Norwood Financial (NWFL) 8-K Announces Second Quarter Earnings

FOR IMMEDIATE RELEASE

NORWOOD FINANCIAL CORP

ANNOUNCES SECOND QUARTER EARNINGS

Honesdale, Pennsylvania - July 22, 2016

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 June 30, 2016 of $1,878,000.  This represents a decrease of $85,000, from the $1,963,000 earned in the similar period of 2015 due primarily to increases in operating expenses and the provision for loan losses.  Earnings per share (fully diluted) were $.51 in the 2016 period, decreasing from the $.53 earned in the similar period of 2015.  Annualized return on average assets for the three months ended June 30, 2016 was 0.99% with an annualized return on average equity of 7.28%.  Net income for the six months ended June 30, 2016 totaled $3,754,000, which is $250,000 lower than the same six-month period of last year due to a lower level of gains on security sales and an increased level of operating expenses.  Earnings per share (fully diluted) for the six months ended June 30, 2016 and 2015 totaled $1.02 and $1.08 per share, respectively.

Total assets as of June 30, 2016 were $767.8 million with loans receivable of $581.2 million, deposits of $584.3 million and stockholders' equity of $104.6 million.  Loans receivable increased $42.3 million since June 30, 2015 while total deposits increased $8.6 million over the past twelve months.  Stockholders' equity increased $4.7 million over the past year, due principally to the retention of earnings and an increase in accumulated other comprehensive income.

Non-performing assets, which include non-performing loans and foreclosed assets, totaled $6.6 million and represented 0.86% of total assets as of June 30, 2016 compared

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to $12.1 million, or 1.62% of total assets, as of June 30, 2015.  The allowance for loan losses totaled $5,798,000 as of June 30, 2016 and represented 1.00% of total loans outstanding, compared to $5,947,000 and 1.10% on June 30, 2015.

For the three months ended June 30, 2016, net interest income, on a fully taxable equivalent basis (fte), totaled $6,758,000, an increase of $369,000 compared to the similar period in 2015 due primarily to a $465,000 increase in interest income on loans.  Net interest margin (fte) for the 2016 period was 3.79% increasing from 3.68% for the similar period in 2015 due to a 10 basis point improvement in the yield on interest-earning assets.  The cost of interest-bearing liabilities decreased one basis point to 0.62%.  The improved margin reflects a $45.6 million increase in average loans outstanding.  The yield earned on securities also improved 13 basis points.  Net interest income (fte) for the six months ended June 30, 2016 totaled $13,292,000, which was $301,000 higher than the similar period in 2015.  The net interest margin (fte) was 3.74% in the 2016 period and 3.81% during the first six months of 2015.  Decreasing yields on loans contributed to the reduced net interest margin.

Other income for the three months ended June 30, 2016 totaled $1,223,000 compared to $1,133,000 for the similar period in 2015.  Net gains from securities sales increased $71,000 compared to the prior-year period.  For the six months ended June 30, 2016, other income totaled $2,290,000 compared to $2,412,000 in the 2015 period.  Gains on the sales of investment securities totaled $445,000 on sales of $23.4 million for the 2015 period compared to $270,000 on sales of $31.8 million in the 2016 period.

Other expenses totaled $4,528,000 for the three months ended June 30, 2016, an increase of $360,000 compared to the $4,168,000 reported in the similar period of 2015. 

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For the six months ended June 30, 2016, other expenses totaled $8,876,000 compared to $8,355,000 for the similar period in 2015, an increase of $521,000.

Mr. Critelli commented, "Our earnings for the first half of 2016 were in-line with projections.  Net interest income increased over the prior period and credit quality ratios continue to show improvement.  Our net interest margin exceeds peer banks, core operating expenses remain well controlled and our capital base remains above regulatory "well capitalized" targets.  We are focused on our pending acquisition of Delaware Bancshares, Inc., including the integration of twelve new community offices located in Delaware and Sullivan Counties, New York, into the Wayne Bank system.  All required regulatory and shareholder approvals have been received, and closing is expected in the third quarter of 2016.  For additional information on the transaction, please visit our website at www.waynebank.com/stockholder-services.  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., is the parent company of Wayne Bank, which operates 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

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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 net interest income, which is a non-GAAP (Generally Accepted Accounting Principles) financial measure.  Tax-equivalent net interest income is derived from GAAP 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-exempt sources and is consistent with industry practice.

