NORWOOD FINANCIAL : ANNOUNCES EARNINGS FOR THE FOURTH QUARTER AND YEAR - Form 8-K

NORWOOD FINANCIAL CORP ANNOUNCES EARNINGS FOR THE FOURTH QUARTER AND YEAR

January 28, 2022 - Honesdale, Pennsylvania

Lewis J. Critelli, 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 December 31, 2021 of $6,638,000 compared to $5,513,000 earned in the corresponding period of 2020. The increase in earnings includes a $1,150,000 reduction in the provision for loan losses, and an $882,000 increase in net interest income. For the year ended December 31, 2021, net income totaled $24,915,000, an increase of $9,835,000 from net income of $15,080,000 earned in the prior year. The increase includes the benefits derived from the Company's acquisition of UpState New York Bancorp, Inc. ("UpState"), which closed on July 7, 2020, and over $4.5 million of earnings recognized from Paycheck Protection Program ("PPP") loans.

Earnings per share (fully diluted) were $0.81 and $0.67 for the three-month periods ended December 31, 2021 and 2020, respectively. For the year ended December 31, 2021, earnings per share on a fully diluted basis were $3.04, compared to $2.09 for the year ended December 31, 2020. For the year ended December 31, 2021, the return on average assets was 1.24%, and the return on average equity was 12.35%, compared to 0.97% and 9.06%, respectively, for the year ended December 31, 2020.

Total assets were $2.069 billion as of December 31, 2021. Loans receivable totaled $1.355 billion as of December 31, 2021, with total deposits of $1.757 billion and stockholders' equity of $205.3 million as of December 31, 2021.

Loans receivable decreased $55.8 million from the year-ended December 31, 2020, due primarily to the $78.8 million decrease in PPP loans resulting from loan forgiveness. For the three months and year ended December 31, 2021, net charge-offs totaled $111,000 and $907,000, respectively, compared to $125,000 and $809,000, respectively, for the corresponding periods in 2020.

Net interest income, on a fully taxable equivalent basis (fte), totaled $16,671,000 for the three months ended December 31, 2021, an increase of $850,000 compared to the same period in 2020. For the year ended December 31, 2021, net interest income (fte) totaled $66,100,000, an increase of $14,741,000 compared to 2020, due primarily to the higher volume of earning assets, including a $209.1 million increase in average loans outstanding. Loan origination fees related to PPP loans increased $3,072,000 compared to the 2020 total.

Other income for the three months ended December 31, 2021 totaled $2,021,000 compared to $2,661,000 for the similar period in 2020. Gains on the sale of loans and securities decreased $205,000, while service charges and fees decreased $488,000. All other items of other income increased $53,000, net. Other income for the year ended December 31, 2021 totaled $8,325,000 compared to $7,780,000 in 2020, an increase of $545,000 due primarily to a $578,000 increase in service charges and fees. Gains on the sale of loans and investment securities decreased $329,000 in the aggregate, while all other items of other income increased $296,000, net.

Other expenses totaled $10,042,000 for the three months ended December 31, 2021, compared to $9,909,000 in the similar period of 2020. For the year ended December 31, 2021, other expenses totaled $38,578,000 compared to $34,440,000 for 2020, an increase of $4,138,000. The increase reflects the costs of operations acquired from UpState, including four new Community Offices.

Mr. Critelli commented, "In 2021, our earnings increased $9.8 million over our previous record year of 2020. Our Return on Average Assets was 1.24%, and our Return on Average Equity was 12.35%. Earnings per share (fully diluted) also improved to $3.04 per share in 2021 from $2.09 per share in 2020. While a portion of this increase reflects earnings and fees collected on PPP loans, we have continued to grow our core business lines, which bodes well for future success. Our results also reflect a full year accretion to earnings from our acquisition of UpState. During the year, we also made significant progress improving our credit quality metrics, which will benefit future results. Our cash dividend of $0.28 per share declared in the fourth quarter of 2021 represents a 7.7% increase over the same period of last year. 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 sixteen offices in Delaware, Sullivan, Ontario, Otsego and Yates Counties, New York. 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 risks and uncertainty posed by, and the effect and impact of, the COVID-19 pandemic on the economy and the Company's results of operations and financial condition, the ability to continue to grow our core business, the ability to have success in the future, the ability to improve our credit quality metrics and benefit future results, the ability to control costs and expenses, 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 interest income and net interest income on a fully taxable equivalent basis (fte), which are non-GAAP (Generally Accepted Accounting Principles) financial measures. Fully tax-equivalent net interest income is derived from GAAP interest income and net interest income using an assumed tax rate of 21%. We believe the presentation of interest income and net interest income on a fully tax-equivalent basis ensures comparability of 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 tax-equivalent basis:

