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

 FOR IMMEDIATE RELEASE

NORWOOD FINANCIAL CORP

ANNOUNCES THIRD QUARTER EARNINGS

October 24, 2017 - Honesdale, Pennsylvania

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 September 30, 2017 of $2,941,000 which represents an increase of $2,329,000 over the $612,000 earned in the same three-month period of 2016.  Net interest income improved $1,300,000 and other income increased $459,000 due primarily to benefits derived from the acquisition of Delaware Bancshares, Inc. ("Delaware") which closed on July 31, 2016.  The 2016 period included $1,659,000 of non-recurring merger-related expenses incurred in connection with the acquisition of Delaware.  Earnings per share (fully diluted) were $0.47 in the 2017 period, increasing from the $0.10 earned in the similar period of last year after adjusting for the retroactive effect of the 50% stock dividend declared August 8, 2017.  Net income for the nine months ended September 30, 2017 totaled $8,041,000, which is $3,676,000 higher than the same period of 2016 primarily due to the positive impact of the merger realized during the entire 2017 period.  Earnings per share (fully diluted) for the nine months ended September 30, 2017 totaled $1.28 per share compared to $0.77 per share in the 2016 period after adjusting for the 50% stock dividend.  The annualized returns on average assets and average equity for the current three-month period were 1.03% and 9.85%, respectively.

Total assets as of September 30, 2017 were $1.132 billion with loans receivable of $756.0 million, deposits of $924.0 million and stockholders' equity of $117.7 million.  Total assets have increased $6.9 million during the past twelve months while loans, deposits

and stockholders' equity have increased $49.8 million, $1.8 million and $2.0 million, respectively.

Non-performing assets, which include non-performing loans and foreclosed real estate owned, totaled $6.2 million or 0.55% of total assets as of September 30, 2017 compared to $7.1 million or 0.63% of assets as of June 30, 2017 and $7.6 million or 0.68% of total assets as of September 30, 2016.  Net charge-offs were $259,000 for the quarter and totaled $503,000 for the nine months ended September 30, 2017 compared to $84,000 and $2,733,000, respectively, for the similar periods in 2016.  Based on management's analysis, the Company added $600,000 and $1,800,000 to the allowance for loan losses for the three and nine-month periods ended September 30, 2017, respectively, compared to $450,000 and $1,600,000, respectively, for the similar periods in 2016.  The allowance for loan losses totaled $7,760,000 as of September 30, 2017 and represented 387% of total non-performing loans, compared to $6,164,000 and 274% of non-performing loans as of September 30, 2016.

For the three months ended September 30, 2017, net interest income, on a fully taxable equivalent basis (fte), totaled $9,419,000, which represents an increase of $1,363,000 compared to the similar period in 2016 due primarily to an $82.6 million increase in average loans outstanding and a $58.7 million increase in average securities.  Both increases were due to growth and assets acquired from Delaware in 2016.  Net interest margin (fte) for the 2017 period was 3.60% compared to 3.50% for the similar period in 2016 due primarily to a $126.2 million increase in average interest-earning assets resulting from both organic growth and the acquisition in 2016.  Net interest income (fte) for the nine months ended September 30, 2017 totaled $27,661,000, an increase of $6,313,000 compared to the similar period in 2016 due primarily to the acquisition.  Net

interest margin (fte) year-to-date for the 2017 period was 3.55% compared to 3.65% in 2016.

Other income for the three months ended September 30, 2017 totaled $1,858,000 compared to $1,399,000 for the similar period in 2016.  The increase reflects fees and service charges related to the additional customers acquired from Delaware.  For the nine months ended September 30, 2017, other income totaled $5,158,000 compared to $3,689,000 in the 2016 period.  Gains on the sales of loans, investment securities, deposits and other assets totaled $543,000 in the 2017 year-to-date period compared to $323,000 in the corresponding 2016 period.  Excluding gains from sales, other income improved $1,249,000 over the first nine months of 2016.

Other expenses totaled $6,239,000 for the three months ended September 30, 2017, compared to $7,679,000 in the similar period of 2016.  The higher level of expense during the 2016 period reflects non-recurring merger costs of $1,659,000.  For the nine months ended September 30, 2017, other expenses totaled $18,984,000 compared to $16,556,000 for the similar period in 2016, an increase of $2,428,000.

