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

FOR IMMEDIATE RELEASE

NORWOOD FINANCIAL CORP. ANNOUNCES FIRST QUARTER EARNINGS

Honesdale, Pennsylvania - April 22, 2015

Lewis J. Critelli, President and Chief Executive Officer of Norwood Financial Corp. (Nasdaq Global Market – NWFL) and its subsidiary, Wayne Bank, announced earnings of $2,041,000 for the three months ended March 31, 2015 which represents an increase of 3.9% from the $1,964,000 recorded during the same three-month period of last year.  Earnings per share on a fully diluted basis were $.55 in the first quarter of this year compared to $.54 in the first quarter of 2014.  The annualized return on average assets was 1.15% in the first quarter of 2015 and the annualized return on average equity was 8.22%.

Total assets were $734.4 million as of March 31, 2015, an increase of $31.2 million, or 4.4%, compared to the prior year total.  Total loans increased $22.9 million compared to March 31, 2014 consisting of a $16.6 million increase in commercial lending and $6.3 million of growth in retail loans.  Commercial financing increased $17.8 million, installment loans grew $5.2 million and residential mortgage loan balances increased $1.1 million during the first quarter, while construction loans decreased $1.2 million.  Total deposits increased $30.1 million over the past twelve months which consists of a $13.2 million increase in time deposits, $8.9 million of growth in interest-

bearing demand and savings deposits, and an $8.0 million increase in non-interest bearing demand deposits.  Stockholders’ equity increased $6.3 million during the past year, due principally to the retention of earnings and an increase in accumulated other comprehensive income.

Non-performing assets totaled $7.4 million or 1.01% of total assets at March 31, 2015 comprised of $5.7 million of non-performing loans and $1.7 million of foreclosed real estate owned, compared to $9.3 million of non-performing assets or 1.31% of total assets at December 31, 2014. The decrease recorded during the quarter includes a $2.0 million reduction in foreclosed real estate owned due primarily to the disposition of a property with a carrying value of $1.9 million at December 31, 2014.  As of March 31, 2014, non-performing assets totaled $10.9 million.  Net charge-offs for the three-month period ending March 31, 2015 were $488,000 compared to $400,000 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 $620,000 to the allowance for loan losses in the current period compared to $420,000 during the same period of last year.  The increase in the provision for loan losses reflects the higher level of net charge-offs and the significant loan growth recorded in the first quarter of this year.  The allowance for loan losses was 1.16% of total loans outstanding on March 31, 2015 compared to 1.17% on December 31, 2014 and 1.15% on March 31, 2014.

Net interest income (fully taxable equivalent) was $6,602,000 during the first quarter of 2015 which is $140,000 higher than the comparable three-month period of last year.  The net interest margin was positively impacted by several non-recurring

events in the first quarter, including earnings on two loans returned to accrual status and a special cash dividend from the Federal Home Loan Bank.  A $5.4 million increase in average loans outstanding also added to the improved margin.  The yield on interest-earning assets increased six basis points compared to the prior quarter while the cost of funds decreased one basis point.  As a result, the net interest margin (fte) improved from 3.87% to 3.94% compared to the quarter ended December 31, 2014.  In comparison to the quarter ended March 31, 2014, the net interest margin (fte) increased from 3.91% to 3.94%.

Other income totaled $1,279,000 in the first quarter of 2015 compared to $1,053,000 during the same period of last year.  During the current period, the Company recognized a net gain of $311,000 from the sale of securities compared to $95,000 in the prior-year period.  All other components of other income increased $10,000, net.

Operating expenses totaled $4,187,000 in the first quarter and were $55,000 higher than the same period of last year.  Foreclosed real estate costs were $93,000 higher than the same period of last year due primarily to a $64,000 loss on the disposition of a commercial property.  All other operating costs decreased $38,000, net.

Mr. Critelli stated that “Our first quarter results provide a good start for 2015.  Net interest income improved over the prior quarter and the same period of last year due to a significant amount of loan growth, while operating expenses remain well controlled.  Working with borrowers experiencing cash flow pressure will remain a top priority as we make our way through this difficult economic environment.  We expect that stress on loan quality will continue into 2015.  Our net interest margin exceeds peer banks, core

operating expenses are well controlled and our capital base remains above regulatory “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 local economy in Northeast Pennsylvania rebounds from the extended economic downturn.”

