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NORWOOD FINANCIAL CORP 10-K Analysis & Summary – 3/14/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

NORWOOD FINANCIAL CORP

Filing date:

03/14/2025

TLDR:

ELI5:

The company lost money this year because they sold some investments at a loss to try and make more money in the future. While they are lending more money, they need to control their expenses and make sure people pay back their loans.

Accession #:

0001562762-25-000042

Published on

Analyst Summary

  • Norwood Financial Corp experienced a net loss of $0.16 million in 2024, a significant decrease from the $16.76 million net income in 2023, primarily due to realized losses on securities sales related to portfolio repositioning.
  • Net interest income remained relatively flat at $62.19 million in 2024 compared to $62.07 million in 2023.
  • Total assets increased to $2.317 billion in 2024 from $2.201 billion in 2023, driven by loan growth, with loans receivable increasing to $1.714 billion from $1.604 billion.
  • Profitability ratios declined significantly, with Return on Average Assets decreasing to -0.01% in 2024 from 0.79% in 2023 and Return on Average Equity decreasing to -0.09% from 9.67%.
  • The efficiency ratio increased to 68.5% in 2024 from 62.1% in 2023, indicating decreased efficiency.
  • Management attributed the net loss to realized losses on securities sales related to a portfolio repositioning aimed at increasing profitability, improving liquidity, and strengthening capital.
  • The company’s interest rate sensitivity analysis indicates a potential decrease in net interest income in a rising interest rate environment.
  • The company’s revenue decreased by 27.28% and net income decreased by 100.95%.

Opportunities and Risks

  • Risk: Interest Rate Risk – Potential decrease in net interest income in a rising interest rate environment.
  • Risk: Credit Risk – Monitoring loan quality, especially in commercial real estate, is crucial.
  • Risk: Cybersecurity – The company is currently involved in litigation related to a data security incident.
  • Risk: Expense Management – The increase in operating expenses needs to be addressed to improve profitability.
  • Opportunity: Loan Growth – Continued loan growth can drive future earnings.
  • Opportunity: Portfolio Repositioning – If the repositioning is successful, it could lead to higher yields and improved profitability in the long term.
  • Opportunity: Trust Activities – Growth in trust assets under management provides a stable source of fee income.

Potential Implications

Company Performance

  • Short-term challenges due to portfolio repositioning and rising expenses.
  • Need to manage expenses and realize the benefits of strategic initiatives to improve profitability.
  • Further monitoring of asset quality and interest rate risk is warranted.

Stock Price

  • Hold rating recommended until there is more clarity on the company’s ability to execute its strategy and improve profitability.

Norwood Financial Corp (NWFL) 2024 10-K Filing Report

Executive Summary

This report analyzes Norwood Financial Corp’s 2024 10-K filing. The company reported a net loss for 2024, a significant shift from the net income reported in 2023. This was primarily due to realized losses on sales of securities related to portfolio repositioning. While loan growth was positive, increased expenses and a negative impact from securities sales offset these gains. We recommend a hold rating, pending further clarification on the long-term benefits of the portfolio repositioning and expense management strategies.

Company Overview

Norwood Financial Corp. is a Pennsylvania-based bank holding company with Wayne Bank as its primary subsidiary. The bank operates branches in Northeastern Pennsylvania and Upstate New York, offering a range of personal and business credit services, trust and investment products. The company has grown through acquisitions, including UpState New York Bancorp, Delaware Bancshares, and North Penn Bancorp.

Detailed Analysis

Financial Statement Analysis

Income Statement

Net interest income remained relatively flat, but net income declined significantly due to a large swing in other income, primarily driven by realized losses on securities sales.

  • Net Interest Income: $62.19 million (2024) vs. $62.07 million (2023)
  • Net (Loss) Income: $(0.16) million (2024) vs. $16.76 million (2023)

Balance Sheet

Total assets increased, driven by loan growth. The allowance for credit losses also increased, reflecting potential concerns about loan quality.

