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

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8-K - FORM 8-K NORWOOD FINANCIAL CORP. - NORWOOD FINANCIAL CORP	f8k_072215-0160.htm

FOR IMMEDIATE RELEASE

NORWOOD FINANCIAL CORP

ANNOUNCES SECOND QUARTER EARNINGS

July 22, 2015-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 June 30, 2015 of $1,963,000. This represents a decrease of $71,000, from the $2,034,000 earned in the similar period of 2014 due primarily to a decrease in gains on sales of securities which was partially offset by reduced operating expenses. Earnings per share (fully diluted) were $.53 in the 2015 period, decreasing from the $.56 earned in the similar period of 2014. Annualized return on average assets for the three months ended June 30, 2015 was 1.06% with an annualized return on average equity of 7.80%. Net income for the six months ended June 30, 2015 totaled $4,004,000, which is slightly higher than the same six-month period of last year. Earnings per share (fully diluted) for the six months ended June 30, 2015 and 2014 totaled $1.08 and $1.10 per share, respectively.

Total assets as of June 30, 2015 were $751.5 million with loans receivable of $538.9 million, deposits of $575.6 million and stockholders’ equity of $99.9 million.

Loans receivable increased $36.6 million since June 30, 2014. Commercial loans increased $25.2 million which includes a $23.8 million increase in municipal financing. Retail loans grew $11.3 million during the period which includes a $6.8 million increase in indirect auto and marine financing and a $5.2 million increase in residential mortgage loans. The Company also sold $3.8 million of fixed-rate residential mortgages during the period, principally with 30-year terms, for purposes of interest rate risk management. Total deposits increased $20.9 million over the past twelve months which includes a $10.3

million increase in time deposits, a $6.9 million increase in other interest bearing deposits, and a $3.7 million increase in non-interest bearing demand deposits. Stockholders’ equity increased $3.7 million over the past year, due principally to the retention of earnings.

Non-performing assets, which include non-performing loans and foreclosed assets, totaled $12.1 million and represented 1.62% of total assets as of June 30, 2015 compared to $11.8 million, or 1.65% of total assets, as of June 30, 2014. Net charge-offs were $479,000 for the quarter and totaled $968,000 for the six months ended June 30, 2015 compared to $537,000 and $937,000, respectively, for the similar periods in 2014. Based on the levels of non-performing assets and net charge-offs, the Company determined that it was appropriate to provide $420,000 and $1,040,000 for potential future loan losses for the three and six month periods ended June 30, 2015, respectively, compared to $420,000 and $840,000, respectively, for the similar periods in 2014. The allowance for loan losses totaled $5,947,000 as of June 30, 2015 and represented 1.10% of total loans outstanding, compared to $5,611,000 and 1.12% on June 30, 2014.

For the three months ended June 30, 2015, net interest income, on a fully taxable equivalent basis (fte), totaled $6,389,000, a decrease of $100,000 compared to the similar period in 2014. Net interest margin (fte) for the 2015 period was 3.68% decreasing from 3.91% for the similar period in 2014 due to a decrease of 24 basis points in the yield on interest-earning assets. The cost of interest-bearing liabilities remained unchanged at 0.63% for both periods. The reduced margin was due primarily to a 20 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. The yield earned on securities also decreased 19 basis points. Net interest income (fte) for the six months ended June 30, 2015 totaled $12,991,000, which was $40,000 higher than the similar period in 2014. The

net interest margin (fte) was 3.81% in the 2015 period and 3.91% during the first six months of 2014. Decreasing yields on loans and securities contributed to the reduced net interest margin.

Other income for the three months ended June 30, 2015 totaled $1,133,000 compared to $1,468,000 for the similar period in 2014. Net gains from securities sales decreased $375,000 compared to the prior-year period. For the six months ended June 30, 2015, other income totaled $2,412,000 compared to $2,521,000 in the 2014 period. Gains on the sales of investment securities totaled $445,000 on sales of $23.4 million for the 2015 period compared to $603,000 on sales of $31.9 million in the 2014 period.

