SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter period ended March 31, 2000
---------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-28366
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Norwood Financial Corp.
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2828306
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(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
717 Main Street, Honesdale, Pennsylvania 18431
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (717)253-1455
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N/A
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Former name, former address and former fiscal year, if changed since last
report.
Indicated by check (x) whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]
---- ----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding as of April 30, 2000
- --------------------------------------- --------------------------------
common stock, par value $0.10 per share 1,743,935
NORWOOD FINANCIAL CORP.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
INDEX
Page
Number
------
Part I - CONSOLIDATED FINANCIAL INFORMATION OF
NORWOOD FINANCIAL CORP.
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3 Qualitative and Quantitative Disclosures about market risk 15
Part II - OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Materially Important Events 16
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
NORWOOD FINANCIAL CORP.
Consolidated Balance Sheets (unaudited)
(dollars in thousands)
March 31, December 31,
2000 1999
--------- ---------
ASSETS
Cash and due from banks $ 6,870 $ 8,430
Interest bearing deposits with banks 229 398
Federal funds sold 1,455 1,970
Securities available for sale 80,227 78,875
Securities held-to-maturity (fair value 2000: $7,549
1999; $7,411) 7,478 7,477
Loans receivable (net of unearned income) 207,036 205,160
Less: Allowance for loan losses 3,348 3,344
--------- ---------
Net loans receivable 203,688 201,816
Bank premises and equipment, net 6,587 6,739
Other real estate 110 110
Accrued interest receivable 1,745 1,646
Other assets 7,107 7,366
--------- ---------
TOTAL ASSETS $ 315,496 $ 314,827
========= =========
LIABILITIES
Deposits:
Non-interest bearing demand $ 29,081 $ 26,848
Interest-bearing deposits 216,779 216,659
--------- ---------
Total deposits 245,860 243,507
Short-term borrowings 7,754 8,600
Other borrowings 29,000 30,000
Accrued interest payable 2,502 2,385
Other liabilities 3,387 3,681
--------- ---------
TOTAL LIABILITIES 288,503 288,173
STOCKHOLDERS' EQUITY
Common Stock, $.10 par value, authorized 10,000,000 shares
issued 1,803,824 shares 180 180
Surplus 4,611 4,603
Retained earnings 26,368 25,763
Treasury stock, at cost (59,889 shares) (1,214) (1,214)
Unearned ESOP shares (1,330) (1,359)
Accumulated other comprehensive income (loss) (1,622) (1,319)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 26,993 26,654
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 315,496 $ 314,827
========= =========
See accompanying notes to the unaudited consolidated financial statements
3
NORWOOD FINANCIAL CORP.
Consolidated Statements of Income (unaudited)
(dollars in thousands, except per share data)
Three Months Ended
March 31
2000 1999
----- -----
INTEREST INCOME
Loans receivable including fees $4,309 $3,902
Securities 1,402 988
Federal funds sold and deposits
with banks 7 31
------ ------
Total interest income 5,718 4,921
INTEREST EXPENSE
Deposits 2,066 1,983
Short-term borrowings 82 68
Other borrowed funds 451 47
------ ------
Total interest expense 2,599 2,098
------ ------
NET INTEREST INCOME 3,119 2,823
PROVISION FOR LOAN LOSSES 95 130
------ ------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 3,024 2,693
OTHER INCOME
Service charges and fees 364 279
Income from fiduciary activities 67 79
Net realized gains on sales of securities 1 24
Other 146 84
------ ------
Total other income 578 466
OTHER EXPENSES
Salaries and employee benefits 1,074 989
Occupancy, furniture & equipment, net 320 270
Data processing related 94 89
Taxes, other than income 66 63
Professional fees 71 35
Other 745 547
------ ------
Total other expenses 2,370 1,993
INCOME BEFORE INCOME TAXES 1,232 1,166
INCOME TAX EXPENSE 344 352
------ ------
NET INCOME $ 888 $ 814
====== ======
BASIC AND DILUTED
EARNINGS PER SHARE $ 0.53 $ 0.48
====== ======
Dividends per share $ 0.17 $ 0.14
====== ======
See accompanying notes to the unaudited consolidated financial statements.
