管理層發言
Good day, and thank you for standing by. Welcome to the Norwood Financial Corp. Second Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press *11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press *11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mackenzie Jackson, Corporate Secretary. Mackenzie, please go ahead.
Thank you, Michelle. Good morning, everyone, and welcome to our second quarter 2026 Earnings Conference Call. With me today are Jim Donnelly, our President and Chief Executive Officer, and John McCaffery, our Chief Financial Officer. 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. 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. I will now turn the call over to Jim.
Thank you, Mackenzie, and good morning, everyone. I am pleased to report that the entire Norwood team performed well in the second quarter, continuing on our strong performance as we build momentum and deliver another quarter of improving financial results. Net income was $26.8 million, an increase of 41% compared with last year and another record for us as we continue to elevate our performance. Organic growth plus Presence Bank's acquisition contributed to the increase. Net interest margin expanded to 3.9%, an increase of 47 basis points compared with last year. Net income and earnings per share also increased, improving 48% and 25%, respectively, on an adjusted basis with higher adjusted returns on average assets and tangible equity. By nearly every metric, it was a great quarter as we continue to benefit from our repositioned portfolio, favorable interest rate movement, strong team performance, and the acquisition. As we disclosed last month, on June 18, one of our customers with total loans totaling $22 million filed Chapter 11 bankruptcy. We have been involved in the process, engaging in discussions with all parties to achieve an agreeable outcome. Based on the process as it stands, and anticipated result, we have recorded a net charge-off of $7.7 million. I believe this is an acceptable outcome given the total exposure. The bankruptcy process is ongoing, and we are continuing to monitor its progress to understand the impact on us. I am proud of the team that has been leading this process for us, ensuring that the outcome is in the best interest of the bank and our shareholders. Next, I would like to review our 2026 strategic priorities. The first priority is to successfully complete the Presence Bank integration. I am pleased to report that we have completed all of our planned integration activities. The integration team has done a great job leading us through this process, going above and beyond to achieve these milestones in addition to their normal daily responsibilities. The experience we have gained from this integration will serve us well as we continue to explore and pursue acquisitions in the future. We have combined our systems to drive common operating across the organization, with the completion of our core integration. We have completed the rollout and convergence of our brand across all entities and branches. While the integration is complete, we continue to engage in open conversations across all locations and functions to identify and adopt best-in-class practices and policies that will enable us to better serve our communities while improving our results. I am excited about this activity and looking forward to how the combined organization will continue to drive operational excellence well beyond the integration, making us stronger together than we were before. Our second strategic priority is to increase operating efficiency and elevate customer experience through AI. I have previously shared how we are implementing the commercial credit system from Presence Bank broadly across our organization. The system uses embedded AI and machine learning to enhance the productivity of our talented credit officers, bringing automation, speed, and quality to the process. We anticipate the outcome of this system will be better reporting and provide our credit officers with helpful insights to make informed decisions. This is a great example of how we plan to implement AI tools to empower our employees to perform higher-value functions by automating activities where possible. We have put together a three-year plan for the rollout of AI in each department in the bank. I believe that this thoughtful and measured approach will allow our employees to fully engage AI agents to supplement their work and better serve our customers. Our third objective is to strengthen our talent pool and deepen our leadership bench. This begins with our executive team and extends throughout the organization. Now that our team has expanded with the addition of the talented employees from Presence Bank, we are refocusing our initiatives to develop our workforce, investing in our people to empower them to serve our communities. We have been working on our succession planning and employee development for more than three years. The newest announcement of change in our senior leadership team is an example of investing in a talented employee and planning for the retirement of a valued leader well before the event. This allows for a smooth transition. One update I would like to share with you is the appointment of Steven Daniels as Chief Lending Officer. Steven has been a dedicated member of the team since joining us in 2011, holding various positions over that time, including his most recent role as Chief Consumer Officer. Steven is stepping into this role following the announced retirement of Vinny Obel. Vinny will retire this fall, providing an opportunity to work with Steven during the transition. Vinny is ending a successful 47-year career in banking, including the last ten years at Wayne Bank where he helped shape the commercial lending division into what it is today. We wish Vinny all the best in his retirement and look forward to seeing what Steven will achieve in this new role. Steven's promotion gives us an opportunity to promote Deb Kennedy to Director of Retail Banking. She currently oversees our Pennsylvania franchise and will now oversee all branches, both in New York and Pennsylvania. These organizational changes are part of our succession planning and a great testament to the strong and deep leadership we have at Norwood. Our fourth and final priority is to ensure that everything we do increases shareholder value. This is evident in our second quarter results. When combined with our first quarter results, we have delivered very strong results during the first half of 2026. Year to date, net interest income has improved 39% and adjusted net income has improved 42%. Our average tangible equity increased by approximately 15%. We have now earned back the shareholder dilution that occurred with the purchase of Presence Bank shares with this increase in tangible book value. This is two years ahead of estimates and is a testament to the earnings power of the combined organization, our smooth integration, and our disciplined approach to M&A. Our employees are performing well, serving our customers and communities to enable them to achieve their financial goals. This has resulted in improved returns which creates value for our shareholders. We are well positioned to continue the strong performance for the rest of 2026 and beyond. I will now turn the call over to John to walk us through our second quarter results.
