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, 2001
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------ --------------------------
Commission file number 0-28366
-----------
Norwood Financial Corp.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2828306
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
717 Main Street, Honesdale, Pennsylvania 18431
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (717)253-1455
-------------
N/A
- --------------------------------------------------------------------------------
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, 2001
- --------------------------------------- -----------------------------------
common stock, par value $0.10 per share 1,746,633
NORWOOD FINANCIAL CORP.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2001
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,
2001 2000
--------- ---------
ASSETS
Cash and due from banks $ 6,239 $ 8,991
Interest bearing deposits with banks 196 153
Federal funds sold 1,700 2,550
--------- ---------
Cash and cash equivalents 8,135 11,694
Securities available for sale 79,699 79,646
Securities held to maturity, fair value 2001
$7,852, 2000 $7,786 7,486 7,484
Loans receivable (net of unearned income) 214,827 216,477
Less: Allowance for loan losses 3,260 3,300
--------- ---------
Net loans receivable 211,567 213,177
Bank premises and equipment, net 6,234 6,201
Other real estate 27 27
Accrued interest receivable 1,885 1,983
Other assets 5,855 6,519
--------- ---------
TOTAL ASSETS $ 320,888 $ 326,731
========= =========
LIABILITIES
Deposits:
Non-interest bearing demand $ 27,941 $ 28,688
Interest-bearing deposits 219,857 224,271
--------- ---------
Total deposits 247,798 252,959
Short-term borrowings 6,558 7,860
Long-term debt 28,000 28,000
Accrued interest payable 2,859 3,128
Other liabilities 3,105 3,414
--------- ---------
TOTAL LIABILITIES 288,320 295,361
STOCKHOLDERS' EQUITY
Common Stock, $.10 par value, authorized 10,000,000 shares
issued 1,803,824 shares 180 180
Surplus 4,639 4,629
Retained earnings 29,075 28,441
Treasury stock, at cost (59,831 shares) (1,213) (1,213)
Unearned ESOP shares (1,140) (1,155)
Accumulated other comprehensive income 1,027 488
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 32,568 31,370
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 320,888 $ 326,731
========= =========
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
---------------
2001 2000
------ ------
INTEREST INCOME
Loans receivable including fees $4,674 $4,309
Securities 1,356 1,402
Other 12 7
------ ------
Total interest income 6,042 5,718
INTEREST EXPENSE
Deposits 2,263 2,066
Short-term borrowings 70 82
Long-term debt 423 451
------ ------
Total interest expense 2,756 2,599
------ ------
NET INTEREST INCOME 3,286 3,119
PROVISION FOR LOAN LOSSES 170 95
------ ------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 3,116 3,024
OTHER INCOME
Service charges and fees 418 364
Income from fiduciary activities 83 67
Net realized gains on sales of securities 11 1
Other 154 146
------ ------
Total other income 666 578
OTHER EXPENSES
Salaries and employee benefits 1,156 1,074
Occupancy, furniture & equipment, net 335 320
Data processing related 124 94
Losses on lease residuals 180 181
Taxes, other than income 71 66
Professional fees 50 71
Other 534 564
------ ------
Total other expenses 2,450 2,370
INCOME BEFORE INCOME TAXES 1,332 1,232
INCOME TAX EXPENSE 363 344
------ ------
NET INCOME $ 969 $ 888
====== ======
BASIC AND DILUTED
EARNINGS PER SHARE $ 0.58 $ 0.53
====== ======
Dividends per share $ 0.20 $ 0.17
====== ======
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
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, 2000 $180 $4,629 $28,441 ($1,213) ($1,155) $488 $31,370
Comprehensive income:
Net Income 969 969
Net change in unrealized gains (losses)
on securities available for sale, net of
reclassification adjustment and tax effects 539 539
-------
Total comprehensive income 1,508
-------
Cash dividends declared, $.20 per share (335) (335)
Release of earned ESOP shares 10 15 25
---- ------ ------- ------- ------- ------ -------
Balance, March 31, 2001 $180 $4,639 $29,075 ($1,213) ($1,140) $1,027 $32,568
==== ====== ======= ======= ======= ====== =======
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,
----------------------------
