Q3 2025 Norwood Financial Corp Earnings Call
Operator: Good day, and thank you for standing by. Welcome to the Norwood Financial Corp.'s third quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Kristen Lencia, Vice President and Marketing Manager. Please go ahead.
Speaker #2: Good day and thank you for standing by . Welcome to the Norwood Financial third quarter 2020 Earnings Conference Call . At this time , all participants are in a listen only mode .
Speaker #2: After the speaker's presentation , there will be a question and answer session . To ask a question during the session , you will need to press star one one on your telephone .
Speaker #2: You will then hear an automated message advising that your hand is raised to withdraw your question. Please press star one one again.
Speaker #2: Please be advised that today's conference is being recorded . I would now like to hand the conference over to Christine Lancia , Vice President and marketing Manager .
Speaker #2: Please go ahead .
Kristen Lencia: Thank you, Tanya. Good morning, everyone. Welcome to our Q3 2025 earnings conference call. With me today are James F. Donnelly, CEO, and John McCaffrey, CFO. The press release we issued earlier this morning, together with the presentation material that accompanies our remarks, are available on the investor relations section of our web page. Comments made by any participant on today's call may include forward-looking statements. These statements are subject to various risks and uncertainties and other factors that are difficult to predict. Actual results may differ materially from those expressed or implied, and we assume no obligation to update any forward-looking information. Please refer to our most recent Form 10-K and other subsequent reports filed with the SEC for more information about risks related to forward-looking statements. During our discussion, we may refer to certain non-GAAP financial measures.
Speaker #3: Thank you . Tanya . Good morning everyone . Welcome to our Q3 2020 Earnings conference call . With me today are Jim Donnelly , CEO , and John McCaffrey , CFO .
Speaker #3: The press release we issued earlier this morning, together with the presentation material that accompanies our remarks, are available on the Investor Relations section of our web page.
Speaker #3: Comments made by any participant on today's call may include forward looking statements . These statements are subject to various risks and uncertainties and other factors that are difficult to predict .
Speaker #3: Actual results may differ materially from those expressed or implied , and we assume no obligation to update any forward looking information . Please refer to our most recent form 10-K and other subsequent reports filed with the SEC .
Speaker #3: For more information about risks related to forward looking statements . During our discussion , we may refer to certain non-GAAP financial measures . These measures are useful for analysts , investors , and management to evaluate ongoing performance .
Kristen Lencia: These measures are useful for analysts, investors, and management to evaluate ongoing performance. A reconciliation of these measures to GAAP financial results is provided in our presentation materials. I will now turn the call over to Jim.
Speaker #3: A reconciliation of these measures to GAAP financial results is provided in our presentation materials . I will now turn the call over to Jim .
James F. Donnelly: Thank you, Kristen. Good morning, everyone. Our team delivered strong results in the third quarter and growing assets over around $100 million year to date while expanding our margins. This is the result of delivering good growth in loans and strong growth in deposits. Our credit metrics remain strong while delivering this growth. Our yield also continues to benefit from the bond portfolio repositioning we did in the fourth quarter of 2024. Our fee income has also grown year over year as we focused on our wealth management, trust services, and other fee income businesses. It was a good quarter for us, and we entered the fourth quarter on solid footing and with good momentum. I am proud of the performance of the entire Norwood team as they remain focused on delivering the products and services that help our customers achieve their goals, truly living out our tagline: Everyday Better.
Speaker #4: Thank you . Kristen . Good morning everyone . Our team delivered strong results in the third quarter . And growing assets over 100 , around 100 million year to date .
Speaker #4: While expanding our margins . This is the result of delivering good growth in loans and strong growth in deposits . Our credit metrics remain strong while delivering this growth .
Speaker #4: Our yield also continues to benefit from the bond portfolio repositioning we did in the fourth quarter of 2020 . For our fee income has also grown year over year as we focused on our wealth management trust and other fee income businesses .
Speaker #4: It was a good quarter for us and we entered the fourth quarter on solid footing and with good momentum . I am proud of the performance of the entire Norwood team , as they remain focused on delivering the products and services that help our customers achieve their goals .
Speaker #4: Truly living out our tagline every day better . It is this embodiment of our mission within the high performing culture that distinguishes us , that gives me the belief that we are on our way to creating a bright future for us .
