Norwood Financial (NWFL) 8-K Norwood Financial Corp Announces Earnings for the Fourth Quarter and Year

FOR IMMEDIATE RELEASE

NORWOOD FINANCIAL CORP ANNOUNCES EARNINGS FOR THE FOURTH QUARTER AND YEAR

January 30, 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 today for the three months ended December 31, 2014 of $1,541,000.  This represents a decrease of $640,000 from the $2,181,000 earned in the comparable period of 2013 due primarily to a $749,000 increase in foreclosed real estate costs.  Earnings per share (fully diluted) were $.42 and $.60 for the three-month periods ended December 31, 2014 and 2013, respectively.  Net interest income before the provision for loan losses declined $40,000 compared to the same period of last year, while other income increased $17,000.  The provision for loan losses was $420,000 in the current three-month period compared to $400,000 in the same period of last year, while operating expenses increased $899,000 due primarily to the $749,000 increase in foreclosed real estate costs noted above.  For the year ended December 31, 2014, net income totaled $7,657,000, a decrease of $808,000 from the $8,465,000 earned in the prior year as increased foreclosed real estate costs and a decreased level of earnings and proceeds on life insurance policies offset a $720,000 reduction in the provision for loan losses.  Earnings per share on a fully diluted basis were $2.10 for 2014, compared to $2.33 in 2013. The return on average assets for

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the year was 1.08% with a return on average equity of 7.92% compared to 1.23% and 9.13%, respectively, in 2013.

Total assets were $711.6 million as of December 31, 2014.  Loans receivable totaled $501.1 million as of December 31, 2014, with total deposits of $559.9 million and stockholders’ equity of $99.0 million.  The Company’s capital position remains “well capitalized” in accordance with risk-based capital guidelines established by federal bank regulators.

Loans receivable decreased $2.0 million from the prior year-end due primarily to an $11.2 million reduction in commercial real estate loans which was the result of several significant payoffs received in 2014 and the transfer of nonperforming loans to foreclosed real estate.  Other commercial loans increased $6.8 million due to growth in municipal financing, while consumer loans increased $4.4 million.  Residential mortgage loans and construction loans decreased $2.0 million, but includes the sale of $4.3 million of fixed-rate residential mortgage loans for the purpose of interest rate risk management.  As of December 31, 2014, total non-performing loans were $5.6 million and represented 1.12% of total loans compared to $9.5 million, or 1.90% as of December 31, 2013.  For the three months and year ended December 31, 2014, net charge-offs totaled $196,000 and $1,513,000, respectively, compared to $251,000 and $2,194,000, respectively, for the corresponding periods in 2013.  Based on the level of charge-offs and non-performing loans, the Company determined that it would be appropriate to provide $420,000 and $1,680,000 for potential future losses for the three and twelve month periods ended December 31, 2014, respectively, compared to $400,000 in the similar quarter of last year and $2,400,000 for the year of 2013.  As of December 31, 2014, the allowance for loan

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losses totaled $5,875,000 and 1.17% of total loans compared to $5,708,000 and 1.13% of total loans at December 31, 2013.

Net interest income (fully taxable equivalent) totaled $6,399,000 for the three months ended December 31, 2014, a decrease of $62,000 compared to the same period in 2013.  Net interest margin (fte) for the three months ended December 31, 2014 was 3.87% decreasing from 3.91% for the similar period in 2013.  The decrease in net interest margin was principally due to loan production at historically low interest rate levels which resulted in a 9 basis point decrease in the yield earned on assets compared to a 5 basis point reduction in the cost of interest-bearing liabilities.  For the year, net interest income (fte) totaled $25,818,000, a decrease of $39,000 compared to 2013.  The net interest margin (fte) declined 10 basis points to 3.90% in 2014.

Other income for the three months ended December 31, 2014 totaled $1,327,000 compared to $1,310,000 for the similar period in 2013.  Although gains on the sale of loans and securities decreased $65,000, all other items of other income increased $82,000 in the aggregate.  Other income for the year ended December 31, 2014 totaled $5,110,000 compared to $5,615,000 in 2013, a decrease of $505,000.  Gains on the sale of loans and investment securities increased $309,000 in the aggregate but earnings and proceeds received on bank owned life insurance policies decreased $701,000 while all other items of other income decreased $113,000, net.   During 2013, the Company recorded a non-recurring gain of $770,000 from proceeds on a bank-owned life insurance policy.