Norwood Financial Corp. is the parent company of Wayne Bank which operates from 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 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,
	2015		2014
Net interest income	$	6,307	$	6,145
Tax equivalent basis adjustment using 34% marginal    tax rate		295		317
Net interest income on a fully taxable equivalent basis	$	6,602	$	6,462

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
	2015			2014
ASSETS
Cash and due from banks	$	7,658		$	8,607
Interest-bearing deposits with banks		11,969			142
Cash and cash equivalents		19,627			8,749
Securities available for sale		155,674			156,165
Securities held to maturity,  fair value 2014: $176		-			175
Loans receivable		518,961			496,016
Less: Allowance for loan losses		6,007			5,727
Net loans receivable		512,954			490,289
Regulatory stock, at cost		1,838			2,741
Bank premises and equipment, net		6,632			7,031
Bank owned life insurance		18,417			17,930
Foreclosed real estate owned		1,698			1,364
Accrued interest receivable		2,329			2,330
Goodwill		9,715			9,715
Other intangible assets		361			477
Deferred tax asset		3,308			4,294
Other assets		1,806			1,974
TOTAL ASSETS	$	734,359		$	703,234
LIABILITIES
Deposits:
Non-interest bearing demand	$	101,423		$	93,400
Interest-bearing		468,783			446,676
Total deposits		570,206			540,076
Short-term borrowings		30,581			40,373
Other borrowings		27,807			23,373
Accrued interest payable		955			973
Other liabilities		4,359			4,239
TOTAL LIABILITIES		633,908			609,034
STOCKHOLDERS' EQUITY
Common Stock, $.10 par value, authorized 10,000,000 shares
issued: 2015: 3,718,018 shares; 2014: 3,708,718  shares		372			371
Surplus		35,239			35,050
Retained earnings		64,975			61,671
Treasury stock, at cost: 2015: 38,972 shares, 2014: 71,297 shares		(1,046	)		(1,892	)
Accumulated other comprehensive income (loss)		911			(1,000	)
TOTAL STOCKHOLDERS' EQUITY		100,451			94,200
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	734,359		$	703,234

NORWOOD FINANCIAL CORP.
Consolidated Statements of Income
(dollars in thousands, except per share data)
(unaudited)
	Three Months Ended March 31
	2015		2014
INTEREST INCOME
Loans receivable, including fees	$	6,061	$	5,980
Securities		1,023		987
Other		4		1
Total Interest income		7,088		6,968
INTEREST EXPENSE
Deposits		604		635
Short-term borrowings		12		22
Other borrowings		165		166
Total Interest expense		781		823
NET INTEREST INCOME		6,307		6,145
PROVISION FOR LOAN LOSSES		620		420
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		5,687		5,725
OTHER INCOME
Service charges and fees		572		576
Income from fiduciary activities		105		104
Net realized gains on sales of securities		311		95
Gains on sales of loans, net		18		39
Earnings and proceeds on life insurance policies		165		168
Other		108		71
Total other income		1,279		1,053
OTHER EXPENSES
Salaries and  employee benefits		2,137		2,165
Occupancy, furniture and equipment		556		578
Data processing related		234		212
Taxes, other than income		175		165
Professional Fees		183		165
FDIC Insurance assessment		95		114
Foreclosed real estate owned		158		65
Other		649		668
Total other expenses		4,187		4,132
INCOME BEFORE TAX		2,779		2,646
INCOME TAX EXPENSE		738		682
NET INCOME	$	2,041	$	1,964
Basic earnings per share	$	0.55	$	0.54
Diluted earnings per share	$	0.55	$	0.54

NORWOOD FINANCIAL CORP.
Financial Highlights (Unaudited)
(dollars in thousands, except per share data)
For the Three Months Ended March 31	2015			2014
Net interest income	$	6,307		$	6,145
Net income		2,041			1,964
Net interest spread (fully taxable equivalent)		3.80	%		3.77	%
Net interest margin (fully taxable equivalent)		3.94	%		3.91	%
Return on average assets		1.15	%		1.13	%
Return on average equity		8.22	%		8.46	%
Basic earnings per share	$	0.55		$	0.54
Diluted earnings per share	$	0.55		$	0.54
As of March 31
Total assets	$	734,359		$	703,234
Total loans receivable		518,961			496,016
Allowance for loan losses		6,007			5,727
Total deposits		570,206			540,076
Stockholders' equity		100,451			94,200
Trust assets under management		134,391			129,739
Book value per share	$	27.38		$	25.88
Equity to total assets		13.68	%		13.40	%
Allowance to total loans receivable		1.16	%		1.15	%
Nonperforming loans to total loans		1.11	%		1.92	%
Nonperforming assets to total assets		1.01	%		1.55	%

