NORWOOD FINANCIAL CORP - FORM 8-K - EX-99.1 - EARNINGS RELEASE

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8-K - FORM 8-K - NORWOOD FINANCIAL CORP	f8k_101812-0160.htm

FOR IMMEDIATE RELEASE

NORWOOD FINANCIAL CORP

ANNOUNCES EARNINGS FOR THE THIRD QUARTER

October 18, 2012-Honesdale, PA

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 September 30, 2012 of $2,200,000. This represents a slight decrease from the $2,215,000 earned in the same three month period of 2011. Earnings per share (fully diluted) were $.67 in the 2012 period, matching the $.67 earned in the similar period of last year. Annualized return on average assets for the three months ended September 30, 2012 was 1.27% with an annualized return on average equity of 9.54%. Net income for the nine months ended September 30, 2012 totaled $6,644,000, which is $1,285,000, or 24% higher than the similar period of 2011. Earnings per share (fully diluted) for the nine months ended September 30, 2012 totaled $2.02 per share compared to $1.79 per share in the 2011 period.

Total assets as of September 30, 2012 were $698.7 million with loans receivable of $479.5 million, deposits of $541.6 million and stockholders’ equity of $92.0 million. Total assets have increased $19.8 million during the twelve months ended September 30, 2012 due primarily to growth in deposits and the retention of earnings.

Loans receivable increased $24.7 million from September 30, 2011, including a $22.3 million increase in commercial loans and a $2.4 million increase in retail loans.

Non-performing assets, which include non-performing loans and foreclosed real estate owned, totaled $14.4 million and 2.07% of total assets as of September 30, 2012 compared to $10.1 million and 1.48% of assets as of June 30, 2012 and $9.6 million or

1.42% of total assets as of September 30, 2011. The increase in non-performing assets during the current quarter is due primarily to one large commercial real estate credit. The loan was transferred to nonaccrual status based on the borrower’s indication that they were no longer able to make the scheduled payments. Net charge-offs were $1,334,000 for the quarter and totaled $1,767,000 for the nine months ended September 30, 2012 compared to $347,000 and $1,346,000, respectively, for the similar periods in 2011. The current quarter includes a $1.0 million charge-off on the loan mentioned previously. Based on the increase in charge-offs, the Company determined that it would be appropriate to provide $900,000 and $1,650,000 for potential future losses for the three and nine month periods ended September 30, 2012, respectively, compared to $425,000 and $1,075,000, respectively, for the similar periods in 2011. The allowance for loan losses totaled $5,341,000 as of September 30, 2012 and represented 1.11% of total loans, decreasing slightly from $5,345,000 as of September 30, 2011 and 1.18% of total loans.

For the three months ended September 30, 2012, net interest income, on a fully taxable equivalent basis (fte), totaled $6,561,000, which represents a decrease of $12,000 compared to the similar period in 2011. The decrease reflects the reduced earnings on loans and securities due to reinvestment at current lower market rates. Net interest margin (fte) for the 2012 period was 4.07% compared to 4.13% for the similar period in 2011. Net interest income (fte) for the nine months ended September 30, 2012 totaled $19,631,000, an increase of $2,415,000, or 14.0%, over the similar period in 2011. The increase reflects loan growth recorded during the period as well as the increase in interest earning assets resulting from the North Penn Bancorp, Inc. (“North Penn”) acquisition that closed on May 31, 2011. Net interest margin (fte) year to date for the 2012 period was 4.10% compared to 4.03% in 2011.

Other income for the three months ended September 30, 2012 totaled $1,591,000 compared to $1,506,000 for the similar period in 2011. The increase was principally due to increased gains on the sales of investment securities during the period. For the nine months ended September 30, 2012, other income totaled $4,088,000 compared to $3,707,000 in the 2011 period. The 2012 year-to-date period includes $143,000 in gains on the sale of $4.3 million of residential mortgage loans and servicing rights compared to $282,000 in similar gains on sales of $8.7 million of mortgage loans and servicing rights in the 2011 period. Gains on the sales of investment securities totaled $1,318,000 on sales of $23.3 million for the 2012 year-to-date period compared to $768,000 on sales of $27.7 million in the 2011 period. The proceeds from investment securities sales were reinvested to improve credit quality in the Company’s bond portfolio as well as to fund new securities purchases and loan growth.