Other expenses totaled $4,997,000 for the three months ended December 31, 2014, compared to $4,098,000 in the similar period of 2013.  Foreclosed real estate costs increased $749,000 due to market value adjustments and recurring maintenance costs,  

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while all other operating expenses increased $150,000, or 3.7%, net.  For the year ended December 31, 2014, other expenses totaled $17,727,000 compared to $16,705,000 for the similar period in 2013, an increase of $1,022,000.  Foreclosed real estate costs increased $988,000 over the prior period, while all other expenses increased $34,000, net compared to 2013.

 Mr. Critelli commented, “The past year was extremely challenging, as a continued low interest rate environment and the increased cost of maintaining and disposing of foreclosed properties placed stress on our earnings.  Working with borrowers will remain a top priority as we make our way through this difficult economic environment, and we expect that the demands will continue into 2015.  In spite of these challenges, we were able to accomplish many of our goals in 2014.  Our cash dividend per share increased from $1.16 per share to $1.20 per share, which resulted in a dividend yield in excess of 4.00% annually based on our year-end closing stock price of $29.05.  We recorded a Return on Assets of 1.08% and maintained a net interest margin close to 4.00% for the year.  We also managed to reduce our level of non-performing loans from 1.90% of total loans to 1.12% and maintain our capital levels in excess of the “Well Capitalized” levels established by our regulators.  We will remain diligent in controlling and minimizing credit-related costs brought on us by our ailing economy.    We believe that we are well positioned to take advantage of the opportunities available to us, and we look forward to serving our growing customer base as the local economy in Northeast Pennsylvania rebounds from the extended economic downturn.”

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Norwood Financial Corp., through its subsidiary Wayne Bank, operates fifteen 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 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 interest income and 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-

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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 December 31				Year ended December 31
	2014		2013		2014		2013
Net interest income	$	6,105	$	6,145	$	24,560	$	24,661
Tax equivalent basis adjustment using 34% marginal tax rate		294		316		1,258		1,196
Net interest income on a fully taxable equivalent basis	$	6,399	$	6,461	$	25,818	$	25,857

Contact:    William S. Lance

                  Executive Vice President &

   Chief Financial Officer

                  NORWOOD FINANCIAL CORP.

                  570-253-8505

                  www.waynebank.com

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NORWOOD FINANCIAL CORP.
Consolidated Balance Sheets
(dollars in thousands, except share data)
(unaudited)
	December 31
	2014			2013
ASSETS
Cash and due from banks	$	8,081		$	7,528
Interest-bearing deposits with banks		4,295			335
Cash and cash equivalents		12,376			7,863
Securities available for sale		156,395			158,132
Securities held to maturity,  fair value 2013: $177		-			174
Loans receivable (net of unearned Income)		501,135			503,097
Less: Allowance for loan losses		5,875			5,708
Net loans receivable		495,260			497,389
Regulatory stock, at cost		1,714			2,877
Bank premises and equipment, net		6,734			7,125
Bank owned life insurance		18,284			17,790
Foreclosed real estate owned		3,726			1,009
Accrued interest receivable		2,339			2,422
Goodwill		9,715			9,715
Other intangible assets		389			510
Deferred tax asset		3,779			4,819
Other assets		924			1,409
TOTAL ASSETS	$	711,635		$	711,234
LIABILITIES
Deposits:
Non-interest bearing demand	$	98,064		$	92,684
Interest-bearing		461,880			448,498
Total deposits		559,944			541,182
Short-term borrowings		25,695			49,914
Other borrowings		22,200			23,761
Accrued interest payable		966			1,022
Other liabilities		3,789			3,491
TOTAL LIABILITIES		612,594			619,370
STOCKHOLDERS' EQUITY
Common Stock, $.10 par value, authorized 10,000,000 shares
issued: 2014: 3,718,018 shares; 2013: 3,708,718  shares		372			371
Surplus		35,206			35,010
Retained earnings		64,078			60,798
Treasury stock, at cost: 2014: 40,576 shares, 2013: 64,628 shares		(1,077	)		(1,713	)
Accumulated other comprehensive income (loss)		462			(2,602	)
TOTAL STOCKHOLDERS' EQUITY		99,041			91,864
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	711,635		$	711,234

