Norwood Financial Corp. (NWFL) Earnings Call Transcript & Summary

Hello, and welcome to the Annual Meeting of Shareholders of Norwood Financial Corp. Please note that today's meeting is being recorded. [Operator Instructions] It is now my pleasure to turn today's meeting over to Dr. Andrew Forte, Chairman of the Board of Directors. The floor is yours.

The 2025 Annual Meeting of Shareholders will please come to order. Welcome to the Annual Meeting of Shareholders of Norwood Financial Corp. I am Andrew Forte, Vice Chair of the Board of Directors, and I will act as Chairman of the meeting. John McCaffery, Executive Vice President of the Corporation, will act as Secretary of the meeting. I would also like to introduce to you members of your Board of Directors present today who are also participating in the meeting by remote communications. Lewis Critelli, our Board Chair; James O. Donnelly, our President and CEO; Attorney Ralph A. Matergia; Kevin Lamont; Meg Hungerford; Alexandra Nolan; Jeffrey Gifford; Dr. Kenneth Phillips; and Ronald Schmalzle. We posted the meeting procedures and rules for conduct of the annual meeting on the meeting web page for your review. In order to conduct an orderly meeting, I ask that everyone please follow these rules. At this time, I would like to turn over the meeting to Mr. James Donnelly, the corporation's President and Chief Executive Officer, who will conduct the formal business of the annual meeting.

Thank you, Andy, and good morning, everyone. I would like to thank you for participating in our [ 100 ] -- in our annual meeting. We feel we have an informative program to present to you this morning. John McCaffery, our Chief Financial Officer, will review last year's financial results, and I will follow up with a review of the first quarter results. We will then answer any questions you may have. At this point, however, there are some formal matters which must be completed at the Annual Meeting of the Shareholders. The only persons entitled to vote at this annual meeting are stockholders of record as of the close of business on March 4, 2025, the voting record date. In accordance with the bylaws, the company has prepared a complete alphabetical listing of stockholders entitled to vote at the annual meeting with their addresses and the number of shares held on the record date. We have previously received an affidavit of the annual meeting was mailed out on or about March 18, 2025, to each stockholder of record as of the close of business on the voting record date. Accordingly, this annual meeting has been duly called. This affidavit will be attached as an exhibit to the minutes of the annual meeting. The Board of Directors has previously appointed Philip Meyer, representing Computershare Trust Company NA, to act as inspector of the election at this annual meeting. The inspector has taken an oath to fairly and impartially perform his duties, which oath will be filed as an exhibit to the minutes of the annual meeting. We have previously delivered to the inspector a certified list of stockholders as of the voting record date and all proxies which have been received. Also, the company has delivered the signed master ballot for the voted proxies voted by the Board of Directors as indicated by such proxies. Our records show that there were outstanding on the record date and entitled to notice of and to vote at this annual meeting a total of 9,262,592 shares of common stock. Our records further show that more than a majority of the shares are present at this annual meeting in person or by proxy. The inspector is making an exact count and will submit a formal report on the number of shares present and represented during the course of the annual meeting. Based on our preliminary count, a quorum is declared present subject to the confirmation of that fact by the inspector in his report. In order to save time at this meeting, we propose to arrange the proceedings so that the vote will be taken -- will not be taken until all items have been moved and seconded. Questions from stockholders attending this webcast will be addressed while the voting is underway. If you have voted by proxy, you do not need to vote at this annual meeting. As stated in the Notice of the Annual Meeting, the first item of business to be acted upon by stock shareholders is the election of 3 directors. In accordance with the bylaws, Dr. Andrew Forte, Ralph A. Matergia and Alexandra K. Nolan, have each been nominated by the Board of Directors for election to a 3-year term and until their respective successors have been elected and qualified. I therefore declare the Board's slate to be in nomination. No timely notice of any of the nominations have been received. I declare nominations closed. The last item of business on the agenda is the ratification of the appointment of S.R. Snodgrass, P.C. as independent auditors for the fiscal year ending December 31, 2025. Mr. Brendan Whalen from S.R. Snodgrass, P.C. is available on an open conference line during the annual meeting and can respond to questions from stockholders attending the webcast while the voting is underway. The chair will entertain a motion that S.R. Snodgrass, P.C. be ratified as the company's independent auditors for the 2025 fiscal year.

I so move.

I second the motion.

The vote will now be taken on proposals 1 and 2. Remember, if you have voted by proxy in advance of the meeting, you do not need to vote at this meeting. In order to vote today, please press the Vote Now button on the meeting web page and follow the directions. At this time, while the online voting is underway, we will take questions from prepared participants -- from participants through the web meeting page. If you have a question regarding any of the proposals, please click on Question button of the meeting web page and text your messages to John McCaffery and me. [Voting]

It is now 11:07. As everyone had an opportunity to vote, I now declare the polls closed. While the inspector is counting the votes, John McCaffery, Executive Vice President and Chief Financial Officer, will report to you on the company's financial results for 2024.