  • Total Assets: $2.317 billion (2024) vs. $2.201 billion (2023)
  • Loans Receivable: $1.714 billion (2024) vs. $1.604 billion (2023)
  • Allowance for Credit Losses: $19.84 million (2024) vs. $18.97 million (2023)

Key Ratios

Profitability ratios declined significantly due to the net loss.

  • Return on Average Assets: -0.01% (2024) vs. 0.79% (2023)
  • Return on Average Equity: -0.09% (2024) vs. 9.67% (2023)
  • Efficiency Ratio: 68.5% (2024) vs. 62.1% (2023)

Management’s Discussion and Analysis (MD&A)

Management attributed the net loss to realized losses on securities sales related to a portfolio repositioning. The goal of this repositioning was to increase profitability, improve liquidity, and strengthen capital. However, the immediate impact was a significant loss. Management also noted an increase in other expenses, including salaries, data processing, and professional fees.

Risks and Opportunities

Risks

  • Interest Rate Risk: The sensitivity analysis indicates a potential decrease in net interest income in a rising interest rate environment.
  • Credit Risk: While the allowance for credit losses increased, monitoring loan quality, especially in commercial real estate, is crucial.
  • Cybersecurity: The company is currently involved in litigation related to a data security incident.
  • Expense Management: The increase in operating expenses needs to be addressed to improve profitability.

Opportunities

  • Loan Growth: Continued loan growth can drive future earnings.
  • Portfolio Repositioning: If the repositioning is successful, it could lead to higher yields and improved profitability in the long term.
  • Trust Activities: Growth in trust assets under management provides a stable source of fee income.

Uncommon Metrics

  • Uninsured Deposits: A significant portion of deposits are uninsured, which could pose a risk in a stressed economic environment.

Conclusion and Actionable Insights

Norwood Financial Corp. faces challenges in the short term due to the impact of portfolio repositioning and rising expenses. While loan growth and trust activities offer opportunities, the company needs to demonstrate its ability to manage expenses and realize the benefits of its strategic initiatives. Further monitoring of asset quality and interest rate risk is warranted. We recommend a hold rating until there is more clarity on the company’s ability to execute its strategy and improve profitability.

Commentary

Norwood Financial Corp. experienced a challenging year in 2024, with a net loss of $160,000 compared to a net income of $16.759 million in 2023. This decline was primarily driven by significant net realized losses on sales of loans and securities. While net interest income remained relatively stable, other income decreased substantially. Despite the net loss, the company maintained strong capital ratios and increased its loan portfolio.

Financial Ratio and Metric Analysis

Profitability

Gross Profit Margin

  • Metric: Not applicable for financial institutions as they don’t have a cost of goods sold in the traditional sense. Focus is on Net Interest Margin.

Operating Profit Margin

  • Metric: Calculated as ((Net Interest Income + Other Income) – Other Expenses) / Total Revenue. Total Revenue is calculated as Net Interest Income + Other Income.
    • 2024: (($62,191 – $11,151) – $48,625) / ($62,191 – $11,151) = $2,415 / $51,040 = 4.73%
    • 2023: (($62,067 + $8,124) – $43,497) / ($62,067 + $8,124) = $26,694 / $70,191 = 38.03%
  • Trend: The operating profit margin decreased significantly from 38.03% in 2023 to 4.73% in 2024. This is due to the net loss in 2024.
  • Industry: The industry average operating profit margin for banks varies but typically ranges from 20% to 40%. NWFL’s 2024 operating profit margin is significantly below this range, reflecting its poor performance.

Net Profit Margin

  • Metric:
    • 2024: Net (Loss) Income / Total Revenue = (-$160) / ($62,191 – $11,151) = -0.31%
    • 2023: Net Income / Total Revenue = $16,759 / ($62,067 + $8,124) = 23.88%
  • Trend: The net profit margin decreased drastically from 23.88% in 2023 to -0.31% in 2024, reflecting the company’s shift from profitability to a net loss.
  • Industry: The industry average net profit margin for banks typically ranges from 10% to 20%. NWFL’s 2024 net profit margin is significantly below this range.

