1 million including an $11.8 million increase in demand deposits.  Stockholders’ equity increased $2.2 million during the past year, due principally to the retention of earnings and an increase in accumulated other comprehensive income.

Non-performing assets totaled $9.7 million or 1.28% of total assets at March 31, 2016 comprised of $6.9 million of non-performing loans and $2.8 million of foreclosed real estate owned, compared to $10.0 million of non-performing assets or 1.33% of total assets at December 31, 2015.  As of March 31, 2015, non-performing assets totaled $7.4 million.  Net charge-offs for the three-month period ending March 31, 2016 were $107,000 compared to $488,000 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 $450,000 to the allowance for loan losses in the current period compared to $620,000 during the same period of last year.  The increased provision for loan losses in 2015 reflected the higher level of net charge-offs.  The allowance for loan losses was 1.35% of total loans outstanding on March 31, 2016 compared to 1.30% on December 31, 2015 and 1.16% on March 31, 2015.

Net interest income (fully taxable equivalent) was $6,534,000 during the first quarter of 2016 which is $68,000 lower than the comparable three-month period of last year.  A $58.4 million increase in average loans outstanding had a positive impact on net interest income (fte) but a 40 basis point reduction in average loan yields offset much of the increase.  Interest income fte was also impacted by the $17.4 million decrease in average investment securities as many securities were sold to fund the loan growth.  The yield on interest-earning assets decreased 22 basis points compared to the prior year while the cost of funds increased two basis points.  As a result, the net interest margin (fte) decreased from 3.94% to 3.70% compared to the quarter ended March 31, 2015.  In comparison to the quarter ended December 31, 2015, the net interest margin (fte) decreased from 3.73% to 3.70%.

Other income totaled $1,067,000 in the first quarter of 2016 compared to $1,279,000 during the same period of last year.  The decrease can be attributed to a $235,000 decrease in net gains on the sales of loans and securities.  All other components of other income increased $23,000, net.

Operating expenses totaled $4,349,000 in the first quarter and were $162,000 higher than the same period of last year.  Salaries and employee benefit costs rose $166,000 over the same period of last year due primarily to a $78,000 increase in health care costs and a $57,000 increase in salary expense.  Foreclosed real estate costs were $127,000 lower than the same period of last year, while all other operating costs increased $123,000 net. 

Mr. Critelli stated that “Our first quarter results provide a good start for 2016 and are in-line with our budget.  Net interest income improved over the prior quarter, while credit quality ratios and costs also show improvement.  Our net interest margin exceeds peer banks, core operating expenses are well controlled and our capital base remains above regulatory “well capitalized” targets.  We are currently focused on our pending acquisition of Delaware Bancshares, Inc., including the integration of twelve new offices into the Wayne Bank system.  The transaction is expected to close in the third quarter pending various approvals.  For additional information on the transaction, please visit our website at www.waynebank.com/stockholder-services.   We continue to search out opportunities available to us, and we look forward to serving our growing base of stockholders and customers as our local economy rebounds from the extended economic downturn.”

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