Norwood Financial Corp Announces Earnings for the Fourth Quarter and Year

HONESDALE, Pa., Jan. 24, 2019 — Lewis J. Critelli, President and Chief Executive Officer of Norwood Financial Corp (Nasdaq Global Market – NWFL) and its subsidiary Wayne Bank, announced earnings for the three months ended December 31, 2018 of $3,299,000 compared to $157,000 earned in the corresponding period of 2017. The increase in earnings is due primarily to the $545,000 improvement in net interest income and the $3,060,000 of non-recurring additional tax expense recorded in the fourth quarter of 2017 resulting from the enactment of the Tax Cuts and Jobs Act (the “Act”). For the year ended December 31, 2018, net income totaled $13,651,000, an increase of $5,453,000 from the $8,198,000 earned in the prior year. The increase reflects improvement in net interest income and other income, as well as a reduction in the provision for loan losses. Income tax expense was reduced $3,998,000 due to the non-recurring expense recognized in 2017 combined with the impact of the reduced corporate tax rate. In 2018, income before tax improved $1,455,000, or 9.9%.        

Earnings per share (fully diluted) were $0.53 and $0.03 for the three-month periods ended December 31, 2018 and 2017, respectively. For the year, earnings per share on a fully diluted basis were $2.17 for 2018 compared to $1.31 in 2017. The return on average assets for the year was 1.19% with a return on average equity of 11.71% compared to 0.73% and 7.04%, respectively, in 2017. 

Total assets were $1.185 billion as of December 31, 2018. Loans receivable totaled $850.2 million as of December 31, 2018, with total deposits of $946.8 million and stockholders’ equity of $122.3 million.

Loans receivable increased $86.1 million, or 11.3%, from the prior year-end due primarily to a $41.0 million increase in consumer loans and a $31.9 million increase in commercial real estate loans. Other commercial loans increased $13.1 million. For the three months and year ended December 31, 2018, net charge-offs totaled $203,000 and $907,000, respectively, compared to $527,000 and $1,029,000, respectively, for the corresponding periods in 2017. 

Net interest income, on a fully taxable equivalent basis (fte), totaled $9,687,000 for the three months ended December 31, 2018, an increase of $259,000 compared to the same period in 2017 despite the lower tax-equivalent adjustment resulting from the Act. For the year, net interest income (fte) totaled $37,899,000, an increase of $809,000 compared to 2017 due primarily to the higher volume of earning assets, including a $63.2 million increase in average loans outstanding. 

Other income for the three months ended December 31, 2018 totaled $1,600,000 compared to $1,754,000 for the similar period in 2017. Gains on the sale of securities decreased $181,000, while all other items of other income increased $27,000 in the aggregate due primarily to service charges and fees. Other income for the year ended December 31, 2018 totaled $7,065,000 compared to $6,911,000 in 2017, an increase of $154,000. Gains on the sale of loans and investment securities decreased $187,000 in the aggregate, while all other items of other income increased $341,000, net. 

Other expenses totaled $6,803,000 for the three months ended December 31, 2018, compared to $5,886,000 in the similar period of 2017. The $917,000 increase includes a $364,000 increase in salaries and benefits costs. All other operating expenses increased $553,000, net. For the year ended December 31, 2018, other expenses totaled $25,975,000 compared to $24,870,000 for 2017, an increase of $1,105,000. An increase of $1,170,000 in salaries and benefits was largely offset by reduced expenses on foreclosed real estate.  All other operating expenses increased $927,000, net. 

Mr. Critelli commented, “In 2018, our earnings increased $5,453,000 over the 2017 level which included the $3,060,000 of non-recurring tax expense resulting from the Tax Cuts and Jobs Act. Our income before taxes improved $1,455,000, or 9.9%. Our Return on Average Assets was 1.19% and our Return on Average Equity was 11.71%, both well above last year’s level. Our cash dividend of $0.24 per share declared in the fourth quarter of 2018 represents a 9.1% increase over the same period of last year. Earnings per share (fully diluted) also improved to $2.17 from $1.31 in 2017. Our loan growth exceeded 11%, operating expenses remain well controlled, and our capital base remains above regulatory “Well Capitalized” targets. 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 throughout Northeastern Pennsylvania and twelve offices in the Southern Tier of  New York. 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, the ability to control costs and expenses, demand for real estate, government fiscal and trade 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 21% for 2018 and 34% for 2017. 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. 

The following table reconciles net interest income to net interest income on a tax-equivalent basis:

(dollars in thousands)Three months ended December 31  Year ended December 31
    2018    2017    2018    2017
Net interest income$9,429 $8,884 $36,839 $34,908
Tax equivalent basis adjustment    using 34% marginal tax rate 258  544  1,060  2,182
Net interest income on a fully   taxable equivalent basis$9,687 $9,428 $37,899 $37,090

This release also references average tangible equity, which is also a non-GAAP financial measure. Average tangible equity is calculated by deducting average goodwill and other intangible assets from average stockholders’ equity. The Company believes that disclosure of tangible equity ratios enhances investor understanding of our financial position and improves the comparability of our financial data.

