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NORWOOD FINANCIAL CP$30.07$.571.93%

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 Norwood Financial Corp Announces Earnings for the Fourth Quarter and Year
   Friday, January 30, 2015 1:30:12 PM ET

Lewis J. Critelli, President and Chief Executive Officer of Norwood Financial Corp (NWFL ) and its subsidiary Wayne Bank, announced earnings today for the three months ended December 31, 2014 of $1,541,000. This represents a decrease of $640,000 from the $2,181,000 earned in the comparable period of 2013 due primarily to a $749,000 increase in foreclosed real estate costs. Earnings per share (fully diluted) were $.42 and $.60 for the three-month periods ended December 31, 2014 and 2013, respectively. Net interest income before the provision for loan losses declined $40,000 compared to the same period of last year, while other income increased $17,000. The provision for loan losses was $420,000 in the current three-month period compared to $400,000 in the same period of last year, while operating expenses increased $899,000 due primarily to the $749,000 increase in foreclosed real estate costs noted above. For the year ended December 31, 2014, net income totaled $7,657,000, a decrease of $808,000 from the $8,465,000 earned in the prior year as increased foreclosed real estate costs and a decreased level of earnings and proceeds on life insurance policies offset a $720,000 reduction in the provision for loan losses. Earnings per share on a fully diluted basis were $2.10 for 2014, compared to $2.33 in 2013. The return on average assets for the year was 1.08% with a return on average equity of 7.92% compared to 1.23% and 9.13%, respectively, in 2013.

Total assets were $711.6 million as of December 31, 2014. Loans receivable totaled $501.1 million as of December 31, 2014, with total deposits of $559.9 million and stockholders’ equity of $99.0 million. The Company’s capital position remains "well capitalized" in accordance with risk-based capital guidelines established by federal bank regulators.

Loans receivable decreased $2.0 million from the prior year-end due primarily to an $11.2 million reduction in commercial real estate loans which was the result of several significant payoffs received in 2014 and the transfer of nonperforming loans to foreclosed real estate. Other commercial loans increased $6.8 million due to growth in municipal financing, while consumer loans increased $4.4 million. Residential mortgage loans and construction loans decreased $2.0 million, but includes the sale of $4.3 million of fixed-rate residential mortgage loans for the purpose of interest rate risk management. As of December 31, 2014, total non-performing loans were $5.6 million and represented 1.12% of total loans compared to $9.5 million, or 1.90% as of December 31, 2013. For the three months and year ended December 31, 2014, net charge-offs totaled $196,000 and $1,513,000, respectively, compared to $251,000 and $2,194,000, respectively, for the corresponding periods in 2013. Based on the level of charge-offs and non-performing loans, the Company determined that it would be appropriate to provide $420,000 and $1,680,000 for potential future losses for the three and twelve month periods ended December 31, 2014, respectively, compared to $400,000 in the similar quarter of last year and $2,400,000 for the year of 2013. As of December 31, 2014, the allowance for loan losses totaled $5,875,000 and 1.17% of total loans compared to $5,708,000 and 1.13% of total loans at December 31, 2013.

Net interest income (fully taxable equivalent) totaled $6,399,000 for the three months ended December 31, 2014, a decrease of $62,000 compared to the same period in 2013. Net interest margin (fte) for the three months ended December 31, 2014 was 3.87% decreasing from 3.91% for the similar period in 2013. The decrease in net interest margin was principally due to loan production at historically low interest rate levels which resulted in a 9 basis point decrease in the yield earned on assets compared to a 5 basis point reduction in the cost of interest-bearing liabilities. For the year, net interest income (fte) totaled $25,818,000, a decrease of $39,000 compared to 2013. The net interest margin (fte) declined 10 basis points to 3.90% in 2014.

Other income for the three months ended December 31, 2014 totaled $1,327,000 compared to $1,310,000 for the similar period in 2013. Although gains on the sale of loans and securities decreased $65,000, all other items of other income increased $82,000 in the aggregate. Other income for the year ended December 31, 2014 totaled $5,110,000 compared to $5,615,000 in 2013, a decrease of $505,000. Gains on the sale of loans and investment securities increased $309,000 in the aggregate but earnings and proceeds received on bank owned life insurance policies decreased $701,000 while all other items of other income decreased $113,000, net. During 2013, the Company recorded a non-recurring gain of $770,000 from proceeds on a bank-owned life insurance policy.

Other expenses totaled $4,997,000 for the three months ended December 31, 2014, compared to $4,098,000 in the similar period of 2013. Foreclosed real estate costs increased $749,000 due to market value adjustments and recurring maintenance costs, while all other operating expenses increased $150,000, or 3.7%, net. For the year ended December 31, 2014, other expenses totaled $17,727,000 compared to $16,705,000 for the similar period in 2013, an increase of $1,022,000. Foreclosed real estate costs increased $988,000 over the prior period, while all other expenses increased $34,000, net compared to 2013.