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NORWOOD FINANCIAL CORP.
Consolidated Statements of Income
(dollars in thousands, except per share data)
(unaudited)
	Three Months Ended December 31				Twelve Months Ended December 31
	2014		2013		2014		2013
INTEREST INCOME
Loans receivable, including fees	$	5,954	$	6,019	$	23,841	$	24,576
Securities		940		972		3,920		3,657
Other		4		9		7		26
Total Interest income		6,898		7,000		27,768		28,259
INTEREST EXPENSE
Deposits		611		674		2,463		2,848
Short-term borrowings		15		22		77		66
Other borrowings		167		159		668		684
Total Interest expense		793		855		3,208		3,598
NET INTEREST INCOME		6,105		6,145		24,560		24,661
PROVISION FOR LOAN LOSSES		420		400		1,680		2,400
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		5,685		5,745		22,880		22,261
OTHER INCOME
Service charges and fees		604		578		2,350		2,412
Income from fiduciary activities		109		94		437		379
Net realized gains on sales of securities		265		291		1,170		881
Gains on sale of loans		82		121		132		112
Earnings and proceeds on life insurance policies		171		162		685		1,386
Other		96		64		336		445
Total other income		1,327		1,310		5,110		5,615
OTHER EXPENSES
Salaries and  employee benefits		2,252		2,009		8,616		8,447
Occupancy, furniture and equipment		516		550		2,117		2,136
Data processing related		249		218		929		891
Taxes, other than income		161		179		649		710
Professional Fees		196		128		671		626
FDIC Insurance assessment		100		109		420		444
Foreclosed real estate owned		822		73		1,555		567
Other		701		832		2,770		2,884
Total other expenses		4,997		4,098		17,727		16,705
INCOME BEFORE TAX		2,015		2,957		10,263		11,171
INCOME TAX EXPENSE		474		776		2,606		2,706
NET INCOME	$	1,541	$	2,181	$	7,657	$	8,465
Basic earnings per share	$	0.42	$	0.60	$	2.10	$	2.33
Diluted earnings per share	$	0.42	$	0.60	$	2.10	$	2.33

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NORWOOD FINANCIAL CORP.
Financial Highlights (Unaudited)
(dollars in thousands, except per share data)
For the Three Months Ended December 31	2014			2013
Net interest income	$	6,105		$	6,145
Net income		1,541			2,181
Net interest spread (fully taxable equivalent)		3.72	%		3.76	%
Net interest margin (fully taxable equivalent)		3.87	%		3.91	%
Return on average assets		0.86	%		1.23	%
Return on average equity		6.17	%		9.33	%
Basic earnings per share	$	0.42		$	0.60
Diluted earnings per share	$	0.42		$	0.60
For the Twelve Months Ended December 31
Net interest income	$	24,560		$	24,661
Net income		7,657			8,465
Net interest spread (fully taxable equivalent)		3.76	%		3.85	%
Net interest margin (fully taxable equivalent)		3.90	%		4.00	%
Return on average assets		1.08	%		1.23	%
Return on average equity		7.92	%		9.13	%
Basic earnings per share	$	2.10		$	2.33
Diluted earnings per share	$	2.10		$	2.33
As of December 31
Total assets	$	711,635		$	711,234
Total loans receivable		501,135			503,097
Allowance for loan losses		5,875			5,708
Total deposits		559,944			541,182
Stockholders' equity		99,041			91,864
Trust assets under management		134,888			126,673
Book value per share	$	26.30		$	25.43
Equity to total assets		13.92	%		12.92	%
Allowance to total loans receivable		1.17	%		1.13	%
Nonperforming loans to total loans		1.12	%		1.90	%
Nonperforming assets to total assets		1.31	%		1.48	%