The following reconciles average equity to average tangible equity:

  Three months ended December 31,   Year ended December 31, 
(dollars in thousands) 2018  2017  2018  2017 
                 
Average equity $118,442  $118,661  $116,538  $116,407 
                 
Goodwill and other  (11,678)  (11,806)  (11,723)  (11,910)
Intangibles                
                 
Average tangible equity $106,764  $106,855  $104,815  $104,497 
                 

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      
 2018  2017       
            
ASSETS          
  Cash and due from banks $18,039  $16,212       
  Interest-bearing deposits with banks 309  485       
  Cash and cash equivalents 18,348  16,697       
          
  Securities available for sale 243,277  281,121       
  Loans receivable  850,182  764,092       
  Less: Allowance for loan losses 8,452  7,634       
  Net loans receivable 841,730  756,458       
  Regulatory stock, at cost 3,926  3,505       
  Bank premises and equipment, net 13,846  13,864       
  Bank owned life insurance 37,932  37,060       
  Foreclosed real estate owned 1,115  1,661       
  Accrued interest receivable 3,776  3,716       
  Goodwill 11,331  11,331       
  Other intangible assets 336  462       
  Deferred tax asset 5,594  4,781       
  Other assets 3,348  2,260       
  TOTAL ASSETS $1,184,559  $1,132,916       
             
          
LIABILITIES          
  Deposits:          
  Non-interest bearing demand  $201,457  $205,138       
  Interest-bearing  745,323  724,246       
  Total deposits 946,780  929,384       
  Short-term borrowings 53,046  42,530       
  Other borrowings 52,284  35,945       
  Accrued interest payable 1,806  1,434       
  Other liabilities 8,358  7,884       
  TOTAL LIABILITIES 1,062,274  1,017,177       
          
STOCKHOLDERS’ EQUITY          
  Common Stock, $.10 par value, authorized 10,000,000 shares          
  issued:  2018: 6,295,113 shares, 2017:  6,256,063 shares 630  626       
  Surplus 48,322  47,431       
  Retained earnings 78,434  70,426       
  Treasury stock, at cost: 2018: 2,470 shares, 2017: 2,608 shares (81)  (77)       
  Accumulated other comprehensive loss (5,020)  (2,667)       
  TOTAL STOCKHOLDERS’ EQUITY 122,285  115,739       
             
          
  TOTAL LIABILITIES AND          
  STOCKHOLDERS’ EQUITY $1,184,559  $1,132,916       
             
          
           
           
          
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,
 2018  2017    2018  2017
INTEREST INCOME    
  Loans receivable, including fees$9,759 $8,503   $36,404 $32,524
  Securities 1,476  1,560    6,019  6,416
  Other 10  12    73  48
  Total Interest income 11,245  10,075    42,496  38,988
           
INTEREST EXPENSE          
  Deposits 1,446  985    4,644  3,377
  Short-term borrowings 122  61    323  199
  Other borrowings 248  145    690  504
  Total Interest expense 1,816  1,191    5,657  4,080
NET INTEREST INCOME 9,429  8,884    36,839  34,908
PROVISION FOR LOAN LOSSES 375  400    1,725  2,200
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 9,054  8,484    35,114  32,708
           
OTHER INCOME          
  Service charges and fees 1,085  1,023    4,295  4,079
  Income from fiduciary activities 126  116    589  510
  Net realized gains on sales of securities   –    181      213    348
  Gains on sales of loans, net    –    –      15    67
  Gains on sale of deposits   –    –      –    209
  Earnings and proceeds on life insurance policies 277  283    1,126  1,133
  Other  112  151    827  565
  Total other income 1,600  1,754    7,065  6,911
           
OTHER EXPENSES          
  Salaries and  employee benefits 3,575  3,211    14,020  12,850
  Occupancy, furniture and equipment 1,036  841    3,695  3,361
  Data processing  and related operations 400  332    1,427  1,353
  Taxes, other than income 92  (32)    572  661
  Professional fees 232  243    993  949
  FDIC Insurance assessment 83  94    347  377
  Foreclosed real estate  104  136    172  1,164
  Amortization of intangibles 29  35    126  150
  Other  1,252  1,026    4,623  4,005
  Total other expenses 6,803  5,886    25,975  24,870
           
INCOME BEFORE TAX 3,851  4,352    16,204  14,749
INCOME TAX EXPENSE  552  4,195    2,553  6,551
NET INCOME$3,299  $157   $13,651  $8,198
              
           
Basic earnings per share $0.53 $0.03   $2.19 $1.32
              
           
Diluted earnings per share $0.53 $0.03   $2.17 $1.31
              
        
       
           
NORWOOD FINANCIAL CORP.        
Financial Highlights (Unaudited)          
(dollars in thousands, except per share data)