		Three months ended December 31			Year ended December 31
(dollars in thousands)		2021			2020			2021			2020
Net interest income		$	16,496			$	15,614			$	65,313			$	50,476
Tax equivalent basis adjustment using 21% marginal tax rate			175				207				787				883
Net interest income on a fully taxable equivalent basis		$	16,671			$	15,821			$	66,100			$	51,359

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 reconciles average equity to average tangible equity:

		Three months ended			Year ended
		December 31,			December 31,
(dollars in thousands)		2021			2020			2021			2020
Average equity		$	205,053			$	193,740			$	201,681			$	166,427
Average goodwill and other Intangibles			(29,683	)			(30,747	)			(29,738	)			(17,942	)
Average tangible equity		$	175,370			$	162,993			$	171,943			$	148,485

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)

		December 31
		2021			2020
ASSETS
Cash and due from banks		$	21,073			$	19,445
Interest-bearing deposits with banks			185,608				92,248
Cash and cash equivalents			206,681				111,693
Securities available for sale			406,782				226,586
Loans receivable			1,354,931				1,410,732
Less: Allowance for loan losses			16,442				13,150
Net loans receivable			1,338,489				1,397,582
Regulatory stock, at cost			3,927				3,981
Bank premises and equipment, net			17,289				17,814
Bank owned life insurance			40,038				39,608
Foreclosed real estate owned			1,742				965
Accrued interest receivable			5,889				6,232
Goodwill			29,266				29,290
Other intangible assets			407				530
Other assets			17,994				17,583
TOTAL ASSETS		$	2,068,504			$	1,851,864
LIABILITIES
Deposits:
Non-interest bearing demand		$	440,652			$	359,559
Interest-bearing			1,316,141				1,175,826
Total deposits			1,756,793				1,535,385
Short-term borrowings			60,822				63,303
Other borrowings			29,998				42,459
Accrued interest payable			1,203				1,601
Other liabilities			14,426				14,331
TOTAL LIABILITIES			1,863,242				1,657,079
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: 2021: 8,266,751 shares, 2020: 8,236,331 shares			827				824
Surplus			96,443				95,388
Retained earnings			110,015				93,796
Treasury stock, at cost: 2021: 65,328 shares, 2020: 10,263 shares			(1,767	)			(342	)
Accumulated other comprehensive (loss) income			(256	)			5,119
TOTAL STOCKHOLDERS' EQUITY			205,262				194,785
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	2,068,504			$	1,851,864

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,
		2021			2020			2021			2020
INTEREST INCOME
Loans receivable, including fees		$	16,149			$	16,336			$	65,257			$	54,046
Securities			1,612				1,064				5,547				4,337
Other			92				29				266				72
Total Interest income			17,853				17,429				71,070				58,455
INTEREST EXPENSE
Deposits			1,130				1,514				4,757				6,610
Short-term borrowings			71				81				284				325
Other borrowings			156				220				716				1,044
Total Interest expense			1,357				1,815				5,757				7,979
NET INTEREST INCOME			16,496				15,614				65,313				50,476
PROVISION FOR LOAN LOSSES			450				1,600				4,200				5,450
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES			16,046				14,014				61,113				45,026
OTHER INCOME
Service charges and fees			1,425				1,913				5,693				5,115
Income from fiduciary activities			198				150				748				682
Net realized gains on sales of securities			36				-				92				71
Gains on sales of loans, net			-				241				177				527
Earnings and proceeds on life insurance policies			174				208				941				845
Other			188				149				674				540
Total other income			2,021				2,661				8,325				7,780
OTHER EXPENSES
Salaries and employee benefits			4,992				5,243				20,608				17,121
Occupancy, furniture and equipment			1,254				1,165				4,822				4,148
Data processing and related operations			655				808				2,415				2,457
Taxes, other than income			358				356				1,122				997
Professional fees			510				328				1,582				1,062
FDIC Insurance assessment			169				213				681				399
Foreclosed real estate			88				8				115				53
Amortization of intangibles			27				35				123				114
Merger related			-				66				-				2,049
Other			1,989				1,687				7,110				6,040
Total other expenses			10,042				9,909				38,578				34,440
INCOME BEFORE TAX			8,025				6,766				30,860				18,366
INCOME TAX EXPENSE			1,387				1,253				5,945				3,286
NET INCOME		$	6,638			$	5,513			$	24,915			$	15,080
Basic earnings per share		$	0.81			$	0.67			$	3.05			$	2.09
Diluted earnings per share		$	0.81			$	0.67			$	3.04			$	2.09