4
NORWOOD FINANCIAL CORP.
Consolidated Statement of Changes in Stockholders' Equity (unaudited)
(dollars in thousands)
Accumulated
Unearned Other
Common Retained Treasury ESOP Comprehensive
Stock Surplus Earnings Stock Shares Income(loss) Total
----- ------- -------- ----- ------ ------------ -----
Balance, December 31, 1999 $ 180 $ 4,603 $ 25,763 ($ 1,214) ($ 1,359) ($ 1,319) $ 26,654
Comprehensive income:
Net Income 888 888
Net change in unrealized gains (losses)
on securities available for sale, net of
reclassification adjustment and tax effects (303) (303)
--------
Total comprehensive income 585
--------
Cash dividends declared, $.17 per share (283) (283)
Release of earned ESOP shares 8 29 37
-------- -------- -------- -------- -------- -------- --------
Balance, March 31, 2000 $ 180 $ 4,611 $ 26,368 ($ 1,214) ($ 1,330) ($ 1,622) $ 26,993
======== ======== ======== ======== ======== ======== ========
See accompanying notes to the unaudited financial statements
5
NORWOOD FINANCIAL CORP.
Consolidated Statements of Cashflows (Unaudited)
(dollars in thousands)
Three Months Ended March 31,
----------------------------
2000 1999
--------------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 888 $ 814
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 95 130
Depreciation 169 166
Amortization of intangible assets 44 52
Deferred income taxes (317) 325
Net realized gain on sales of securities (1) (24)
Gain(loss) on sale of other real estate, net - (8)
Net gain on sale of mortgage loans (3) (3)
Mortgage loans originated for sale (463) (409)
Proceeds from sale of mortgage loans 466 412
Decrease (increase) in accrued interest receivable (99) (28)
Increase (decrease) in accrued interest payable 117 115
(Increase) in cash surrender value of life insurance (41) -
Other, net 723 313
-------- --------
Net cash provided by operating activities 1,578 1,855
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale:
Proceeds from sales 2,002 3,371
Proceeds from maturities and principal
reductions on mortgage-backed securities 971 7,463
Purchases (4,788) (12,055)
Net decrease (increase) in loans (2,201) (5,155)
Purchase of bank premises and equipment, net (11) (66)
Proceeds from sales of other real estate - 83
-------- --------
Net cash used in investing activities (4,027) (6,359)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 2,353 (5,676)
Net increase (decrease) in short term borrowings (1,846) 5,162
Release of ESOP shares (19) 22
Cash dividends paid (283) (236)
-------- --------
Net cash used in financing activities 205 (728)
-------- --------
(Decrease) in cash and cash equivalents (2,244) (5,232)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 10,798 12,598
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 8,554 $ 7,366
======== ========
See accompanying notes to consolidated financial statement
6
Notes to Unaudited Consolidated Financial Statements
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1. Basis of Presentation
---------------------
The consolidated financial statements include the accounts of Norwood
Financial Corp. (Company) and its wholly-owned subsidiary, Wayne Bank (Bank) and
the Bank's wholly-owned subsidiaries, WCB Realty Corp., Norwood Investment Corp.
and WTRO Properties. All significant intercompany transactions have been
eliminated in consolidation.
2. Estimate
--------
The financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance sheet
and revenues and expenses for the period. Actual results could differ from those
estimates. The financial statements reflect, in the opinion of management, all
normal, recurring adjustments necessary to present fairly the financial position
of the Company. The operating results for the three month period ended March 31,
2000 are not necessarily indicative of the results that may be expected for the
year ended December 31, 2000 or any other interim period.