James F. Donnelly: It is this embodiment of our mission within the high-performing culture that distinguishes us, that gives me the belief that we are on our way to creating a bright future for us, our customers, and our shareholders. Stepping back and looking at our year-to-date performance, it is clear that our results in the third quarter and throughout 2025 have benefited from our repositioning of our bond portfolio that was completed in December of 2024. Recall that we successfully completed a capital raise through the issuance of common stock to help support our growth, improve our financial position through the repositioning of our available for sale securities portfolio, and increase our earnings potential. I am pleased to say that we achieved all of these objectives.
Speaker #4: Our customers and our shareholders . Stepping back and looking at our year to date performance , it is clear that our results in the third quarter and throughout 2025 have benefited from our repositioning of our bond portfolio .
Speaker #4: That was completed in December of 2020 . For recall that we successfully completed a capital raise through the issuance of common stock to help support our growth , improve our financial position through the repositioning of our available for sale securities portfolio , and increase our earnings potential .
Speaker #4: And I am pleased to say that we achieved all of these objectives . The increased earnings potential is evident in the improved yields we have generated in 2025 .
James F. Donnelly: The increased earnings potential is evident in the improved yields we have generated in 2025, and with the stronger financial position, we have been able to better serve our customers across our footprint with loans that enable them to purchase homes or cars and to start or expand their businesses. Turning to another item, we have filed all regulatory applications necessary for approval of our merger with President's Bank that was announced on July 7th. The applications of our filings are pending. I refer you to the investor relations section of our website for more information. During the third quarter, we completed the leadership transition in our board of directors, and we added two new directors, strengthening the board by bringing on board new talent as we embark on the next phase of our growth.
Speaker #4: And with the stronger financial position, we have been able to better serve our customers across our footprint with loans that enable them to purchase homes or cars and to start or expand their businesses.
Speaker #4: Turning to another item , we have filed all regulatory applications necessary for approval of our merger with presence Bank . That was announced on July 7th .
Speaker #4: The applications of our filings are pending . I refer you to the Investor Relations section of our website for more information . During the third quarter , we completed the leadership transition in our Board of Directors , and we added two new directors , strengthening the board by bringing on board new talent .
Speaker #4: As we embark on the next phase of our growth . This was a bittersweet transition for me and many of the employees of Wayne Bank .
James F. Donnelly: This was a bittersweet transition for me and many of the employees of Wayne Bank as we said goodbye to our long-term colleague and friend, Lou Critelli. Lou is my predecessor and has served as Chairman of the Board since 2022. Lou has had a tremendous impact on the bank and me personally, as well as many employees over his 30 years of dedication to the company. It would be hard to overstate the impact that he has had on making us the company that we are today. His legacy will carry on, and he will be missed. On behalf of the rest of the Board and the entire company, we wish Lou all the best in his retirement. We now move forward with Dr. Andrew Ford leaving the Board as Chairman and Kevin Lamont replacing him as Vice Chairman.
Speaker #4: As we said goodbye to our long term colleague and friend Lou Critelli , who is my predecessor and has served as chairman of the board since 2022 .
Speaker #4: Lou has had a tremendous impact on the bank and me personally , as well as many employees over his 30 years of dedication to the company .
Speaker #4: It would be hard to overstate the impact that he has had on making us the company that we are today. His legacy will carry on, and he will be missed.
Speaker #4: On behalf of the rest of the board and the entire company , we wish Lou all the best in his retirement . We now move forward with Doctor Andrew Ford leading the board as chairman and Kevin Lamont replacing him as vice chairman .
James F. Donnelly: These are two long-serving directors, and the Board is in great hands under their leadership. We also welcomed two new directors to the Board: Marissa Nassimovich and James Shook, both outstanding leaders within their respective fields and even more importantly, shining examples of individuals with strong commitment to serving their community. I'm excited about the changes to our Board and have every confidence that they will be valuable advisors as we move forward. While we have built a strong financial position and operated well to deliver strong financial results, it is our employees that truly make us unique. They continue to live according to our tradition of community involvement, donating time and money to causes that make the places we live and call home better places to live and work. I am proud of all they do for our communities and thankful for their dedication and commitment.
