NWFL Norwood Financial Corporation

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 September 30, 2023 of $4,119,000, which represents a decrease of $3,990,000, from the $8,109,000 earned in the same three-month period of 2022. The decrease in earnings was due to a $3.1 million decrease in net interest income, an $882,000 increase in the provision for credit losses, and a $1.1 million increase in total other expenses during the three-months ended September 30, 2023. For the three months ended September 30, 2023, earnings per share (fully diluted) were $0.51, which represents a decrease from the $1.00 earned in the three months ended September 30, 2022. The annualized returns on average assets and average tangible equity for the three-month period ended September 30, 2023, were 0.76% and 11.22%, respectively, compared to 1.57% and 21.48% for the three-month period ended September 30, 2022. Net income for the nine months ended September 30, 2023, totaled $16,405,000, which is $5,688,000 lower than the same period of 2022. The decrease in net income includes a $4,390,000 decrease in net interest income, a $2.0 million decrease in total other income, and a $1.9 million increase in total other expenses during the nine months ended September 30, 2023. Earnings per share (fully diluted) for the nine months ended September 30, 2023, totaled $2.03 per share compared to $2.71 per share for the nine months ended September 30, 2022.

As of September 30, 2023, total assets were $2.179 billion, loans receivable were $1.611 billion, total deposits were $1.747 billion and stockholders’ equity was $164.7 million.

For the three months ended September 30, 2023, net interest income, on a fully taxable equivalent basis (fte), totaled $15,224,000, which represents a decrease of $3,145,000, compared to the three months ended September 30, 2022. Net interest margin (fte) for the three months ended September 30, 2023 was 2.94%, compared to 3.74% for the three months ended September 30, 2022. Net interest income (fte) for the nine months ended September 30, 2023 totaled $47,328,000, a decrease of $4,406,000, compared to the nine months ended September 30,2022, due primarily to the increased cost of interest-bearing liabilities in excess of the increase in the yield earned on interest-earning assets. The net interest margin (fte) for the nine months ended September 30, 2023 was 3.09%, compared to 3.52% for the nine months ended September 30, 2022.

For the three months ended September 30, 2023, the Company recorded a provision for credit losses in the amount of $882,000 compared to $0 in the three-month period ended September 30, 2022. The increase in the provision for credit losses was required to replenish the allowance for credit losses to a level deemed appropriate after recognizing $2.3 million of credit losses during the current period. The current period losses include a $2.0 million charge-off resulting from deterioration in one large commercial relationship. The remaining balance of the relationship was transferred to nonperforming status, resulting in an increase in nonperforming loans and nonperforming assets. For the nine-month period ended September 30, 2023, the Company recorded a release of provision for credit losses in the amount of $568,000, compared to a provision of $600,000 in the nine-month period ended September 30, 2022.

Total other income for the three months ended September 30, 2023 was $2,306,000, compared to $2,178,000 for the three months ended September 30, 2022. For the nine months ended September 30, 2023, total other income was $6,001,000, compared to $8,006,000 in the same period of 2022. The decrease was due primarily to income recognized in 2022 on previously acquired purchased impaired loans that were carried at a discount.

Total other expenses were $11,276,000 for the three months ended September 30, 2023, compared to $10,139,000 for the three months ended September 30, 2022. For the nine months ended September 30, 2023, total other expenses were $32,649,000, compared to $30,768,000 for the nine months ended September 30, 2022. The increase was due primarily to a $1,069,000 increase in salaries and employee benefit costs during the nine months ended September 30, 2023.

