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NORWOOD FINANCIAL CP$30.16$.09.30%

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 Norwood Financial Corp Announces Earnings for the Fourth Quarter and Year
   Friday, January 29, 2016 4:15:14 PM ET

Lewis J. Critelli, President and Chief Executive Officer of Norwood Financial Corp (NWFL ) and its subsidiary Wayne Bank, announced earnings for the three months ended December 31, 2015 of $128,000. This represents a decrease from the $1,541,000 earned in the comparable period of 2014 due primarily to a $2,400,000 increase in the provision for loan losses. Earnings per share (fully diluted) were $.04 and $.42 for the three-month periods ended December 31, 2015 and 2014 respectively. Net interest income before the provision for loan losses increased $7,000 compared to the same period of last year, while other income decreased $111,000. A provision for loan losses of $2,820,000 was recorded in the current three-month period compared to $420,000 in the same period of last year in order to replenish the reserve for loan losses after recognizing $1,268,000 of net charge-offs during the 2015 period. Operating expenses decreased $323,000 due primarily to a $347,000 decrease in foreclosed real estate costs. For the year ended December 31, 2015, net income totaled $5,908,000, a decrease of $1,749,000 from the $7,657,000 earned in the prior year as a $2,900,000 increase in the provision for loan losses offset a $644,000 decrease in foreclosed real estate costs. Earnings per share on a fully diluted basis were $1.60 for 2015 compared to $2.10 in 2014. The return on average assets for the year was 0.80% with a return on average equity of 5.83% compared to 1.08% and 7.92%, respectively, in 2014.

Total assets were $750.5 million as of December 31, 2015. Loans receivable totaled $559.9 million as of December 31, 2015, with total deposits of $550.9 million and stockholders’ equity of $101.0 million.

Loans receivable increased $58.8 million from the prior year-end due primarily to a $28.6 million increase in commercial loans which includes a $21.3 million increase in municipal financing. Commercial real estate loans also increased $17.2 million during the year. Residential mortgage loans and construction loans increased $3.5 million after the sale of $4.3 million of fixed-rate residential mortgage loans for the purpose of interest rate risk management. Consumer loans increased $9.5 million in 2015 due primarily to a $9.2 million increase in indirect auto and marine financing. As of December 31, 2015, total non-performing loans were $7.1 million and represented 1.27% of total loans compared to $5.6 million, or 1.12% as of December 31, 2014. For the three months and year ended December 31, 2015, net charge-offs totaled $1,268,000 and $3,157,000, respectively, compared to $196,000 and $1,513,000, respectively, for the corresponding periods in 2014. Based on the level of charge-offs, the Company determined that it would be appropriate to provide $2,820,000 and $4,580,000 for potential future losses for the three and twelve month periods ended December 31, 2015, respectively, compared to $420,000 in the similar quarter of last year and $1,680,000 for the year of 2014. As of December 31, 2015, the allowance for loan losses totaled $7,298,000 and 1.30% of total loans compared to $5,875,000 and 1.17% of total loans at December 31, 2014.

Net interest income (fully taxable equivalent) totaled $6,477,000 for the three months ended December 31, 2015, an increase of $78,000 compared to the same period in 2014. Net interest margin (fte) for the three months ended December 31, 2015 was 3.73% decreasing from 3.87% for the similar period in 2014. The decrease in net interest margin was principally due to loan production at historically low interest rate levels which resulted in a 13 basis point decrease in the yield earned on assets. The net interest margin was further impacted by a 1 basis point increase in the cost of interest-bearing liabilities. For the year, net interest income (fte) totaled $25,882,000, an increase of $64,000 compared to 2014. The net interest margin (fte) declined 15 basis points to 3.75% in 2015.

Other income for the three months ended December 31, 2015 totaled $1,216,000 compared to $1,327,000 for the similar period in 2014. Although gains on the sale of loans and securities decreased $168,000, all other items of other income increased $57,000 in the aggregate. Other income for the year ended December 31, 2015 totaled $4,699,000 compared to $5,110,000 in 2014, a decrease of $411,000. Gains on the sale of loans and investment securities decreased $572,000 in the aggregate, while all other items of other income increased $161,000, net.

Other expenses totaled $4,674,000 for the three months ended December 31, 2015, compared to $4,997,000 in the similar period of 2014. Foreclosed real estate costs decreased $347,000 from the 2014 level, while all other operating expenses increased $24,000, net. For the year ended December 31, 2015, other expenses totaled $17,100,000 compared to $17,727,000 for the similar period in 2014, a decrease of $627,000. Foreclosed real estate costs decreased $644,000 from the prior period, while all other expenses increased $17,000, net compared to 2014.

Mr. Critelli commented, "Our earnings in 2015 were impacted by credit quality issues, resulting from the extended period of stress on our local economy, our customer base and real estate values. During the fourth quarter of 2015, we recognized significant losses on several commercial properties as current appraised values supporting sales or future projected sales were significantly lower than those received at the time of the loan origination. In spite of these challenges, we were able to accomplish many of our goals in 2015. Our cash dividend per share increased from $1.20 per share to $1.24 per share, which resulted in a dividend yield in excess of 4.00% annually based on our year-end closing stock price of $28.75. We had loan growth in excess of 10%. The ongoing low level of interest rates and the competitive lending environment also continued to place pressure on our net interest margin; however, our year-to-date margin and our capital levels were well above peer and our operating expenses remain well controlled. 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 base of stockholders and customers, as the local economy in Northeast Pennsylvania recovers 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, 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 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 interest income on a tax-equivalent basis ensures comparability of interest income arising from both taxable and tax-exempt sources and is consistent with industry practice.