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

	Three months ended June 30				Six months ended June 30
(dollars in thousands)	2016		2015		2016		2015
Net Interest Income	$	6,394	$	6,049	$	12,569	$	12,356
Taxable equivalent basis adjustment   using 34% marginal tax rate		364		340		723		635
Net interest income on a fully taxable   equivalent basis	$	6,758	$	6,389	$	13,292	$	12,991

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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)
	June 30
	2016			2015
ASSETS
Cash and due from banks	$	8,171		$	8,505
Interest-bearing deposits with banks		4,444			11,937
Cash and cash equivalents		12,615			20,442
Securities available for sale		129,721			151,304
Loans receivable		581,220			538,870
Less: Allowance for loan losses		5,798			5,947
Net loans receivable		575,422			532,923
Regulatory stock, at cost		2,228			2,240
Bank premises and equipment, net		6,328			6,555
Bank owned life insurance		19,082			18,551
Foreclosed real estate owned		5,414			1,382
Accrued interest receivable		2,289			2,340
Goodwill		9,715			9,715
Other intangible assets		237			334
Deferred tax asset		2,222			4,071
Other assets		2,556			1,664
TOTAL ASSETS	$	767,829		$	751,521
LIABILITIES
Deposits:
Non-interest bearing demand	$	121,743		$	107,610
Interest-bearing		462,516			468,004
Total deposits		584,259			575,614
Short-term borrowings		38,100			33,842
Other borrowings		36,579			37,211
Accrued interest payable		891			988
Other liabilities		3,409			3,948
TOTAL LIABILITIES		663,238			651,603
STOCKHOLDERS' EQUITY
Common Stock, $.10 par value, authorized 10,000,000 shares
issued:  2016: 3,724,668 shares, 2015:  3,718,018 shares		373			372
Surplus		35,430			35,268
Retained earnings		66,876			65,797
Treasury stock, at cost: 2016: 33,444 shares, 2015: 37,162 shares		(926	)		(997	)
Accumulated other comprehensive income		2,838			(522	)
TOTAL STOCKHOLDERS' EQUITY		104,591			99,918
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	767,829		$	751,521

NORWOOD FINANCIAL CORP.
Consolidated Statements of Income
(dollars in thousands, except per share data)
(unaudited)
	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
INTEREST INCOME
Loans receivable, including fees	$	6,351	$	5,924	$	12,485	$	11,985
Securities		878		950		1,768		1,974
Other		5		8		7		12
Total Interest income		7,234		6,882		14,260		13,971
INTEREST EXPENSE
Deposits		580		618		1,161		1,222
Short-term borrowings		37		16		77		29
Other borrowings		223		199		453		364
Total Interest expense		840		833		1,691		1,615
NET INTEREST INCOME		6,394		6,049		12,569		12,356
PROVISION FOR LOAN LOSSES		700		420		1,150		1,040
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		5,694		5,629		11,419		11,316
OTHER INCOME
Service charges and fees		604		622		1,178		1,194
Income from fiduciary activities		114		109		216		215
Net realized gains on sales of securities		205		134		270		445
Gains on sales of loans, net		18		12		47		30
Earnings and proceeds on life insurance policies		166		166		333		330
Other		116		90		246		198
Total other income		1,223		1,133		2,290		2,412
OTHER EXPENSES
Salaries and  employee benefits		2,248		2,071		4,551		4,208
Occupancy, furniture and equipment		487		542		982		1,098
Data processing		255		201		526		435
Taxes, other than income		124		175		329		350
Professional fees		181		124		332		307
FDIC Insurance assessment		117		65		231		159
Foreclosed real estate owned		432		232		462		390
Other		684		758		1,463		1,408
Total other expenses		4,528		4,168		8,876		8,355
INCOME BEFORE TAX		2,389		2,594		4,833		5,373
INCOME TAX EXPENSE		511		631		1,079		1,369
NET INCOME	$	1,878	$	1,963	$	3,754	$	4,004
Basic earnings per share	$	0.51	$	0.53	$	1.02	$	1.09
Diluted earnings per share	$	0.51	$	0.53	$	1.02	$	1.08

NORWOOD FINANCIAL CORP.
Financial Highlights (Unaudited)
(dollars in thousands, except per share data)
For the Three Months Ended June 30	2016			2015
Net interest income	$	6,394		$	6,049
Net income		1,878			1,963
Net interest spread (fully taxable equivalent)		3.63	%		3.53	%
Net interest margin (fully taxable equivalent)		3.79	%		3.68	%
Return on average assets		0.99	%		1.06	%
Return on average equity		7.28	%		7.80	%
Basic earnings per share	$	0.51		$	0.53
Diluted earnings per share	$	0.51		$	0.53
For the Six Months Ended June 30
Net interest income	$	12,569		$	12,356
Net income		3,754			4,004
Net interest spread (fully taxable equivalent)		3.59	%		3.66	%
Net interest margin (fully taxable equivalent)		3.74	%		3.81	%
Return on average assets		0.99	%		1.11	%
Return on average equity		7.31	%		8.01	%
Basic earnings per share	$	1.02		$	1.09
Diluted earnings per share	$	1.02		$	1.08
As of June 30
Total assets	$	767,829		$	751,521
Total loans receivable		581,220			538,870
Allowance for loan losses		5,798			5,947
Total deposits		584,259			575,614
Stockholders' equity		104,591			99,918
Trust assets under management		134,126			134,732
Book value per share	$	27.99		$	27.40
Equity to total assets		13.62	%		13.30	%
Allowance to total loans receivable		1.00	%		1.10	%
Nonperforming loans to total loans		0.21	%		2.00	%
Nonperforming assets to total assets		0.86	%		1.62	%