2001 2000
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 969 $ 888
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 170 95
Depreciation 156 169
Amortization of intangible assets 44 44
Deferred income taxes (297) (317)
Net realized gain on sales of securities (11) (1)
Gain(loss) on sale of other real estate, net - -
Net gain on sale of mortgage loans and servicing (130) (3)
Mortgage loans originated for sale (1,270) (463)
Proceeds from sale of mortgage loans 1,401 466
Decrease (increase) in accrued interest receivable 98 (99)
Increase (decrease) in accrued interest payable (269) 117
(Increase) in cash surrender value of life insurance (42) (41)
Other, net 763 723
-------- --------
Net cash provided by operating activities 1,582 1,578
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale:
Proceeds from sales 5,224 2,002
Proceeds from maturities and principal reductions on
mortgage-backed securities 9,995 971
Purchases (14,457) (4,788)
Net decrease (increase) in loans 1,089 (2,201)
Purchase of bank premises and equipment, net (189) (11)
Proceeds from sales of other real estate 30 -
-------- --------
Net cash used in investing activities 1,692 (4,027)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits (5,162) 2,353
Net increase (decrease) in short term borrowings (4,302) (1,846)
Proceeds from other borrowings 3,000 -
Release and (buyback) of ESOP shares (35) (19)
Cash dividends paid (334) (283)
-------- --------
Net cash used in financing activities (6,833) 205
-------- --------
(Decrease) in cash and cash equivalents (3,559) (2,244)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 11,694 10,798
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 8,135 $ 8,554
======== ========
See accompanying notes to consolidated financial statement
6
Notes to Unaudited Consolidated Financial Statements
- ----------------------------------------------------
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,
2001 are not necessarily indicative of the results that may be expected for the
year ended December 31, 2001 or any other future 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, 2000.
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.
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, 2001 and 2000 were
$3,025,000 and $2,482,000 respectively. Cash payments for income taxes in 2001
were $132,000 compared to $406,000 in 2000. Non-cash investing activity for 2001
and 2000 included foreclosed mortgage loans transferred to real estate owned and
repossession of other assets of $330,000 and $222,000.
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, 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, 2001 were $320.9 million compared to $326.7
million at year-end 2000.
Securities
- ----------
The fair value of securities available for sale at March 31, 2001 was
$79.7 million, compared to $79.6 million at December 31, 2000. Total purchases
for the period were $14,457,000 with maturities and principal reductions of
$9,995,000 and sales of $5,224,000. (See cash flow).
Loans
- -----
Total loans receivable, which include automobile leases, were $214.8
million at March 31, 2001 compared to $216.5 million at December 31, 2000. The
decrease was principally due to $1.5 million of longer-term, high coupon
residential mortgages sold in the secondary market. There was a gain on the sale
of $45,000. The Company also experienced a slow down in its indirect automobile
lending, with the balance decreasing $950,000 from December 31, 2000, to $55.2
million at March 31, 2001. With interest rates declining, the Company
anticipates additional mortgage lending activity in the second quarter of 2001.
The Company no longer originates automobile leases, and as a result the
portfolio declined $1.9 million from December 31, 2000 to $11.8 million at March
31, 2001, which includes residual value of $9.4 million, at March 31, 2001
declining from $10.7 million at year-end. The Company liquidates its returned
off-lease vehicles through various used car dealers and automobile auction
centers. At March 31, 2001 the Company had an inventory of vehicles to liquidate
of $781,000. Total losses incurred on off-lease vehicles was $105,000 for the
quarter. The Company's reserve for future residual value losses was $475,000 at
March 31, 2001 increasing from $400,000 at December 31, 2000.