Other expenses totaled $3,957,000 for the three months ended September 30, 2012, compared to $4,354,000 in the similar period of 2011. Foreclosed real estate costs decreased $395,000 due primarily to costs incurred on one property in 2011 that was subsequently disposed of. For the nine months ended September 30, 2012, other expenses totaled $12,061,000 compared to $11,824,000 for the similar period in 2011, an increase of $237,000 due to costs related to the operation of five offices acquired from North Penn in 2011. The increases which are primarily included in salary and benefit costs, occupancy, and equipment expenses were largely offset by a $753,000 decrease in merger related costs and a $224,000 decrease in foreclosed real estate expenses.

Mr. Critelli commented, “Our results for the first nine months of 2012 reflect the positive impact of the acquisition of North Penn in 2011. This has been somewhat offset by continued pressure from the slow economy on sectors of our customer base which has

resulted in an increase in non-performing loans. However, our core earnings remain strong, our net interest margin remains close to 4.00% and our capital levels remain well above peer. We continue to work hard to identify and resolve problem credits, and we believe that we are well positioned to capitalize on opportunities available to us. We look forward to serving our growing base of stockholders and customers as our economy slowly recovers 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 interest income and net interest income, which are non-GAAP (Generally Accepted Accounting Principles) financial measures. Tax-equivalent interest income and net interest income are derived from GAAP interest income and net interest income using an assumed tax rate of 34%. We believe the presentation of interest income and net interest income on a tax–equivalent basis ensures comparability of interest income and 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 September 30				Nine months ended September 30
	2012		2011		2012		2011
Net interest income	$	6,252	$	6,263	$	18,686	$	16,362
Tax equivalent basis adjustment using 34% marginal tax rate		309		310		945		854
Net interest income on a fully taxable equivalent basis	$	6,561	$	6,573	$	19,631	$	17,216

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 data)
(unaudited)
	September 30
	2012			2011
ASSETS
Cash and due from banks	$	10,514		$	12,472
Interest-bearing deposits with banks		24,825			25,577
Federal funds sold		0			0
Cash and cash equivalents		35,339			38,049

Securities available for sale		147,639			145,734
Securities held to maturity, fair value 2012: $175 and 2011: $177		172			171
Loans receivable (net of unearned Income)		479,501			454,832
Less: Allowance for loan losses		5,341			5,345
Net loans receivable		474,160			449,487
Investment in FHLB Stock, at cost		2,932			3,782
Bank premises and equipment, net		7,453			7,601
Bank owned life insurance		12,234			11,767
Foreclosed real estate owned		659			3,355
Accrued interest receivable		2,589			2,758
Goodwill		9,715			9,483
Other intangible assets		684			840
Other assets		5,121			5,854
TOTAL ASSETS	$	698,697		$	678,881

LIABILITIES
Deposits:
Non-interest bearing demand	$	89,218		$	78,500
Interest-bearing		452,372			448,013
Total deposits		541,590			526,513
Short-term borrowings		32,386			31,976
Other borrowings		27,533			27,716
Accrued interest payable		1,462			1,489
Other liabilities		3,775			4,274
TOTAL LIABILITIES		606,746			591,968

STOCKHOLDERS' EQUITY
Common Stock, $.10 par value, authorized 10,000,000 shares
issued: 2012: 3,371,849 shares, 2011: 3,371,866 shares		337			337
Surplus		24,728			24,647
Retained earnings		66,005			61,296
Treasury stock, at cost: 2012: 94,242 shares, 2011: 79,500 shares		(2,739	)		(2,404	)
Accumulated other comprehensive income		3,620			3,037
TOTAL STOCKHOLDERS' EQUITY		91,951			86,913

TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	698,697		$	678,881

NORWOOD FINANCIAL CORP.
Consolidated Statements of Income
(dollars in thousands, except per share data)
(unaudited)
	Three Months Ended September 30					Nine Months Ended September 30
	2012			2011		2012		2011
INTEREST INCOME
Loans receivable, including fees	$	6,429		$	6,521	$	19,233	$	16,917
Securities		971			1,116		3,004		3,341
Other		9			18		20		42
Total Interest income		7,409			7,655		22,257		20,300