Speaker #4: These are two long serving directors and the board is in great hands under their leadership . We also welcomed two new directors to the board , Marissa Nacinovic and James Schuck .
Speaker #4: Both outstanding leaders within their respective fields , and even more importantly , shining examples of individuals with strong commitment to serving their community .
Speaker #4: I'm excited about the changes to our board and have every confidence that they will be valuable advisors as we move forward . While we have built strong financial , strong financial position and operated well to deliver strong financial results , it is our employees that truly make us unique .
Speaker #4: They continue to live according to our tradition of community involvement , donating time and money to causes that make the places we live and call home better places to live and work .
Speaker #4: I am proud of all they do for our communities and thankful for their dedication and commitment. In conclusion, we delivered good results as we also delivered on strategic initiatives that have given our team and our brand a lift.
James F. Donnelly: In conclusion, we delivered good results as we also delivered on strategic initiatives that have given our team and our brand a lift. We rolled out our new brand this year. The eye-catching marketing materials are a small piece of what we have delivered with this rollout. We have worked over the last two years to improve our culture with our Everyday Better focus. We have united our three brands into one. Our customers are rating their Wayne Bank experiences with an average of 4.7 stars. Our employees have a new lift in their step as we recognize them for delivering on Everyday Better service. This is the secret sauce behind these good results. I am proud of our team and their commitment to our customers, our communities, and each other, and in returning good results for our investors.
Speaker #4: We rolled out our new brand this year , the eye catching marketing materials for a small piece of what we have delivered with this rollout .
Speaker #4: We have worked over the last two years to improve our culture with our everyday , better focus , better everyday focus . We have United our three brands into one .
Speaker #4: Our customers are rating their Wayne Bank experiences with an average of 4.7 stars. Our employees have a new lift in their step as we recognize them for delivering on everyday, better service.
Speaker #4: This is the secret sauce behind these good results . I am proud of our team and their commitment to our customers , our communities and each other .
Speaker #4: And in returning good results for our investors , I will now turn the call over to our CFO , John McCaffrey , to walk us through the results .
James F. Donnelly: I will now turn the call over to our CFO, John McCaffrey, to walk us through the results.
John McCaffrey: Thank you, Jim. Good morning, everyone. The third quarter results continued an improving trend that began with our balance sheet repositioning in December 2024. Our net interest margin increased by 20 basis points on a linked quarter basis and resulted in a $1.4 million increase in net interest income versus the second quarter. This was due to asset yield increasing while at the same time liability costs decreasing. Below the margin line, our quarterly results included $568,000 in merger charges, and we have included adjusted return metrics in both the press release and the presentation to show our performance ratios without the impact of these expenses. Additionally, our CISA model calculated a release of the allowance for credit losses this quarter, so we included pre-provision net revenue numbers as well. The ACL release of $502,000 was mostly driven by several loans moving out of non-accrual status.
Speaker #4: Thank you Jim .
Speaker #5: Good morning, everyone. The third quarter results continued the improving trend that began with our balance sheet repositioning in December 2020. Our net interest margin increased by 20 basis points on a linked quarter basis.
Speaker #5: And resulted in a $1.4 million increase in net interest income versus the second quarter . This was due to asset yields increasing , while at the same time liability costs decreasing below the margin line .
Speaker #5: Our quarterly results included $568,000 in merger charges, and we have included adjusted return metrics in both the press release and the presentation to show our performance ratios without the impact of these expenses.
Speaker #5: Additionally, our seasonal calculations resulted in a release of the allowance for credit losses this quarter. So we included pre-provision net revenue numbers as well.
Speaker #5: The ACL release of $502,000 was mostly driven by several loans moving out of nonaccrual status. Our unadjusted pre-provision net revenue increased by 15% on a linked quarter basis, and 19% adjusting for non-recurring merger charges.
John McCaffrey: Our unadjusted pre-provision net revenue increased by 15% on a linked quarter basis and 19% adjusting for non-recurring merger charges. Non-interest income for the nine months ended September 30, increased 9% over the same period last year, with growth coming from our wealth and trust services activities as well as increased gains on loan sales. Quarterly expenses were up 7.5% over the third quarter of 2024. Excluding merger charges, the increase was only 2.8%. Credit metrics continued to improve year over year as non-performing loans as a percent of total loans decreased, and our reserves to non-performing assets also increased. The overall themes of the quarter were improving net interest margins and benign credit, combined measured expense control. These themes have aligned to deliver a solid quarter and leave our company well-positioned for the future. Jim and I will now be happy to answer any questions you may have.
