Norwood Financial (NWFL) 8-K Norwood Financial Corp. Announces First Quarter Earnings

FOR IMMEDIATE RELEASE

NORWOOD FINANCIAL CORP. ANNOUNCES FIRST QUARTER EARNINGS

April 18, 2014

Lewis J. Critelli, President and Chief Executive Officer of Norwood Financial Corp. (Nasdaq Global Market – NWFL) and its subsidiary, Wayne Bank, announced earnings of $1,964,000 for the three months ended March 31, 2014 which represents a decrease from the $2,308,000 recorded during the same three month period of last year.  Earnings in 2013 were higher due to $770,000 of proceeds from a bank-owned life insurance policy that was recorded in the first quarter of 2013, some of which was offset by higher core earnings in the current year.  Earnings per share on a fully diluted basis were $.54 in the first quarter of this year compared to $.63 in the first quarter of 2013.  The annualized return on average assets was 1.13% in the first quarter of 2014 and the annualized return on average equity was 8.46%.

Total assets were $703.2 million as of March 31, 2014, an increase of $22.5 million compared to the prior year total.  Total loans increased $17.3 million compared to March 31, 2013 notwithstanding the sale of $1.0 million of residential mortgage loans to reduce the Company’s interest rate risk position during the current year.  Residential mortgage loan balances increased $3.2 million, commercial financing increased $11.2 million, construction loans increased $6.7 million and installment loans grew $1.3 million, while commercial real estate loans have decreased $5.1 million compared to the prior year.  Total deposits increased $4.4 million over the past twelve months which

includes a $9.0 million increase in non-interest bearing demand deposits.  Stockholders’ equity increased $1.3 million during the past year, due principally to the retention of earnings.

Non-performing assets totaled $10.9 million or 1.55% of total assets at March 31, 2014 comprised of $9.5 million of non-performing loans and $1.4 million of foreclosed real estate owned, compared to $10.6 million of non-performing assets or 1.48% of total assets at December 31, 2013. The increase recorded during the quarter includes the transfer of four properties into foreclosed real estate owned with a carrying value of $383,000.  As of March 31, 2013, non-performing assets totaled $13.7 million.  Net charge-offs for the three month period ending March 31, 2014 were $400,000 which represents a decrease compared to $576,000 of net charge-offs in the first quarter of last year.  Based on the current composition of the loan portfolio, management determined that it would be prudent to provide additional reserves and added $420,000 to the allowance for loan losses compared to $800,000 during the same period of last year.  The decrease in the provision for loan losses reflects the lower levels of net charge-offs and non-performing assets. The allowance for loan losses was 1.15% of total loans outstanding on March 31, 2014 compared to 1.13% on December 31, 2013 and 1.20% on March 31, 2013.

Net interest income (fully taxable equivalent) was $6,462,000 during the first quarter of 2014 which is $75,000 higher than the comparable three month period of last year.  The net interest margin was negatively impacted by lower rates on new loan closings, but a $22.0 million increase in average loans outstanding helped to offset much of the decrease due to pricing.  A $14.9 million increase in average securities

added $135,000 of additional earnings.  The yield on interest earning assets decreased two basis points compared to the prior quarter while the cost of funds decreased three basis points.  As a result, the net interest margin (fte) remained stable at 3.91% compared to the quarter ended December 31, 2013.  In comparison to the quarter ended March 31, 2013, the net interest margin (fte) declined from 4.07% to 3.91% due to the downward repricing of the balance sheet.

Other income totaled $1,053,000 in the first quarter of 2014 compared to $1,877,000 during the same period of last year.  The $824,000 decrease in other income reflects $770,000 of proceeds from a bank-owned life insurance policy recorded in 2013.  During the current period, the Company recognized a net gain of $95,000 from the sale of securities compared to $138,000 in the prior-year period.

Operating expenses totaled $4,132,000 in the first quarter and were $169,000, or 3.9%, lower than the same period of last year.  Foreclosed real estate costs provided the majority of the decrease and were $126,000 lower than the first quarter of last year while all other operating costs decreased $43,000, net.

Mr. Critelli stated that “Our first quarter results provide a good start for 2014.  While net income was down due to a non-recurring gain recognized in the first quarter of last year, our core earnings improved due to increased net interest income and reduced operating expenses.  We are continuing to work our way through credit quality issues that have been brought on by the prolonged economic downturn, and improving our credit quality will remain a top priority in 2014.  Our net interest margin continues to exceed peer banks, and our capital base continues to exceed peer and “well capitalized” targets.  We continue to search out opportunities available to us, and we

look forward to serving our growing base of stockholders and customers as the economy slowly recovers from the recent downturn.”

