Norwood Financial Corp Announces Second Quarter Earnings

HONESDALE, Pa., July 26, 2023 (GLOBE NEWSWIRE) -- James O. Donnelly, President and Chief Executive Officer of Norwood Financial Corp (Nasdaq Global Market-NWFL) and its subsidiary, Wayne Bank, announced earnings for the three months ended June 30, 2023 of $6,503,000, which was $352,000 lower than the same three-month period of last year. The decrease includes a $1,252,000 decrease in net interest income, a $706,000 decrease in total other income, and a $466,000 increase in total other expense, which was partially offset by a $2,050,000 decrease in the provision for credit losses. Earnings per share (fully diluted) were $0.81 in the three months ended June 30, 2023, compared to $0.84 in the same period of last year. The annualized return on average assets for the three months ended June 30, 2023, was 1.23%, while the annualized return on average tangible equity was 17.66%. Net income for the six months ended June 30, 2023, was $12,285,000, which is $1,698,000 lower than the same six-month period of 2022, due to decreases in net interest income and total other income, and an increase in operating expenses, partially offset by a decrease in the provision for credit losses of $2,050,000.   Earnings per share (fully diluted) for the six months ended June 30, 2023, were $1.51, compared to $1.71 for the six months ended June 30, 2022. The annualized return on average assets for the six months ended June 30, 2023 was 1.18%. The annualized return on average tangible equity for the six months ended June 30, 2023 was 17.06%.

Total assets as of June 30, 2023 were $2.142 billion, compared to $2.066 billion at June 30, 2022. At June 30, 2023, loans receivable were $1.578 billion, total deposits were $1.732 billion and stockholders’ equity was $173.4 million.

For the three months ended June 30, 2023, net interest income, on a fully-taxable equivalent basis (fte), totaled $15,829,000, a decrease of $1,253,000 compared to the same period in 2022. A $122.5 million increase in average time deposits, combined with a 231 basis points increase in the cost of time deposits, contributed to the decreased net interest income. Borrowing costs also increased, offsetting a $5,143,000 increase in total interest income. Net interest margin (fte) for the three months ended June 30, 2023 was 3.09%, compared to 3.49% in the same period of 2022. The tax-equivalent yield on interest-earning assets increased 83 basis points to 4.57% during the three months ended June 30, 2023, compared to the same prior year period, while the cost of interest-bearing liabilities increased 167 basis points to 2.01%. Net interest income (fte) for the six months ended June 30, 2023 totaled $32,104,000, which was $1,261,000 lower than the same period in 2022, due primarily to a $10,767,000 increase in the cost of interest-bearing liabilities. The net interest margin (fte) was 3.17% for the six months ended June 30, 2023, as compared to 3.41% for the six months ended June 30, 2022. The decrease in the net interest margin (fte) was due to a 143 basis points increase in the cost of interest-bearing liabilities, which offset the 82 basis points increase in the yield on interest-earning assets.

Other income for the three months ended June 30, 2023, totaled $1,783,000, compared to $2,489,000 for the same period in 2022. The decrease is due primarily to a $220,000 decrease in earnings and proceeds on bank-owned life insurance policies, and a $212,000 loss on the sale of investment securities.   For the six months ended June 30, 2023, other income totaled $3,695,000, compared to $5,828,000 for the six months ended June 30, 2022.   The decrease includes the reduced earnings and proceeds on bank-owned life insurance, losses recognized on sales of securities, and income recognized in 2022 on previously acquired purchased impaired loans that were carried at a discount.

Other expenses totaled $10,938,000 for the three months ended June 30, 2023, an increase of $466,000, compared to the $10,472,000 for the same period of 2022.   For the six months ended June 30, 2023, other expenses totaled $21,374,000, compared to $20,630,000 for the same period in 2022, due primarily to a $539,000 increase in salaries and employee benefits costs.

Mr. Donnelly stated, “Our second quarter income decreased from the 2022 level due to one-time gains recognized in 2022 and the rising cost of deposits and borrowed funds. These decreases were partially offset by a $2,050,000 reduction in our provision for credit losses as a result of our June 30, 2023 current expected credit losses (“CECL”) methodology, due to a reduce level of credit losses within the measurement period. Loan growth was 10.9% annually during the quarter, while total deposits decreased $27.2 million during the second quarter of 2023 due primarily to significant decreases in municipal account balances. Our core operating expenses remain well-controlled, and our capital base remains above “Well-Capitalized” targets. Additionally, our credit quality metrics remained strong during the second quarter, which we believe should benefit future performance. We appreciate the opportunity to serve our Wayne Bank customers and our customers at the Bank of the Finger Lakes and Bank of Cooperstown locations. We continue to look for opportunities available to us as we service our growing base of stockholders and customers.”