Return on Assets (ROA)

  • Metric:
    • 2024: Net (Loss) Income / Average Assets = (-$160) / (($2,317,462 + $2,201,079)/2) = -0.01%
    • 2023: Net Income / Average Assets = $16,759 / (($2,201,079 + $2,047,070)/2) = 0.79%
  • Trend: ROA decreased from 0.79% in 2023 to -0.01% in 2024, indicating a decline in the company’s ability to generate profit from its assets.
  • Industry: The industry average ROA for banks typically ranges from 0.5% to 1.5%. NWFL’s 2024 ROA is below this range.

Return on Equity (ROE)

  • Metric:
    • 2024: Net (Loss) Income / Average Equity = (-$160) / (($213,508 + $181,070)/2) = -0.09%
    • 2023: Net Income / Average Equity = $16,759 / (($181,070 + $167,085)/2) = 9.67%
  • Trend: ROE decreased significantly from 9.67% in 2023 to -0.09% in 2024, indicating a decline in the return to shareholders.
  • Industry: The industry average ROE for banks typically ranges from 8% to 15%. NWFL’s 2024 ROE is below this range.

Earnings Per Share (EPS) – Basic and Diluted

  • Metric:
    • 2024: Basic: ($0.02), Diluted: ($0.02)
    • 2023: Basic: $2.08, Diluted: $2.07
  • Trend: EPS decreased significantly from $2.08 (basic) and $2.07 (diluted) in 2023 to ($0.02) (basic) and ($0.02) (diluted) in 2024, reflecting the company’s net loss.
  • Industry: Given the net loss, NWFL’s EPS is unfavorable compared to the industry average.

Liquidity

Current Ratio

  • Metric: Current Assets / Current Liabilities. Assuming “Short-term borrowings” are current liabilities.
    • 2024: ($72,339 + $397,846 + $1,693,795 + $13,366 + $19,657 + $46,657 + $8,466 + $17,696 + $152 + $18,222) / ($1,859,163 + $113,069 + $101,793 + $12,615 + $17,314) = $2,288,196 / $2,103,954 = 1.09
    • 2023: ($66,120 + $406,259 + $1,584,650 + $7,318 + $17,838 + $46,439 + $8,123 + $21,353 + $221 + $13,395) / ($1,795,159 + $74,076 + $124,236 + $10,510 + $16,028) = $2,171,716 / $2,020,009 = 1.07
  • Trend: The current ratio increased slightly from 1.07 in 2023 to 1.09 in 2024.
  • Industry: A current ratio of 1.0 or greater is generally considered acceptable for banks. NWFL’s current ratio is within an acceptable range.

Quick Ratio (Acid-Test Ratio)

  • Metric: (Current Assets – Inventory) / Current Liabilities. Assuming “Loans receivable” is illiquid.
    • 2024: ($72,339 + $397,846 + $13,366 + $19,657 + $46,657 + $8,466 + $17,696 + $152 + $18,222) / ($1,859,163 + $113,069 + $101,793 + $12,615 + $17,314) = $594,401 / $2,103,954 = 0.28
    • 2023: ($66,120 + $406,259 + $7,318 + $17,838 + $46,439 + $8,123 + $21,353 + $221 + $13,395) / ($1,795,159 + $74,076 + $124,236 + $10,510 + $16,028) = $587,066 / $2,020,009 = 0.29
  • Trend: The quick ratio decreased slightly from 0.29 in 2023 to 0.28 in 2024.
  • Industry: A quick ratio of 0.2 or higher is generally considered acceptable for banks. NWFL’s quick ratio is within an acceptable range.

Cash Ratio

  • Metric: Cash and Cash Equivalents / Current Liabilities
    • 2024: $72,339 / ($1,859,163 + $113,069 + $101,793 + $12,615 + $17,314) = 0.03
    • 2023: $66,120 / ($1,795,159 + $74,076 + $124,236 + $10,510 + $16,028) = 0.03
  • Trend: The cash ratio remained constant at 0.03 in both 2023 and 2024.
  • Industry: A cash ratio of 0.03 is low, but typical for banks who do not need to hold a lot of cash due to their ability to borrow.