These statements should be read in conjunction with the consolidated
financial statements and related notes which are incorporated by reference in
the Company's Annual Report on Form 10-K for the year-ended December 31, 1999.
3. Earnings Per Share
------------------
Basic earnings per share represents income available to common
stockholders divided by the weighted average number of common shares outstanding
during the period. Diluted earnings per share reflects additional common shares
that would have been outstanding if dilutive potential common shares had been
issued, as well as any adjustment to income that would result from the assumed
issuance. Potential common shares that may be issued by the Company relate
solely to outstanding stock options and are determined using the treasury stock
method. For the three months ended March 31, 2000 and 1999, there was no
dilutive effect on earnings per share.
4. Cash Flow Information
---------------------
For the purposes of reporting cash flows, cash and cash equivalents
include cash on hand, amounts due from banks, interest-bearing deposits with
banks and federal funds sold.
Cash payments for interest for the period March 31, 2000 and 1999 were
$2,482,000 and $1,968,000 respectively. Cash payments for income taxes in 2000
were $406,000 compared to $20,000 in 1999. Non-cash investing activity for 2000
and 1999 included foreclosed mortgage loans transferred to real estate owned and
repossession of other assets of $222,000 and $444,000.
5. Reclassification of Comparative Amounts
---------------------------------------
Certain comparative amounts for the prior period have been reclassified
to conform to the current period's presentation. Such reclassifications did not
affect net income.
7
Item 2. Management Discussion and Analysis of Financial Condition and Results of
Operations
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 interest rates, risks associated with the
effect of opening a new branch, the ability to control costs and expenses, Year
2000 issues 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.
Changes in Financial Condition
- ------------------------------
General
- -------
Total assets at March 31, 2000 were $315.5 million, compared to $314.8
million at year-end 1999. The Company funded a $1.8 million growth in loans with
an increase in core deposits.
Securities
- ----------
The fair value of securities available for sale at March 31, 2000 was
$80.2 million, compared to $78.9 million at year-end 1999. The increase was
principally due to purchases of short-term securities. Total purchases for the
period were $4,788,000 with maturities and cashflows of $2,973,000.
Loans
- -----
Total loans receivable, which include automobile leases, were $207.0
million at March 31, 2000 compared to $205.2 million at December 31, 1999, an
increase of $1.8 million. The increase was after $1.5 million of a commercial
loan participation sold and $463,000 of residential mortgages sold in the
secondary market. Indirect lending, principally in used automobiles, increased
$3.0 million to total $48.1 million at March 31, 2000.
The Company no longer originates automobile leases, and as a result the
portfolio declined $2.6 million from December 31, 1999 to $21.4 million at March
31, 2000, which includes residual value of $16.1 million, at March 31, 2000
declining from $17.8 million at year-end. The Company liquidates its returned
off-lease vehicles through various used car dealers and automobile auction
centers. At March 31, 2000 the Company had an inventory of vehicles to liquidate
of $767,000. Total losses incurred on off-lease vehicles was $180,000 for the
quarter. The Company's reserve for future residual value losses was $311,000 at
March 31, 2000 and December 31, 1999.
