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WAYNEBANK.CO M
ANNUAL REPORT
N O R W O O D F I N A N C I A L C O R P
SUMMARY OF SELECTED FINANCIAL DATA
N O R W O O D F I N A N C I A L C O R P
DIRECTORY OF OFFICERS
For the years ended December 31,
2015
2014
2013
2012
2011
(dollars in thousands except per share data)
Net interest income
Provision for loan losses
$24,521
$24,560
$24,661
$24,764
$22,588
4,580
1,680
2,400
2,450
1,575
Other income
Net realized gains on sales of securities
Other expenses
Income before income taxes
Income tax expense
NET INCOME
Net income per share -Basic*
-Diluted*
Cash dividends declared*
Dividend pay-out ratio
Return on average assets
Return on average equity
BALANCES AT YEAR-END
Total assets
Loans receivable
Allowance for loan losses
Total deposits
Stockholders’ equity
3,969
730
17,100
7,540
1,632
3,940
1,170
17,727
10,263
2,606
4,734
881
16,705
11,171
2,706
3,787
1,419
16,081
11,439
3,036
3,762
973
15,813
9,935
2,579
$5,908
$7,657
$8,465
$8,403
$7,356
$1.60
$1.60
$1.24
$2.10
$2.10
$1.20
$2.33
$2.33
$1.16
$2.33
$2.33
$1.10
$2.17
$2.17
$1.06
77.50%
57.14%
49.79%
47.23%
48.95%
0.80%
5.83%
1.08%
7.92%
1.23%
9.13%
1.23%
9.22%
1.18%
9.26%
$750,505
$711,635
$711,234
$672,299
$668,814
559,925
501,135
503,097
476,710
457,907
7,298
5,875
5,708
5,502
550,909
559,944
541,182
524,425
100,998
99,041
91,864
92,421
112,081
5,458
525,767
88,061
107,696
Trust assets under management
131,690
134,888
126,673
Book value per share*
$27.39
$26.30
$25.43
$25.49
$24.37
Tier 1 Capital to risk-adjusted assets
Total Capital to risk-adjusted assets
Allowance for loan losses to total loans
Non-performing assets to total assets
15.86%
17.09%
1.30%
1.33%
17.33%
18.49%
1.17%
1.31%
16.53%
17.66%
1.13%
1.48%
16.37%
17.51%
1.15%
2.09%
15.90%
17.08%
1.19%
1.60%
* Per share information has been restated to reflect the 10% stock dividend declared in 2013.
NORWOOD FINANCIAL CORP
John E. Marshall
Chairman of the Board
William W. Davis, Jr.
Vice Chairman of the Board
Lewis J. Critelli
President & Chief Executive Officer
William S. Lance
Executive Vice President,
Chief Financial Officer & Secretary
James F. Burke
Executive Vice President
John F. Carmody
Executive Vice President
Robert J. Mancuso
Executive Vice President
John H. Sanders
Senior Vice President
WAYNE BANK
John E. Marshall
Chairman of the Board
William W. Davis, Jr.
Vice Chairman of the Board
Lewis J. Critelli
President & Chief Executive Officer
William S. Lance
Executive Vice President,
Chief Financial Officer & Secretary
James F. Burke
Executive Vice President,
John F. Carmody
Executive Vice President,
Chief Lending Officer
Chief Credit Officer
Robert J. Mancuso
Executive Vice President,
Chief Information Officer
John H. Sanders
Senior Vice President,
Retail Lending Manager
Diane M. Wylam
Senior Vice President, Senior Trust Officer
Thomas A. Byrne
Senior Vice President
Christe A. Casciano
Senior Vice President
Joseph A. Castrogiovanni Senior Vice President
Kenneth C. Doolittle
Senior Vice President
Ryan J. French
Nancy A. Hart
Senior Vice President
Senior Vice President,
Linda D. Mader
Kelley J. Lalley
Barbara A. Ridd
Controller & Assistant Secretary
Senior Vice President
Vice President & Assistant Secretary
Vice President & Assistant Secretary
Robert J. Behrens, Jr.