Mr. Critelli commented, "Our earnings now reflect the full benefit of the acquisition of Delaware and are in-line with projections.  Our key performance metrics improved over last year, core operating expenses remain well controlled and our capital base remains above regulatory "Well Capitalized" targets.  During the third quarter, we declared a 50% stock dividend as another method to deliver shareholder value and enhance the liquidity of our stock.  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., 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 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 are non-GAAP (Generally Accepted Accounting Principles) financial measures.  Tax-equivalent interest income and net interest income are derived from GAAP interest income and net interest income using an assumed tax rate of 34%.  We believe the presentation of interest income and net interest income on a tax-equivalent basis ensures comparability of interest income and 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 September 30				Nine months ended September 30
	2017		2016		2017		2016
Net interest income	$	8,870	$	7,570	$	26,023	$	20,139
Tax equivalent basis adjustment    using 34% marginal tax rate		549		486		1,638		1,209
Net interest income on a fully    taxable equivalent basis	$	9,419	$	8,056	$	27,661	$	21,348

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 and per share data)
(unaudited)
	September 30
	2017			2016
ASSETS
Cash and due from banks	$	13,947		$	19,404
Interest-bearing deposits with banks		368			13,729
Cash and cash equivalents		14,315			33,133
Securities available for sale		285,706			310,126
Loans receivable		756,014			706,199
Less: Allowance for loan losses		7,760			6,164
Net loans receivable		748,254			700,035
Regulatory stock, at cost		3,115			2,351
Bank premises and equipment, net		12,922			13,617
Bank owned life insurance		36,839			35,889
Foreclosed real estate owned		4,243			5,386
Accrued interest receivable		3,729			3,541
Goodwill		11,331			11,679
Other intangible assets		496			652
Deferred tax asset		8,304			5,560
Other assets		2,699			3,088
TOTAL ASSETS	$	1,131,953		$	1,125,057
LIABILITIES
Deposits:
Non-interest bearing demand	$	212,844		$	200,481
Interest-bearing		711,178			721,763
Total deposits		924,022			922,244
Short-term borrowings		47,229			33,156
Other borrowings		31,771			34,294
Junior subordinated debentures		-			8,248
Accrued interest payable		1,167			1,040
Other liabilities		10,072			10,375
TOTAL LIABILITIES		1,014,261			1,009,357
STOCKHOLDERS' EQUITY
Common Stock, $.10 par value, authorized 10,000,000 shares
issued:  2017: 6,246,663 shares, 2016:  4,156,273 shares		625			416
Surplus		108,730			47,576
Retained earnings		9,947			66,210
Treasury stock, at cost: 2017: 11,724 shares, 2016: 32,797 shares		(341	)		(908	)
Accumulated other comprehensive (loss) income		(1,269	)		2,406
TOTAL STOCKHOLDERS' EQUITY		117,692			115,700
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	1,131,953		$	1,125,057