8
Set forth below is selected data relating to the composition of the
loan portfolio at the dates indicated:
Types of loans
(dollars in thousands)
March 31, 2000 December 31, 1999
--------------- -----------------
$ % $ %
------- ----- -------- ----
Real Estate-Residential $ 59,655 28.7 $ 56,984 27.7
Commercial 49,182 23.7 49,796 24.2
Construction 2,833 1.4 3,339 1.6
Commercial, financial and agricultural 16,310 7.9 17,440 8.5
Consumer loans to individuals 58,039 28.0 54,026 26.3
Lease financing, net of unearned income 21,386 10.3 23,974 11.7
-------- ------ -------- ------
Total loans 207,405 100.0% 205,559 100.0%
Less:
Unearned income and deferred fees 369 399
Allowance for loan losses 3,348 3,344
-------- --------
Total loans, net $203,688 $201,816
======== ========
Allowance for Loan Losses and Non-performing Assets
- ---------------------------------------------------
Following is a summary of changes in the allowance for loan losses for
the periods indicated:
At or for the Three
(dollars in thousands) Months Ended March 31
------------------------
2000 1999
----- ------
Balance, beginning $ 3,344 $ 3,333
Provision for loan losses 95 130
Charge-offs (198) (155)
Recoveries 107 34
------- -------
Net charge-offs (91) (121)
------- -------
Balance, ending $ 3,348 $3,342
======= =======
Allowance to total loans 1.62% 1.74%
Net charge-offs to average
loans (annualized) .18% .26%
The allowance for loan losses totaled $3,348,000 at March 31, 2000
and represented 1.62% of total loans, compared to $3,344,000 at year-end, and
$3,342,000 at March 31, 1999. As a result of the decrease in charge-offs the
provision for loan losses for the current quarter was $95,000, compared to
$130,000 for the first quarter of 1999. Management's loan review function
assesses the adequacy of the allowance for loan losses on a quarterly basis. The
process includes a review of the risks inherent in the loan portfolio. It
includes a credit review and gives consideration to areas of exposure such as
9
concentration of credit, economic and industry conditions, trends in
delinquencies, collections and collateral value coverage. General reserve
percentages are identified by loan type and credit grading and allocated
accordingly. Larger credit exposures are individually analyzed. Management
considers the allowance adequate at March 31, 2000 based on the loan mix and
level of classifications. However, there can be no assurance that the allowance
for loan losses will be adequate to cover significant losses, if any, that might
be incurred in the future.
At March 31, 2000, non-performing loans totaled $507,000 which is
.25% of total loans decreasing from $657,000, or .32% of total loans at December
31, 1999. The following table sets forth information regarding non-performing
loans and other real estate owned at the date indicated:
(dollars in thousands) March 31, December 31,
2000 1999
-------- ------------
Loans accounted for on a non-accrual
basis:
Commercial and all other $ 64 $ 64
Real Estate 426 513
Instalment 16 19
----- -----
Total 506 596
Accruing loans which are contractually
past due 90 days or more 1 61
----- -----
Total non-performing loans $507 $657
Other real estate owned 110 110
----- -----
Total non-performing assets $617 $767
===== =====
Allowance for loan losses as a
percent of non-performing loans 660.4% 508.9%
Non-performing loans to total loans .25% .32%
Non-performing assets to total assets .20% .24%
Deposits
- --------
Total deposits at March 31, 2000 were $245.9 million compared to
$243.5 million at December 31, 1999. The increase was principally in
non-interest bearing demand deposits which totaled $29.1 million increasing from
$26.8 million at year-end as a result of short-term deposits of commercial and
municipal customers. Time deposits in denominations of $100,000 or more
decreased to $27.2 million at March 31, 2000 from $32.5 million at December 31,
1999 due to scheduled maturities of school district and other municipal
deposits. This decrease was offset by growth in retail time deposits. In
addition, the Company had $7.6 million of commercial cash management accounts
included in short-term borrowings, which represents excess funds invested in
overnight securities, which the company considers core funding.