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, 2001 December 31, 2000
------------------- -------------------
$ % $ %
-------- ----- -------- --------
Real Estate-Residential $ 56,969 26.5 $ 59,517 27.5
Commercial 60,614 28.2 56,815 26.2
Construction 2,222 1.0 2,425 1.1
Commercial, financial and agricultural 17,844 8.3 17,102 7.9
Consumer loans to individuals 65,706 30.5 67,286 31.0
Lease financing, net of unearned income 11,770 5.5 13,644 6.3
-------- ----- -------- --------
Total loans 215,125 100.0% 216,789 100.0%
Less:
Unearned income and deferred fees 298 312
Allowance for loan losses 3,260 3,300
-------- --------
Total loans, net $211,567 $213,177
======== ========
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
-----------------------
2001 2000
------- -------
Balance, beginning $ 3,300 $ 3,344
Provision for loan losses 170 95
Charge-offs (240) (198)
Recoveries 30 107
------- -------
Net charge-offs (210) (91)
------- -------
Balance, ending $ 3,260 $ 3,348
======= =======
Allowance to total loans 1.52% 1.62%
Net charge-offs to average loans
(annualized) .39% .18%
The allowance for loan losses totaled $3,260,000 at March 31, 2001
and represented 1.52% of total loans, compared to $3,300,000 at year-end, and
$3,348,000 at March 31, 2000. Net charge-offs for the three month period ended
March 31, 2001, totaled $210,000 and consisted principally of losses on the sale
of repossessed automobiles. With the higher level of net charge-offs, the
provision for loan losses increased to $170,000 compared to $95,000 in the
similar period in 2000. 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
9
consideration to areas of exposure such as 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, 2001 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, 2001, non-performing loans totaled $475,000, which is
.22% of total loans decreasing from $680,000, or .31% of total loans at December
31, 2000. The following table sets forth information regarding non-performing
loans and other real estate owned at the date indicated:
(dollars in thousands) March 31, 2001 December 31, 2000
-------------- -----------------
Loans accounted for on a non-accrual
basis:
Commercial and all other $ 64 $ 64
Real Estate 323 518
Instalment 69 --
---- ----
Total 456 582
Accruing loans which are contractually
past due 90 days or more 19 98
---- ----
Total non-performing loans $475 $680
Other real estate owned 27 27
---- ----
Total non-performing assets $502 $707
==== ====
Allowance for loan losses as a
percent of non-performing loans 686.3% 484.6%
Non-performing loans to total loans .22% .31%
Non-performing assets to total assets .16% .22%
Deposits
- --------
Total deposits at March 31, 2001 were $247.8 million compared to $253
million at December 31, 2000. Non-interest bearing demand deposits at March 31,
2001 were $27.9 million compared to $28.7 million at December 31, 2000. The
change reflects a seasonal decline in commercial and municipal accounts. Time
deposits in denominations of $100,000 or more decreased to $27.2 million at
March 31, 2001 from $31.7 million at December 31, 2000 due to scheduled
maturities of school district and other municipal deposits. This decrease was
partially offset by growth in retail time deposits of $3.1 million. In addition,
the Company had $6.0 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
Stockholders' Equity and Capital Ratios
- ---------------------------------------
At March 31,2001, total stockholders' equity totaled $32.6 million, a
net increase of $1.2 million from December 31, 2000. The net increase in
stockholders' equity was primarily due to $969,000 in net income, that was
partially offset by $324,000 of dividend payments. In addition, other
comprehensive income increased $539,000 due to increase in fair value of
securities in the available for sale portfolio. This increse in fair value is
the result of decrease in interest rates, which favorably impacts the value of
the securities. Because of interest rate volatility, the Company's accumulated
other income comprehensive income could materially fluctuate for each interim
and year-end period.
A comparison of the Company's capital ratios is as follows:
March 31, 2001 December 31, 2000
-------------- -----------------
Tier 1 Capital
(To average assets) 9.85% 9.44%
Tier 1 Capital
(To risk-weighted assets) 13.02% 12.78%
Total Capital
(To risk-weighted assets) 14.52% 14.27%
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, 2001 and December 31, 2000.