NORWOOD FINANCIAL CORP.
Consolidated Statements of Income
(dollars in thousands, except per share data)
(unaudited)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
INTEREST INCOME
Loans receivable, including fees	$	8,289	$	7,267	$	24,020	$	19,752
Securities		1,605		1,239		4,856		3,008
Other		2		22		37		28
Total Interest income		9,896		8,528		28,913		22,788
INTEREST EXPENSE
Deposits		828		677		2,392		1,838
Short-term borrowings		82		65		138		142
Other borrowings		116		216		360		669
Total Interest expense		1,026		958		2,890		2,649
NET INTEREST INCOME		8,870		7,570		26,023		20,139
PROVISION FOR LOAN LOSSES		600		450		1,800		1,600
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		8,270		7,120		24,223		18,539
OTHER INCOME
Service charges and fees		1,105		829		3,056		2,000
Income from fiduciary activities		160		126		395		342
Net realized gains on sales of securities		129		-		167		269
Gains on sales of loans, net		-		-		67		54
Earnings and proceeds on life insurance policies		320		283		850		616
Other		144		161		623		408
Total other income		1,858		1,399		5,158		3,689
OTHER EXPENSES
Salaries and  employee benefits		3,209		3,070		9,639		7,620
Occupancy, furniture and equipment		799		755		2,519		1,736
Data processing  and related operations		354		423		1,022		949
Taxes, other than income		233		205		693		535
Professional fees		217		185		706		516
FDIC Insurance assessment		97		170		283		402
Foreclosed real estate		303		119		1,028		582
Amortization of intangibles		35		34		115		81
Merger related		-		1,659		-		1,664
Other		992		1,059		2,979		2,471
Total other expenses		6,239		7,679		18,984		16,556
INCOME BEFORE TAX		3,889		840		10,397		5,672
INCOME TAX EXPENSE		948		228		2,356		1,307
NET INCOME	$	2,941	$	612	$	8,041	$	4,365
Basic earnings per share	$	0.47	$	0.10	$	1.29	$	0.77
Diluted earnings per share	$	0.47	$	0.10	$	1.28	$	0.77
* Per share data has been restated to give retroactive effect to the 50% stock dividend declared August 8, 2017.

NORWOOD FINANCIAL CORP.
Financial Highlights (Unaudited)
(dollars in thousands, except per share data)
For the Three Months Ended September 30	2017			2016
Net interest income	$	8,870		$	7,570
Net income		2,941			612
Net interest spread (fully taxable equivalent)		3.48	%		3.37	%
Net interest margin (fully taxable equivalent)		3.60	%		3.50	%
Return on average assets		1.03	%		0.24	%
Return on average equity		9.85	%		2.13	%
Basic earnings per share  *	$	0.47		$	0.10
Diluted earnings per share *	$	0.47		$	0.10
For the Nine Months Ended September 30		2017			2016
Net interest income	$	26,023		$	20,139
Net income		8,041			4,365
Net interest spread (fully taxable equivalent)		3.44	%		3.50	%
Net interest margin (fully taxable equivalent)		3.55	%		3.65	%
Return on average assets		0.96	%		0.69	%
Return on average equity		9.30	%		5.45	%
Basic earnings per share *	$	1.29		$	0.77
Diluted earnings per share *	$	1.28		$	0.77
As of September 30
Total assets	$	1,131,953		$	1,125,057
Total loans receivable		756,014			706,199
Allowance for loan losses		7,760			6,164
Total deposits		924,022			922,244
Stockholders' equity		117,692			115,700
Trust assets under management		151,373			136,307
Book value per share *	$	18.46		$	17.29
Tangible book value per share *	$	16.54		$	15.59
Equity to total assets		10.40	%		10.28	%
Allowance to total loans receivable		1.03	%		0.87	%
Nonperforming loans to total loans		0.27	%		0.32	%
Nonperforming assets to total assets		0.55	%		0.68	%
* Per share data has been restated to give retroactive effect to the 50% stock dividend declared August 8, 2017.

NORWOOD FINANCIAL CORP.
Consolidated Balance Sheets (unaudited)
(dollars in thousands)
	September 30		June 30		March 31		December 31		September 30
	2017		2017		2017		2016		2016
ASSETS
Cash and due from banks	$	13,947	$	16,055	$	12,057	$	14,900	$	19,404
Interest-bearing deposits with banks		368		348		7,785		2,274		13,729
Cash and cash equivalents		14,315		16,403		19,842		17,174		33,133
Securities available for sale		285,706		300,667		295,801		302,564		310,126
Loans receivable		756,014		735,026		719,443		713,889		706,199
Less: Allowance for loan losses		7,760		7,419		6,901		6,463		6,164
Net loans receivable		748,254		727,607		712,542		707,426		700,035
Regulatory stock, at cost		3,115		2,435		1,939		2,119		2,351
Bank owned life insurance		36,839		36,575		36,352		36,133		35,889
Bank premises and equipment, net		12,922		12,953		13,073		13,531		13,617
Foreclosed real estate owned		4,243		4,523		4,703		5,302		5,386
Goodwill and other intangibles		11,827		11,862		11,902		12,291		12,331
Other assets		14,732		14,288		15,461		14,643		12,189
TOTAL ASSETS	$	1,131,953	$	1,127,313	$	1,111,615	$	1,111,183	$	1,125,057
LIABILITIES
Deposits:
Non-interest bearing demand	$	212,844	$	200,364	$	192,735	$	191,445	$	200,481
Interest-bearing deposits		711,178		732,107		738,678		733,940		721,763
Total deposits		924,022		932,471		931,413		925,385		922,244
Other borrowings		79,000		67,522		57,260		64,812		75,698
Other liabilities		11,239		11,153		9,990		9,907		11,415
TOTAL LIABILITIES		1,014,261		1,011,146		998,663		1,000,104		1,009,357
STOCKHOLDERS' EQUITY		117,692		116,167		112,952		111,079		115,700
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	1,131,953	$	1,127,313	$	1,111,615	$	1,111,183	$	1,125,057