10
Other Borrowings
Other borrowings consisted of the following:
Notes with the Federal Home Loan Bank (FHLB)
March 31, 2000
--------------
Fixed note due April 2000 6.00% $ 2,000
Fixed note due April 2000 6.02% 3,000
Fixed note due May 2000 6.02% 4,000
Fixed note due May 2000 6.04% 3,000
Fixed note due August 2000 6.35% 2,000
Convertible note due December 2006 6.19% 5,000
Convertible note due April 2009 4.83% 5,000
Convertible note due April 2009 5.07% 5,000
-------
$29,000
=======
Stockholders' Equity and Capital Ratios
- ---------------------------------------
At March 31,2000, total stockholders' equity had a net increase of
$339,000. The net increase in stockholders' equity was primarily due to $888,000
in net income, that was partially offset by $283,000 of dividend payments and
$303,000 of other comprehensive loss due to a decline in market value of the
available for sale securities (primarily the mortgage-backed securities
portfolio). The decrease in market value of the investment securities available
for sale will not affect the Company's net income unless the securities are
sold. The Company currently plans to hold these securities until maturity or
until the market values of these securities increase. Accordingly, the Company
does not expect, though there is no assurance, that the investment in these
securities will affect net income in future periods. A comparison of the
Company's capital ratios is as follows:
March 31, 2000 December 31, 1999
-------------- -----------------
Tier 1 Capital
(To average assets) 9.07% 9.15%
Tier 1 Capital
(To risk-weighted assets) 12.46% 11.98%
Total Capital
(To risk-weighted assets) 13.94% 13.50%
The minimum capital requirements imposed by the FDIC for leverage,
Tier 1 and Total Capital are 4%, 4% and 8%, respectively. The Company has
similar capital requirements imposed by the Board of Governors of the Federal
Reserve System (FRB). The Bank is also subject to more stringent Pennsylvania
Department of Banking (PDB) guidelines. The Bank's capital ratios do not differ
significantly from the Company's ratios. Although not adopted in regulation
form, the PDB utilizes capital standards requiring a minimum of 6.5% leverage
capital and 10% total capital. The Company and the Bank were in compliance in
FRB, FDIC and PDB capital requirements at March 31, 2000 and December 31, 1999.
11
Results of Operation
NORWOOD FINANCIAL CORP.
Consolidated Average Balance Sheets with Resultant Interest and Rates
(Tax-Equivalent Basis, dollars in thousands)
Three Months Ended March 31,
-------------------------------------------------------------------------
2000 1999
----------------------------------- ----------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ------- ---------- --------- -------
(2) (1) (3) (2) (1) (3)
Assets
Interest-earning assets:
Federal funds sold $ 532 $ 7 5.26% $ 2,390 $ 26 4.35%
Interest bearing deposits with banks 265 1 1.51 553 5 3.62
Securities held-to-maturity 7,477 162 8.67 7,645 164 8.58
Securities available for sale:
Taxable 75,884 1,258 6.63 57,743 852 5.90
Tax-exempt 3,147 56 7.12 2,472 41 6.63
--------- --------- --------- -------
Total securities available for sale 79,031 1,314 6.65 60,215 893 5.93
Loans receivable (4) (5) 206,798 4,323 8.36 189,762 3,910 8.24
--------- --------- --------- -------
Total interest earning assets 294,103 5,807 7.90 260,565 4,998 7.67
Non-interest earning assets:
Cash and due from banks 6,546 7,825
Allowance for loan losses (3,372) (3,342)
Other assets 15,595 13,607
--------- ---------
Total non-interest earning assets 18,769 18,090
--------- ---------
Total Assets $ 312,872 $ 278,655
========= =========
Liabilities and Shareholders' Equity
Interest bearing liabilities:
Interest bearing demand deposits $ 57,919 354 2.44% $ 53,624 321 2.39%
Savings 42,573 231 2.17 41,990 226 2.15
Time 113,948 1,481 5.20 109,835 1,436 5.23
--------- --------- --------- -------
Total interest bearing deposits 214,440 2,066 3.85 205,449 1,983 3.86
Short-term borrowings 9,021 81 3.59 6,291 68 4.32
Other borrowings 30,440 451 5.93 4,000 47 4.70
--------- --------- --------- -------
Total interest bearing liabilities 253,901 2,598 4.09 215,740 2,098 3.89
Non-interest bearing liabilities:
Demand deposits 26,846 25,706
Other liabilities 5,627 8,038
--------- ---------
Total non-interest bearing liabilities 32,473 33,744
Shareholders' equity 26,498 27,980
--------- ---------
Total Liabilities and Shareholders' Equity $ 312,872 $ 277,464
========= =========
Net interest income (tax equivalent basis) 3,209 3.80% 2,900 3.78%
===== ====
Tax-equivalent basis adjustment (90) (77)
--------- -------
Net interest income $ 3,119 $ 2,823
========= =======
Net interest margin (tax equivalent basis) 4.36% 4.45%
====== ====
(1) Interest and yields are presented on a tax-equivalent basis using a
marginal tax rate of 34%.