Thank you, Jim. Good morning, and welcome to our 2025 Annual Meeting. We appreciate your virtual attendance at today's meeting. As Jim mentioned, I will review our results from 2024, and then he will bring you up to date with our first quarter financial results and our plans for the remainder of the year. Before I start, here's our legal disclaimer on any forward-looking statements that Jim or I may make today. What this basically says is that when we talk about future events, there are no guarantees that everything will occur exactly as we say here today and that we have no obligation to report if anything does change. Further, in the discussion of 2024 financial results, I will be referencing adjusted numbers that exclude the onetime loss we took as a result of repositioning our investment portfolio in December 2024. This will allow a better comparison to previous years. There are tables that reconcile these numbers to GAAP results at the end of the appendix to this presentation. The financial results for 2024 continue to show pressure on earnings resulting from the rapid increase in interest rates during 2022 and 2023. Earnings per share and net income declined versus 2023. However, the decline was less than the drop from 2022 to 2023. At the end of 2024, the company executed a follow-on common stock offering in which we raised $28 million in fresh equity capital. This allowed us to reposition $150 million in investments while maintaining and even strengthening our capital position. In 2024, we continue to grow the balance sheet. Loans grew $110 million, or 7%, and deposits grew $64 million, or 4%. Total assets grew 5.3%, ending the year at $2.3 billion. We also increased the percentage of deposits of noninterest-bearing DDA from 34% to 36%. Returns continued to decline versus 2023 owing to lower net interest margin and increased expenses. Jim will have more on that in his discussion of the first quarter. Net interest margin did show a decline over the previous year. However, it did begin to move higher during the second half of 2024. Yields on loans increased as adjustable loans repriced higher and new loans were booked in the higher rate environment. Deposit costs decreased, especially after the Federal Reserve began lowering rates in September of 2024. Our efficiency ratio, which is a measure of how much we spend to generate $1 of revenue has increased over the past 2 years. This is owing to lower net interest income due to the rapid rising rates in previous years as well as the increased overhead expenses as we continue to invest in new people and products. We have continued our long-standing practice of annually increasing our quarterly dividend to our shareholders. The strong capital base that we have built throughout many economic cycles has allowed us to provide and increase the amount of income we present to our shareholders. At Norwood Financial and Wayne Bank, we are committed to maintaining our capital above regulatory guidelines. We understand this allows us to continue to serve our communities while delivering returns to our shareholders. The strategy that we executed in December 2024 was in service to that commitment. We simultaneously strengthened our capital position, while positioning our balance sheet to provide increased earnings going forward. Thanks again for joining today to listen to our story. Now Jim will update you on our first quarter results and provide insight to other current developments.