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,
-----------------------------------------------------------------------
2001 2000
--------------------------------- -----------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ------ ------- -------- ------
(2) (1) (3) (2) (1) (3)
Assets
Interest-earning assets:
Federal funds sold $ 820 $ 11 5.37% $ 532 $ 7 5.26%
Interest bearing deposits with banks 104 1 3.85 265 1 1.51
Securities held-to-maturity 7,485 166 8.87 7,477 162 8.67
Securities available for sale:
Taxable 71,815 1,150 6.41 75,884 1,258 6.63
Tax-exempt 8,169 146 3,147 56 7.12
-------- ------ 7.15 -------- ------
Total securities available for sale 79,984 1,296 6.48 79,031 1,314 6.65
Loans receivable (4) (5) 215,735 4,681 8.68 206,798 4,323 8.36
-------- ------ -------- ------
Total interest earning assets 304,128 6,155 8.10 294,103 5,807 7.90
Non-interest earning assets:
Cash and due from banks 6,699 6,546
Allowance for loan losses (3,264) (3,372)
Other assets 14,495 15,595
-------- --------
Total non-interest earning assets 17,930 18,769
-------- --------
Total Assets $322,058 $312,872
======== ========
Liabilities and Shareholders' Equity
Interest bearing liabilities:
Interest bearing demand deposits $ 59,268 365 2.46% $ 57,919 354 2.44%
Savings 40,722 212 2.08 42,573 231 2.17
Time 119,914 1,686 5.62 113,948 1,481 5.20
-------- ------ -------- ------
Total interest bearing deposits 219,904 2,263 4.12 214,440 2,066 3.85
Short-term borrowings 7,792 70 3.59 9,021 81 3.59
Long-term debt 29,243 423 5.79 30,440 451 5.93
-------- ------ -------- ------
Total interest bearing liabilities 256,939 2,756 4.29 253,901 2,598 4.09
Non-interest bearing liabilities:
Demand deposits 27,002 26,846
Other liabilities 6,273 5,627
-------- --------
Total non-interest bearing liabilities 33,275 32,473
Shareholders' equity 31,844 26,498
-------- --------
Total Liabilities and Shareholders' Equity $322,058 $312,872
======== ========
Net interest income (tax equivalent basis) 3,399 3.81% 3,209 3.81%
==== ====
Tax-equivalent basis adjustment (113) (90)
------- ------
Net interest income $ 3,286 $3,119
======= ======
Net interest margin (tax equivalent basis) 4.47% 4.36%
==== ====
(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 31,2001 Compared to
--------------------------------------------
Three months ended March 31, 2000
---------------------------------
Variance due to
---------------
Volume Rate Net
-----------------------
(dollars in thousands)
Assets
Interest earning assets:
Federal funds sold ...................... $ 4 $ - $ 4
Interest bearing deposits with banks .... (3) 3 -
Securities held to maturity ............. - 4 4
Securities available for sale:
Taxable .............................. (66) (42) (108)
Tax-exempt securities ................ 90 - 90
----- ----- -----
Total securities .................. 24 (42) (18)
Loans receivable ........................ 191 167 358
----- ----- -----
Total interest earning assets ......... 216 132 348
Interest bearing liabilities:
Interest-bearing demand deposits ....... 8 3 11
Savings ................................ (10) (9) (19)
Time ................................... 80 125 205
----- ----- -----
Total interest bearing deposits ..... 78 119 197
Short-term borrowings ................... (11) - (11)
Long Term debt ........................... (17) (11) (28)
----- ----- -----
Total interest bearing liabilities ...... 50 108 158
Net interest income (tax-equivalent basis) $ 165 $ 25 $ 190
===== ===== =====
(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, 2001 and March
- --------------------------------------------------------------------------------
31, 2000
- --------
General
- -------
For the three months ended March 31, 2001 net income totaled $969,000
or $.58 per share (basic and diluted) compared to $888,000, or $.53 per share
(basic and diluted) earned in the first quarter of 2000. The resulting return on
average assets and return on average equity for the quarter were 1.20% and
12.17% respectively compared to 1.13% and 13.40% respectively for the
corresponding period in 1999. The Company paid dividends of $.20 per share in
2001 compared to $.17 per share in 2000.
