Norwood Financial Corp Announces First Quarter 2023 Earnings

Rhea-AI Summary

Norwood Financial Corp (Nasdaq: NWFL) reported net income of $5.78 million for Q1 2023, a decrease of $1.35 million from Q1 2022. This decline is primarily attributed to a $1.43 million decrease in other income. Earnings per share were $0.71, down from $0.87 a year earlier. The annualized return on average assets was 1.13% and on average equity was 13.61%, both lower compared to 1.39% and 14.22% in the previous year. Total assets grew to $2.104 billion, with loans of $1.536 billion and deposits of $1.756 billion. The net interest income slightly decreased to $16.28 million, with a narrower annualized net interest spread of 2.83%. Operating expenses rose 2.7% to $10.44 million, influenced by the new CECL accounting standard, which increased the allowance for credit losses by $2.22 million.

Positive

• Loan growth increased by 16.7% year-over-year.
• Deposits rose 6.6% annually.
• Core operating expenses remain well-controlled.
• Capital base is above 'Well-Capitalized' targets.
• Credit quality metrics remain strong.

Negative

• Net income decreased by $1.35 million from Q1 2022.
• Earnings per share fell from $0.87 to $0.71.
• Annualized return on average assets declined from 1.39% to 1.13%.
• Annualized return on average equity decreased from 14.22% to 13.61%.
• Net interest spread decreased from 3.22% to 2.83%.

HONESDALE, Pa., April 21, 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 net income of $5,782,000 for the three months ended March 31, 2023, a decrease of $1,346,000, from net income of $7,128,000 for the three months ended March 31, 2022. The decrease was due primarily to a $1,426,000 decrease in other income. Earnings per share on a fully diluted basis were $0.71 for the three-month period ended March 31, 2023, compared to $0.87 in the three-month period ended March 31, 2022. The annualized return on average assets was 1.13% in the first quarter of 2023 and the annualized return on average equity was 13.61%, compared to 1.39% and 14.22%, respectively, in the first quarter of 2022.

Total assets were $2.104 billion as of March 31, 2023, an increase of $26.7 million, compared to March 31, 2022. As of March 31, 2023, loans totaled $1.536 billion, with deposits of $1.756 billion and stockholders’ equity of $176.4 million.

Net interest income on a fully taxable equivalent basis (fte), was $16,275,000 during the three months ended March 31, 2023, compared to $16,283,000 in the comparable three-month period of 2022. During the three-months ended March 31, 2023, the fte yield on interest-earning assets increased 80 basis points compared to the three months ended March 31, 2022, while the cost of funds increased 119 basis points. As a result, the annualized net interest spread (fte) decreased to 2.83% from 3.22% in the quarter ended March 31, 2023 compared to the corresponding three-month period in 2022.

Total other income was $1,912,000 for the three months ended March 31, 2023, compared to $3,338,000 during the corresponding period of last year. The decrease in other income includes $875,000 of income recognized in 2022 on previously acquired purchased impaired loans that were carried at a discount, and a $427,000 gain recorded in 2022 on the sale of a property carried in foreclosed real estate owned. All other categories of other income decreased $124,000, net.

Operating expenses totaled $10,436,000 in the three months ended March 31, 2023, and were $279,000, or 2.7%, higher than the $10,157,000 recorded in the same three-month period of last year.

Additionally, effective January 1, 2023, the Company adopted Accounting Standards Update 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, referred to as the current expected credit loss model (“CECL”). This accounting standard requires that credit losses for financial assets and off-balance sheet credit exposures be measured based on expected credit losses, rather than on incurred credit losses as in prior periods. As a result of the adoption of CECL, the allowance for credit losses was increased by $2,216,000, and retained earnings was decreased by $1,751,000, net of tax. The Company also recorded an off-balance sheet reserve for unfunded commitments of $329,000, with a corresponding decrease to retained earnings of $260,000, net of tax.