Thank you, John. We recently announced net income of $5.8 million for the 3 months ended on March 31, 2025, an increase of $1.4 million over the same period last year. Earnings per share on a fully diluted basis were $0.63, a 14.5% increase over the same period in 2024. The annualized return on average assets was 1.01% in the first quarter of 2025 and the annualized return of average tangible equity was 12.4%, compared to 0.8% and 11.8%, respectively, in the first quarter of 2024. Total assets, $0.376044 billion, as of March 31, 2025. First quarter loans totaled $1.771269 billion with deposits of $2,004,448,000 billion and stockholder equity of $220 million. Net interest income on a fully taxable equivalent basis totaled $18,054,000 during the 3 months ended March 31, 2025. During the first quarter, the annualized net interest spread increased to 2.61% in 2025 compared to 2.08% in the quarter ending March 31, 2024. Other income totaled $2.35 million for the 3 months ended on March 31, 2025, and operating expenses totaled $12,100,000 in the 3 months ended on March 31, 2025. During the first quarter, total loans increased 9.24% annualized compared to the 4.5% during the same period in 2024. Our total deposits increased 9% annualized during the quarter compared to 9.8% during the same time last year. Our core operating expenses remained well controlled and our capital base remains well capitalized -- above well-capitalized targets. Additionally, our credit quality metrics continued to improve during the first quarter, which we believe should benefit future results. At Wayne Bank, it's about our people who drive our success. We strive to develop a team from within by investing in our talented people and promoting them to the next level whenever we can. We also keep a keen eye out for talent that is not currently on our team. We believe that it's this combination that makes us stronger and better. It is a core talent development strategy that makes us a great place to work and bank. We are proud to shine a spotlight on some exceptional women whose leadership, dedication and expertise have earned them distinguished recognition in their fields. Anna Van Acker, Assistant Vice President and Commercial Loan Officer received the Pennsylvania Bankers Women in Banking Recognition of Excellence Tomorrow's Promise Award. Anna was recognized as a woman who continues to make a significant impact in the financial industry and her community, making her one to watch in the Pennsylvania market. Kayla Dixon, Assistant Vice President and Consumer Lending Officer, was honored with the prestigious KlariVis' Banking and Brilliance Award, a testament to her hard work and dedication to data and analytics in the banking field. We also honor the dedication of our employees, who celebrated milestone years of service in 2024. Just listen to some of these times with the bank. Congratulations to Gail Simpson, Head Teller of our Roscoe Community Office who celebrated a remarkable 54 years of service. Laurie Bishop in Hawley, Assistant Community Office Manager, celebrated 48 years of service. Nancy Hart, Senior Vice President and Controller and Director of Operations, celebrated 45 years of service. Barbara Ridd, Senior Vice President, Mortgage Underwriter, celebrated 35 years of service and Karen Gasper, Senior Vice President, Regulatory Compliance Manager and BSA Officer, celebrated 25 years of service. Adding employees celebrating 20-, 15-, 10- and 5-year anniversaries, the group represents over 300 years of community banking excellence. Our progress has presented many opportunities for employee growth and the following employees were promoted for their hard work and continued dedication. Steve Daniels to Executive Vice President and Director of Consumer Banking. Ryan French to Executive Vice President and Director of Human Services. Tracie Young to Executive Vice President and Director of Risk. Matthew Murphy to Senior Vice President and Mortgage Fulfillment Manager. John Baker, to Senior Vice President and Information Technology Manager. Nicole Southard to Vice President and Central New York Regional Community Office Manager, and Vonnie Lewis, the Vice President and Lakewood Community Office Manager. We also experienced some major changes to our leadership team as well as to our Board in 2024. We celebrated the retirement of our long-time CFO, William Lance, who guided us through 14 years of growth and success. Bill is a highly respected member of our executive management team, and we were fortunate to benefit from his leadership, financial acumen and over 44 years of community banking experience. Fortunately for us, we were able to welcome John McCaffery as our new CFO, who hit the ground running, as you can see by the results he just reported. John joined the bank with over 30 years of leadership and experience in raising capital, mergers and acquisition transitions, growth and restructuring and developing high-performing teams. John previously served as CFO for 2 banks, one smaller and one larger than Wayne Bank, which gives him great insight to where we've come from and where we're striving to go. We anticipate great things for our future with John on board. John's sense of professionalism, work ethic, sets of humor and care for his fellow employees makes him a great fit. We're also fortunate to have some outstanding additions to our management teams. We welcome Cynthia Galloway as Vice President, Wealth Management Adviser and Operations Manager, bringing her extensive expertise in financial planning and client service to the bank. Additionally, we hired Gordon Rhoads as Assistant Vice President, Wealth Management Advisor based on our new Forty Fort office to better serve clients in that area. Although Gordon seems to be in his car visiting clients anywhere in our footprint at any moment, sometimes we play Where's Gordon like Where's Waldo. We also onboarded our first ever Director of Risk, Tracie Young, in a newly created position to reflect our commitment to providing risk management and operational excellence. Tracie quickly became a vital asset to our organization and was recognized with a well-deserved promotion to Executive Vice President for her exceptional leadership and contributions in our ever-evolving financial landscape. Additionally, we strengthened our team with the strategic hiring of several positions, including our new Vice President and Pennsylvania Retail Banking Market Manager, Deborah Kennedy. Two new experienced vice presidents and commercial loan officers, Russell Rohan and Ronald Poole, a skilled Assistant Vice President and Cash Management Officer, Alissa Weiss, and several new Community Office Managers, including Bobbie Gurnari as the Forty Fort Community Office Manager, Christopher Moshinskie at the Scranton Community Office Manager and Jolene Steele as the Geneva Bank of Finger Lakes Community Office Manager. We also expanded our senior leaders team by welcoming Senior Vice President and Commercial Loan Officer, Mike Rollison. The senior leaders team is an influential and diverse group of leaders who meet once a month to discuss current projects and strategic plans. Mike's experience and expertise are a wonderful addition to this group. Last year, we experienced a unique transition as one of our valued Board members, Joe Adams, resigned from the Board and joined Wayne Bank as a senior leader, taking on the newly formed role of Senior Vice President and Director of Wealth Management and Investment Services. In his new role, Joe has provided leadership to the bank's wealth management and Norwood Investment Corp. This has been an exciting evolution for Wayne Bank and our employees, customers and shareholders. To fill our empty Board seat and strengthen our governance, we welcomed Ronald Schmalzle as a new Director. Ron is a Pike County Commissioner and President, Co-owner and General Manager of Recreation Management Corp, which owns and operates several recreational businesses in the northern region of Pocono Mountains, including Ski Big Bear at Masthope Mountain and Costa's Family Fun Park. Ron is also a consultant and the former Executive Director for Camping Management Corp., which operates the award-winning Pine Forest Camp, Lake Owego Camp and Camp Timber Tops. Ron is a successful businessperson, has extensive prior Board experience and his public service combine to add a unique skill set to the Board. We are proud of these achievements by focusing on and investing in our customers, employees, communities and shareholders. We will continue to build on our over 154-year legacy of strength, security and stability. We will continue to expand, as seen with our new Forty Fort community office. The community of Forty Fort is welcoming us with open arms. We had an open house a couple of weeks ago, and the office was filled with people excited to see us in their neighborhood. Our first few months have been successful, thanks to this warm welcome, new friends and the talented team that works there. Technology is always a focus at Wayne Bank, and we are dedicated to sharing our high-tech, high-touch philosophy. We have continued to invest in technology to better serve our customers. We invested in new platforms and trust, investments, mortgage, consumer lending and treasury management to give our employees better tools to provide our customers with faster and better service. They should also know -- they should also allow us to grow more efficient. Our commitment to grow high-quality relationships during this period allowed us to continue to grow profitably despite the headwinds that our economy and industry have faced over the past 3 years. We believe that we have worked through these challenges and at the Federal Reserve's aggressive interest rate actions that are challenging to banks and consumers. It seems that they have seemingly tamed inflation without damaging the job market. This has given some relief to consumers and businesses we serve. The macro environment, however, is unsettled, and the stock market is displaying volatility. The macro environment has moved from rate hikes and high inflation to uncertainty. We have been working to make the bank more resilient and nimble to better adjust to the changing environment. We have worked to be opportunistic in the face of challenges and stronger to withstand any unforeseen economic forces. To this point, we have taken steps to strengthen the balance sheet increase our liquidity, increase and broaden our income streams and grow the assets of the bag. In challenging environments, we have never taken our eye off serving our customers and our communities. I believe our ability to grow the bank by $375 million over the past 3 years is a result of our commitment to our customers and our focus on new opportunities. And we will continue to build momentum, positioning us for an even brighter and better future. Thank you for your support. John and I are happy to take any questions you have. The combinations of our team and communities and our customers will continue to help Norwood Financial and Wayne Bank earn a good rate of return for our shareholders. I am proud of our team and highlighting a few of their achievements with you, I'm sure you can agree that they are an impressive group. We are in a great position to build on our 154-year legacy of trust and excellence. We made significant progress in 2024 repositioning our portfolio to improve future performance grow our liquidity, strengthen our balance sheet and add to capital to ensure that we will continue to provide strength, security, stability and resilience. Growing and expanding our presence to improve customer access to modern banking service is exemplified by opening our new Forty Fort branch in Pennsylvania as well as enhancing technology and services. We have built a strong foundation for a brighter future in 2025 and beyond. Thank you for your support. The inspector has completed his count and provided me with a final report subject to final audit. Will the inspector please read the voting results?