INTEREST EXPENSE
Deposits		897			1,054		2,800		2,871
Short-term borrowings		14			24		38		75
Other borrowings		246			314		733		992
Total Interest expense		1,157			1,392		3,571		3,938
NET INTEREST INCOME		6,252			6,263		18,686		16,362
PROVISION FOR LOAN LOSSES		900			425		1,650		1,075
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		5,352			5,838		17,036		15,287

OTHER INCOME
Service charges and fees		561			581		1,674		1,722
Income from fiduciary activities		96			106		274		324
Net realized gains on sales of securities		631			544		1,318		768
Gains on sale of loans and servicing rights		83			41		143		282
Earnings and proceeds on life insurance policies		132			130		395		330
Other		88			104		284		281
Total other income		1,591			1,506		4,088		3,707

OTHER EXPENSES
Salaries and employee benefits		2,102			2,129		6,300		5,662
Occupancy, furniture and equipment		512			489		1,489		1,295
Data processing related		222			233		670		635
Taxes, other than income		150			142		451		414
Professional Fees		157			171		583		296
Merger related expenses		-			16		18		771
FDIC Insurance assessment		94			102		290		317
Foreclosed real estate owned		(23	)		372		184		408
Other		743			700		2,076		2,026
Total other expenses		3,957			4,354		12,061		11,824

INCOME BEFORE TAX		2,986			2,990		9,063		7,170
INCOME TAX EXPENSE		786			775		2,419		1,811
NET INCOME	$	2,200		$	2,215	$	6,644	$	5,359

Basic earnings per share	$	0.67		$	0.67	$	2.03	$	1.79

Diluted earnings per share	$	0.67		$	0.67	$	2.02	$	1.79

NORWOOD FINANCIAL CORP.
Financial Highlights (Unaudited)
(dollars in thousands, except per share data)

For the Three Months Ended September 30	2012			2011

Net interest income	$	6,252		$	6,263
Net income		2,200			2,215

Net interest spread (fully taxable equivalent)		3.87	%		3.94	%
Net interest margin (fully taxable equivalent)		4.07	%		4.13	%
Return on average assets		1.27	%		1.28	%
Return on average equity		9.54	%		10.17	%
Basic earnings per share	$	0.67		$	0.67
Diluted earnings per share	$	0.67		$	0.67

For the Nine Months Ended September 30

Net interest income	$	18,686		$	16,362
Net income		6,644			5,359

Net interest spread (fully taxable equivalent)		3.91	%		3.80	%
Net interest margin (fully taxable equivalent)		4.10	%		4.03	%
Return on average assets		1.30	%		1.18	%
Return on average equity		9.80	%		9.35	%
Basic earnings per share	$	2.03		$	1.79
Diluted earnings per share	$	2.02		$	1.79

As of September 30

Total assets	$	698,697		$	678,881
Total loans receivable		479,501			454,832
Allowance for loan losses		5,341			5,345
Total deposits		541,590			526,513
Stockholders' equity		91,951			86,913
Trust assets under management		113,233			104,331

Book value per share	$	28.05		$	26.40
Equity to total assets		13.16	%		12.80	%
Allowance to total loans receivable		1.11	%		1.18	%
Nonperforming loans to total loans		2.87	%		1.38	%
Nonperforming assets to total assets		2.07	%		1.42	%

NORWOOD FINANCIAL CORP.
Consolidated Balance Sheets (unaudited)
(dollars in thousands)
	Sept 30		June 30		March 31		Dec 31		Sept 30
	2012		2012		2012		2011		2011
ASSETS
Cash and due from banks	$	10,514	$	9,135	$	14,250	$	8,974	$	12,472
Interest-bearing deposits with banks		24,825		15,261		5,991		12,449		25,577
Federal funds sold		0		0		0		0		0
Cash and cash equivalents		35,339		24,396		20,241		21,423		38,049

Securities available for sale		147,639		144,720		148,489		150,263		145,734
Securities held to maturity		172		172		171		171		171
Loans receivable (net of unearned Income)		479,501		479,421		479,082		457,907		454,832
Less: Allowance for loan losses		5,341		5,775		5,618		5,458		5,345
Net loans receivable		474,160		473,646		473,464		452,449		449,487
Investment in FHLB stock		2,932		3,243		3,413		3,593		3,782
Bank premises and equipment, net		7,453		7,371		7,468		7,479		7,601
Foreclosed real estate owned		659		1,268		1,143		2,910		3,355
Goodwill and other intangibles		10,399		10,435		10,475		10,515		10,323
Other assets		19,944		19,616		20,665		20,011		20,379
TOTAL ASSETS	$	698,697	$	684,867	$	685,529	$	668,814	$	678,881