Mr. Donnelly commented, “Our results for the first nine months of 2023 reflect decreasing net interest spreads due to rising interest rates, which have impacted our cost of interest-bearing liabilities more than the increase in yield earned on interest-earning assets. We continue to compare favorably to peer banks who have also reported a reduction in their financial performance. We will continue to search out opportunities to maintain our position as a premier community bank, and to serve our local communities with their financial needs. We appreciate the opportunity to serve our expanded 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:

(dollars in thousands)	Three months ended September 30								Nine months ended September 30
		2023				2022				2023				2022
Net interest income	$	15,039			$	18,170			$	46,774			$	51,164
Tax equivalent basis adjustment using 21% marginal tax rate		185				199				554				570
Net interest income on a fully taxable equivalent basis	$	15,224			$	18,369			$	47,328			$	51,734

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 September 30								Nine months ended September 30
(dollars in thousands)		2023				2022				2023				2022
Average equity	$	175,224			$	179,398			$	174,944			$	187,183
Average goodwill and other intangibles		(29,514	)			(29,605	)			(29,536	)			(29,630	)
Average tangible equity	$	145,710			$	149,793			$	145,408			$	157,553

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)
		September 30
		2023				2022
ASSETS
Cash and due from banks	$	41,141			$	23,092
Interest-bearing deposits with banks		13,005				17,785
Cash and cash equivalents		54,146				40,877
Securities available for sale		380,499				427,287
Loans receivable		1,611,069				1,432,288
Less: Allowance for credit losses		16,086				16,931
Net loans receivable		1,594,983				1,415,357
Regulatory stock, at cost		8,843				2,220
Bank premises and equipment, net		17,254				17,427
Bank owned life insurance		46,197				43,169
Foreclosed real estate owned		290				346
Accrued interest receivable		7,759				6,303
Deferred tax assets, net		25,610				24,405
Goodwill		29,266				29,266
Other intangible assets		240				329
Other assets		14,911				11,884
TOTAL ASSETS	$	2,179,998			$	2,018,870
LIABILITIES
Deposits:
Non-interest bearing demand	$	430,242			$	453,560
Interest-bearing		1,316,582				1,315,236
Total deposits		1,746,824				1,768,796
Short-term borrowings		103,881				71,754
Other borrowings		137,447				0
Accrued interest payable		8,605				1,425
Other liabilities		18,539				18,046
TOTAL LIABILITIES		2,015,296				1,860,021
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		97,449				96,785
Retained earnings		137,363				125,243
Treasury stock, at cost: 2023: 222,051 shares, 2022: 130,046 shares		(5,957	)			(3,442	)
Accumulated other comprehensive loss		(64,982	)			(60,565	)
TOTAL STOCKHOLDERS' EQUITY		164,702				158,849
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	2,179,998			$	2,018,870

NORWOOD FINANCIAL CORP
Consolidated Statements of Income
(dollars in thousands, except per share data)
(unaudited)
	Three Months Ended September 30,								Nine Months Ended September 30,
		2023				2022				2023				2022
INTEREST INCOME
Loans receivable, including fees	$	22,021			$	17,114			$	61,881			$	48,203
Securities		2,433				2,473				7,418				6,564
Other		54				245				156				504
Total Interest income		24,508				19,832				69,455				55,271
INTEREST EXPENSE
Deposits		7,017				1,557				17,119				3,699
Short-term borrowings		1,126				88				2,702				196
Other borrowings		1,326				17				2,860				212
Total Interest expense		9,469				1,662				22,681				4,107
NET INTEREST INCOME		15,039				18,170				46,774				51,164
(RELEASE OF) PROVISION FOR CREDIT LOSSES	$	882				0			$	(568	)			600
NET INTEREST INCOME AFTER (RELEASE OF) PROVISION FOR CREDIT LOSSES		14,157				18,170				47,342				50,564
OTHER INCOME
Service charges and fees		1,527				1,346				4,192				4,292
Income from fiduciary activities		246				219				688				634
Net realized gains on sales of securities		-				-				(209	)			-
Gains on sales of loans, net		18				1				27				1
Gains on sales of foreclosed real estate owned		13				-				13				427
Earnings and proceeds on life insurance policies		328				267				770				892
Other		174				345				520				1,760
Total other income		2,306				2,178				6,001				8,006
OTHER EXPENSES
Salaries and employee benefits		6,083				5,553				17,893				16,824
Occupancy, furniture and equipment		1,242				1,191				3,818				3,704
Data processing and related operations		876				736				2,465				2,031
Taxes, other than income		167				240				490				773
Professional fees		524				354				1,132				1,336
FDIC Insurance assessment		254				143				699				468
Foreclosed real estate		9				4				112				66
Amortization of intangibles		20				24				66				78
Other		2,101				1,894				5,974				5,488
Total other expenses		11,276				10,139				32,649				30,768
INCOME BEFORE TAX		5,187				10,209				20,694				27,802
INCOME TAX EXPENSE		1,068				2,100				4,289				5,709
NET INCOME	$	4,119			$	8,109			$	16,405			$	22,093
Basic earnings per share	$	0.51			$	1.00			$	2.03			$	2.71
Diluted earnings per share	$	0.51			$	1.00			$	2.03			$	2.71