Mr. Donnelly stated, “Our first quarter income decreased from the 2022 level due to one-time gains recognized in 2022 and the rising cost of deposits and borrowed funds. Loan growth was 16.7% annually during the quarter, while total deposits increased 6.6% annually during the first quarter of 2023. 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 first 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 March 31,
(dollars in thousands)
	2023			2022
Net interest income	$	16,093		$	16,101
Tax equivalent basis adjustment using 21% marginal tax rate		182			182
Net interest income on a fully taxable equivalent basis	$	16,275		$	16,283

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 March 31,
(dollars in thousands)
	2023				2022
Average equity	$	172,334			$	203,260
Average goodwill and other intangibles		(29,559	)			(29,656	)
Average tangible equity	$	142,775			$	173,604

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)
		March 31
		2023				2022
ASSETS
Cash and due from banks	$	25,701			$	22,394
Interest-bearing deposits with banks		3,314				143,632
Cash and cash equivalents		29,015				166,026
Securities available for sale		418,245				434,924
Loans receivable		1,535,643				1,371,645
Less: Allowance for credit losses		19,445				16,660
Net loans receivable		1,516,198				1,354,985
Regulatory stock, at cost		5,963				3,423
Bank premises and equipment, net		17,660				17,022
Bank owned life insurance		45,577				40,215
Foreclosed real estate owned		346				590
Accrued interest receivable		6,633				5,876
Deferred tax assets, net		22,164				14,771
Goodwill		29,266				29,266
Other intangible assets		283				380
Other assets		13,013				10,220
TOTAL ASSETS	$	2,104,363			$	2,077,698
LIABILITIES
Deposits:
Non-interest bearing demand	$	419,615			$	438,979
Interest-bearing		1,336,320				1,342,798
Total deposits		1,755,935				1,781,777
Short-term borrowings		108,555				63,622
Other borrowings		40,189				26,844
Accrued interest payable		4,703				1,160
Other liabilities		18,566				17,489
TOTAL LIABILITIES		1,927,948				1,890,892
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: 8,268,401 shares		829				827
Surplus		95,052				96,619
Retained earnings		133,427				114,845
Treasury stock, at cost: 2023: 110,400 shares, 2022: 65,089 shares		(2,930	)			(1,760	)
Accumulated other comprehensive loss		(49,963	)			(23,725	)
TOTAL STOCKHOLDERS' EQUITY		176,415				186,806
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	2,104,363			$	2,077,698
NORWOOD FINANCIAL CORP
Consolidated Statements of Income
(dollars in thousands, except per share data)
(unaudited)
	Three Months Ended March 31,
		2023				2022
INTEREST INCOME
Loans receivable, including fees	$	19,158			$	15,375
Securities		2,505				1,894
Other		48				78
Total Interest income		21,711				17,347
INTEREST EXPENSE
Deposits		4,362				1,059
Short-term borrowings		779				48
Other borrowings		477				139
Total Interest expense		5,618				1,246
NET INTEREST INCOME		16,093				16,101
PROVISION FOR CREDIT LOSSES	$	300				300
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES		15,793				15,801
OTHER INCOME
Service charges and fees		1,313				1,470
Income from fiduciary activities		212				202
Net realized gains on sales of securities		2				-
Gains on sales of loans, net		-				-
Gains on sales of foreclosed real estate owned		-				427
Earnings and proceeds on life insurance policies		213				176
Other		172				1,063
Total other income		1,912				3,338
OTHER EXPENSES
Salaries and employee benefits		5,969				5,431
Occupancy, furniture and equipment		1,262				1,307
Data processing and related operations		768				628
Taxes, other than income		161				294
Professional fees		285				575