Solvency/Leverage

Debt-to-Equity Ratio

  • Metric: Total Liabilities / Total Stockholders’ Equity
    • 2024: $2,103,954 / $213,508 = 9.86
    • 2023: $2,020,009 / $181,070 = 11.16
  • Trend: The debt-to-equity ratio decreased from 11.16 in 2023 to 9.86 in 2024, indicating a slight decrease in leverage.
  • Industry: The industry average debt-to-equity ratio for banks typically ranges from 7 to 12. NWFL’s debt-to-equity ratio is within this range.

Debt-to-Assets Ratio

  • Metric: Total Liabilities / Total Assets
    • 2024: $2,103,954 / $2,317,462 = 0.91
    • 2023: $2,020,009 / $2,201,079 = 0.92
  • Trend: The debt-to-assets ratio decreased slightly from 0.92 in 2023 to 0.91 in 2024, indicating a slight decrease in leverage.
  • Industry: The industry average debt-to-assets ratio for banks typically ranges from 0.8 to 0.95. NWFL’s debt-to-assets ratio is within this range.

Interest Coverage Ratio (Times Interest Earned)

  • Metric: Earnings Before Interest and Taxes (EBIT) / Interest Expense. EBIT is calculated as Net (Loss) Income + Income Tax (Benefit) Expense + Interest Expense.
    • 2024: ((-$160) + (-$98) + $50,389) / $50,389 = 0.99
    • 2023: ($16,759 + $4,387 + $33,473) / $33,473 = 1.63
  • Trend: The interest coverage ratio decreased significantly from 1.63 in 2023 to 0.99 in 2024, indicating a decreased ability to cover interest expenses.
  • Industry: An interest coverage ratio of 1.5 or higher is generally considered acceptable. NWFL’s interest coverage ratio is below this range.

Activity/Efficiency

Inventory Turnover

  • Metric: Not applicable for financial institutions as they do not typically carry inventory.

Days Sales Outstanding (DSO)

  • Metric: Not directly applicable for banks.

Days Payable Outstanding (DPO)

  • Metric: Not directly applicable for banks.

Asset Turnover

  • Metric: Total Revenue / Average Assets. Total Revenue is calculated as Net Interest Income + Other Income.
    • 2024: ($62,191 – $11,151) / (($2,317,462 + $2,201,079)/2) = 0.0226
    • 2023: ($62,067 + $8,124) / (($2,201,079 + $2,047,070)/2) = 0.0332
  • Trend: Asset turnover decreased from 0.0332 in 2023 to 0.0226 in 2024, indicating a decreased efficiency in using assets to generate revenue.
  • Industry: The industry average asset turnover for banks typically ranges from 0.03 to 0.05. NWFL’s asset turnover is below this range.

Valuation

Price-to-Earnings Ratio (P/E)

  • Metric: Current Market Price per Share / Earnings Per Share (EPS). Current market price is $24.96.
    • 2024: $24.96 / (-$0.02) = -1248
    • 2023: $24.96 / $2.08 = 12.00
  • Trend: The P/E ratio is not meaningful for 2024 due to the negative earnings. The P/E ratio decreased from 12.00 in 2023 to -1248 in 2024.
  • Industry: The industry average P/E ratio for banks typically ranges from 10 to 15. NWFL’s P/E ratio is not meaningful for 2024 due to the negative earnings.

Price-to-Book Ratio (P/B)

  • Metric: Current Market Price per Share / Book Value per Share
    • 2024: $24.96 / $23.02 = 1.08
    • 2023: $24.96 / $22.33 = 1.12
  • Trend: The P/B ratio decreased from 1.12 to 1.08.
  • Industry: The industry average P/B ratio for banks typically ranges from 0.8 to 1.5. NWFL’s P/B ratio is within this range.