NORWOOD FINANCIAL CORP.
Consolidated Statements of Income (unaudited)
(dollars in thousands, except per share data)
	September 30			June 30			March 31			December 31			September 30
Three months ended	2017			2017			2017			2016			2016
INTEREST INCOME
Loans receivable, including fees	$	8,289		$	7,925		$	7,806		$	7,858		$	7,267
Securities		1,605			1,633			1,618			1,584			1,239
Other		2			24			10			14			22
Total interest income		9,896			9,582			9,434			9,456			8,528
INTEREST EXPENSE
Deposits		828			797			766			765			677
Borrowings		198			129			171			240			281
Total interest expense		1,026			926			937			1,005			958
NET INTEREST INCOME		8,870			8,656			8,497			8,451			7,570
PROVISION FOR LOAN LOSSES		600			600			600			450			450
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES		8,270			8,056			7,897			8,001			7,120
OTHER INCOME
Service charges and fees		1,105			1,016			936			951			829
Income from fiduciary activities		160			128			106			107			126
Net realized gains on sales of securities		129			31			6			15			-
Gains (losses) on sales of loans, net		-			67			-			-			-
Earnings and proceeds on life insurance policies		320			275			255			272			283
Other		144			139			340			145			161
Total other income		1,858			1,656			1,643			1,490			1,399
OTHER EXPENSES
Salaries and  employee benefits		3,209			3,212			3,219			3,308			3,070
Occupancy, furniture and equipment, net		799			809			911			889			755
Foreclosed real estate		303			152			572			98			119
FDIC insurance assessment		97			91			95			10			170
Merger related		-			-			-			142			1,659
Other		1,831			1,866			1,817			2,121			1,906
Total other expenses		6,239			6,130			6,614			6,568			7,679
INCOME BEFORE TAX		3,889			3,582			2,926			2,923			840
INCOME TAX EXPENSE		948			858			550			577			228
NET INCOME	$	2,941		$	2,724		$	2,376		$	2,346		$	612
Basic earnings per share	$	0.47		$	0.44		$	0.38		$	0.38		$	0.10
Diluted earnings per share	$	0.47		$	0.43		$	0.38		$	0.38		$	0.10
Book Value per share	$	18.46		$	18.29		$	18.06		$	17.43		$	17.29
Tangible Book Value per share		16.54			16.37			16.12			15.67			15.59
Return on average assets (annualized)		1.03	%		0.97	%		0.87	%		0.83	%		0.69	%
Return on average equity (annualized)		9.85	%		9.45	%		8.54	%		8.17	%		5.45	%
Net interest spread (fte)		3.48	%		3.44	%		3.40	%		3.38	%		3.37	%
Net interest margin (fte)		3.60	%		3.54	%		3.51	%		3.49	%		3.50	%
Allowance for loan losses to total loans		1.03	%		1.01	%		0.96	%		0.91	%		0.87	%
Net charge-offs to average loans (annualized)		0.14	%		0.05	%		0.09	%		0.09	%		0.05	%
Nonperforming loans to total loans		0.27	%		0.35	%		0.28	%		0.25	%		0.32	%
Nonperforming assets to total assets		0.55	%		0.63	%		0.60	%		0.64	%		0.68	%
* Per share data has been restated to give retroactive effect to the 50% stock dividend declared August 8, 2017.