Mr. Chairman, of the 9,262,592 votes entitled to be voted at today's meeting, 7,272,946 votes have been cast, representing 78.52% of the votes entitled to be cast. A quorum is present. In reference to the votes cast on the election of Directors, each nominee has received at least 3,309,629 votes in favor, representing at least 60% of the shares voted. Relative to the appointment of S.R. Snodgrass, P.C. as independent auditor, there were 6,925,953 votes cast in favor, representing 99.4% of the votes cast on the proposal.

Thank you, Philip. The report of our inspector confirms that a quorum is and has been in attendance at the annual meeting for all purposes. It also shows that Dr. Andrew Forte, Ralph A. Matergia and Alexandra K. Nolan have each been duly elected as Directors for 3-year terms. The report further shows that more than a majority of the votes cast have been voted in favor of the ratification of the appointment of S.R. Snodgrass, P.C. as the company's independent auditors for the 2025 fiscal year. The report of the inspector is hereby accepted and approved and will be attached to the minutes of the annual meeting. There being no further business, a motion to adjourn is in order.

I move that the annual meeting be adjourned.

I second the motion.

Those in favor signify by saying aye. [Voting]

Those no? [Voting]

The motion is carried and the annual meeting is adjourned. Thank you all for attending today's virtual annual meeting.

And this concludes the meeting. You may now disconnect.