Norwood Financial Corp. is the parent company of Wayne Bank which operates from sixteen 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, 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 net interest income, which is a non-GAAP (Generally Accepted Accounting Principles) financial measure.  Tax-equivalent net interest income is derived from GAAP 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:

(dollars in thousands)	Three months ended March 31,
	2014		2013
Net interest income	$	6,145	$	6,101
Tax equivalent basis adjustment using 34% marginal    tax rate		317		286
Net interest income on a fully taxable equivalent basis	$	6,462	$	6,387

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)
	March 31
	2014			2013
ASSETS
Cash and due from banks	$	8,607		$	6,763
Interest-bearing deposits with banks		142			9,182
Cash and cash equivalents		8,749			15,945
Securities available for sale		156,165			148,598
Securities held to maturity,  fair value 2014: $176 and 2013:  $175		175			173
Loans receivable (net of unearned Income)		496,016			478,663
Less: Allowance for loan losses		5,727			5,726
Net loans receivable		490,289			472,937
Regulatory stock, at cost		2,741			2,533
Bank premises and equipment, net		7,031			7,191
Bank owned life insurance		17,930			14,402
Foreclosed real estate owned		1,364			1,099
Accrued interest receivable		2,330			2,456
Goodwill		9,715			9,715
Other intangible assets		477			610
Deferred tax asset		4,294			2,724
Other assets		1,974			2,370
TOTAL ASSETS	$	703,234		$	680,753
LIABILITIES
Deposits:
Non-interest bearing demand	$	93,400		$	84,357
Interest-bearing		446,676			451,275
Total deposits		540,076			535,632
Short-term borrowings		40,373			21,859
Other borrowings		23,373			25,343
Accrued interest payable		973			1,082
Other liabilities		4,239			3,917
TOTAL LIABILITIES		609,034			587,833
STOCKHOLDERS' EQUITY
Common Stock, $.10 par value, authorized 10,000,000 shares
issued: 2014: 3,708,718  shares,  2013: 3,709,034 shares		371			371
Surplus		35,050			34,912
Retained earnings		61,671			57,847
Treasury stock, at cost: 2014: 71,297 shares, 2013: 80,438 shares		(1,892	)		(2,345	)
Accumulated other comprehensive income (loss)		(1,000	)		2,135
TOTAL STOCKHOLDERS' EQUITY		94,200			92,920
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	703,234		$	680,753

NORWOOD FINANCIAL CORP.
Consolidated Statements of Income
(dollars in thousands, except per share data)
(unaudited)
	Three Months Ended March 31
	2014		2013
INTEREST INCOME
Loans receivable, including fees	$	5,980	$	6,186
Securities		987		868
Other		1		3
Total Interest income		6,968		7,057
INTEREST EXPENSE
Deposits		635		754
Short-term borrowings		22		12
Other borrowings		166		190
Total Interest expense		823		956
NET INTEREST INCOME		6,145		6,101
PROVISION FOR LOAN LOSSES		420		800
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		5,725		5,301
OTHER INCOME
Service charges and fees		575		592
Income from fiduciary activities		104		85
Net realized gains on sales of securities		95		138
Gains on sale of loans		39		11
Earnings and proceeds on life insurance policies		168		925
Other		71		126
Total other income		1,053		1,877
OTHER EXPENSES
Salaries and  employee benefits		2,165		2,211
Occupancy, furniture and equipment		578		529
Data processing related		212		221
Taxes, other than income		165		174
Professional Fees		165		187
FDIC Insurance assessment		114		111
Foreclosed real estate owned		65		191
Other		668		677
Total other expenses		4,132		4,301
INCOME BEFORE TAX		2,646		2,877
INCOME TAX EXPENSE		682		569
NET INCOME	$	1,964	$	2,308
Basic earnings per share	$	0.54	$	0.64
Diluted earnings per share	$	0.54	$	0.63

NORWOOD FINANCIAL CORP.
Financial Highlights (Unaudited)
(dollars in thousands, except per share data)
For the Three Months Ended March 31	2014			2013
Net interest income	$	6,145		$	6,101
Net income		1,964			2,308
Net interest spread (fully taxable equivalent)		3.77	%		3.91	%
Net interest margin (fully taxable equivalent)		3.91	%		4.07	%
Return on average assets		1.13	%		1.39	%
Return on average equity		8.46	%		10.02	%
Basic earnings per share	$	0.54		$	0.64
Diluted earnings per share	$	0.54		$	0.63
As of March 31
Total assets	$	703,234		$	680,753
Total loans receivable		496,016			478,663
Allowance for loan losses		5,727			5,726
Total deposits		540,076			535,632
Stockholders' equity		94,200			92,920
Trust assets under management		129,739			118,091
Book value per share	$	25.88		$	25.66
Equity to total assets		13.40	%		13.65	%
Allowance to total loans receivable		1.15	%		1.20	%
Nonperforming loans to total loans		1.92	%		2.63	%
Nonperforming assets to total assets		1.55	%		2.01	%