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

                                                            Three months ended    Year  ended
(dollars in thousands)                                      December 31           December 31
                                                                2015       2014     2015      2014
Net interest income                                         $   6,112  $   6,105  $ 24,521  $ 24,560
Tax equivalent basis adjustment using 34% marginal tax rate     365        294      1,361     1,258
Net interest income on a fully taxable equivalent basis     $   6,477  $   6,399  $ 25,882  $ 25,818
NORWOOD FINANCIAL CORP.
Consolidated Balance Sheets
(dollars in thousands, except share data)
(unaudited)
                                                                     December 31
                                                                          2015               2014
ASSETS
Cash and due from banks                                           $       9,744              8,081
Interest-bearing deposits with banks                                      266                4,295
Cash and cash equivalents                                                 10,010             12,376
Securities available for sale                                             138,851            156,395
Loans receivable                                                          559,925            501,135
Less: Allowance for loan losses                                           7,298              5,875
Net loans receivable                                                      552,627            495,260
Regulatory stock, at cost                                                 3,412              1,714
Bank premises and equipment, net                                          6,472              6,734
Bank owned life insurance                                                 18,820             18,284
Foreclosed real estate owned                                              2,847              3,726
Accrued interest receivable                                               2,363              2,339
Goodwill                                                                  9,715              9,715
Other intangible assets                                                   285                389
Deferred tax asset                                                        3,867              3,285
Other assets                                                              1,236              1,418
TOTAL ASSETS                                                      $       750,505            711,635
LIABILITIES
Deposits:
Non-interest bearing demand                                       $       107,814            98,064
Interest-bearing                                                          443,095            461,880
Total deposits                                                            550,909            559,944
Short-term borrowings                                                     53,235             25,695
Other borrowings                                                          41,126             22,200
Accrued interest payable                                                  957                966
Other liabilities                                                         3,280              3,789
TOTAL LIABILITIES                                                         649,507            612,594
STOCKHOLDERS’ EQUITY
Common Stock, $.10 par value, authorized 10,000,000 shares
issued:  2015: 3,724,668 shares, 2014:  3,718,018 shares                  373                372
Surplus                                                                   35,351             35,206
Retained earnings                                                         65,412             64,078
Treasury stock, at cost: 2015: 23,311 shares, 2014: 40,576 shares         (626    )          (1,077  )
Accumulated other comprehensive income                                    488                462
TOTAL STOCKHOLDERS’ EQUITY                                                100,998            99,041
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY                                              $       750,505            711,635
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,
                                                                          2015               2014                 2015          2014
INTEREST INCOME
Loans receivable, including fees                                  $       6,058        $     5,954        $       24,002  $     23,841
Securities                                                                877                940                  3,761         3,920
Other                                                                     1                  4                    16            7
Total Interest income                                                     6,936              6,898                27,779        27,768
INTEREST EXPENSE
Deposits                                                                  587                611                  2,421         2,463
Short-term borrowings                                                     38                 15                   85            77
Other borrowings                                                          199                167                  752           668
Total Interest expense                                                    824                793                  3,258         3,208
NET INTEREST INCOME                                                       6,112              6,105                24,521        24,560
PROVISION FOR LOAN LOSSES                                                 2,820              420                  4,580         1,680
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES                       3,292              5,685                19,941        22,880
OTHER INCOME
Service charges and fees                                                  651                604                  2,440         2,350
Income from fiduciary activities                                          99                 109                  439           437
Net realized gains on sales of securities                                 118                265                  626           1,170
Gains on sales of loans, net                                              61                 82                   104           132
Earnings and proceeds on life insurance policies                          167                171                  665           685
Other                                                                     120                96                   425           336
Total other income                                                        1,216              1,327                4,699         5,110
OTHER EXPENSES
Salaries and  employee benefits                                           2,152              2,252                8,535         8,616
Occupancy, furniture and equipment                                        511                516                  2,082         2,117
Data processing related                                                   261                249                  943           929
Taxes, other than income                                                  185                161                  711           649
Professional fees                                                         283                196                  730           671
FDIC Insurance assessment                                                 133                100                  411           420
Foreclosed real estate owned                                              475                822                  911           1,555
Other                                                                     674                701                  2,777         2,770
Total other expenses                                                      4,674              4,997                17,100        17,727
INCOME (LOSS) BEFORE TAX                                                  (166    )          2,015                7,540         10,263
INCOME TAX EXPENSE (BENEFIT)                                              (294    )          474                  1,632         2,606
NET INCOME                                                        $       128          $     1,541        $       5,908   $     7,657
Basic earnings per share                                          $       0.04         $     0.42         $       1.60    $     2.10
Diluted earnings per share                                        $       0.04         $     0.42         $       1.60    $     2.10
Contact:
William S. Lance
Executive Vice President &
Chief Financial Officer
NORWOOD FINANCIAL CORP
570-253-8505
www.waynebank.com

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