Other expenses totaled $4,168,000 for the three months ended June 30, 2015, a decrease of $305,000, from the $4,473,000 reported in the similar period of 2014. The decrease was principally due to a reduction of costs and write-downs on properties carried in foreclosed real estate owned. Salaries and employee benefits also decreased $101,000 compared to the same three month period of 2014. For the six months ended June 30, 2015, other expenses totaled $8,355,000 compared to $8,605,000 for the similar period in 2014, a decrease of $250,000. Salaries and employee benefits decreased $128,000 compared to the first half of last year, while foreclosed real estate expenses decreased $71,000.

Mr. Critelli commented, “Our earnings for the first half of 2015 are comparable to the 2014 level. Sectors of the local economy remain sluggish, and as a result we continue to have pressure on our loan quality ratios. Working with borrowers experiencing cash flow problems will remain a top priority as we make our way through this difficult economic environment. The ongoing low level of 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 above peer and operating expenses are well controlled. We continue to search out opportunities available to us and we look forward to serving our growing base of stockholders and customers as the local economy in Northeast Pennsylvania recovers from the extended downturn.”

Norwood Financial Corp., is the parent company of Wayne Bank, which operates 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, the ability to control costs and expenses, demand for real estate, 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 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)	2015		2014		2015		2014

Net Interest Income	$	6,049	$	6,155	$	12,356	$	12,300
Taxable equivalent basis adjustment using 34% marginal tax rate		340		334		635		651
Net interest income on a fully taxable equivalent basis	$	6,389	$	6,489	$	12,991	$	12,951

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)
	June 30
	2015			2014
ASSETS
Cash and due from banks	$	8,505		$	12,196
Interest-bearing deposits with banks		11,937			3,182
Cash and cash equivalents		20,442			15,378

Securities available for sale		151,304			154,925
Loans receivable		538,870			502,316
Less: Allowance for loan losses		5,947			5,611
Net loans receivable		532,923			496,705
Regulatory stock, at cost		2,240			2,437
Bank premises and equipment, net		6,555			6,910
Bank owned life insurance		18,551			18,002
Foreclosed real estate owned		1,382			4,293
Accrued interest receivable		2,340			2,405
Goodwill		9,715			9,715
Other intangible assets		334			446
Deferred tax asset		4,071			3,764
Other assets		1,664			1,882
TOTAL ASSETS	$	751,521		$	716,862

LIABILITIES
Deposits:
Non-interest bearing demand	$	107,610		$	103,954
Interest-bearing		468,004			450,760
Total deposits		575,614			554,714
Short-term borrowings		33,842			38,009
Other borrowings		37,211			22,983
Accrued interest payable		988			937
Other liabilities		3,948			4,017
TOTAL LIABILITIES		651,603			620,660

STOCKHOLDERS' EQUITY
Common Stock, $.10 par value, authorized 10,000,000 shares
issued: 3,718,018 shares		372			371
Surplus		35,268			35,091
Retained earnings		65,797			62,613
Treasury stock, at cost: 2015: 37,165 shares, 2014: 70,747 shares		(997	)		(1,878	)
Accumulated other comprehensive (loss) income		(522	)		5
TOTAL STOCKHOLDERS' EQUITY		99,918			96,202

TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	751,521		$	716,862

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,
	2015		2014		2015		2014
INTEREST INCOME
Loans receivable, including fees	$	5,924	$	5,933	$	11,985	$	11,913
Securities		950		1,025		1,974		2,013
Other		8		2		12		2
Total Interest income		6,882		6,960		13,971		13,928

INTEREST EXPENSE
Deposits		618		618		1,222		1,253
Short-term borrowings		16		20		29		42
Other borrowings		199		167		364		333
Total Interest expense		833		805		1,615		1,628
NET INTEREST INCOME		6,049		6,155		12,356		12,300
PROVISION FOR LOAN LOSSES		420		420		1,040		840
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		5,629		5,735		11,316		11,460