(2) Average balances have been calculated based on daily balances.
(3) Annualized
(4) Loan balances include non-accrual loans and are net of unearned income.
(5) Loan yields include the effect of amortization of deferred fees, net of
costs.
12
Rate/Volume Analysis. The following table shows the fully taxable equivalent
effect of changes in volumes and rates on interest income and interest expense.
Increase/(Decrease)
-------------------
Three months ended March 31,2000 Compared to
--------------------------------------------
Three months ended March 31, 1999
---------------------------------
Variance due to
---------------
Volume Rate Net
-----------------------------------------
(dollars in thousands)
Assets
Interest earning assets:
Federal funds sold...................... $ (49) $ 30 $ (19)
Interest bearing deposits with banks.... (2) (2) (4)
Securities held to maturity............. (10) 8 (2)
Securities available for sale:
Taxable.............................. 291 115 406
Tax-exempt securities................ 12 3 15
----- ----- -----
Total securities.................. 303 118 421
Loans receivable........................ 355 58 413
----- ----- -----
Total interest earning assets......... 597 212 809
Interest bearing liabilities:
Interest-bearing demand deposits....... 26 7 33
Savings................................ 3 2 5
Time................................... 97 (52) 45
----- ----- -----
Total interest bearing deposits..... 127 (44) 83
Short-term borrowings................... 76 (63) 13
Other borrowings......................... 389 15 404
----- ----- -----
Total interest bearing liabilities...... 591 (91) 500
Net interest income (tax-equivalent basis) $ 6 $ 303 $ 309
===== ===== =====
(1) Changes in net interest income that could not be specifically identified as
either a rate or volume change were allocated proportionately to changes in
volume and changes in rate.
13
Comparison of Operating Results for Three Months Ended March 31, 2000 and March
31, 1999
- --------------------------------------------------------------------------------
General
- -------
For the three months ended March 31, 2000 net income totaled $888,000
or $.53 per share (basic and diluted) compared to $814,000, or $.48 per share
(basic and diluted) earned in the first quarter of 1999. The resulting return on
average assets and return on average equity for the quarter were 1.13% and
13.40% respectively compared to 1.17% and 11.63% respectively for the
corresponding period in 1999. The Company paid dividends of $.17 per share in
2000 compared to $.14 per share in 1999.
Net Interest Income
- -------------------
Net interest income on a fully taxable equivalent basis (fte) for the
first quarter of 2000 was $3,209,000 compared to $2,900,000 in 1999, an increase
of $309,000 or 10.7%. The resultant fte net interest spread and net interest
margin for the three months of 2000 was 3.80% and 4.36%, respectively compared
to 3.78% and 4.45%, respectively for the same period in 1999.
Interest income on an fte basis totaled $5,807,000 for the three
months of 2000 increasing from $4,998,000 in 1999. The increase was due to $33.5
million growth in average earning assets and yield on earning assets of 7.90% in
2000, improving from 7.67% in 1999.
Securities available for sale averaged $79 million in 2000 compared
to $60.2 million in the first quarter of 1999. The yield also increased to 6.65%
from 5.93% principally due to the generally higher interest rate environment
beginning in the third quarter of 1999. Average loans for the current period
were $206.8 million, with income of $4,323,000 and yield of 8.36% compared to
$189.8 million, $3,910,000 and 8.24%, respectively for the same period in 1999.
The increase in loan yields was partially due to higher prime rate of interest
in 2000 of 8.75% on average, compared to 7.75% in 1999. The prime rate changes
immediately impacts $31.2 million of floating rate loans.
