NORWOOD FINANCIAL CORP - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - PRESS RELEASE

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8-K - FORM 8-K 9-30-14 EARNINGS RELEASE - NORWOOD FINANCIAL CORP. - NORWOOD FINANCIAL CORP	f8k_102214-0160.htm

FOR IMMEDIATE RELEASE

NORWOOD FINANCIAL CORP

ANNOUNCES THIRD QUARTER EARNINGS

October 22, 2014 - 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, 2014 of $2,118,000. This represents a slight decrease from the $2,136,000 earned in the same three-month period of 2013 due to a reduced level of interest income on loans combined with increased expenses related to foreclosed real estate owned. Earnings per share (fully diluted) were $.58 in the 2014 period, decreasing from the $.59 earned in the similar period of last year. Annualized return on average assets for the three months ended September 30, 2014 was 1.18% with an annualized return on average equity of 8.62%. Net income for the nine months ended September 30, 2014 totaled $6,116,000, which is $168,000 lower than the same period of 2013. Earnings per share (fully diluted) for the nine months ended September 30, 2014 totaled $1.68 per share compared to $1.73 per share in the 2013 period. The annualized return on average assets and average equity for the nine month period was 1.15% and 8.53%, respectively.

Total assets as of September 30, 2014 were $718.2 million with loans receivable of $500.8 million, deposits of $548.3 million and stockholders’ equity of $97.4 million. Total assets have increased $14.4 million during the past twelve months due primarily to growth in loans which increased $13.9 million, including an $11.9 million increase in commercial lending. Total deposits decreased $360,000 over the past twelve months with a $711,000 increase in non-interest bearing demand deposits only partially offsetting a $1.1 million

decrease in interest-bearing deposits. Stockholders’ equity increased $6.1 million over the past year, due principally to the retention of earnings and a reduction in accumulated other comprehensive loss.

Non-performing assets, which include non-performing loans and foreclosed real estate owned, totaled $10.9 million and 1.52% of total assets as of September 30, 2014 compared to $11.8 million and 1.65% of assets as of June 30, 2014 and $11.3 million or 1.60% of total assets as of September 30, 2013. Net charge-offs were $380,000 for the quarter and totaled $1,317,000 for the nine months ended September 30, 2014 compared to $590,000 and $1,943,000, respectively, for the similar periods in 2013. Based on management’s analysis, the Company added $420,000 and $1,260,000 to the allowance for loan losses for the three and nine month periods ended September 30, 2014, respectively, compared to $400,000 and $2,000,000, respectively, for the similar periods in 2013. The allowance for loan losses totaled $5,651,000 as of September 30, 2014 and represented 1.13% of total loans, compared to $5,559,000 as of September 30, 2013 and 1.14% of total loans.

For the three months ended September 30, 2014, net interest income, on a fully taxable equivalent basis (fte), totaled $6,467,000, which represents a decrease of $111,000 compared to the similar period in 2013. Net interest margin (fte) for the 2014 period was 3.92% compared to 4.05% for the similar period in 2013 due primarily to a 33 basis point decrease in average loan yields reflecting growth and repricing at current market rates. Net interest income (fte) for the nine months ended September 30, 2014 totaled $19,418,000, an increase of $22,000 compared to the similar period in 2013. Net interest margin (fte) year-to-date for the 2014 period was 3.91% compared to 4.04% in 2013.

Other income for the three months ended September 30, 2014 totaled $1,262,000 compared to $1,216,000 for the similar period in 2013. The increase was principally due to increased gains on the sales of investment securities during the period. For the nine months ended September 30, 2014, other income totaled $3,783,000 compared to $4,305,000 in the 2013 period. Gains on the sales of investment securities totaled $904,000 on sales of $38.2 million for the 2014 year-to-date period compared to $590,000 on sales of $30.0 million in the corresponding 2013 period. The increase in securities gains during the nine-month period was offset by a $765,000 decrease in earnings and proceeds from bank-owned life insurance policies. During the 2013 period, the Company recorded a non-recurring gain of $770,000 from proceeds on a bank-owned life insurance policy, compared to $5,000 in the 2014 period.