NORWOOD FINANCIAL CORP.
Consolidated Balance Sheets (unaudited)
(dollars in thousands)
	March 31		December 31		September 30		June 30		March 31
	2014		2013		2013		2013		2013
ASSETS
Cash and due from banks	$	8,607	$	7,528	$	15,193	$	9,872	$	6,763
Interest-bearing deposits with banks		142		335		12,221		17,425		9,182
Cash and cash equivalents		8,749		7,863		27,414		27,297		15,945
Securities available for sale		156,165		158,132		150,904		150,750		148,598
Securities held to maturity		175		174		174		173		173
Loans receivable (net of unearned income)		496,016		503,097		486,968		480,715		478,663
Less: Allowance for loan losses		5,727		5,708		5,558		5,749		5,726
Net loans receivable		490,289		497,389		481,410		474,966		472,937
Regulatory stock, at cost		2,741		2,877		2,141		2,527		2,533
Bank owned life insurance		17,930		17,790		14,653		14,527		14,402
Bank premises and equipment, net		7,031		7,125		7,250		7,206		7,191
Foreclosed real estate owned		1,364		1,009		993		1,297		1,099
Goodwill and other intangibles		10,192		10,225		10,258		10,290		10,325
Other assets		8,598		8,650		8,574		8,573		7,550
TOTAL ASSETS	$	703,234	$	711,234	$	703,771	$	697,606	$	680,753
LIABILITIES
Deposits:
Non-interest bearing demand	$	93,400	$	92,684	$	101,632	$	93,881	$	84,357
Interest-bearing deposits		446,676		448,498		447,066		456,269		451,275
Total deposits		540,076		541,182		548,698		550,150		535,632
Other borrowings		63,746		73,675		58,422		52,225		47,202
Other liabilities		5,212		4,513		5,305		4,771		4,999
TOTAL LIABILITIES		609,034		619,370		612,425		607,146		587,833
STOCKHOLDERS' EQUITY		94,200		91,864		91,346		90,460		92,920
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	703,234	$	711,234	$	703,771	$	697,606	$	680,753

NORWOOD FINANCIAL CORP.
Consolidated Statements of Income (unaudited)
(dollars in thousands, except per share data)
	March 31			December 31			Sept 30			June 30			March 31
Three months ended	2014			2013			2013			2013			2013
INTEREST INCOME
Loans receivable, including fees	$	5,980		$	6,019		$	6,202		$	6,169		$	6,186
Securities		987			972			939			877			868
Other		1			9			5			10			3
Total interest income		6,968			7,000			7,146			7,056			7,057
INTEREST EXPENSE
Deposits		635			674			701			719			754
Borrowings		188			181			175			193			202
Total interest expense		823			855			876			912			956
NET INTEREST INCOME		6,145			6,145			6,270			6,144			6,101
PROVISION FOR LOAN LOSSES		420			400			400			800			800
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES		5,725			5,745			5,870			5,344			5,301
OTHER INCOME
Service charges and fees		575			578			614			620			592
Income from fiduciary activities		104			94			111			89			85
Net realized gains on sales of securities		95			291			198			254			138
Gains (losses) on sale of loans and servicing rights		39			121			(12	)		1			11
Earnings and proceeds on life insurance		168			162			150			148			925
Other		71			64			155			100			126
Total other income		1,053			1,310			1,216			1,212			1,877
OTHER EXPENSES
Salaries and  employee benefits		2,165			2,009			2,103			2,124			2,211
Occupancy, furniture and equipment, net		578			550			507			550			529
Foreclosed real estate owned		65			73			217			86			191
FDIC insurance assessment		114			109			114			110			111
Other		1,210			1,357			1,232			1,263			1,259
Total other expenses		4,132			4,098			4,173			4,133			4,301
INCOME BEFORE TAX		2,646			2,957			2,913			2,423			2,877
INCOME TAX EXPENSE		682			776			777			584			569
NET INCOME	$	1,964		$	2,181		$	2,136		$	1,839		$	2,308
Basic  earnings per share	$	0.54		$	0.60		$	0.59		$	0.51		$	0.64
Diluted earnings per share	$	0.54		$	0.60		$	0.59		$	0.51		$	0.63
Book Value per share	$	25.88		$	25.43		$	25.54		$	24.98		$	25.66
Return on average equity (annualized)		8.46	%		9.33	%		9.33	%		7.87	%		10.02	%
Return on average assets (annualized)		1.13	%		1.23	%		1.22	%		1.07	%		1.39	%
Net interest spread (fte)		3.77	%		3.76	%		3.89	%		3.83	%		3.91	%
Net interest margin (fte)		3.91	%		3.91	%		4.05	%		3.99	%		4.07	%
Allowance for loan losses to total loans		1.15	%		1.13	%		1.14	%		1.20	%		1.20	%
Net charge-offs to average loans (annualized)		0.32	%		0.21	%		0.49	%		0.65	%		0.48	%
Nonperforming loans to total loans		1.92	%		1.90	%		2.11	%		2.41	%		2.63	%
Nonperforming assets to total assets		1.55	%		1.48	%		1.60	%		1.85	%		2.01	%