Price-to-Sales Ratio (P/S)

  • Metric: Market Capitalization / Total Revenue. Market capitalization is calculated as current market price per share * total shares outstanding. Total revenue is calculated as Net Interest Income + Other Income.
    • 2024: ($24.96 * 9,487,068) / ($62,191,000 – $11,151,000) = 4.69
    • 2023: ($24.96 * 8,310,847) / ($62,067,000 + $8,124,000) = 2.95
  • Trend: The P/S ratio increased from 2.95 to 4.69.
  • Industry: The industry average P/S ratio for banks typically ranges from 1 to 3. NWFL’s P/S ratio is above this range.

Enterprise Value to EBITDA (EV/EBITDA)

  • Metric: (Market Cap + Total Debt – Cash) / EBITDA. EBITDA is calculated as Net (Loss) Income + Interest Expense + Income Tax (Benefit) Expense + Depreciation + Amortization of intangible assets.
    • 2024: (($24.96 * 9,487,068) + ($113,069,000 + $101,793,000) – $72,339,000) / (-$160,000 + $50,389,000 + (-$98,000) + $1,308,000 + $69,000) = 3.98
    • 2023: (($24.96 * 8,310,847) + ($74,076,000 + $124,236,000) – $66,120,000) / ($16,759,000 + $33,473,000 + $4,387,000 + $1,375,000 + $85,000) = 3.98
  • Trend: The EV/EBITDA ratio remained constant at 3.98.
  • Industry: The industry average EV/EBITDA ratio for banks typically ranges from 6 to 12. NWFL’s EV/EBITDA ratio is below this range.

Growth Rates

Revenue Growth

  • Metric: (Current Year Revenue – Previous Year Revenue) / Previous Year Revenue. Total Revenue is calculated as Net Interest Income + Other Income.
    • ($62,191 – $11,151 – $62,067 – $8,124) / ($62,067 + $8,124) = -27.28%
  • Trend: Revenue decreased by 27.28%.
  • Industry: The industry average revenue growth for banks typically ranges from 3% to 7%. NWFL’s revenue growth is below this range.

Net Income Growth

  • Metric: (Current Year Net Income – Previous Year Net Income) / Previous Year Net Income
    • (-$160,000 – $16,759,000) / $16,759,000 = -100.95%
  • Trend: Net income decreased by 100.95%.
  • Industry: The industry average net income growth for banks typically ranges from 5% to 10%. NWFL’s net income growth is below this range.

EPS Growth

  • Metric: (Current Year EPS – Previous Year EPS) / Previous Year EPS
    • (-$0.02 – $2.08) / $2.08 = -100.96%
  • Trend: EPS decreased by 100.96%.
  • Industry: The industry average EPS growth for banks typically ranges from 5% to 10%. NWFL’s EPS growth is below this range.

Other Relevant Metrics

Efficiency Ratio

  • Metric: Other Expenses / (Net interest income + Other income – Net realized (losses) gains on sales of securities)
    • 2024: $48,625 / ($62,191 – $11,151 + $19,962) = 68.48%
    • 2023: $43,497 / ($62,067 + $8,124 + $209) = 62.15%
  • Trend: The efficiency ratio increased from 62.15% to 68.48%, indicating a decrease in efficiency.
  • Industry: The industry average efficiency ratio for banks typically ranges from 50% to 60%. NWFL’s efficiency ratio is above this range.

Net Interest Margin (Tax Equivalent Basis)

  • Metric: Net Interest Income (Tax Equivalent Basis) / Average Interest-Earning Assets
    • 2024: $63,010 / $2,165,652 = 2.91%
    • 2023: $62,816 / $2,055,433 = 3.06%
  • Trend: The net interest margin decreased from 3.06% to 2.91%.
  • Industry: The industry average net interest margin for banks typically ranges from 3% to 4%. NWFL’s net interest margin is within this range.

Loan Modifications

  • The company provided loan modifications to borrowers experiencing financial difficulty. These modifications included significant payment delays, term extensions, and a combination of both. The amortized cost basis of these modified loans was relatively small compared to the total loan portfolio.

Interest Rate Sensitivity

  • The company provided an analysis of potential changes in future net interest income based on changes in interest rates. The analysis indicated that an immediate increase in interest rates would negatively impact net interest income, while an immediate decrease in interest rates would positively impact net interest income.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️