Norwood Financial Corp is the parent company of Wayne Bank, which operates from fourteen offices throughout Northeastern Pennsylvania and fifteen offices in Delaware, Sullivan, Ontario, Otsego and Yates Counties, New York. The Company’s stock trades 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”, “bode”, “future performance” 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 risks and uncertainty posed by, and the continued effect, and impact of, the COVID-19 pandemic on the economy and the Company’s results of operation and financial condition, our ability to maintain strong credit quality metrics, our ability to have future performance, our ability to control core operating expenses and costs, demand for real estate, government fiscal and trade 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 net interest income on a fully taxable-equivalent basis (fte), which is a non-GAAP (Generally Accepted Accounting Principles) financial measure. Fully taxable-equivalent net interest income was derived from GAAP interest income and net interest income using an assumed tax rate of 21%. We believe the presentation of net interest income on a fully taxable-equivalent basis ensures comparability of net interest income arising from both taxable and tax-exempt sources, and is consistent with industry practice.

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

		Three months ended June 30								Six months ended June 30
(dollars in thousands)		2023				2022				2023				2022
Net Interest Income		$	15,642			$	16,894			$	31,735			$	32,995
Taxable equivalent basis adjustment   using 21% marginal tax rate			187				188				369				370
Net interest income on a fully taxable equivalent basis		$	15,829			$	17,082			$	32,104			$	33,365

This release also references average tangible equity, which is also a non-GAAP financial measure. Average tangible equity is calculated by deducting average goodwill and other intangible assets from average stockholders’ equity. The Company believes that disclosure of tangible equity ratios enhances investor understanding of our financial position and improves the comparability of our financial data.

The following table reconciles average equity to average tangible equity:

		Three months ended June 30								Six months ended June 30
(dollars in thousands)		2023				2022				2023				2022
Average equity		$	186,111			$	181,044			$	180,952			$	192,090
Average goodwill and other intangibles			(29,536	)			(29,629	)			(29,547	)			(29,643	)
Average tangible equity		$	156,575			$	151,415			$	151,405			$	162,447

Contact:		William S. Lance Executive Vice President & Chief Financial Officer NORWOOD FINANCIAL CORP 570-253-8505 www.waynebank.com