Other expenses totaled $4,124,000 for the three months ended September 30, 2014, compared to $4,173,000 in the similar period of 2013. Foreclosed real estate costs increased $54,000 due to real estate taxes, maintenance costs and write-downs on foreclosed properties. All other operating expenses decreased $103,000, net. For the nine months ended September 30, 2014, other expenses totaled $12,729,000 compared to $12,607,000 for the similar period in 2013, an increase of $122,000, which includes a $239,000 increase in foreclosed real estate costs. All other operating expenses decreased $117,000, net.

Mr. Critelli commented, “We are continuing to feel the impact of a slow economy, as evidenced by reduced loan demand and increased costs of maintaining and disposing of foreclosed properties. Working with borrowers to resolve problem credits will remain a top priority throughout the year. The ongoing low interest rate environment and competition for quality credits also places pressure on our net interest margin, however, our year-to-

date margin and our capital levels remain well above peer. 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, government fiscal policies 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
	2014		2013		2014		2013
Net interest income	$	6,154	$	6,270	$	18,454	$	18,516
Tax equivalent basis adjustment using 34% marginal tax rate		313		308		964		880
Net interest income on a fully taxable equivalent basis	$	6,467	$	6,578	$	19,418	$	19,396

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
	2014			2013
ASSETS
Cash and due from banks	$	13,105		$	15,193
Interest-bearing deposits with banks		158			12,221
Cash and cash equivalents		13,263			27,414

Securities available for sale		158,701			150,904
Securities held to maturity, fair value 2013: $176		-			174
Loans receivable (net of unearned Income)		500,844			486,968
Less: Allowance for loan losses		5,651			5,559
Net loans receivable		495,193			481,409
Regulatory stock, at cost		3,210			2,141
Bank premises and equipment, net		6,825			7,250
Bank owned life insurance		18,143			14,653
Foreclosed real estate owned		4,962			993
Accrued interest receivable		2,367			2,373
Goodwill		9,715			9,715
Other intangible assets		418			543
Deferred tax asset		3,691			4,584
Other assets		1,725			1,618
TOTAL ASSETS	$	718,213		$	703,771

LIABILITIES
Deposits:
Non-interest bearing demand	$	102,343		$	101,632
Interest-bearing		445,995			447,066
Total deposits		548,338			548,698
Short-term borrowings		44,704			38,466
Other borrowings		22,592			19,956
Accrued interest payable		975			1,075
Other liabilities		4,197			4,230
TOTAL LIABILITIES		620,806			612,425

STOCKHOLDERS' EQUITY
Common Stock, $.10 par value, authorized 10,000,000 shares
issued: 3,708,718 shares		371			371
Surplus		35,143			34,991
Retained earnings		63,637			59,710
Treasury stock, at cost: 2014: 63,019 shares, 2013: 81,249 shares		(1,673	)		(2,154	)
Accumulated other comprehensive loss		(71	)		(1,572	)
TOTAL STOCKHOLDERS' EQUITY		97,407			91,346

TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	718,213		$	703,771

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
	2014			2013			2014		2013
INTEREST INCOME
Loans receivable, including fees	$	5,972		$	6,202		$	17,885	$	18,557
Securities		968			939			2,981		2,685
Other		1			5			3		17
Total Interest income		6,941			7,146			20,869		21,259

INTEREST EXPENSE
Deposits		600			701			1,852		2,174
Short-term borrowings		19			17			62		44
Other borrowings		168			158			501		525
Total Interest expense		787			876			2,415		2,743
NET INTEREST INCOME		6,154			6,270			18,454		18,516
PROVISION FOR LOAN LOSSES		420			400			1,260		2,000
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		5,734			5,870			17,194		16,516