Mr. Critelli commented, "The past year was extremely challenging, as a continued low interest rate environment and the increased cost of maintaining and disposing of foreclosed properties placed stress on our earnings. Working with borrowers will remain a top priority as we make our way through this difficult economic environment, and we expect that the demands will continue into 2015. In spite of these challenges, we were able to accomplish many of our goals in 2014. Our cash dividend per share increased from $1.16 per share to $1.20 per share, which resulted in a dividend yield in excess of 4.00% annually based on our year-end closing stock price of $29.05. We recorded a Return on Assets of 1.08% and maintained a net interest margin close to 4.00% for the year. We also managed to reduce our level of non-performing loans from 1.90% of total loans to 1.12% and maintain our capital levels in excess of the "Well Capitalized" levels established by our regulators. We will remain diligent in controlling and minimizing credit-related costs brought on us by our ailing economy. We believe that we are well positioned to take advantage of the opportunities available to us, and we look forward to serving our growing customer base as the local economy in Northeast Pennsylvania rebounds from the extended economic downturn."

Norwood Financial Corp., through its subsidiary Wayne Bank, operates fifteen offices in Wayne, Pike, Monroe and Lackawanna Counties, Pennsylvania. The Company’s stock is traded on the Nasdaq Global Market, under the symbol, "NWFL".

Forward-Looking Statements.

The Private Securities Litigation Reform Act of 1995 contains safe harbor provisions regarding forward-looking statements. When used in this discussion, the words believes, anticipates, contemplates, expects, and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from those projected. Those risks and uncertainties include changes in federal and state laws, changes in interest rates, risks associated with the acquisition of North Penn Bancorp, the ability to control costs and expenses, demand for real estate and general economic conditions. The Company undertakes no obligation to publicly release the results of any revisions to those forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Non-GAAP Financial Measures

This release references tax-equivalent net interest income, which is a non-GAAP (Generally Accepted Accounting Principles) financial measure. Tax-equivalent net interest income is derived from GAAP interest income and 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:

(dollars in thousands)                                      Three months ended  Year ended
                                                            December 31         December 31
                                                            2014      2013      2014    2013
Net interest income                                         $6,105    $6,145    $24,560 $24,661
Tax equivalent basis adjustment using 34% marginal tax rate 294       316       1,258   1,196
Net interest income on a fully taxable equivalent basis     $6,399    $6,461    $25,818 $25,857
NORWOOD FINANCIAL CORP.
Consolidated Balance Sheets
(dollars in thousands, except share data)
(unaudited)
                                                                                                                  December 31
                                                                                                                  2014      2013
ASSETS
Cash and due from banks                                                                                           $ 8,081   $ 7,528
Interest-bearing deposits with banks                                                                              4,295     335
Cash and cash equivalents                                                                                         12,376    7,863
Securities available for sale                                                                                     156,395   158,132
Securities held to maturity, fair value 2013: $177                                                                --        174
Loans receivable (net of unearned Income)                                                                         501,135   503,097
Less: Allowance for loan losses                                                                                   5,875     5,708
Net loans receivable                                                                                              495,260   497,389
Regulatory stock, at cost                                                                                         1,714     2,877
Bank premises and equipment, net                                                                                  6,734     7,125
Bank owned life insurance                                                                                         18,284    17,790
Foreclosed real estate owned                                                                                      3,726     1,009
Accrued interest receivable                                                                                       2,339     2,422
Goodwill                                                                                                          9,715     9,715
Other intangible assets                                                                                           389       510
Deferred tax asset                                                                                                3,779     4,819
Other assets                                                                                                      924       1,409
TOTAL ASSETS                                                                                                      $ 711,635 $ 711,234
LIABILITIES
Deposits:
Non-interest bearing demand                                                                                       $ 98,064  $ 92,684
Interest-bearing                                                                                                  461,880   448,498
Total deposits                                                                                                    559,944   541,182
Short-term borrowings                                                                                             25,695    49,914
Other borrowings                                                                                                  22,200    23,761
Accrued interest payable                                                                                          966       1,022
Other liabilities                                                                                                 3,789     3,491
TOTAL LIABILITIES                                                                                                 612,594   619,370
STOCKHOLDERS’ EQUITY
Common Stock, $.10 par value, authorized 10,000,000 shares issued: 2014: 3,718,018 shares; 2013: 3,708,718 shares 372       371
Surplus                                                                                                           35,206    35,010
Retained earnings                                                                                                 64,078    60,798
Treasury stock, at cost: 2014: 40,576 shares, 2013: 64,628 shares                                                 (1,077)   (1,713)
Accumulated other comprehensive income (loss)                                                                     462       (2,602)
TOTAL STOCKHOLDERS’ EQUITY                                                                                        99,041    91,864
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                        $ 711,635 $ 711,234
NORWOOD FINANCIAL CORP.
Consolidated Statements of Income
(dollars in thousands, except per share data)
(unaudited)
                                                    Three Months Ended December 31  Twelve Months Ended December 31
                                                    2014            2013            2014            2013
INTEREST INCOME
Loans receivable, including fees                    $ 5,954         $ 6,019         $ 23,841        $ 24,576
Securities                                          940             972             3,920           3,657
Other                                               4               9               7               26
Total Interest income                               6,898           7,000           27,768          28,259
INTEREST EXPENSE
Deposits                                            611             674             2,463           2,848
Short-term borrowings                               15              22              77              66
Other borrowings                                    167             159             668             684
Total Interest expense                              793             855             3,208           3,598
NET INTEREST INCOME                                 6,105           6,145           24,560          24,661
PROVISION FOR LOAN LOSSES                           420             400             1,680           2,400
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 5,685           5,745           22,880          22,261
OTHER INCOME
Service charges and fees                            604             578             2,350           2,412
Income from fiduciary activities                    109             94              437             379
Net realized gains on sales of securities           265             291             1,170           881
Gains on sale of loans                              82              121             132             112
Earnings and proceeds on life insurance policies    171             162             685             1,386
Other                                               96              64              336             445
Total other income                                  1,327           1,310           5,110           5,615
OTHER EXPENSES
Salaries and employee benefits                      2,252           2,009           8,616           8,447
Occupancy, furniture and equipment                  516             550             2,117           2,136
Data processing related                             249             218             929             891
Taxes, other than income                            161             179             649             710
Professional Fees                                   196             128             671             626
FDIC Insurance assessment                           100             109             420             444
Foreclosed real estate owned                        822             73              1,555           567
Other                                               701             832             2,770           2,884
Total other expenses                                4,997           4,098           17,727          16,705
INCOME BEFORE TAX                                   2,015           2,957           10,263          11,171
INCOME TAX EXPENSE                                  474             776             2,606           2,706
NET INCOME                                          $ 1,541         $ 2,181         $ 7,657         $ 8,465
Basic earnings per share                            $ 0.42          $ 0.60          $ 2.10          $ 2.33