Total interest expense for the quarter was $2,598,000 compared to
$2,098,000 in the first quarter of 1999. The resultant costs of funds was 4.09%
in 2000 increasing from 3.89% in the 1999 quarter. The increase was principally
due to a higher level of other borrowings, principally notes from the FHLB,
$30.4 million at 5.93% compared to $4.0 million at 4.70% in 1999. The proceeds
from the borrowings were principally used to fund purchases of securities
available for sale.
Other Income
- ------------
Other income excluding net realized gains on sales of securities
totaled $577,000 for the period ended March 31, 2000, an increase of $135,000 or
30.5% over $422,000 in the same period in 1999. The income was due in part to a
loan promotion which generated $48,000 in fees. The Company, through its
subsidiary Norwood Investment Corp. had revenues of $45,000 on commissions from
sales of annuities, mutual funds and discount brokerage. For the quarter, fee
income represented 15.2% of total revenues, increasing from 13.2% in 1999.
Net realized gains on securities transactions were $1,000 for the
first quarter of 2000 compared to $24,000 in 1999.
14
Other Expense
- -------------
Other expenses totaled $2,370,000 for the period ending March 31,
2000 compared to $1,993,000 in 1999, an increase of $377,000. The increase was
due in part to additional costs of disposing of vehicles from the auto leasing
$195,000 in 2000; and $80,000 in 1999. The new Stroud Mall branch, opened in
June 1999, had costs of $85,000 with no corresponding expense in the first
quarter of 1999. The Company also incurred additional costs of $34,000 related
to improvements in PC network communications and management.
Income Tax Expense
- ------------------
Income tax expense totaled $344,000 for an effective rate of 26%
compared to $352,000 and 30.2% in first quarter of 1999. The decrease in the
effective rate is due to higher levels of income on municipal securities and
increase in cash surrender value of life insurance not subject to Federal
income.
Item 3: Quantitative and Qualitative Disclosures about Market Risk
Market Risk
- -----------
There were no significant changes for the three months ended March
31, 2000 from the information presented in the Form 10-k for the year-ended
December 31, 1999.
15
Part II. Other Information
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities and use of proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Materially Important Events
None
16
Item 6. Exhibits and Reports on Form 8-K
(a) 3(i) Articles of Incorporation of Norwood Financial Corp*
3(ii) Bylaws of Norwood Financial Corp.*
4.0 Specimen Stock Certificate of Norwood Financial Corp.*
10.1 Amended Employment Agreement with William W. Davis, Jr.***
10.2 Amended Employment Agreement with Lewis J. Critelli ***
10.3 Form of Change-In-Control Severance Agreement with nine key
employees of the Bank*
10.4 Consulting Agreement with Russell L. Ridd**
10.5 Wayne Bank Stock Option Plan*
10.6 Salary Continuation Agreement between the Bank and
William W. Davis, Jr.***
10.7 Salary Continuation Agreement between the Bank and Lewis J.
Critelli***
10.8 Salary Continuation Agreement between the Bank and Edward C. Kasper***
10.9 1999 Directors Stock Compensation Plan***
27 Financial Data Schedule (electronic filing only)
(b) Reports on Form 8-k
None
- ---------------------------
* Incorporated herein by reference into the identically numbered exhibits
of the Registrant's Form 10 Registration Statement initially filed with
the Commission on April 29, 1996.
** Incorporated herein by reference into the indentically numbered
exhibits of the Registrant's Form 10-K filed with the Commission on
March 31, 1997.
*** Incorporated herein by reference into the indentically numbered
exhibits of the Registrant's Form 10-K filed with the Commission on
March 23, 2000.
17
Signatures
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
NORWOOD FINANCIAL CORP.
Date: May 12, 2000 By: /s/William W. Davis, Jr.
------------------- ----------------------------------------
William W. Davis, Jr.
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 12, 2000 By: /s/Lewis J. Critelli
------------------- ----------------------------------------
Lewis J. Critelli
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
18