Speaker #5: Non-interest income for the nine months ended September 30 increased 9% over the same period last year, with growth coming from our wealth and trust activities as well as increased gains on loan sales.
Speaker #5: Quarterly expenses were up 7.5% over the third quarter of 2020 for excluding merger charges . The increase was only 2.8% . Credit metrics continued to improve year over year as non-performing loans as a percent of total loans decreased , and our reserves to non-performing assets also increased .
Speaker #5: The overall themes of the quarter were improving net interest margins and benign credit combined measured expense control . These themes have aligned to deliver a solid quarter and leave our company well positioned for the future .
Speaker #5: Jim and I will now be happy to answer any questions you may have. Operator, please provide instructions for asking questions.
John McCaffrey: Operator, please provide instructions for asking questions.
Operator: Certainly. As a reminder, to ask a question, please press star one one on your touchtone telephone and wait for your name to be announced. To remove yourself from the queue, please press star one one again. Our first question will come from Tyler Cacciatore of Stephens. Your line is open, Tyler.
Speaker #2: Certainly , as a reminder to ask a question , please press star one one on your touch tone telephone and wait for your name to be announced .
Speaker #2: To remove yourself from the queue , please press star one one again . And our first question will come from Tyler Cacciatore of Stephens .
Speaker #2: Your line is open . Tyler .
[Analyst 1]: Good morning. This is Kristen Lencia from Norwood Financial Corp.
Speaker #6: Good morning . This is Tyler on for Matt . Bryce .
John McCaffrey: Hey, Tyler. How are you doing?
Speaker #5: Hey , Tyler . How are you doing ?
[Analyst 1]: Good morning. Can you just talk about the ability to further reduce deposit costs from here with another two rate cuts expected, and maybe some sense for the full cycle beta versus the hiking cycle?
Speaker #4: Good morning .
Speaker #6: Can you just talk about the ability ability to further reduce deposit costs from here with another two rate cuts expected and maybe some sense for the full cycle beta versus the hiking cycle ?
John McCaffrey: Sure. One thing we have is, as you know, we have about $400 million plus in municipal deposits. A lot of those are tied to market rates, so they will come down with market rates on a step-by-step basis. We are very aggressive in moving other specialized rates down with the move in Fed rates. I would say that the beta on the way down is going to be somewhere in the neighborhood of 50%. I think we still have room, and we have been showing, if you look in the presentation, we've seen even before the Fed cut, we have seen our deposit costs coming down over time.
Speaker #5: Sure . So so one one thing we have is we have a you know , we have about a $400 million plus in municipal deposits .
Speaker #5: A lot of those are tied to market rates . So they will come down with market rates kind of in a step by step basis .
Speaker #5: We are very we are very aggressive in moving other specialized rates down with with the move in rates . So , you know , I would say that the beta on the way down is going to be somewhere in the neighborhood of , you know , 50% .
Speaker #5: I think we can we still have room and we have we have been showing if you look in the in the presentation , we've seen even before , the fed cut , we have seen our deposit costs coming down over time .
[Analyst 1]: Can you remind us how much is in munis and what's roughly the high watermark versus the low?
Speaker #6: And then can you remind us how much is in Muniz and what's roughly the high water mark versus the low ?
John McCaffrey: We're probably right now at the high watermark. It goes from between, I think, $450 million down to $400 million. We have New York and Pennsylvania municipal deposits, so they will offset each other as far as the timing goes of when tax receipts come in. Even as the tax receipts come in, some of the other municipalities that receive the tax money get them, so it kind of trickles out slowly.
Speaker #5: We're probably right now at the high water mark . So it goes for between . I think 450 down to 400 . There is we have New York and Pennsylvania municipal deposits .
Speaker #5: So they will offset each other as far as the timing goes of when tax receipts come in . And then even after tax receipts come in , some of the other municipalities that receive the tax money get that money kind of dribbles out slowly .