Diluted earnings per share                          $ 0.42          $ 0.60          $ 2.10          $ 2.33
NORWOOD FINANCIAL CORP.
Financial Highlights (Unaudited)
(dollars in thousands, except per share data)
For the Three Months Ended December 31         2014      2013
Net interest income                            $ 6,105   $ 6,145
Net income                                     1,541     2,181
Net interest spread (fully taxable equivalent) 3.72%     3.76%
Net interest margin (fully taxable equivalent) 3.87%     3.91%
Return on average assets                       0.86%     1.23%
Return on average equity                       6.17%     9.33%
Basic earnings per share                       $ 0.42    $ 0.60
Diluted earnings per share                     $ 0.42    $ 0.60
For the Twelve Months Ended December 31
Net interest income                            $ 24,560  $ 24,661
Net income                                     7,657     8,465
Net interest spread (fully taxable equivalent) 3.76%     3.85%
Net interest margin (fully taxable equivalent) 3.90%     4.00%
Return on average assets                       1.08%     1.23%
Return on average equity                       7.92%     9.13%
Basic earnings per share                       $ 2.10    $ 2.33
Diluted earnings per share                     $ 2.10    $ 2.33
As of December 31
Total assets                                   $ 711,635 $ 711,234
Total loans receivable                         501,135   503,097
Allowance for loan losses                      5,875     5,708
Total deposits                                 559,944   541,182
Stockholders’ equity                           99,041    91,864
Trust assets under management                  134,888   126,673
Book value per share                           $ 26.30   $ 25.43
Equity to total assets                         13.92%    12.92%
Allowance to total loans receivable            1.17%     1.13%
Nonperforming loans to total loans             1.12%     1.90%
Nonperforming assets to total assets           1.31%     1.48%
NORWOOD FINANCIAL CORP.
Consolidated Balance Sheets (unaudited)
(dollars in thousands)
                                           December 31 September 30 June 30   March 31  December 31
                                           2014        2014         2014      2014      2013
ASSETS
Cash and due from banks                    $ 8,081     $ 13,105     $ 12,196  $ 8,607   $ 7,528
Interest-bearing deposits with banks       4,295       158          3,182     142       335
Cash and cash equivalents                  12,376      13,263       15,378    8,749     7,863
Securities available for sale              156,395     158,701      154,925   156,165   158,132
Securities held to maturity                --          --           --        175       174
Loans receivable (net of unearned income)  501,135     500,844      502,316   496,016   503,097
Less: Allowance for loan losses            5,875       5,651        5,611     5,727     5,708
Net loans receivable                       495,260     495,193      496,705   490,289   497,389
Regulatory stock, at cost                  1,714       3,210        2,437     2,741     2,877
Bank owned life insurance                  18,284      18,143       18,002    17,930    17,790
Bank premises and equipment, net           6,734       6,825        6,910     7,031     7,125
Foreclosed real estate owned               3,726       4,962        4,293     1,364     1,009
Goodwill and other intangibles             10,104      10,133       10,161    10,192    10,225
Other assets                               7,042       7,783        8,051     8,598     8,650
TOTAL ASSETS                               $ 711,635   $ 718,213    $ 716,862 $ 703,234 $ 711,234
LIABILITIES
Deposits:
Non-interest bearing demand                $ 98,064    $ 102,343    $ 103,954 $ 93,400  $ 92,684
Interest-bearing deposits                  461,880     445,995      450,760   446,676   448,498
Total deposits                             559,944     548,338      554,714   540,076   541,182
Other borrowings                           47,895      67,296       60,992    63,746    73,675
Other liabilities                          4,755       5,172        4,954     5,212     4,513
TOTAL LIABILITIES                          612,594     620,806      620,660   609,034   619,370
STOCKHOLDERS’ EQUITY                       99,041      97,407       96,202    94,200    91,864
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 711,635   $ 718,213    $ 716,862 $ 703,234 $ 711,234
NORWOOD FINANCIAL CORP.
Consolidated Statements of Income (unaudited)
(dollars in thousands, except per share data)
                                                     December 31 September 30 June 30 March 31 December 31
Three months ended                                   2014        2014         2014    2014     2013
INTEREST INCOME
Loans receivable, including fees                     $ 5,954     $ 5,972      $ 5,933 $ 5,980  $ 6,019
Securities                                           940         968          1,025   987      972
Other                                                4           1            2       1        9
Total interest income                                6,898       6,941        6,960   6,968    7,000
INTEREST EXPENSE
Deposits                                             611         600          618     635      674
Borrowings                                           182         187          187     188      181
Total interest expense                               793         787          805     823      855
NET INTEREST INCOME                                  6,105       6,154        6,155   6,145    6,145
PROVISION FOR LOAN LOSSES                            420         420          420     420      400
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES  5,685       5,734        5,735   5,725    5,745
OTHER INCOME
Service charges and fees                             604         587          583     576      578
Income from fiduciary activities                     109         125          99      104      94
Net realized gains on sales of securities            265         301          509     95       291
Gains (losses) on sale of loans and servicing rights 82          (15)         26      39       121
Earnings and proceeds on life insurance policies     171         170          175     168      162
Other                                                96          94           76      71       64
Total other income                                   1,327       1,262        1,468   1,053    1,310
OTHER EXPENSES
Salaries and employee benefits                       2,252       2,028        2,172   2,165    2,009
Occupancy, furniture and equipment, net              516         505          518     578      550
Foreclosed real estate owned                         822         271          396     65       73
FDIC insurance assessment                            100         104          102     114      109
Other                                                1,307       1,216        1,285   1,210    1,357
Total other expenses                                 4,997       4,124        4,473   4,132    4,098
INCOME BEFORE TAX                                    2,015       2,872        2,730   2,646    2,957
INCOME TAX EXPENSE                                   474         754          696     682      776
NET INCOME                                           $ 1,541     $ 2,118      $ 2,034 $ 1,964  $ 2,181
Basic earnings per share                             $ 0.42      $ 0.58       $ 0.56  $ 0.54   $ 0.60
Diluted earnings per share                           $ 0.42      $ 0.58       $ 0.56  $ 0.54   $ 0.60
Book Value per share                                 $ 26.30     $ 26.30      $ 26.14 $ 25.88  $ 25.43
Return on average equity (annualized)                6.17%       8.62%        8.49%   8.46%    9.33%
Return on average assets (annualized)                0.86%       1.18%        1.15%   1.13%    1.23%
Net interest spread (fte)                            3.72%       3.78%        3.77%   3.77%    3.76%
Net interest margin (fte)                            3.87%       3.92%        3.91%   3.91%    3.91%
Allowance for loan losses to total loans             1.17%       1.13%        1.12%   1.15%    1.13%
Net charge-offs to average loans (annualized)        0.16%       0.30%        0.43%   0.32%    0.21%
Nonperforming loans to total loans                   1.12%       1.18%        1.49%   1.92%    1.90%
Nonperforming assets to total assets                 1.31%       1.52%        1.65%   1.55%    1.48%
CONTACT: William S. Lance
         Executive Vice President &
         Chief Financial Officer
         NORWOOD FINANCIAL CORP.
         570-253-8505
         www.waynebank.com

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