NORWOOD FINANCIAL CORP
Consolidated Balance Sheets
(dollars in thousands, except share and per share data)
(unaudited)
		June 30
		2023			2022
ASSETS
Cash and due from banks	$	30,053		$	29,931
Interest-bearing deposits with banks		3,036			79,735
Cash and cash equivalents		33,089			109,666
Securities available for sale		403,621			440,877
Loans receivable		1,577,699			1,404,317
Less: Allowance for credit losses		17,483			17,017
Net loans receivable		1,560,216			1,387,300
Regulatory stock, at cost		7,924			2,396
Bank premises and equipment, net		17,363			17,032
Bank owned life insurance		45,806			43,167
Foreclosed real estate owned		387			346
Accrued interest receivable		7,276			6,085
Deferred tax assets, net		23,301			19,134
Goodwill		29,266			29,266
Other intangible assets		260			353
Other assets		13,256			10,762
TOTAL ASSETS	$	2,141,765		$	2,066,384
LIABILITIES
Deposits:
Non-interest bearing demand	$	425,757		$	442,991
Interest-bearing		1,306,240			1,356,839
Total deposits		1,731,997			1,799,830
Short-term borrowings		112,290			70,427
Other borrowings		99,687			4,412
Accrued interest payable		7,101			1,138
Other liabilities		17,266			16,746
TOTAL LIABILITIES		1,968,341			1,892,553
STOCKHOLDERS' EQUITY
Preferred Stock, no par value per share, authorized 5,000,000 shares		-			-
Common Stock, $.10 par value per share,
authorized: 20,000,000 shares,
issued: 2023: 8,291,401 shares, 2022: 8,275,901 shares		829			828
Surplus		97,268			96,752
Retained earnings		135,583			119,414
Treasury stock, at cost: 2023: 223,926 shares, 2022: 110,084 shares		(6,007	)		(2,933	)
Accumulated other comprehensive loss		(54,249	)		(40,230	)
TOTAL STOCKHOLDERS' EQUITY		173,424			173,831
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	2,141,765		$	2,066,384
NORWOOD FINANCIAL CORP
Consolidated Statements of Income
(dollars in thousands, except per share data)
(unaudited)
		Three Months Ended June 30,									Six Months Ended June 30,
		2023			2022						2023			2022
INTEREST INCOME
Loans receivable, including fees	$	20,702		$	15,714					$	39,860		$	31,089
Securities		2,481			2,197						4,986			4,091
Other		53			182						101			260
Total Interest income		23,236			18,093						44,947			35,440
INTEREST EXPENSE
Deposits		5,740			1,083						10,102			2,142
Short-term borrowings		943			60						1,722			108
Other borrowings		911			56						1,388			195
Total Interest expense		7,594			1,199						13,212			2,445
NET INTEREST INCOME		15,642			16,894						31,735			32,995
(RELEASE OF) PROVISION FOR CREDIT LOSSES	$	(1,750	)		300					$	(1,450	)		600
NET INTEREST INCOME AFTER (RELEASE OF) PROVISION FOR CREDIT LOSSES		17,392			16,594						33,185			32,395
OTHER INCOME
Service charges and fees		1,353			1,475						2,665			2,946
Income from fiduciary activities		229			214						441			416
Net realized gains on sales of securities		(212	)		-						(209	)		-
Gains on sales of loans, net		10			-						10			-
Gains on sales of foreclosed real estate owned		-			-						-			427
Earnings and proceeds on life insurance policies		229			449						442			625
Other		174			351						346			1,414
Total other income		1,783			2,489						3,695			5,828
OTHER EXPENSES
Salaries and employee benefits		5,842			5,840						11,810			11,271
Occupancy, furniture and equipment		1,314			1,206						2,576			2,513
Data processing and related operations		822			666						1,590			1,295
Taxes, other than income		162			240						323			533
Professional fees		323			406						608			981
FDIC Insurance assessment		244			142						445			326
Foreclosed real estate		74			10						103			63
Amortization of intangibles		23			27						46			54
Other		2,134			1,935						3,873			3,594
Total other expenses		10,938			10,472						21,374			20,630
INCOME BEFORE TAX		8,237			8,611						15,506			17,593
INCOME TAX EXPENSE		1,734			1,756						3,221			3,610
NET INCOME	$	6,503		$	6,855					$	12,285		$	13,983
Basic earnings per share	$	0.81		$	0.84					$	1.52		$	1.71
Diluted earnings per share	$	0.81		$	0.84					$	1.51		$	1.71
NORWOOD FINANCIAL CORP
Financial Highlights (Unaudited)
(dollars in thousands, except per share data)
For the Three Months Ended June 30		2023			2022
Net interest income	$	15,642		$	16,894
Net income		6,503			6,855
Net interest spread (fully taxable equivalent)		2.56	%		3.40	%
Net interest margin (fully taxable equivalent)		3.09	%		3.49	%
Return on average assets		1.23	%		1.35	%
Return on average equity		14.72	%		15.19	%
Return on average tangible equity		17.66	%		18.16	%
Basic earnings per share	$	0.81		$	0.84
Diluted earnings per share	$	0.81		$	0.84
For the Six Months Ended June 30		2023			2022
Net interest income	$	31,735		$	32,995
Net income		12,285			13,983
Net interest spread (fully taxable equivalent)		2.69	%		3.30	%
Net interest margin (fully taxable equivalent)		3.17	%		3.41	%
Return on average assets		1.18	%		1.37	%
Return on average equity		14.17	%		14.68	%
Return on average tangible equity		17.06	%		17.36	%
Basic earnings per share	$	1.52		$	1.71
Diluted earnings per share	$	1.51		$	1.71
As of June 30		2023			2022
Total assets	$	2,141,765		$	2,066,384
Total loans receivable		1,577,699			1,404,317
Allowance for credit losses		17,483			17,017
