Norwood Financial Corp Reports Decline in Net Income Amid Rising Interest Rates
Net Income: Q4 net income fell to $355,000 from $7,140,000 in the previous year.
Earnings Per Share: Q4 EPS dropped to $0.04 from $0.88 year-over-year.
Net Interest Income: Decreased by $1,939,000 in Q4 and $6,330,000 annually.
Provision for Credit Losses: Increased by $5,816,000 in Q4 and $4,648,000 for the year.
Total Assets: Grew to $2.201 billion as of December 31, 2023.
Loan Portfolio: Loans receivable increased by $129.7 million to $1.604 billion.
Deposits: Total deposits rose to $1.795 billion, a 3.90% increase.
On January 29, 2024, Norwood Financial Corp (NASDAQ:NWFL) released its 8-K filing, detailing the financial results for the fourth quarter and the fiscal year ended December 31, 2023. The bank holding company, which serves various counties in Pennsylvania and New York through its subsidiary Wayne Bank, reported a significant decrease in net income for both the quarter and the year, primarily due to a decrease in net interest income and an increase in the provision for credit losses.
Financial Performance Overview
NWFL's net income for the fourth quarter of 2023 was $355,000, a stark decrease from the $7,140,000 reported in the same period of 2022. The annual net income also saw a substantial decline, totaling $16,759,000 for 2023, down from $29,233,000 in the previous year. This decrease was attributed to a $6,330,000 drop in net interest income and a $4,648,000 rise in the provision for credit losses for the year. The return on average assets and the return on average equity were 0.79% and 9.67%, respectively, for 2023, compared to 1.43% and 16.11% in 2022.
The bank's total assets increased to $2.201 billion as of December 31, 2023, with loans receivable growing to $1.604 billion due to increases in both retail and commercial loans. Total deposits also saw an uptick, reaching $1.795 billion, a 3.90% increase from the previous year. Despite these growth indicators, the bank faced challenges with net charge-offs, which totaled $3,181,000 for the quarter and $6,078,000 for the year, largely due to losses on one credit relationship.
Interest Income and Expenses
Net interest income on a fully taxable equivalent basis (fte) for the fourth quarter was $15,488,000, a decrease from the $17,429,000 reported in the same period of 2022. The annual net interest income (fte) also decreased by $6,348,000, primarily due to increased funding costs on interest-bearing liabilities outpacing the yield earned on interest-earning assets. The provision for credit losses for the quarter was $6,116,000, a significant increase from the $300,000 in the fourth quarter of 2022, reflecting the need to maintain an adequate allowance for credit losses.
Other income for the fourth quarter totaled $2,123,000, a slight increase from the $1,926,000 reported in the same period of 2022. However, annual other income decreased by $1,808,000, mainly due to lower income recognized on previously acquired purchased impaired loans. Other expenses for the quarter increased to $10,849,000, up from $10,275,000 in the fourth quarter of 2022, and rose by $2,453,000, or 6.0%, for the year.
"Our results in 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," stated Mr. Donnelly, President and CEO of NWFL. He also highlighted the bank's growth in core business lines and a 3.5% increase in the cash dividend declared in the fourth quarter of 2023 compared to the same period last year.
NWFL's financial highlights reveal the impact of a challenging interest rate environment on its earnings. The bank's strategic focus on growing its loan portfolio and deposits, along with prudent management of credit losses, will be crucial in navigating the current economic landscape.
For more detailed financial information and to view the full earnings report, please visit the official SEC filing linked above.
Explore the complete 8-K earnings release (here) from Norwood Financial Corp for further details.
This article first appeared on GuruFocus.
