Norwood Financial Corp Announces Earnings for the Fourth Quarter and Year

HONESDALE, Pa, Jan. 25, 2018 (GLOBE NEWSWIRE) -- Lewis J. Critelli, President and Chief Executive Officer of Norwood Financial Corp (Nasdaq:NWFL) and its subsidiary Wayne Bank, announced earnings for the three months ended December 31, 2017 of $157,000 compared to $2,346,000 earned in the corresponding period of 2016.  The decrease in earnings is due to the $3,060,000 of non-recurring additional tax expense attributable to the revaluation of the Company’s net deferred tax asset as a result of the Tax Cuts and Jobs Act (the “Act”).  The Company’s core operating results (which excludes the non-recurring tax expense related to the revaluation of the deferred tax asset) for the three month period improved $871,000 to $3,217,000.  For the year ended December 31, 2017, net income totaled $8,198,000, an increase of $1,487,000 from the $6,711,000 earned in the prior year.  For the year of 2017, the Company’s core operating results increased $4,547,000 to $11,258,000. 

On December 22, 2017, the President signed the Act into law.  Among other things, the Act reduced the corporate tax rate from a maximum of 35% to a flat 21% rate effective January 1, 2018.  Prior to December 22, 2017, the Company had a net deferred tax asset totaling $7.6 million, based on the pre-Act federal tax rate of 35%.  As a result of the reduction in the corporate income tax rate to 21%, the Company revalued its net deferred tax asset as of December 31, 2017, which resulted in a $3,060,000 reduction in its value.  The reduction in the value of the net deferred tax asset has been recorded as additional income tax expense in the fourth quarter of 2017.  Beginning in 2018, the Company’s earnings are expected to benefit from the lower corporate income tax rate.

Earnings per share (fully diluted) were $0.03 ($0.51 core operating results per diluted share) and $0.37 for the three-month periods ended December 31, 2017 and 2016, respectively, after adjusting for the 50% stock dividend declared in August, 2017.  Net interest income before the provision for loan losses increased $433,000 compared to the same period of last year due to higher loan volume, while other income increased $264,000 due to a larger customer base.  A provision for loan losses of $400,000 was recorded in the current three-month period compared to $450,000 in the same period of last year.  Other expenses decreased $682,000 due to a reduction in Pennsylvania bank shares tax expense and $142,000 of merger related expenses recorded in the 2016 period.  For the year ended December 31, 2017, net income totaled $8,198,000, an increase of $1,487,000 from the $6,711,000 earned in the prior year.  The Company’s core operating results for the year increased $4,547,000 to $11,258,000.  Earnings increased as a result of the acquisition of Delaware Bancshares, Inc. (“Delaware”) in the third quarter of 2016.  Earnings per share on a fully diluted basis were $1.31 for 2017 ($1.80 core operating results per diluted share) compared to $1.15 in 2016, after adjusting for the 50% stock dividend declared in 2017.  The return on average assets for the year was 0.73% with a return on average equity of 7.04% compared to 0.74% and 6.17%, respectively, in 2016.  Core operating results reflected a return on average assets of 1.02% for 2017 and a return on average equity of 10.39%. 

Total assets were $1.1 billion as of December 31, 2017.  Loans receivable totaled $764.1 million as of December 31, 2017, with total deposits of $929.4 million and stockholders’ equity of $115.7 million. 

Loans receivable increased $50.2 million, or 7.0%, from the prior year-end due primarily to a $22.7 million increase in commercial real estate loans.  Consumer loans including residential mortgage loans increased $15.5 million in 2017 while other commercial loans increased $12.0 million.  For the three months and year ended December 31, 2017, net charge-offs totaled $527,000 and $1,029,000, respectively, compared to $151,000 and $2,885,000, respectively, for the corresponding periods in 2016.  As of December 31, 2017, the allowance for loan losses totaled $7,634,000 and 1.00% of total loans compared to $6,463,000 and 0.91% of total loans at December 31, 2016.  Additionally, as of December 31, 2017 the allowance for loan losses represented 308% of total non-performing loans, compared to 356% as of December 31, 2016.