NORWOOD FINANCIAL CORP.

Financial Highlights (Unaudited)

(dollars in thousands, except per share data)

For the Three Months Ended December 31		2021			2020
Net interest income		$	16,496			$	15,614
Net income			6,638				5,513
Net interest spread (fully taxable equivalent)			3.29	%			3.50	%
Net interest margin (fully taxable equivalent)			3.39	%			3.65	%
Return on average assets			1.26	%			1.18	%
Return on average equity			12.84	%			11.32	%
Return on average tangible equity			15.02	%			13.46	%
Basic earnings per share		$	0.81			$	0.67
Diluted earnings per share		$	0.81			$	0.67

For the Twelve Months Ended December 31		2021			2020
Net interest income		$	65,313			$	50,476
Net income			24,915				15,080
Net interest spread (fully taxable equivalent)			3.39	%			3.36	%
Net interest margin (fully taxable equivalent)			3.50	%			3.55	%
Return on average assets			1.24	%			0.97	%
Return on average equity			12.35	%			9.06	%
Return on average tangible equity			14.49	%			10.16	%
Basic earnings per share		$	3.05			$	2.09
Diluted earnings per share		$	3.04			$	2.09

As of December 31		2021			2020
Total assets		$	2,068,504			$	1,851,864
Total loans receivable			1,354,931				1,410,732
Allowance for loan losses			16,442				13,150
Total deposits			1,756,793				1,535,385
Stockholders' equity			205,262				194,785
Trust assets under management			195,958				168,085
Book value per share		$	25.24			$	23.72
Tangible book value per share		$	21.63			$	20.10
Equity to total assets			9.92	%			10.52	%
Allowance to total loans receivable			1.21	%			0.93	%
Nonperforming loans to total loans			0.05	%			0.24	%
Nonperforming assets to total assets			0.12	%			0.24	%

NORWOOD FINANCIAL CORP.

Consolidated Balance Sheets (unaudited)

(dollars in thousands)

		December 31 2021			September 30 2021			June 30 2021			March 2021			December 31 2020
ASSETS
Cash and due from banks		$	21,073			$	28,353			$	34,831			$	20,364			$	19,445
Interest-bearing deposits with banks			185,608				191,580				170,342				190,135				92,248
Cash and cash equivalents			206,681				219,933				205,173				210,499				111,693
Securities available for sale			406,782				361,988				333,636				275,224				226,586
Loans receivable			1,354,931				1,371,002				1,386,654				1,421,568				1,410,732
Less: Allowance for loan losses			16,442				16,103				15,340				14,509				13,150
Net loans receivable			1,338,489				1,354,899				1,371,314				1,407,059				1,397,582
Regulatory stock, at cost			3,927				3,898				4,084				4,043				3,981
Bank owned life insurance			40,038				39,864				39,665				39,471				39,608
Bank premises and equipment, net			17,289				17,364				17,298				17,648				17,814
Foreclosed real estate owned			1,742				1,876				844				844				965
Goodwill and other intangibles			29,673				29,700				29,727				29,785				29,820
Other assets			23,883				24,169				23,823				25,263				23,815
TOTAL ASSETS		$	2,068,504			$	2,053,691			$	2,025,564			$	2,009,836			$	1,851,864
LIABILITIES
Deposits:
Non-interest bearing demand		$	440,652			$	442,534			$	435,824			$	415,395			$	359,559
Interest-bearing deposits			1,316,141				1,279,988				1,253,117				1,269,793				1,175,826
Total deposits			1,756,793				1,722,522				1,688,941				1,685,188				1,535,385
Borrowings			90,820				111,382				119,858				112,283				105,762
Other liabilities			15,629				17,179				16,266				17,258				15,932
TOTAL LIABILITIES			1,863,242				1,851,083				1,825,065				1,814,729				1,657,079
STOCKHOLDERS' EQUITY			205,262				202,608				200,499				195,107				194,785
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	2,068,504			$	2,053,691			$	2,025,564			$	2,009,836			$	1,851,864