OTHER INCOME
Service charges and fees		587			614			1,746		1,834
Income from fiduciary activities		125			111			328		285
Net realized gains on sales of securities		301			198			904		590
Gains on sale of loans		(15	)		(12	)		50		(9	)
Earnings and proceeds on life insurance policies		170			150			514		1,224
Other		94			155			241		381
Total other income		1,262			1,216			3,783		4,305

OTHER EXPENSES
Salaries and employee benefits		2,028			2,103			6,364		6,438
Occupancy, furniture and equipment		505			507			1,601		1,586
Data processing related		240			221			680		673
Taxes, other than income		161			179			488		531
Professional Fees		136			139			475		498
FDIC Insurance assessment		104			114			320		335
Foreclosed real estate owned		271			217			733		494
Other		679			693			2,068		2,052
Total other expenses		4,124			4,173			12,729		12,607

INCOME BEFORE TAX		2,872			2,913			8,248		8,214
INCOME TAX EXPENSE		754			777			2,132		1,930
NET INCOME	$	2,118		$	2,136		$	6,116	$	6,284

Basic earnings per share	$	0.58		$	0.59		$	1.68	$	1.73

Diluted earnings per share	$	0.58		$	0.59		$	1.68	$	1.73

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

For the Three Months Ended September 30	2014			2013

Net interest income	$	6,154		$	6,270
Net income		2,118			2,136

Net interest spread (fully taxable equivalent)		3.78	%		3.89	%
Net interest margin (fully taxable equivalent)		3.92	%		4.05	%
Return on average assets		1.18	%		1.22	%
Return on average equity		8.62	%		9.33	%
Basic earnings per share	$	0.58		$	0.59
Diluted earnings per share	$	0.58		$	0.59


For the Nine Months Ended September 30

Net interest income	$	18,454		$	18,516
Net income		6,116			6,284

Net interest spread (fully taxable equivalent)		3.77	%		3.88	%
Net interest margin (fully taxable equivalent)		3.91	%		4.04	%
Return on average assets		1.15	%		1.22	%
Return on average equity		8.53	%		9.07	%
Basic earnings per share	$	1.68		$	1.73
Diluted earnings per share	$	1.68		$	1.73



As of September 30

Total assets	$	718,213		$	703,771
Total loans receivable		500,844			486,968
Allowance for loan losses		5,651			5,559
Total deposits		548,338			548,698
Stockholders' equity		97,407			91,346
Trust assets under management		132,652			124,147

Book value per share	$	26.30		$	25.54
Equity to total assets		13.56	%		12.98	%
Allowance to total loans receivable		1.13	%		1.14	%
Nonperforming loans to total loans		1.18	%		2.11	%
Nonperforming assets to total assets		1.52	%		1.60	%

NORWOOD FINANCIAL CORP.
Consolidated Balance Sheets (unaudited)
(dollars in thousands)
	September 30		June 30		March 31		December 31		September 30
	2014		2014		2014		2013		2013
ASSETS
Cash and due from banks	$	13,105	$	12,196	$	8,607	$	7,528	$	15,193
Interest-bearing deposits with banks		158		3,182		142		335		12,221
Cash and cash equivalents		13,263		15,378		8,749		7,863		27,414

Securities available for sale		158,701		154,925		156,165		158,132		150,904
Securities held to maturity		-		-		175		174		174
Loans receivable (net of unearned income)		500,844		502,316		496,016		503,097		486,968
Less: Allowance for loan losses		5,651		5,611		5,727		5,708		5,558
Net loans receivable		495,193		496,705		490,289		497,389		481,410
Regulatory stock, at cost		3,210		2,437		2,741		2,877		2,141
Bank owned life insurance		18,143		18,002		17,930		17,790		14,653
Bank premises and equipment, net		6,825		6,910		7,031		7,125		7,250
Foreclosed real estate owned		4,962		4,293		1,364		1,009		993
Goodwill and other intangibles		10,133		10,161		10,192		10,225		10,258
Other assets		7,783		8,051		8,598		8,650		8,574
TOTAL ASSETS	$	718,213	$	716,862	$	703,234	$	711,234	$	703,771