Thank you, Jim, and good morning, everyone. Building on Jim's comments, I will focus on the financial results and key performance metrics for the quarter. The second quarter represented an important milestone for Norwood as we begin to realize more of the earnings power from the Presence Bank acquisition, successfully completing our core system conversion, and continuing to execute on our strategic priorities. Most important, net income for the quarter was a record $9.3 million, or $0.86 per diluted share, compared to $6.2 million, or $0.67 per diluted share in the same period last year. Return on average assets improved to 1.28%. Our return on average tangible equity increased to approximately 15%. Net interest margin expanded to 3.9%, up 47 basis points from a year ago and 22 basis points from the first quarter. For modeling purposes, approximately $241 thousand of interest income was nonrecurring, resulting from bond calls and the acceleration of credit mark associated with a PCD loan acquired from Presence Bank. Excluding those items, our margin performance would still show a meaningful improvement on both a linked quarter and year-over-year basis. Another important metric that Jim mentioned that we are particularly pleased with is our tangible book value per share. At quarter end, tangible book value per share was $22.96, which is not only an increase from the first quarter, but also higher than the $22.90 level reported at December 31, immediately before the Presence Bank acquisition closed. From an operating performance perspective, pre-provision net revenue reached $13.6 million, a 55% increase from the prior year quarter and more than double compared to the first quarter of 2026. The improvement reflects the benefits of a larger balance sheet, stronger net interest income generation, and continued operating leverage across the franchise. Turning to credit quality, Jim spoke about the ongoing impact of the bankruptcy filing of one of our customers. This pushed our provision higher due to the $7.7 million charge-off and the impact on quantitative factors in the CECL model. Our allowance for credit losses totaled $25.6 million at quarter end, or approximately 1.13% of total loans. On the balance sheet, total assets were approximately $2.9 billion at quarter end. Loans increased to $2.26 billion and deposits totaled approximately $2.51 billion. Below the margin line, merger-related expenses were largely behind us. During the quarter, we recorded only about $53 thousand of merger expenses compared to nearly $5 million in the first quarter. We also recognized a one-time BOLI restructuring fee of approximately $225 thousand in the first quarter. The second quarter did include some $75 thousand in legal bills related to the loan workout I previously mentioned. Yes, there was a credit event and some modest nonrecurring items, but the bigger story is that we have already earned back the tangible book value dilution from the acquisition, and we are now creating incremental shareholder value. Jim and I will now be happy to answer any questions you may have. Operator, please provide instructions for asking your question.
分析師問答
Thank you. To ask a question at this time, please press *11 on your telephone, and wait for your name to be announced. Our first question is going to come from the line of Matthew Breese with Stephens. Your line is open. Please go ahead.
Hey, good morning, guys.
Good morning.
Hey, Matthew. Hey.
I just wanted to start on the NIM. So up 22 basis points — John, you moved a little quick there. How much of that was one-time? And how is that spread across bonds and loans? I am sorry, your comments were just a little quick.
Sure. I am sorry. Yes. There was $241 thousand in nonrecurring, which is about three or four basis points on the NIM for the quarter. There was about $170 thousand in loans and $65 thousand in bonds.
Okay. So still — I mean, the guide was NIM up three to five basis points, so quite a bit higher than that. Maybe recalibrate for us near-term expectations. And then I think last quarter you talked about the pipeline. Pipeline yields were in and around 7%. Maybe update us on that as well.