Vice President
Pilar Cueva
JoAnn Fuller
Karen R. Gasper
Daniel Janki
John E. Koczwara
Vice President
Vice President
Vice President
Vice President
Vice President
Mary Alice Petzinger
Vice President
Mark W. Ranzan
Vice President
Richard A. Siarniak
Vice President
Eli T. Tomlinson
Kara R. Talcott
Vice President
Assistant Vice President, Internal Auditor
Douglas W. Atherton
Assistant Vice President
Julie R. Kuen
Assistant Vice President
Juliette P. McKerrell
Assistant Vice President
Frank J. Sislo
Assistant Vice President
Steven R. Daniels
Community Office Manager
Rossie Demorizi-Ortiz
Community Office Manager
Craig D. Grimm
Jill A. Hessling
Vonnie A. Lewis
Community Office Manager
Community Office Manager
Community Office Manager
Sandra C. Mruczkewycz Community Office Manager
Matthew M. Swartz
Community Office Manager
Beverly J. Wallace
Community Office Manager
Laurie J. Bishop
Assistant Community Office Manager
Wendy L. Davis
Denise R. Kern
Assistant Community Office Manager
Assistant Community Office Manager
Diane L. Richter
Assistant Community Office Manager
Denise M. Rollison
Assistant Community Office Manager
Jessica Santiago
Assistant Community Office Manager
Cheryl Wilkerson
Assistant Community Office Manager
Gerald J. Arnese
Resource Recovery Manager
Kristine Malti
Deposit Operations Officer
Linda A. Meskey
Credit Analyst
Amanda R. Miller
Commercial Loan Documentation Officer
Kathryn A. Serniak
Mortgage Loan Officer
Doreen A. Swingle
Residential Mortgage Lending Officer
Bonnie Taylor
Assistant Trust Officer
NORWOOD INVESTMENT CORP
Lewis J. Critelli
William S. Lance
Scott C. Rickard
President & Chief Executive Officer
Treasurer
Senior Investment Representative,
INVEST Financial Corp
MONROE COUNTY ASSOCIATE BOARD
Michael J. Baxter
Sara Cramer
Dr. Andrew A. Forte
James H. Ott
Marvin Papillon
Ray Price
Ralph A. Matergia, Esq. Ron Sarajian
Lewis J. Critelli
President and
Chief Executive Officer
LETTER FROM THE PRESIDENT
We are pleased to share with you this Annual Report which recaps the
Company’s performance in 2015. From an earnings standpoint, our results
were impacted by credit quality issues brought on by the extended period of
stress on our local economy, our customer base and real estate values. During
the year, we recognized significant losses on several commercial properties
as current appraised values were much lower than at the time of the loan
origination. As a result, we recorded additional loan loss provision. Despite
these obstacles, your Company earned $5.9 million and earnings per share of
$1.60. While these numbers are certainly less than the prior year, our Return on
Average Assets of 0.80% still remains in the middle of our peer group. Other
measures of financial performance, including a net interest margin (FTE) of
3.75%, an efficiency ratio of 55.9% and Tier One Capital Ratio of 15.86%, rank
“Wayne Bank truly believes in helping the community grow
by serving our local businesses and their employees.”
us well above our peer group. We also had a $58.8 million or 11.7% increase
in our loan portfolio. This is the highest rate of loan growth in a number of
years. With the additional loan loss provision we increased our Allowance for
Loan Losses to its highest level in five years. Cash dividends for the year were
$1.24 compared to $1.20 in 2015, which is a dividend yield in excess of 4.00%
annually based on our year-end closing stock price. I encourage you to read
the Financial Statements and Management’s Discussion and Analysis for a full
report on our performance.
Wayne Bank truly believes in helping the community grow by serving
our local businesses and their employees. Our team of business lenders
is committed to providing an outstanding level of personalized service to
our market areas. In 2015, we originated a record level of $100 million in
commercial loans. We provided financing to a wide range of businesses
I N M E M O R I U M
DANIEL J. O’NEILL,
1937 -2015
With deepest gratitude,
appreciation, and respect,
Wayne Bank honors the
memory of Daniel J. O’Neill.
