October 26, 2016 - Honesdale, Pennsylvania

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, 2016 of $612,000.  This represents a $1,165,000 decrease from the $1,777,000 earned in the same three-month period of 2015 due primarily to $1,659,000 of merger-related expenses incurred in connection with the acquisition of Delaware Bancshares, Inc. which closed on July 31, 2016.  Earnings per share (fully diluted) were $.15 in the 2016 period, decreasing from the $.48 earned in the similar period of last year.  Net income for the nine months ended September 30, 2016 totaled $4,365,000, which is $1,416,000 lower than the same period of 2015 primarily due to the merger costs recognized in the 2016 period.  Earnings per share (fully diluted) for the nine months ended September 30, 2016 totaled $1.15 per share compared to $1.57 per share in the 2015 period.  The annualized return on average assets and average equity for the nine-month period was 0.69% and 5.45%, respectively.

Total assets as of September 30, 2016 were $1.125 billion with loans receivable of $706.2 million, deposits of $922.2 million and stockholders' equity of $115.7 million.  Total assets have increased $375.7 million during the past twelve months while loans, deposits and stockholders' equity have increased $162.7 million, $350.9 million and $13.8 million, respectively.  As a direct result of the acquisition of Delaware Bancshares, Inc., total assets increased $368.6 million while loans, deposits and stockholders' equity increased $112.1 million, $327.3 million and $12.2 million, respectively.

 

Non-performing assets, which include non-performing loans and foreclosed real estate owned, totaled $7.6 million or 0.68% of total assets as of September 30, 2016 compared to $6.6 million or 0.86% of assets as of June 30, 2016 and $10.5 million or 1.40% of total assets as of September 30, 2015.  Net charge-offs were $84,000 for the quarter and totaled $2,733,000 for the nine months ended September 30, 2016 compared to $921,000 and $1,889,000, respectively, for the similar periods in 2015.  Based on management's analysis, the Company added $450,000 and $1,600,000 to the allowance for loan losses for the three and nine-month periods ended September 30, 2016, respectively, compared to $720,000 and $1,760,000, respectively, for the similar periods in 2015.  The allowance for loan losses totaled $6,164,000 as of September 30, 2016 and represented 274% of total non-performing loans, compared to $5,747,000 and 63% of non-performing loans as of September 30, 2015.

For the three months ended September 30, 2016, net interest income, on a fully taxable equivalent basis (fte), totaled $8,056,000, which represents an increase of $1,643,000 compared to the similar period in 2015 due primarily to growth from the acquisition.  Net interest margin (fte) for the 2016 period was 3.50% compared to 3.68% for the similar period in 2015 due primarily to a 23 basis point decrease in the yield on average earning assets.  Net interest income (fte) for the nine months ended September 30, 2016 totaled $21,348,000, an increase of $1,943,000 compared to the similar period in 2015 due primarily to the acquisition.  Net interest margin (fte) year-to-date for the 2016 period was 3.65% compared to 3.76% in 2015.

Other income for the three months ended September 30, 2016 totaled $1,399,000 compared to $1,071,000 for the similar period in 2015.  The increase reflects fees and service charges related to the twelve community offices acquired from Delaware

 

Bancshares, Inc.  For the nine months ended September 30, 2016, other income totaled $3,689,000 compared to $3,483,000 in the 2015 period.  Gains on the sales of investment securities totaled $269,000 on sales of $101.8 million for the 2016 year-to-date period compared to $508,000 on sales of $28.3 million in the corresponding 2015 period.  The increased volume of sales in the 2016 period includes the repositioning of the portfolio acquired.  Excluding gains from the sales of securities, other income improved $445,000 over the first nine months of 2015.

Other expenses totaled $7,679,000 for the three months ended September 30, 2016, compared to $4,070,000 in the similar period of 2015.  Merger costs totaled $1,659,000 during the period while expenses related to the operations of the twelve new community offices totaled $795,000.  For the nine months ended September 30, 2016, other expenses totaled $16,556,000 compared to $12,425,000 for the similar period in 2015, an increase of $4,131,000, which includes the costs related to the acquisition.

Mr. Critelli commented, "We successfully completed our acquisition of Delaware Bancshares, Inc. and integrated all the operating systems during the third quarter.  Norwood now has $1.1 billion in assets and operates 27 branches in a six county area in two states.  During the quarter, we recognized the majority of the expenses related to the acquisition, and we expect that fourth quarter earnings will begin to reflect the full benefit of the transaction.  We continue to search out opportunities available to us and we look forward to serving our growing base of stockholders and customers."

Norwood Financial Corp., through its subsidiary Wayne Bank, operates fifteen offices in Northeastern Pennsylvania and twelve offices in Delaware and Sullivan Counties, New York.  The New York offices represent locations that were assumed through the acquisition of Delaware Bancshares, Inc. and its wholly-owned subsidiary,

 

 NBDC Bank.  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 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.

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