FDIC Insurance assessment		200				183
Foreclosed real estate		29				53
Amortization of intangibles		23				27
Other		1,739				1,659
Total other expenses		10,436				10,157
INCOME BEFORE TAX		7,269				8,982
INCOME TAX EXPENSE		1,487				1,854
NET INCOME	$	5,782			$	7,128
Basic earnings per share	$	0.71			$	0.87
Diluted earnings per share	$	0.71			$	0.87
NORWOOD FINANCIAL CORP
Financial Highlights (Unaudited)
(dollars in thousands, except per share data)
For the Three Months Ended March 31		2023				2022
Net interest income	$	16,093			$	16,101
Net income		5,782				7,128
Net interest spread (fully taxable equivalent)		2.83	%			3.22	%
Net interest margin (fully taxable equivalent)		3.25	%			3.32	%
Return on average assets		1.13	%			1.39	%
Return on average equity		13.61	%			14.22	%
Return on average tangible equity		16.42	%			16.65	%
Basic earnings per share	$	0.71			$	0.87
Diluted earnings per share	$	0.71			$	0.87
As of March 31		2023				2022
Total assets	$	2,104,363			$	2,077,698
Total loans receivable		1,535,643				1,371,645
Allowance for credit losses		19,445				16,660
Total deposits		1,755,935				1,781,777
Stockholders' equity		176,415				186,806
Trust assets under management		187,345				190,144
Book value per share	$	21.92			$	22.99
Tangible book value per share	$	18.31			$	19.37
Equity to total assets		8.38	%			8.99	%
Allowance to total loans receivable		1.27	%			1.21	%
Nonperforming loans to total loans		0.07	%			0.05	%
Nonperforming assets to total assets		0.06	%			0.06	%
NORWOOD FINANCIAL CORP
Consolidated Balance Sheets (unaudited)
(dollars in thousands)
		March 31				December 31				September 30				June 30				March 31
		2023				2022				2022				2022				2022
ASSETS
Cash and due from banks	$	25,701			$	28,847			$	23,092			$	29,931			$	22,394
Interest-bearing deposits with banks		3,314				3,019				17,785				79,735				143,632
Cash and cash equivalents		29,015				31,866				40,877				109,666				166,026
Securities available for sale		418,245				418,927				427,287				440,877				434,924
Loans receivable		1,535,643				1,473,945				1,432,288				1,404,317				1,371,645
Less: Allowance for credit losses		19,445				16,999				16,931				17,017				16,660
Net loans receivable		1,516,198				1,456,946				1,415,357				1,387,300				1,354,985
Regulatory stock, at cost		5,963				5,418				2,220				2,396				3,423
Bank owned life insurance		45,577				43,364				43,169				43,167				40,215
Bank premises and equipment, net		17,660				17,924				17,427				17,032				17,022
Foreclosed real estate owned		346				346				346				346				590
Goodwill and other intangibles		29,549				29,572				29,595				29,619				29,646
Other assets		41,810				42,707				42,592				35,981				30,867
TOTAL ASSETS	$	2,104,363			$	2,047,070			$	2,018,870			$	2,066,384			$	2,077,698
LIABILITIES
Deposits:
Non-interest bearing demand	$	419,615			$	434,529			$	453,560			$	442,991			$	438,979
Interest-bearing deposits		1,336,320				1,293,198				1,315,236				1,356,839				1,342,798
Total deposits		1,755,935				1,727,727				1,768,796				1,799,830				1,781,777
Borrowings		148,744				133,215				71,754				74,839				90,466
Other liabilities		23,269				19,043				19,471				17,884				18,649
TOTAL LIABILITIES		1,927,948				1,879,985				1,860,021				1,892,553				1,890,892
STOCKHOLDERS' EQUITY		176,415				167,085				158,849				173,831				186,806
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	2,104,363			$	2,047,070			$	2,018,870			$	2,066,384			$	2,077,698
NORWOOD FINANCIAL CORP
Consolidated Statements of Income (unaudited)
(dollars in thousands, except per share data)
		March 31				December 31				September 30				June 30				March 31
Three months ended		2023				2022				2022				2022				2022