Net interest income, on a fully taxable equivalent basis (fte), totaled $9,428,000 for the three months ended December 31, 2017, an increase of $437,000 compared to the same period in 2016.  Net interest margin (fte) for the three months ended December 31, 2017 was 3.58% increasing from 3.49% for the similar period in 2016.  The increase in net interest margin was principally due to a $52.1 million increase in average loans outstanding and a fifteen basis point increase in the yield on earning assets.  The increase in the yield on earning assets was partially offset by a ten basis point increase in the cost of interest-bearing liabilities. For the year, net interest income (fte) totaled $37,090,000, an increase of $6,751,000 compared to 2016.  The increase was principally due to earnings from the acquisition of Delaware in 2016.  The net interest margin (fte) declined 4 basis points to 3.56% in 2017 due primarily to the mix and yield of assets and liabilities acquired from Delaware.

Other income for the three months ended December 31, 2017 totaled $1,754,000 compared to $1,490,000 for the similar period in 2016.  Gains on the sale of securities increased $166,000, while all other items of other income increased $98,000 in the aggregate due primarily to service charges and fees.  Other income for the year ended December 31, 2017 totaled $6,911,000 compared to $5,179,000 in 2016, an increase of $1,732,000.  Gains on the sale of loans and investment securities increased $77,000 in the aggregate, while all other items of other income increased $1,655,000, net due primarily to the acquisition. 

Other expenses totaled $5,886,000 for the three months ended December 31, 2017, compared to $6,568,000 in the similar period of 2016.  The $682,000 decrease includes a $228,000 reduction in taxes, other than income, and a $97,000 decrease in salaries and benefits costs.  Additionally, the 2016 period includes $142,000 of merger-related costs.  For the year ended December 31, 2017, other expenses totaled $24,870,000 compared to $23,124,000 for 2016, an increase of $1,746,000 due primarily to the cost of operating the new community offices for a full year.  The 2016 period includes $1.8 million of merger-related expenses. 

Mr. Critelli commented, “In 2017, our core operating results, which excludes the $3,060,000 of non-recurring tax expense resulting from the revaluation of our net deferred tax asset as required by the Tax Cuts and Jobs Act, totaled $11.3 million which was a $4.6 million improvement over the $6.7 million earned in 2016.  Our core Return on Average Assets was 1.02% and the core Return on Average Equity was 10.39%, both in-line with our projections for the year.  During 2017, our cash dividend per share increased to $0.87 per share from $0.83 per share, after adjusting for the 50% stock dividend paid to stockholders in the third quarter of 2017.  Our year-end stock price of $33.00 per share represents an increase of over 49% in the market value of our stock during 2017, while our earnings per share also improved to $1.31 ($1.80 core operating results per diluted share) from $1.15 in 2016, after adjusting for the 50% stock dividend.  The Company expects the Act will have a positive impact on our earnings in 2018.  We were pleased to open our new office in Clarks Summit in December and look forward to the relocation of the Roscoe, New York office to a more modern and accessible facility in the spring.  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 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 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 34%.  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.  This release also references core operating results, which is also a non-GAAP financial measure.  Core operating results excludes the $3,060,000 of non-recurring additional income tax expense resulting from the revaluation of our net deferred tax asset as required by the Tax Cuts and Jobs Act.  We believe this presentation provides the reader with a more concise understanding of the impact from the required revaluation of deferred tax assets and facilitates period-to-period comparisons.

The following table reconciles net interest income to net interest income on a fully taxable equivalent basis:

The following table reconciles net income to core operating results:

Contact:

William S. Lance
Executive Vice President &
Chief Financial Officer
NORWOOD FINANCIAL CORP
570-253-8505
www.waynebank.com