Mr. O’Neill was Wayne Bank’s
second longest serving board
member, beginning his tenure
in 1985. For the past thirty
years Mr. O’Neill was a role
model of both corporate
governance and community
involvement, as Wayne Bank
grew from two offices in
Honesdale and Waymart to
fifteen offices serving Wayne,
Pike, Lackawanna and Monroe
Counties. In addition to serving
on Wayne Bank’s Board of
Directors, Mr. O’Neill also served
on the Bank’s Trust Committee
from 1987 through 2015.
which support economic growth including local resorts and hotels, retail shopping
areas, automobile dealers and small manufacturers. In addition, the Bank funded
a variety of large projects and offered deposit and cash management services for
a number of local municipalities, school districts and governmental authorities.
This investment in our infrastructure is vital to a healthy economy. Through our
branch network we had an active year in mortgage and home equity lending plus
an expansion of automobile lending. The Bank’s branch managers and staff work
to ensure we can service our customer’s loan and deposit needs.
We recognize that improving technology continues to be essential for delivering
faster, safer, and user-friendly banking services. Notable projects completed
in 2015 included developing a mobile-optimized version of waynebank.com,
online account opening and supporting Apple Pay for all our debit card and credit
card customers.
As new technologies continue to transform how people make payments and
manage their finances, the Bank is mindful that change can be daunting, especially
during a year that attracted widespread media attention about online security
and privacy concerns. An ongoing Bank initiative is to promote our Community
Banking Offices as great place to learn more about online banking and the key
Notable projects completed in 2015 included developing
a mobile-optimized version of waynebank.com, online
account opening and supporting Apple Pay for all our
debit card and credit card customers.
precautions customers can take to better protect themselves from fraud. Taking
this model a step further, the Scranton Central City, downtown Honesdale and
Milford offices have Technology Demo Centers where customers have access to
equipment and expertise for demonstrating electronic and mobile banking services.
For our valued business customers, Wayne bank introduced mobile business
banking with the Business Mobile App, which includes the ability to deposit checks
directly from a smart phone. In Lackawanna County, we are running a popular
campaign, “Bank Local – Shop Local – Win Local” which highlights the importance
of our local businesses and their value to the community.
N O R W O O D F I N A N C I A L C O R P
SENIOR MANAGEMENT TEAM (Left to Right)
John F. Carmody, Executive Vice President; William S. Lance, Executive Vice President;
Robert J. Mancuso, Executive Vice President; Lewis J. Critelli, President and Chief Executive Officer;
John H. Sanders, Senior Vice President; Diane Wylam, Esq., Senior Vice President;
James F. Burke, Executive Vice President
N O R W O O D
F I N A N C I A L
C O R P
2015 BOARD
OF DIRECTORS
Dr. Andrew A. Forte
Director
Ralph A. Matergia, Esq.
Director
William W. Davis, Jr.
Vice Chairman
Dr. Kenneth A. Phillips
Director
We were also very pleased that the readers
Officer in Pike County and Craig Grimm, Community
of Happenings Magazine voted Wayne Bank the
Office Manager in Waymart.
2015 Best Bank honor. The coming year will see
Joseph W. Adams was appointed to the Board
additional improvements to mobile applications and
of Directors in November. Mr. Adams is currently
the website. There will be continued developments
serving as the Superintendent of Schools for the
to improve the convenience and safety of payments,
Western Wayne School District located in Hamlin,
including Chip enabled debit cards and Android
South Canaan and Waymart, Pennsylvania.
Pay, as well as, monitoring industry progress
Joe will be a tremendous asset to the Board. He has
for Same Day ACH Payments. All of this will be
a strong background in financial management and a
supported by empowering our highly trained and
long history of community involvement and
dedicated staff to better assist customers with
civic achievement.
technological questions and concerns, as well as,
Wayne Bank is extremely proud of the long-term
adding Technology Demo Centers in our Community
dedication of its employees. Congratulations to
Banking Offices.