Net Interest Income
- -------------------
Net interest income on a fully taxable basis (fte) for the first
quarter of 2001 totaled $3,339,000 compared to $3,209,000 in 2000, an increase
of $190,000 or 5.9%. The resultant fte net interest spread and net interest
margin for the three months ended March 31, 2001 was 3.80% and 4.47%
respectively, compared to 3.80% and 4.36% respectively in 2000.
Interest income on an fte basis totaled $6,155,000 for the period in
2001 increasing $348,000 from $5,807,000 in 2000. The increase was due to $10
million growth in average earning assets and improvement in the yield on earning
assets at 8.10% in 2001, and 7.90% in 2000.
Securities available for sale averaged $80 million at a yield of
6.48% in 20001 compared to $79 million at a yield of 6.65% in 2000. The decrease
in yield is principally due to the lower interst rate environment in 2001.
Loan receivable averaged $215.7 million in 2001 at yield of 8.68%
compared to $206.8 million yielding 8.36%. The increase in yield is due in part
to growth in higher yielding commercial loans, which replaced run-off in the
lower yielding automobile leasing portfolio. In addition, in the first quarter
of 2001, the Company collected $30,000 of delinquent interest on two
non-performing loans.
Interest expense for the three months ending March 31, 2001 totaled
$2,756,000 with a cost of interest-bearing liabilities of 4.29% compared to
$2,598,000 of expense at 4.08% in 2000. The increase was principally due to time
deposits at 5.62%, compared to 5.20% in 2000. The higher cost was due to
shorter-term certificates of deposit generated in 2000, the majority of which
will mature and reprice in 2001.
Other Income
- ------------
Other income, excluding net realized gains on sales of securities,
totaled $655,000 for the period ended March 31, 2001, an increase of $78,000 or
13.5% over $577,000 in the same period in 2000. The increase was due in part to
a loan promotion which generated $63,000 in fees and gain on sale of fixed rate
residential mortgages of $45,000. For the quarter, fee income represented 16.1%
of total revenues, increasing from 15.2% in 2000.
Net realized gains on securities transactions were $11,000 for the
first quarter of 2001 compared to $1,000 in 2000.
14
Other Expense
- -------------
Other expenses totaled $2,450,000 for the period ending March 31,
2001, an increase of $80,000, or 3.4% from $2,370,000 in the prior year. The
increase is principally due to higher salaries and employee benefit expense,
$82,000 and data processing costs, $30,000. These increases were partially
offset by lower legal fees of $32,000 in 2001, which are included in
professional fees.
Income Tax Expense
- ------------------
Income tax expense totaled $363,000 for an effective rate of 27.3%
compared to $344,000 and 27.9% in first quarter of 2000. The effective rate is
below the statutory rate of 34% due to tax exempt income on loans and
securities.
Item 3: Quantitative and Qualitative Disclosures about Market Risk
Market Risk
- -----------
There were no significant changes for the three months ended March
31, 2001 from the information presented in the Form 10-k for the year-ended
December 31, 2000.
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
Item 5. Other Materially Important Events
None
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***
(b) Reports on Form 8-k
On January 11, 2001, the Registrant filed a Form 8k (Items 5 and 7) to
announce a stock repurchase plan to purchase up to 3% or 50,230 shares, of
the company's outstanding stock.
- ---------------------------
* 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, 2001.
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 14, 2001 By: /s/William W. Davis, Jr.
-------------------------------------
William W. Davis, Jr.
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 14, 2001 By: /s/Lewis J. Critelli
-------------------------------------
Lewis J. Critelli
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
18