LIABILITIES
Deposits:
Non-interest bearing demand	$	102,343	$	103,954	$	93,400	$	92,684	$	101,632
Interest-bearing deposits		445,995		450,760		446,676		448,498		447,066
Total deposits		548,338		554,714		540,076		541,182		548,698
Other borrowings		67,296		60,992		63,746		73,675		58,422
Other liabilities		5,172		4,954		5,212		4,513		5,305
TOTAL LIABILITIES		620,806		620,660		609,034		619,370		612,425

STOCKHOLDERS' EQUITY		97,407		96,202		94,200		91,864		91,346

TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	718,213	$	716,862	$	703,234	$	711,234	$	703,771

NORWOOD FINANCIAL CORP.
Consolidated Statements of Income (unaudited)
(dollars in thousands, except per share data)
	September 30			June 30			March 31			December 31			September 30
Three months ended	2014			2014			2014			2013			2013
INTEREST INCOME
Loans receivable, including fees	$	5,972		$	5,933		$	5,980		$	6,019		$	6,202
Securities		968			1,025			987			972			939
Other		1			2			1			9			5
Total interest income		6,941			6,960			6,968			7,000			7,146

INTEREST EXPENSE
Deposits		600			618			635			674			701
Borrowings		187			187			188			181			175
Total interest expense		787			805			823			855			876
NET INTEREST INCOME		6,154			6,155			6,145			6,145			6,270
PROVISION FOR LOAN LOSSES		420			420			420			400			400
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES		5,734			5,735			5,725			5,745			5,870

OTHER INCOME
Service charges and fees		587			583			576			578			614
Income from fiduciary activities		125			99			104			94			111
Net realized gains on sales of securities		301			509			95			291			198
Gains (losses) on sale of loans and servicing rights		(15	)		26			39			121			(12	)
Earnings and proceeds on life insurance policies		170			175			168			162			150
Other		94			76			71			64			155
Total other income		1,262			1,468			1,053			1,310			1,216

OTHER EXPENSES
Salaries and employee benefits		2,028			2,172			2,165			2,009			2,103
Occupancy, furniture and equipment, net		505			518			578			550			507
Foreclosed real estate owned		271			396			65			73			217
FDIC insurance assessment		104			102			114			109			114
Other		1,216			1,285			1,210			1,357			1,232
Total other expenses		4,124			4,473			4,132			4,098			4,173

INCOME BEFORE TAX		2,872			2,730			2,646			2,957			2,913
INCOME TAX EXPENSE		754			696			682			776			777
NET INCOME	$	2,118		$	2,034		$	1,964		$	2,181		$	2,136

Basic earnings per share	$	0.58		$	0.56		$	0.54		$	0.60		$	0.59

Diluted earnings per share	$	0.58		$	0.56		$	0.54		$	0.60		$	0.59

Book Value per share	$	26.30		$	26.14		$	25.88		$	25.43		$	25.54

Return on average equity (annualized)		8.62	%		8.49	%		8.46	%		9.33	%		9.33	%
Return on average assets (annualized)		1.18	%		1.15	%		1.13	%		1.23	%		1.22	%

Net interest spread (fte)		3.78	%		3.77	%		3.77	%		3.76	%		3.89	%
Net interest margin (fte)		3.92	%		3.91	%		3.91	%		3.91	%		4.05	%

Allowance for loan losses to total loans		1.13	%		1.12	%		1.15	%		1.13	%		1.14	%
Net charge-offs to average loans (annualized)		0.30	%		0.43	%		0.32	%		0.21	%		0.49	%
Nonperforming loans to total loans		1.18	%		1.49	%		1.92	%		1.90	%		2.11	%
Nonperforming assets to total assets		1.52	%		1.65	%		1.55	%		1.48	%		1.60	%

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