INTEREST INCOME
Loans receivable, including fees	$	19,158			$	17,810			$	17,114			$	15,714			$	15,375
Securities		2,505				2,487				2,473				2,197				1,894
Other		48				98				245				182				78
Total interest income		21,711				20,395				19,832				18,093				17,347
INTEREST EXPENSE
Deposits		4,362				2,772				1,557				1,083				1,059
Borrowings		1,256				391				105				116				187
Total interest expense		5,618				3,163				1,662				1,199				1,246
NET INTEREST INCOME		16,093				17,232				18,170				16,894				16,101
PROVISION FOR CREDIT LOSSES		300				300				-				300				300
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES		15,793				16,932				18,170				16,594				15,801
OTHER INCOME
Service charges and fees		1,313				1,370				1,346				1,475				1,470
Income from fiduciary activities		212				210				219				214				202
Net realized gains on sales of securities		2				3				-				-				-
Gains on sales of loans, net		-				1				1				-				-
Gains on sales of foreclosed real estate owned		-				-				-				-				427
Earnings and proceeds on life insurance policies		213				195				267				449				176
Other		172				147				345				351				1,063
Total other income		1,912				1,926				2,178				2,489				3,338
OTHER EXPENSES
Salaries and employee benefits		5,969				5,246				5,553				5,840				5,431
Occupancy, furniture and equipment, net		1,262				1,263				1,191				1,206				1,307
Foreclosed real estate		29				7				4				10				53
FDIC insurance assessment		200				144				143				142				183
Other		2,976				3,615				3,248				3,274				3,183
Total other expenses		10,436				10,275				10,139				10,472				10,157
INCOME BEFORE TAX		7,269				8,583				10,209				8,611				8,982
INCOME TAX EXPENSE		1,487				1,443				2,100				1,756				1,854
NET INCOME	$	5,782			$	7,140			$	8,109			$	6,855			$	7,128
Basic earnings per share	$	0.71			$	0.88			$	1.00			$	0.84			$	0.87
Diluted earnings per share	$	0.71			$	0.88			$	1.00			$	0.84			$	0.87
Book Value per share	$	21.92			$	20.86			$	19.92			$	21.65			$	22.99
Tangible Book Value per share		18.31				17.24				16.29				18.02				19.37
Return on average assets (annualized)		1.13	%			1.40	%			1.57	%			1.35	%			1.39	%
Return on average equity (annualized)		13.61	%			17.40	%			17.93	%			15.19	%			14.22	%
Return on average tangible equity (annualized)		16.42	%			21.27	%			21.48	%			18.16	%			16.65	%
Net interest spread (fte)		2.83	%			3.30	%			3.61	%			3.40	%			3.22	%
Net interest margin (fte)		3.25	%			3.55	%			3.74	%			3.49	%			3.32	%
Allowance for credit losses to total loans		1.27	%			1.15	%			1.18	%			1.21	%			1.21	%
Net charge-offs to average loans (annualized)		0.08	%			0.06	%			0.02	%			-0.02	%			0.02	%
Nonperforming loans to total loans		0.07	%			0.08	%			0.04	%			0.04	%			0.05	%
Nonperforming assets to total assets		0.06	%			0.07	%			0.05	%			0.05	%			0.06	%

 

FAQ

What were Norwood Financial's Q1 2023 earnings results?

Norwood Financial reported Q1 2023 net income of $5.78 million, down from $7.13 million in Q1 2022.

How did earnings per share change for Norwood Financial in Q1 2023?

Earnings per share for Q1 2023 was $0.71, a decrease from $0.87 in the same period last year.

What is the impact of the CECL standard on Norwood Financial's financials?

The CECL standard increased the allowance for credit losses by $2.22 million and reduced retained earnings by $1.75 million, net of tax.

What was the loan growth for Norwood Financial in Q1 2023?

Norwood Financial experienced a loan growth of 16.7% year-over-year in Q1 2023.

How much did operating expenses increase for Norwood Financial in Q1 2023?

Operating expenses rose by 2.7% to $10.44 million in Q1 2023, compared to $10.16 million in Q1 2022.