OTHER INCOME
Service charges and fees		622		583		1,194		1,159
Income from fiduciary activities		109		99		215		203
Net realized gains on sales of securities		134		509		445		603
Gains on sales of loans, net		12		26		30		66
Earnings and proceeds on life insurance policies		166		175		330		343
Other		90		76		198		147
Total other income		1,133		1,468		2,412		2,521

OTHER EXPENSES
Salaries and employee benefits		2,071		2,172		4,208		4,336
Occupancy, furniture and equipment		542		518		1,098		1,096
Data processing related		201		229		435		441
Taxes, other than income		175		161		350		326
Professional fees		124		174		307		340
FDIC Insurance assessment		65		102		159		216
Foreclosed real estate owned		232		396		390		461
Other		758		721		1,408		1,389
Total other expenses		4,168		4,473		8,355		8,605

INCOME BEFORE TAX		2,594		2,730		5,373		5,376
INCOME TAX EXPENSE		631		696		1,369		1,378
NET INCOME	$	1,963	$	2,034	$	4,004	$	3,998

Basic earnings per share	$	0.53	$	0.56	$	1.09	$	1.10

Diluted earnings per share	$	0.53	$	0.56	$	1.08	$	1.10

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

For the Three Months Ended June 30	2015			2014

Net interest income	$	6,049		$	6,155
Net income		1,963			2,034

Net interest spread (fully taxable equivalent)		3.53	%		3.77	%
Net interest margin (fully taxable equivalent)		3.68	%		3.91	%
Return on average assets		1.06	%		1.15	%
Return on average equity		7.80	%		8.49	%
Basic earnings per share	$	0.53		$	0.56
Diluted earnings per share	$	0.53		$	0.56

For the Six Months Ended June 30

Net interest income	$	12,356		$	12,300
Net income		4,004			3,998

Net interest spread (fully taxable equivalent)		3.66	%		3.77	%
Net interest margin (fully taxable equivalent)		3.81	%		3.91	%
Return on average assets		1.11	%		1.14	%
Return on average equity		8.01	%		8.48	%
Basic earnings per share	$	1.09		$	1.10
Diluted earnings per share	$	1.08		$	1.10

As of June 30

Total assets	$	751,521		$	716,862
Total loans receivable		538,870			502,316
Allowance for loan losses		5,947			5,611
Total deposits		575,614			554,714
Stockholders' equity		99,918			96,202
Trust assets under management		134,732			132,760

Book value per share	$	27.40		$	26.14
Equity to total assets		13.30	%		13.42	%
Allowance to total loans receivable		1.10	%		1.12	%
Nonperforming loans to total loans		2.00	%		1.49	%
Nonperforming assets to total assets		1.62	%		1.65	%

NORWOOD FINANCIAL CORP.
Consolidated Balance Sheets (unaudited)
(dollars in thousands)
	June 30		March 31		December 31		September 30		June 30
	2015		2015		2014		2014		2014
ASSETS
Cash and due from banks	$	8,505	$	7,658	$	8,081	$	13,105	$	12,196
Interest-bearing deposits with banks		11,937		11,969		4,295		158		3,182
Cash and cash equivalents		20,442		19,627		12,376		13,263		15,378

Securities available for sale		151,304		155,674		156,395		158,701		154,925
Loans receivable		538,870		518,961		501,135		500,844		502,316
Less: Allowance for loan losses		5,947		6,007		5,875		5,651		5,611
Net loans receivable		532,923		512,954		495,260		495,193		496,705
Regulatory stock, at cost		2,240		1,838		1,714		3,210		2,437
Bank owned life insurance		18,551		18,417		18,284		18,143		18,002
Bank premises and equipment, net		6,555		6,632		6,734		6,825		6,910
Foreclosed real estate owned		1,382		1,698		3,726		4,962		4,293
Goodwill and other intangibles		10,049		10,076		10,104		10,133		10,161
Other assets		8,075		7,443		7,042		7,783		8,051
TOTAL ASSETS	$	751,521	$	734,359	$	711,635	$	718,213	$	716,862