[Analyst 1]: Yeah. We also have some school districts that work on a slightly different cycle as well that are in that mix. The highs and lows are a little less dramatic than it might otherwise be. Thank you. Along those same lines, can you discuss your NIM outlook and where you think you start seeing some stability here? You know.
Speaker #4: Yeah . And we also have some school districts that work on a slightly different cycle as well that are in that mix . So the highs and lows are a little less dramatic than it might otherwise be .
Speaker #6: Great . Thank you . And then along those same lines , can you discuss your Nim outlook and where you think you start seeing some stability here ?
Speaker #5: You know , that's a tough one , Tyler . Thanks . It's it's our Nim outlook I think is still positive . We're still getting you know , our our loan book is still pricing up .
John McCaffrey: That's a tough one, Tyler, but thanks. Our NIM outlook, I think, is still positive. We're still getting in, you know, our loan book is still pricing up. Although that has been, as the longer part of the curve has come down, that's begun to level off a little bit. I think at 3.63% for this quarter, I hope we can start reaching towards 4%, but I'm not sure where we go from there over the next few quarters.
Speaker #5: So although that has been , you know , as , as the longer part of the curve has come down that's begun to level off a little bit .
Speaker #5: So , you know , I think , you know , at 363 for this quarter , you know , I hope we can we can start reaching towards 4% .
Speaker #5: But I'm not sure where we go from here over the next few quarters.
[Analyst 1]: Great. Thank you. If I could just squeeze one more in, the window here for M&A certainly feels a bit more open. Can you maybe just talk about where you stand from here or post-deal close and update us on when the updated deal close is expected to happen?
Speaker #6: Great . Thank you . And if I could just squeeze one more in the window here for M&A certainly feels a bit more open .
Speaker #6: Can you maybe just talk about where you stand from here and or post deal close and update us on when the updating deal closes , expected to happen ?
James F. Donnelly: We are opportunistic on M&A and will look for strategic opportunities to continue to see what's out there and how it would be a strategic alignment. Our current President's Bank I commented on earlier, we're waiting for regulatory approval and don't really have a date that we know that will come through. Looking at the overall environment and how other deals have proceeded, we feel pretty confident on we believe that things will go smoothly.
Speaker #4: We are opportunistic on M&A and we'll look for strategic opportunities to continue to see what's out there and how it would be a strategic alignment .
Speaker #4: Our current . Presence bank I commented in on earlier , we're waiting . For regulatory approval and don't really have a date that we know that that will come through .
Speaker #4: But looking at the overall environment and how other deals have proceeded , we feel pretty confident on . We believe that things will go smoothly .
John McCaffrey: Yeah, if you look at the calendar, Tyler, we don't see it. It'd be very difficult for us to get it done in Q4. There are other, obviously, operational and accounting issues with closing in December. At this point, they haven't mailed their proxy out yet. We think that'll be happening soon. When that happens, we can start the calendar counting. On a parallel path is, obviously, the regulators who have been asking questions, but they haven't given us any flags of yellow or red kind at this point.
Speaker #5: Yes , look at the calendar , Tyler . You know , we don't see it . You know , it'd be very difficult for us to get it done in Q4 .
Speaker #5: And then , you know , there are other obviously operational and accounting issues with closing in December . So at this point , you know , they haven't mailed their proxy out yet .
Speaker #5: We think that'll be happening soon. And when that happens, then we can start, like we can start the calendar counting and then that.
Speaker #5: Then in a parallel path is obviously the regulators who have been , you know , they've been asking questions , but they haven't given us any flags of yellow or red kind at this point .
Speaker #5: So .
[Analyst 1]: That's helpful. That'll be it for me. I appreciate you taking my questions.
Speaker #6: That's helpful . That'll be it for me . I appreciate you taking my questions .
James F. Donnelly: Thank you, Tyler.
Speaker #4: Thank you . Tyler .
Operator: Thank you. As a reminder, to ask a question, please press star one one on your touchtone telephone. Our next question will be coming from Ross Haverman of RLH Investments. Your line is open.
Speaker #2: Thank you . And as a reminder to ask a question , please press star one one on your touch tone . Telephone . And our next question will be coming from Ross Haberman of our investments .
Speaker #2: Your line is open .