Total deposits		1,731,997			1,799,830
Stockholders' equity		173,424			173,831
Trust assets under management		193,392			174,193
Book value per share	$	22.24		$	21.65
Tangible book value per share	$	18.58		$	18.02
Equity to total assets		8.10	%		8.41	%
Allowance to total loans receivable		1.11	%		1.21	%
Nonperforming loans to total loans		0.20	%		0.04	%
Nonperforming assets to total assets		0.17	%		0.05	%
NORWOOD FINANCIAL CORP
Consolidated Balance Sheets (unaudited)
(dollars in thousands)
		June 30			March 31			December 31			September 30			June 30
		2023			2023			2022			2022			2022
ASSETS
Cash and due from banks	$	30,053		$	25,701		$	28,847		$	23,092		$	29,931
Interest-bearing deposits with banks		3,036			3,314			3,019			17,785			79,735
Cash and cash equivalents		33,089			29,015			31,866			40,877			109,666
Securities available for sale		403,621			418,245			418,927			427,287			440,877
Loans receivable		1,577,699			1,535,643			1,473,945			1,432,288			1,404,317
Less: Allowance for credit losses		17,483			19,445			16,999			16,931			17,017
Net loans receivable		1,560,216			1,516,198			1,456,946			1,415,357			1,387,300
Regulatory stock, at cost		7,924			5,963			5,418			2,220			2,396
Bank owned life insurance		45,806			45,577			43,364			43,169			43,167
Bank premises and equipment, net		17,363			17,660			17,924			17,427			17,032
Foreclosed real estate owned		387			346			346			346			346
Goodwill and other intangibles		29,526			29,549			29,572			29,595			29,619
Other assets		43,833			41,810			42,707			42,592			35,981
TOTAL ASSETS	$	2,141,765		$	2,104,363		$	2,047,070		$	2,018,870		$	2,066,384
LIABILITIES
Deposits:
Non-interest bearing demand	$	425,757		$	419,615		$	434,529		$	453,560		$	442,991
Interest-bearing deposits		1,306,240			1,336,320			1,293,198			1,315,236			1,356,839
Total deposits		1,731,997			1,755,935			1,727,727			1,768,796			1,799,830
Borrowings		211,978			148,744			133,215			71,754			74,839
Other liabilities		24,366			23,269			19,043			19,471			17,884
TOTAL LIABILITIES		1,968,341			1,927,948			1,879,985			1,860,021			1,892,553
STOCKHOLDERS' EQUITY		173,424			176,415			167,085			158,849			173,831
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	2,141,765		$	2,104,363		$	2,047,070		$	2,018,870		$	2,066,384
NORWOOD FINANCIAL CORP
Consolidated Statements of Income (unaudited)
(dollars in thousands, except per share data)
		June 30			March 31			December 31			September 30			June 30
Three months ended		2023			2023			2022			2022			2022
INTEREST INCOME
Loans receivable, including fees	$	20,702		$	19,158		$	17,810		$	17,114		$	15,714
Securities		2,481			2,505			2,487			2,473			2,197
Other		53			48			98			245			182
Total interest income		23,236			21,711			20,395			19,832			18,093
INTEREST EXPENSE
Deposits		5,740			4,362			2,772			1,557			1,083
Borrowings		1,854			1,256			391			105			116
Total interest expense		7,594			5,618			3,163			1,662			1,199
NET INTEREST INCOME		15,642			16,093			17,232			18,170			16,894
(RELEASE OF) PROVISION FOR CREDIT LOSSES		(1,750	)		300			300			-			300
NET INTEREST INCOME AFTER (RELEASE OF) PROVISION
FOR CREDIT LOSSES		17,392			15,793			16,932			18,170			16,594
OTHER INCOME
Service charges and fees		1,353			1,313			1,370			1,346			1,475
Income from fiduciary activities		229			212			210			219			214
Net realized (losses) gains on sales of securities		(212	)		2			3			-			-
Gains on sales of loans, net		10			-			1			1			-
Gains on sales of foreclosed real estate owned		-			-			-			-			-
Earnings and proceeds on life insurance policies		229			213			195			267			449
Other		174			172			147			345			351
Total other income		1,783			1,912			1,926			2,178			2,489
OTHER EXPENSES
Salaries and employee benefits		5,842			5,969			5,246			5,553			5,840
Occupancy, furniture and equipment, net		1,314			1,262			1,263			1,191			1,206
Foreclosed real estate		74			29			7			4			10
FDIC insurance assessment		244			200			144			143			142
Other		3,464			2,976			3,615			3,248			3,274
Total other expenses		10,938			10,436			10,275			10,139			10,472
INCOME BEFORE TAX		8,237			7,269			8,583			10,209			8,611
INCOME TAX EXPENSE		1,734			1,487			1,443			2,100			1,756
NET INCOME	$	6,503		$	5,782		$	7,140		$	8,109		$	6,855
Basic earnings per share	$	0.81		$	0.71		$	0.88		$	1.00		$	0.84
Diluted earnings per share	$	0.81		$	0.71		$	0.88		$	1.00		$	0.84
Book Value per share	$	22.24		$	21.92		$	20.86		$	19.92		$	21.65
Tangible Book Value per share		18.58			18.31			17.24			16.29			18.02
Return on average assets (annualized)		1.23	%		1.13	%		1.40	%		1.57	%		1.35	%
Return on average equity (annualized)		14.72	%		13.61	%		17.40	%		17.93	%		15.19	%
Return on average tangible equity (annualized)		17.66	%		16.42	%		21.27	%		21.48	%		18.16	%
Net interest spread (fte)		2.56	%		2.83	%		3.30	%		3.61	%		3.40	%
Net interest margin (fte)		3.09	%		3.25	%		3.55	%		3.74	%		3.49	%
Allowance for credit losses to total loans		1.11	%		1.27	%		1.15	%		1.18	%		1.21	%
Net charge-offs to average loans (annualized)		0.06	%		0.08	%		0.06	%		0.02	%		-0.02	%
Nonperforming loans to total loans		0.20	%		0.18	%		0.08	%		0.04	%		0.04	%
Nonperforming assets to total assets		0.17	%		0.15	%		0.07	%		0.05	%		0.05	%