NORWOOD FINANCIAL CORP
Financial Highlights (Unaudited)
(dollars in thousands, except per share data)
For the Three Months Ended September 30		2023				2022
Net interest income	$	15,039			$	18,170
Net income		4,119				8,109
Net interest spread (fully taxable equivalent)		2.28	%			3.61	%
Net interest margin (fully taxable equivalent)		2.94	%			3.74	%
Return on average assets		0.76	%			1.57	%
Return on average equity		9.33	%			17.93	%
Return on average tangible equity		11.22	%			21.48	%
Basic earnings per share	$	0.51			$	1.00
Diluted earnings per share	$	0.51			$	1.00
For the Nine Months Ended September 30		2023				2022
Net interest income	$	46,774			$	51,164
Net income		16,405				22,093
Net interest spread (fully taxable equivalent)		2.55	%			3.41	%
Net interest margin (fully taxable equivalent)		3.09	%			3.52	%
Return on average assets		1.04	%			1.44	%
Return on average equity		12.54	%			15.73	%
Return on average tangible equity		15.08	%			18.67	%
Basic earnings per share	$	2.03			$	2.71
Diluted earnings per share	$	2.03			$	2.71
As of September 30		2023				2022
Total assets	$	2,179,998			$	2,018,870
Total loans receivable		1,611,069				1,432,288
Allowance for credit losses		16,086				16,931
Total deposits		1,746,824				1,768,796
Stockholders' equity		164,702				158,849
Trust assets under management		185,913				172,037
Book value per share	$	21.15			$	19.92
Tangible book value per share	$	17.49			$	16.29
Equity to total assets		7.56	%			7.87	%
Allowance to total loans receivable		1.00	%			1.18	%
Nonperforming loans to total loans		0.65	%			0.04	%
Nonperforming assets to total assets		0.50	%			0.05	%

NORWOOD FINANCIAL CORP
Consolidated Balance Sheets (unaudited)
(dollars in thousands)
		September 30				June 30				March 31				December 31				September 30
		2023				2023				2023				2022				2022
ASSETS
Cash and due from banks	$	41,141			$	30,053			$	25,701			$	28,847			$	23,092
Interest-bearing deposits with banks		13,005				3,036				3,314				3,019				17,785
Cash and cash equivalents		54,146				33,089				29,015				31,866				40,877
Securities available for sale		380,499				403,621				418,245				418,927				427,287
Loans receivable		1,611,069				1,577,699				1,535,643				1,473,945				1,432,288
Less: Allowance for credit losses		16,086				17,483				19,445				16,999				16,931
Net loans receivable		1,594,983				1,560,216				1,516,198				1,456,946				1,415,357
Regulatory stock, at cost		8,843				7,924				5,963				5,418				2,220
Bank owned life insurance		46,197				45,806				45,577				43,364				43,169
Bank premises and equipment, net		17,254				17,363				17,660				17,924				17,427
Foreclosed real estate owned		290				387				346				346				346
Goodwill and other intangibles		29,506				29,526				29,549				29,572				29,595
Other assets		48,280				43,833				41,810				42,707				42,592
TOTAL ASSETS	$	2,179,998			$	2,141,765			$	2,104,363			$	2,047,070			$	2,018,870
LIABILITIES
Deposits:
Non-interest bearing demand	$	430,242			$	425,757			$	419,615			$	434,529			$	453,560
Interest-bearing deposits		1,316,582				1,306,240				1,336,320				1,293,198				1,315,236
Total deposits		1,746,824				1,731,997				1,755,935				1,727,727				1,768,796
Borrowings		241,328				211,978				148,744				133,215				71,754
Other liabilities		27,144				24,366				23,269				19,043				19,471
TOTAL LIABILITIES		2,015,296				1,968,341				1,927,948				1,879,985				1,860,021
STOCKHOLDERS' EQUITY		164,702				173,424				176,415				167,085				158,849
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	2,179,998			$	2,141,765			$	2,104,363			$	2,047,070			$	2,018,870