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NORWOOD FINANCIAL CORP.
Consolidated Balance Sheets (unaudited)
(dollars in thousands)
	December 31		September 30		June 30		March 31		December 31
	2014		2014		2014		2014		2013
ASSETS
Cash and due from banks	$	8,081	$	13,105	$	12,196	$	8,607	$	7,528
Interest-bearing deposits with banks		4,295		158		3,182		142		335
Cash and cash equivalents		12,376		13,263		15,378		8,749		7,863
Securities available for sale		156,395		158,701		154,925		156,165		158,132
Securities held to maturity		-		-		-		175		174
Loans receivable (net of unearned income)		501,135		500,844		502,316		496,016		503,097
Less: Allowance for loan losses		5,875		5,651		5,611		5,727		5,708
Net loans receivable		495,260		495,193		496,705		490,289		497,389
Regulatory stock, at cost		1,714		3,210		2,437		2,741		2,877
Bank owned life insurance		18,284		18,143		18,002		17,930		17,790
Bank premises and equipment, net		6,734		6,825		6,910		7,031		7,125
Foreclosed real estate owned		3,726		4,962		4,293		1,364		1,009
Goodwill and other intangibles		10,104		10,133		10,161		10,192		10,225
Other assets		7,042		7,783		8,051		8,598		8,650
TOTAL ASSETS	$	711,635	$	718,213	$	716,862	$	703,234	$	711,234
LIABILITIES
Deposits:
Non-interest bearing demand	$	98,064	$	102,343	$	103,954	$	93,400	$	92,684
Interest-bearing deposits		461,880		445,995		450,760		446,676		448,498
Total deposits		559,944		548,338		554,714		540,076		541,182
Other borrowings		47,895		67,296		60,992		63,746		73,675
Other liabilities		4,755		5,172		4,954		5,212		4,513
TOTAL LIABILITIES		612,594		620,806		620,660		609,034		619,370
STOCKHOLDERS' EQUITY		99,041		97,407		96,202		94,200		91,864
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	711,635	$	718,213	$	716,862	$	703,234	$	711,234

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NORWOOD FINANCIAL CORP.
Consolidated Statements of Income (unaudited)
(dollars in thousands, except per share data)
	December 31			September 30			June 30			March 31			December 31
Three months ended	2014			2014			2014			2014			2013
INTEREST INCOME
Loans receivable, including fees	$	5,954		$	5,972		$	5,933		$	5,980		$	6,019
Securities		940			968			1,025			987			972
Other		4			1			2			1			9
Total interest income		6,898			6,941			6,960			6,968			7,000
INTEREST EXPENSE
Deposits		611			600			618			635			674
Borrowings		182			187			187			188			181
Total interest expense		793			787			805			823			855
NET INTEREST INCOME		6,105			6,154			6,155			6,145			6,145
PROVISION FOR LOAN LOSSES		420			420			420			420			400
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES		5,685			5,734			5,735			5,725			5,745
OTHER INCOME
Service charges and fees		604			587			583			576			578
Income from fiduciary activities		109			125			99			104			94
Net realized gains on sales of securities		265			301			509			95			291
Gains (losses) on sale of loans and servicing rights		82			(15	)		26			39			121
Earnings and proceeds on life insurance  policies		171			170			175			168			162
Other		96			94			76			71			64
Total other income		1,327			1,262			1,468			1,053			1,310
OTHER EXPENSES
Salaries and  employee benefits		2,252			2,028			2,172			2,165			2,009
Occupancy, furniture and equipment, net		516			505			518			578			550
Foreclosed real estate owned		822			271			396			65			73
FDIC insurance assessment		100			104			102			114			109
Other		1,307			1,216			1,285			1,210			1,357
Total other expenses		4,997			4,124			4,473			4,132			4,098
INCOME BEFORE TAX		2,015			2,872			2,730			2,646			2,957
INCOME TAX EXPENSE		474			754			696			682			776
NET INCOME	$	1,541		$	2,118		$	2,034		$	1,964		$	2,181
Basic  earnings per share	$	0.42		$	0.58		$	0.56		$	0.54		$	0.60
Diluted earnings per share	$	0.42		$	0.58		$	0.56		$	0.54		$	0.60
Book Value per share	$	26.30		$	26.30		$	26.14		$	25.88		$	25.43
Return on average equity (annualized)		6.17	%		8.62	%		8.49	%		8.46	%		9.33	%
Return on average assets (annualized)		0.86	%		1.18	%		1.15	%		1.13	%		1.23	%
Net interest spread (fte)		3.72	%		3.78	%		3.77	%		3.77	%		3.76	%
Net interest margin (fte)		3.87	%		3.92	%		3.91	%		3.91	%		3.91	%
Allowance for loan losses to total loans		1.17	%		1.13	%		1.12	%		1.15	%		1.13	%
Net charge-offs to average loans (annualized)		0.16	%		0.30	%		0.43	%		0.32	%		0.21	%
Nonperforming loans to total loans		1.12	%		1.18	%		1.49	%		1.92	%		1.90	%
Nonperforming assets to total assets		1.31	%		1.52	%		1.65	%		1.55	%		1.48	%

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