NORWOOD FINANCIAL CORP.
Consolidated Balance Sheets (unaudited)
(dollars in thousands)
	June 30		March 31		December 31		September 30		June 30
	2016		2016		2015		2015		2015
ASSETS
Cash and due from banks	$	8,171	$	8,709	$	9,744	$	11,164	$	8,505
Interest-bearing deposits with banks		4,444		254		266		552		11,937
Cash and cash equivalents		12,615		8,963		10,010		11,716		20,442
Securities available for sale		129,721		143,948		138,851		153,305		151,304
Loans receivable		581,220		565,787		559,925		543,536		538,870
Less: Allowance for loan losses		5,798		7,642		7,298		5,747		5,947
Net loans receivable		575,422		558,145		552,627		537,789		532,923
Regulatory stock, at cost		2,228		2,982		3,412		2,488		2,240
Bank owned life insurance		19,082		18,951		18,820		18,686		18,551
Bank premises and equipment, net		6,328		6,390		6,472		6,503		6,555
Foreclosed real estate owned		5,414		2,855		2,847		1,345		1,382
Goodwill and other intangibles		9,952		9,975		10,000		10,024		10,049
Other assets		7,067		7,895		7,466		7,473		8,075
TOTAL ASSETS	$	767,829	$	760,104	$	750,505	$	749,329	$	751,521
		.		.		.		.
LIABILITIES
Deposits:
Non-interest bearing demand	$	121,743	$	113,225	$	107,814	$	115,313	$	107,610
Interest-bearing deposits		462,516		447,266		443,095		456,040		468,004
Total deposits		584,259		560,491		550,909		571,353		575,614
Other borrowings		74,679		91,528		94,361		70,708		71,053
Other liabilities		4,300		5,387		4,237		5,328		4,936
TOTAL LIABILITIES		663,238		657,406		649,507		647,389		651,603
STOCKHOLDERS' EQUITY		104,591		102,698		100,998		101,940		99,918
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	767,829	$	760,104	$	750,505	$	749,329	$	751,521

NORWOOD FINANCIAL CORP.
Consolidated Statements of Income (unaudited)
(dollars in thousands, except per share data)
	June 30			March 31			December 31			September 30			June 30
Three months ended	2016			2016			2015			2015			2015
INTEREST INCOME
Loans receivable, including fees	$	6,351		$	6,135		$	6,058		$	5,958		$	5,924
Securities		878			890			877			911			950
Other		5			1			1			3			8
Total interest income		7,234			7,026			6,936			6,872			6,882
INTEREST EXPENSE
Deposits		580			581			587			611			618
Borrowings		260			270			237			208			215
Total interest expense		840			851			824			819			833
NET INTEREST INCOME		6,394			6,175			6,112			6,053			6,049
PROVISION FOR LOAN LOSSES		700			450			2,820			720			420
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES		5,694			5,725			3,292			5,333			5,629
OTHER INCOME
Service charges and fees		604			574			651			595			622
Income from fiduciary activities		114			102			99			126			109
Net realized gains on sales of securities		205			64			118			63			134
Gains on sales of loans, net		18			30			61			13			12
Earnings and proceeds on life insurance policies		166			167			167			167			166
Other		116			130			120			107			90
Total other income		1,223			1,067			1,216			1,071			1,133
OTHER EXPENSES
Salaries and  employee benefits		2,248			2,303			2,152			2,175			2,071
Occupancy, furniture and equipment, net		487			495			511			473			542
Foreclosed real estate owned		432			31			475			47			232
FDIC insurance assessment		117			115			133			119			65
Other		1,244			1,405			1,403			1,256			1,258
Total other expenses		4,528			4,349			4,674			4,070			4,168
INCOME (LOSS) BEFORE TAX		2,389			2,443			(166	)		2,334			2,594
INCOME TAX EXPENSE (BENEFIT)		511			567			(294	)		557			631
NET INCOME	$	1,878		$	1,876		$	128		$	1,777		$	1,963
Basic earnings per share	$	0.51		$	0.51		$	0.04		$	0.48		$	0.53
Diluted earnings per share	$	0.51		$	0.51		$	0.04		$	0.48		$	0.53
Book Value per share	$	27.99		$	27.88		$	27.39		$	27.42		$	27.40
Return on average equity (annualized)		7.28	%		7.33	%		0.50	%		6.95	%		7.80	%
Return on average assets (annualized)		0.99	%		1.00	%		0.07	%		0.95	%		1.06	%
Net interest spread (fte)		3.63	%		3.55	%		3.58	%		3.53	%		3.53	%
Net interest margin (fte)		3.79	%		3.70	%		3.73	%		3.68	%		3.68	%
Allowance for loan losses to total loans		1.00	%		1.35	%		1.30	%		1.06	%		1.10	%
Net charge-offs to average loans (annualized)		1.78	%		0.08	%		0.92	%		0.68	%		0.37	%
Nonperforming loans to total loans		0.21	%		1.21	%		1.27	%		1.69	%		2.00	%
Nonperforming assets to total assets		0.86	%		1.28	%		1.33	%		1.40	%		1.62	%