NORWOOD FINANCIAL CORP
Consolidated Statements of Income (unaudited)
(dollars in thousands, except per share data)
		September 30				June 30				March 31				December 31				September 30
Three months ended		2023				2023				2023				2022				2022
INTEREST INCOME
Loans receivable, including fees	$	22,021			$	20,702			$	19,158			$	17,810			$	17,114
Securities		2,433				2,481				2,505				2,487				2,473
Other		54				53				48				98				245
Total interest income		24,508				23,236				21,711				20,395				19,832
INTEREST EXPENSE
Deposits		7,017				5,740				4,362				2,772				1,557
Borrowings		2,452				1,854				1,256				391				105
Total interest expense		9,469				7,594				5,618				3,163				1,662
NET INTEREST INCOME		15,039				15,642				16,093				17,232				18,170
(RELEASE OF) PROVISION FOR CREDIT LOSSES		882				(1,750	)			300				300				-
NET INTEREST INCOME AFTER (RELEASE OF) PROVISION FOR CREDIT LOSSES		14,157				17,392				15,793				16,932				18,170
OTHER INCOME
Service charges and fees		1,527				1,353				1,313				1,370				1,346
Income from fiduciary activities		246				229				212				210				219
Net realized (losses) gains on sales of securities		-				(212	)			2				3				-
Gains on sales of loans, net		18				10				-				1				1
Gains on sales of foreclosed real estate owned		13				-				-				-				-
Earnings and proceeds on life insurance policies		328				229				213				195				267
Other		174				174				172				147				345
Total other income		2,306				1,783				1,912				1,926				2,178
OTHER EXPENSES
Salaries and employee benefits		6,083				5,842				5,969				5,246				5,553
Occupancy, furniture and equipment, net		1,242				1,314				1,262				1,263				1,191
Foreclosed real estate		9				74				29				7				4
FDIC insurance assessment		254				244				200				144				143
Other		3,688				3,464				2,976				3,615				3,248
Total other expenses		11,276				10,938				10,436				10,275				10,139
INCOME BEFORE TAX		5,187				8,237				7,269				8,583				10,209
INCOME TAX EXPENSE		1,068				1,734				1,487				1,443				2,100
NET INCOME	$	4,119			$	6,503			$	5,782			$	7,140			$	8,109
Basic earnings per share	$	0.51			$	0.81			$	0.71			$	0.88			$	1.00
Diluted earnings per share	$	0.51			$	0.81			$	0.71			$	0.88			$	1.00
Book Value per share	$	21.15			$	22.24			$	21.92			$	20.86			$	19.92
Tangible Book Value per share		17.49				18.58				18.31				17.24				16.29
Return on average assets (annualized)		0.76	%			1.23	%			1.13	%			1.40	%			1.57	%
Return on average equity (annualized)		9.33	%			14.72	%			13.61	%			17.40	%			17.93	%
Return on average tangible equity (annualized)		11.22	%			17.66	%			16.42	%			21.27	%			21.48	%
Net interest spread (fte)		2.28	%			2.56	%			2.83	%			3.30	%			3.61	%
Net interest margin (fte)		2.94	%			3.09	%			3.25	%			3.55	%			3.74	%
Allowance for credit losses to total loans		1.00	%			1.11	%			1.27	%			1.15	%			1.18	%
Net charge-offs to average loans (annualized)		0.59	%			0.06	%			0.08	%			0.06	%			0.02	%
Nonperforming loans to total loans		0.65	%			0.20	%			0.18	%			0.08	%			0.04	%
Nonperforming assets to total assets		0.50	%			0.17	%			0.15	%			0.07	%			0.05	%