[Analyst 2]: Good morning, gentlemen. Thank you for taking my call. I just have a quick question. Assuming we get another quarter point drop in the next month or so, could you tell us how accretive that will be to your margin or your spread? Thank you.
Speaker #7: Good morning , gentlemen . Thank you for taking my call . I just have a quick question . Assuming we get another quarter point drop and I don't know , in the next month or so , could you tell us how accretive that will be to your margin or your spread ?
Speaker #7: Thank you .
John McCaffrey: We have a lot going on underneath in the portfolio. Just by itself, without any comment on the change in the shape of the yield curve out past a year, it would be accretive to us as far as dropping our cost of deposits. I hesitate to put a dollar amount on it now or a basis point amount on it now, especially depending on timing and where in the quarter it happens. We will get into the first quarter when hopefully we will be closing on a transaction, and there will be a lot of noise then as well.
Speaker #5: I mean , we have there's a lot going on underneath , you know , in in the portfolio . So just by itself , you know , without any , any comment on the change in the shape of the yield curve , you know , out past a year , it would be it would be accretive to us as far as dropping our cost of deposits .
Speaker #5: But I'd be I'd hesitate to put a dollar amount on it . Now or a basis point amount right now , especially depending on timing and where in the quarter it happens .
Speaker #5: You know, then we'll get into the first quarter when, hopefully, we'll be closing on a transaction, and then there'll be a lot, a lot of noise.
Speaker #5: Then as well .
[Analyst 2]: Just one follow-up question, if I may. Could you tell us where you're seeing the best loan growth and demand today? What category? Do you see that continuing into the fourth quarter, or with everything happening in D.C. and the expectation of lower rates, is that sort of mitigating loan growth?
Speaker #7: And just one , one follow up question . If I may , could you tell us where where you're seeing the best loan growth and demand today ?
Speaker #7: What category and do you see that continuing into the fourth quarter ? Or if everything happened in in DC and the expectation of lower rates , is that sort of mitigating loan growth ?
James F. Donnelly: Yeah, Ross, good question. Our loan growth this year has pretty much been across the board in the different categories. It hasn't tipped us into one category or another as being the major growth factor. The only area I'd say that we may have shrunk a little bit in was our ag % of our portfolio may have gone from about 9% to about 8% of our portfolio. Our CRE breakout remains well under, we're well within the regulatory guidelines and have lots of room there. There is no one category driving it. Our consumer lending has been good and strong and is performing well, as is across our portfolio for the various types of commercial, including CNI.
Speaker #4: Yeah . Ross . Good question . I our loan growth this year is pretty much been across the board in the different categories .
Speaker #4: So we haven't it hasn't tipped us into one category or another . As being the major growth factor . The only area I'd say that we may have grown shrunk a little bit in was our AG percent of our portfolio , may have gone from about 9% to about 8% of our portfolio , and our CRE breakout remains well under .
Speaker #4: We're well within the regulatory guidelines and have lots of room . There . So there is no no . One category driving it .
Speaker #4: So our consumer lending has been good and strong and is performing well , as is across our portfolio for for the the various types of commercial , including CNI .
[Analyst 2]: Okay. Thank you for your help. Have a good week.
Speaker #7: Okay . Thank you for your help . Have a good week .
James F. Donnelly: You too. Thank you, Ross.
Speaker #4: You too . Thank you Ross .
Operator: I am showing no further questions at this time. I would now like to turn the call back to Jim for closing remarks.
Speaker #5: Okay .
Speaker #2: And I'm showing no further questions at this time . I would now like to turn the call back to Jim for closing remarks .
James F. Donnelly: Thank you. Thank you all for joining us today. We're really pleased to be talking about and delivering the kinds of results that we have today. It's the employees working hard every day to take great care of our customers that are able to put these numbers up. Thank you for calling in today, we appreciate it, and we look forward to talking to you really soon on our next quarterly release.
Speaker #4: Thank you . And thank you all for joining us today . We're really pleased to be talking about and delivering the kinds of results that we have today .
Speaker #4: It's it's the employees working hard every day to take great care of our customers that are able to put these numbers up . So thank you for calling in today .
Speaker #4: And we appreciate it. We look forward to talking to you really soon on our next quarterly release.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.