I would say pipeline yields are probably in the high to mid-sixes. The pickup in NIM in Q2 — a lot of it was related to deposit costs. We were able to manage down money market costs a bit and CD costs. We have been running specials on CDs over the last couple of years, and so we had kind of a wave event in Q2 where some of the specials matured and many of them rolled into additional specials, but not at as high a rate. So, again, most of the margin improvement, away from the one-time items, was in the deposit cost line. You can see that in the NIM table. We have been hearing from a lot of folks, especially in the Northeast and Mid-Atlantic, that competitive dynamics around deposits are starting to pick up. For a lot of folks, this quarter might be the turning point in terms of seeing higher deposit costs. Do you feel like that is the case for you? I can get to spot deposit cost for you, but I would say that, yes, we do hear from the branches that competition is picking up. For the month of June, spot deposit costs were about two basis points higher than the quarterly average. That is for the whole month; I could not tell you exactly where they were at June 30. We are hearing anecdotally that there is competition. We are getting a few more inbound calls on larger deposits to get special rates. Going forward, I would not expect us to repeat the same Q2 experience in CDs. Loans are maintaining given where the pipeline is. We did have good production of loans in Q2; we just had a few higher-than-expected payoffs during the quarter, which is why growth was not as strong as we expected. The good news on deposits is our DDAs continue to grow at a good rate — the number of accounts and the number of dollars in those should help temper a little bit the higher cost on money markets and CDs.
Okay. And then last one for me, and I will hop out. Maybe just talk about M&A from here. Your opening commentary suggests that you are open and willing. Has not been that many deals in our neck of the woods this year. I am curious if deal announcements mimic conversations behind the scenes. How's that all going? Thank you.
Yeah. I mean, we are still out meeting and talking to people. The urgency for some of those deals seems a little bit less. The banking environment is better, so the pressure that people were feeling maybe a year ago is lessened. A better regulatory environment and better earnings season and credit quality holding up may be taking away some of the urgency for people that are otherwise sellers. But we are continuing our discipline of going out and talking and making sure people understand that we are a good acquirer. We are good to their employees. We are good for their shareholders. It is a good opportunity to join a high-quality community bank.
Great. I appreciate that. I will leave it there. Thank you.
Thanks, Matthew.
Thanks, Matthew.
One moment for our next question. Our next question is going to come from the line of Daniel Cardenas with Brean Capital. Your line is open. Please go ahead.
Good morning.
Hi, Daniel. How are you?
Hey, Daniel.
So a couple of quick questions here. For non-performing assets, what was the total dollar amount this quarter?
The total dollar amount was, I believe, around $22.5 million at the end of the quarter. That one credit was the lion's share of it. Absent that one credit, we would have seen some pretty strong improvement on a sequential quarter basis.
It might be a little higher than that, but quality, when you take that one out, is still pretty good.
Okay. Yeah, it is kind of what I figured. I just wanted to make sure. And then kind of going back to the margin, so the 3.9% margin that you guys reported, there was roughly four basis points of nonrecurring. What was your yield accretion this quarter? And how should we be thinking about that on a go-forward basis? You mean from the purchase accounting? Yes, sir.
For the quarter, above the line in loans there was, I would say, probably $700 thousand in loan accretion. And then below the line, mostly CDI, which I reported was about $300 thousand in CDI.
Okay. And is that kind of a good run rate then for both those numbers on a go-forward basis?
CDI, yes, because we are kind of keeping that flat for the year. On loans, it's going to be about the same for the next six months, I would say.
Perfect. Perfect. And then on the loan growth that we saw, barring any other payoffs or whatever, categorically where was that coming from?
The loan growth was in commercial real estate and indirect. Indirect is usually pretty busy this time of year. We had a little bit of paydown in C&I, so it was primarily CRE and consumer.
Okay. And what are competitive factors looking like on the lending side? It sounds like it's still kind of a bit of a fight on the deposit front, but what are competitive factors like on the lending front?
It is a competitive market. In each one of the markets we serve, we have good competitors. But we can compete with anybody that is rational. So I think it is competitive but rational.
Okay. Great. I will step back for now.
Our pipeline looks good still. We are probably losing the same percent of loans that we normally would lose to rate or terms, so there is nothing showing that it is overheated anywhere from a competitor standpoint. It is still looking pretty good. Most of the competition is coming from similar-size institutions, though some of our larger competitors are active as well.
Just back to the total, Daniel — total nonaccrual at the end of the quarter was $22.5 million. It is about flat from Q1 as far as dollars go.
Okay. Perfect. Thank you.
I am showing no further questions at this time. I would like to hand the conference back over to Jim Donnelly for closing remarks.
Thank you once again for joining us this morning. We continued our strong performance in the second quarter, further building momentum and strengthening our financial position. Organic growth plus the Presence Bank acquisition contributed to our success. We are a stronger organization and well positioned to deliver a brighter future as we serve our communities. We will move forward with disciplined execution to deliver improved financial results and lasting value for our shareholders. I look forward to updating you on our progress as we go. Have a great day. Thank you for joining us.
This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.