NORWOOD FINANCIAL CORP.

Consolidated Statements of Income (unaudited)

(dollars in thousands, except per share data)

Three months ended		December 31 2021			September 30 2021			June 30 2021			March 31 2021			December 31 2020
INTEREST INCOME
Loans receivable, including fees		$	16,149			$	16,859			$	16,102			$	16,146			$	16,336
Securities			1,612				1,468				1,356				1,112				1,064
Other			92				72				59				43				29
Total interest income			17,853				18,399				17,517				17,301				17,429
INTEREST EXPENSE
Deposits			1,130				1,167				1,205				1,255				1,514
Borrowings			227				243				259				270				301
Total interest expense			1,357				1,410				1,464				1,525				1,815
NET INTEREST INCOME			16,496				16,989				16,053				15,776				15,614
PROVISION FOR LOAN LOSSES			450				750				1,500				1,500				1,600
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES			16,046				16,239				14,553				14,276				14,014
OTHER INCOME
Service charges and fees			1,425				1,485				1,532				1,247				1,913
Income from fiduciary activities			198				209				181				160				150
Net realized gains on sales of securities			36				35				-				21				-
Gains on sales of loans, net			-				39				109				29				241
Earnings and proceeds on life insurance policies			174				200				194				374				208
Other			188				160				171				158				149
Total other income			2,021				2,128				2,187				1,989				2,661
OTHER EXPENSES
Salaries and employee benefits			4,992				5,491				5,171				4,953				5,243
Occupancy, furniture and equipment, net			1,254				1,163				1,186				1,220				1,165
Foreclosed real estate			88				(15	)			13				30				8
FDIC insurance assessment			169				177				154				181				213
Merger related			-				-				-				-				66
Other			3,539				2,776				2,968				3,068				3,214
Total other expenses			10,042				9,592				9,492				9,452				9,909
INCOME BEFORE TAX			8,025				8,775				7,248				6,813				6,766
INCOME TAX EXPENSE			1,387				1,794				1,493				1,271				1,253
NET INCOME		$	6,638			$	6,981			$	5,755			$	5,542			$	5,513
Basic earnings per share		$	0.81			$	0.85			$	0.70			$	0.68			$	0.67
Diluted earnings per share		$	0.81			$	0.85			$	0.70			$	0.67			$	0.67
Book Value per share		$	25.24			$	24.90			$	24.47			$	23.82			$	23.72
Tangible Book Value per share			21.63				21.27				20.85				20.20				20.10
Return on average assets (annualized)			1.26	%			1.36	%			1.15	%			1.18	%			1.18	%
Return on average equity (annualized)			12.84	%			13.50	%			11.59	%			11.39	%			11.32	%
Return on average tangible equity (annualized)			15.02	%			15.78	%			13.63	%			13.42	%			13.46	%
Net interest spread (fte)			3.29	%			3.49	%			3.32	%			3.46	%			3.50	%
Net interest margin (fte)			3.39	%			3.61	%			3.44	%			3.59	%			3.65	%
Allowance for loan losses to total loans			1.21	%			1.17	%			1.11	%			1.02	%			0.93	%
Net charge-offs to average loans (annualized)			0.03	%			0.00	%			0.19	%			0.04	%			0.04	%
Nonperforming loans to total loans			0.05	%			0.20	%			0.28	%			0.22	%			0.24	%
Nonperforming assets to total assets			0.12	%			0.22	%			0.24	%			0.20	%			0.24	%