LIABILITIES
Deposits:
Non-interest bearing demand	$	89,218	$	82,525	$	78,339	$	71,959	$	78,500
Interest-bearing deposits		452,372		451,632		467,853		453,808		448,013
Total deposits		541,590		534,157		546,192		525,767		526,513
Other borrowings		59,919		54,771		43,479		49,464		59,692
Other liabilities		5,237		5,698		6,997		5,522		5,763
TOTAL LIABILITIES		606,746		594,626		596,668		580,753		591,968

STOCKHOLDERS' EQUITY		91,951		90,241		88,861		88,061		86,913

TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	698,697	$	684,867	$	685,529	$	668,814	$	678,881

NORWOOD FINANCIAL CORP.
Consolidated Statements of Income (unaudited)
(dollars in thousands, except per share data)
	Sept 30			June 30			March 31			Dec 31			Sept 30
Three months ended	2012			2012			2012			2011			2011
INTEREST INCOME
Loans receivable, including fees	$	6,429		$	6,431		$	6,373		$	6,372		$	6,521
Securities		971			1,007			1,026			1,087			1,116
Other		9			7			4			11			18
Total Interest income		7,409			7,445			7,403			7,470			7,655

INTEREST EXPENSE
Deposits		897			942			961			980			1,054
Borrowings		260			256			255			264			338
Total Interest expense		1,157			1,198			1,216			1,244			1,392
NET INTEREST INCOME		6,252			6,247			6,187			6,226			6,263
PROVISION FOR LOAN LOSSES		900			400			350			500			425
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES		5,352			5,847			5,837			5,726			5,838

OTHER INCOME
Service charges and fees		561			559			554			533			581
Income from fiduciary activities		96			80			98			85			106
Net realized gains (losses) on sales of securities		631			285			402			205			544
Gains on sale of loans and servicing rights		83			66			(6	)		(11	)		41
Earnings and proceeds on life insurance		132			131			132			133			130
Other		88			85			111			83			104
Total other income		1,591			1,206			1,291			1,028			1,506

OTHER EXPENSES
Salaries and employee benefits		2,102			2,047			2,151			2,136			2,129
Occupancy, furniture and equipment , net		512			490			487			542			489
Foreclosed real estate owned		(23	)		85			122			170			372
FDIC insurance assessment		94			97			99			76			102
Other		1,272			1,238			1,288			1,065			1,262
Total other expenses		3,957			3,957			4,147			3,989			4,354

INCOME BEFORE TAX		2,986			3,096			2,981			2,765			2,990
INCOME TAX EXPENSE		786			838			795			768			775
NET INCOME	$	2,200		$	2,258		$	2,186		$	1,997		$	2,215

Basic earnings per share	$	0.67		$	0.69		$	0.67		$	0.61		$	0.67

Diluted earnings per share	$	0.67		$	0.69		$	0.67		$	0.61		$	0.67

Book Value per share	$	28.05		$	27.53		$	27.14		$	26.81		$	26.40

Return on average equity (annualized)		9.54	%		10.06	%		9.81	%		9.03	%		10.17	%
Return on average assets (annualized)		1.27	%		1.33	%		1.31	%		1.18	%		1.28	%

Net interest spread (fte)		3.87	%		3.95	%		4.00	%		4.03	%		3.94	%
Net interest margin (fte)		4.07	%		4.14	%		4.18	%		4.21	%		4.13	%

Allowance for loan losses to total loans		1.11	%		1.20	%		1.17	%		1.19	%		1.18	%
Net charge-offs to average loans (annualized)		1.11	%		0.20	%		0.16	%		0.34	%		0.30	%
Nonperforming loans to total loans		2.87	%		1.85	%		1.88	%		1.71	%		1.38	%
Nonperforming assets to total assets		2.07	%		1.48	%		1.48	%		1.60	%		1.42	%

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