NORWOOD FINANCIAL CORP.
Consolidated Balance Sheets (unaudited)
(dollars in thousands)
	March 31		December 31		September 30		June 30		March 31
	2015		2014		2014		2014		2014
ASSETS
Cash and due from banks	$	7,658	$	8,081	$	13,105	$	12,196	$	8,607
Interest-bearing deposits with banks		11,969		4,295		158		3,182		142
Cash and cash equivalents		19,627		12,376		13,263		15,378		8,749
Securities available for sale		155,674		156,395		158,701		154,925		156,165
Securities held to maturity		-		-		-		-		175
Loans receivable		518,961		501,135		500,844		502,316		496,016
Less: Allowance for loan losses		6,007		5,875		5,651		5,611		5,727
Net loans receivable		512,954		495,260		495,193		496,705		490,289
Regulatory stock, at cost		1,838		1,714		3,210		2,437		2,741
Bank owned life insurance		18,417		18,284		18,143		18,002		17,930
Bank premises and equipment, net		6,632		6,734		6,825		6,910		7,031
Foreclosed real estate owned		1,698		3,726		4,962		4,293		1,364
Goodwill and other intangibles		10,076		10,104		10,133		10,161		10,192
Other assets		7,443		7,042		7,783		8,051		8,598
TOTAL ASSETS	$	734,359	$	711,635	$	718,213	$	716,862	$	703,234
LIABILITIES
Deposits:
Non-interest bearing demand	$	101,423	$	98,064	$	102,343	$	103,954	$	93,400
Interest-bearing deposits		468,783		461,880		445,995		450,760		446,676
Total deposits		570,206		559,944		548,338		554,714		540,076
Other borrowings		58,388		47,895		67,296		60,992		63,746
Other liabilities		5,314		4,755		5,172		4,954		5,212
TOTAL LIABILITIES		633,908		612,594		620,806		620,660		609,034
STOCKHOLDERS' EQUITY		100,451		99,041		97,407		96,202		94,200
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	734,359	$	711,635	$	718,213	$	716,862	$	703,234

NORWOOD FINANCIAL CORP.
Consolidated Statements of Income (unaudited)
(dollars in thousands, except per share data)
	March 31			December 31			September 30			June 30			March 31
Three months ended	2015			2014			2014			2014			2014
INTEREST INCOME
Loans receivable, including fees	$	6,061		$	5,954		$	5,972		$	5,933		$	5,980
Securities		1,023			940			968			1,025			987
Other		4			4			1			2			1
Total interest income		7,088			6,898			6,941			6,960			6,968
INTEREST EXPENSE
Deposits		604			611			600			618			635
Borrowings		177			182			187			187			188
Total interest expense		781			793			787			805			823
NET INTEREST INCOME		6,307			6,105			6,154			6,155			6,145
PROVISION FOR LOAN LOSSES		620			420			420			420			420
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES		5,687			5,685			5,734			5,735			5,725
OTHER INCOME
Service charges and fees		572			604			587			583			576
Income from fiduciary activities		105			109			125			99			104
Net realized gains on sales of securities		311			265			301			509			95
Gains (losses) on sales of loans, net		18			82			(15	)		26			39
Earnings and proceeds on life insurance policies		165			171			170			175			168
Other		108			96			94			76			71
Total other income		1,279			1,327			1,262			1,468			1,053
OTHER EXPENSES
Salaries and  employee benefits		2,137			2,252			2,028			2,172			2,165
Occupancy, furniture and equipment, net		556			516			505			518			578
Foreclosed real estate owned		158			822			271			396			65
FDIC insurance assessment		95			100			104			102			114
Other		1,241			1,307			1,216			1,285			1,210
Total other expenses		4,187			4,997			4,124			4,473			4,132
INCOME BEFORE TAX		2,779			2,015			2,872			2,730			2,646
INCOME TAX EXPENSE		738			474			754			696			682
NET INCOME	$	2,041		$	1,541		$	2,118		$	2,034		$	1,964
Basic earnings per share	$	0.55		$	0.42		$	0.58		$	0.56		$	0.54
Diluted earnings per share	$	0.55		$	0.42		$	0.58		$	0.56		$	0.54
Book Value per share	$	27.38		$	26.30		$	26.30		$	26.14		$	25.88
Return on average equity (annualized)		8.22	%		6.17	%		8.62	%		8.49	%		8.46	%
Return on average assets (annualized)		1.15	%		0.86	%		1.18	%		1.15	%		1.13	%
Net interest spread (fte)		3.80	%		3.72	%		3.78	%		3.77	%		3.77	%
Net interest margin (fte)		3.94	%		3.87	%		3.92	%		3.91	%		3.91	%
Allowance for loan losses to total loans		1.16	%		1.17	%		1.13	%		1.12	%		1.15	%
Net charge-offs to average loans (annualized)		0.39	%		0.16	%		0.30	%		0.43	%		0.32	%
Nonperforming loans to total loans		1.11	%		1.12	%		1.18	%		1.49	%		1.92	%
Nonperforming assets to total assets		1.01	%		1.31	%		1.52	%		1.65	%		1.55	%