LIABILITIES
Deposits:
Non-interest bearing demand	$	107,610	$	101,423	$	98,064	$	102,343	$	103,954
Interest-bearing deposits		468,004		468,783		461,880		445,995		450,760
Total deposits		575,614		570,206		559,944		548,338		554,714
Other borrowings		71,053		58,388		47,895		67,296		60,992
Other liabilities		4,936		5,314		4,755		5,172		4,954
TOTAL LIABILITIES		651,603		633,908		612,594		620,806		620,660

STOCKHOLDERS' EQUITY		99,918		100,451		99,041		97,407		96,202

TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	751,521	$	734,359	$	711,635	$	718,213	$	716,862

NORWOOD FINANCIAL CORP.
Consolidated Statements of Income (unaudited)
(dollars in thousands, except per share data)
	June 30			March 31			December 31			September 30			June 30
Three months ended	2015			2015			2014			2014			2014
INTEREST INCOME
Loans receivable, including fees	$	5,924		$	6,061		$	5,954		$	5,972		$	5,933
Securities		950			1,023			940			968			1,025
Other		8			4			4			1			2
Total interest income		6,882			7,088			6,898			6,941			6,960

INTEREST EXPENSE
Deposits		618			604			611			600			618
Borrowings		215			177			182			187			187
Total interest expense		833			781			793			787			805
NET INTEREST INCOME		6,049			6,307			6,105			6,154			6,155
PROVISION FOR LOAN LOSSES		420			620			420			420			420
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES		5,629			5,687			5,685			5,734			5,735

OTHER INCOME
Service charges and fees		622			572			604			587			583
Income from fiduciary activities		109			105			109			125			99
Net realized gains on sales of securities		134			311			265			301			509
Gains (losses) on sales of loans, net		12			18			82			(15	)		26
Earnings and proceeds on life insurance policies		166			165			171			170			175
Other		90			108			96			94			76
Total other income		1,133			1,279			1,327			1,262			1,468

OTHER EXPENSES
Salaries and employee benefits		2,071			2,137			2,252			2,028			2,172
Occupancy, furniture and equipment, net		542			556			516			505			518
Foreclosed real estate owned		232			158			822			271			396
FDIC insurance assessment		65			95			100			104			102
Other		1,258			1,241			1,307			1,216			1,285
Total other expenses		4,168			4,187			4,997			4,124			4,473

INCOME BEFORE TAX		2,594			2,779			2,015			2,872			2,730
INCOME TAX EXPENSE		631			738			474			754			696
NET INCOME	$	1,963		$	2,041		$	1,541		$	2,118		$	2,034

Basic earnings per share	$	0.53		$	0.55		$	0.42		$	0.58		$	0.56

Diluted earnings per share	$	0.53		$	0.55		$	0.42		$	0.58		$	0.56

Book Value per share	$	27.40		$	27.38		$	26.30		$	26.30		$	26.14

Return on average equity (annualized)		7.80	%		8.22	%		6.17	%		8.62	%		8.49	%
Return on average assets (annualized)		1.06	%		1.15	%		0.86	%		1.18	%		1.15	%

Net interest spread (fte)		3.53	%		3.80	%		3.72	%		3.78	%		3.77	%
Net interest margin (fte)		3.68	%		3.94	%		3.87	%		3.92	%		3.91	%

Allowance for loan losses to total loans		1.10	%		1.16	%		1.17	%		1.13	%		1.12	%
Net charge-offs to average loans (annualized)		0.37	%		0.39	%		0.16	%		0.30	%		0.43	%
Nonperforming loans to total loans		2.00	%		1.11	%		1.12	%		1.18	%		1.49	%
Nonperforming assets to total assets		1.62	%		1.01	%		1.31	%		1.52	%		1.65	%

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