Barbara Keesler, Accounting Specialist, for thirty-
We recognize that our staff is extraordinary and
five years of service! John Sanders, Senior Vice
a key to our success. Senior level staff promotions
President, achieved twenty years of service! We also
in 2015 included: John F. Carmody, Executive Vice
had a number of other employees reach milestones
President and Chief Credit Officer; Nancy A. Hart,
and in total the group represents 175 years of
Senior Vice President and Controller and Ryan
Community Banking experience.
J. French, Senior Vice President and Director of
There was also some very sad news during the
Human Resources. It is rewarding to recognize
year as Wayne Bank and the entire community
their contributions to the Bank. Other key positions
mourned the loss of Major General Daniel J. O’Neill,
filled in 2015 include Joseph Castrogiovanni, Senior
a Director on the Boards of Norwood Financial Corp.
Vice President and Commercial Loan Officer in
and Wayne Bank since 1985. Dan O’Neill was a true
the Lackawanna County area; Juliette McKerrell,
friend and mentor to many in the community. His
Assistant Vice President and Commercial Loan
leadership and foresight have left a lasting legacy.
Kevin M. Lamont
Director
John E. Marshall
Chairman of the Board
Joseph W. Adams
Director
Susan Gumble
Director
Lewis J. Critelli
President and
Chief Executive Officer
As a Community Bank, our success is directly tied to the growth and prosperity
of our local communities. To help the community grow, the Bank supported
over 250 events and sponsorships during 2015. The organizations are varied
and include economic development, builder and realtor associations, business
groups, libraries, health foundations, local school districts’ arts and sports clubs,
animal shelters, fire departments, and many Chambers of Commerce.
Looking forward, we are truly excited to announce that we have entered into a
Definitive Merger Agreement pursuant to which Norwood Financial Corp will acquire
Delaware Bancshares, Inc. and its subsidiary The National Bank of Delaware County,
As a Community
Bank, our success
is directly tied to
the growth and
prosperity of our
(NBDC Bank). This will expand our footprint into the growing Sullivan County, New
local communities.
York market and give us a significant market share in Delaware County.
The addition of NBDC Bank will increase Norwood’s assets to over $1.0 billion
with 27 branches serving our expanded market area. The merger is expected to
close in the third quarter of 2016 pending various approvals. We look forward to
welcoming NBDC Bank’s customers, stockholders and employees. We will keep
you posted on our progress as we move through this merger/integration process.
All of our accomplishments are made possible by the support and confidence
of our stockholders. We thank you for your ownership interest in Norwood and we
work hard each day to enhance shareholder value. Please continue to keep us in
mind for all your financial needs.
To help the
community grow,
the Bank supported
over 250 events
and sponsorships
during 2015.
Lewis J. Critelli
President &
Chief Executive Officer
C O M M U N I T Y O F F I C E L O C A T I O N S
800-598-5002 • WAYNEBANK.COM
LAKEWOOD
WAYNE
HONESDALE
WAYMART
WILLOW
HAWLEY
HAWLEY
Wayne Bank serves all of
Wayne, Lackawanna, Pike
and Monroe Counties.
Visit us online at
www.waynebank.com
for details. We are
Mobile Friendly!
SHOHOLA
PIKE
MILFORD
LORDS VALLEY
CLARKS SUMMIT
LACKAWANNA
CENTRAL SCRANTON
WEST SCRANTON
MONROE
TANNERSVILLE
MARSHALLS CREEK
MARSHALLS CREEK
STROUD MALL
STROUD MALL
EFFORT
Administrative & Main Office
717 Main Street
Honesdale, PA 18431
Hawley/Lake Wallenpaupack
63 Welwood Avenue
Hawley, PA 18428
Lakewood
17 Como Road
Lakewood, PA 18439
Marshalls Creek
5165 Milford Road
East Stroudsburg, PA 18302
West Scranton
623 South Main Avenue
Scranton, PA 18504
Waymart
228 Belmont Street
Waymart, PA 18472
Honesdale
245 Willow Avenue
Honesdale, PA 18431
Milford
111 West Harford Street
Milford, PA 18337
Shohola
107 Richardson Avenue
Shohola, PA 18458
Stroud Mall
308 Stroud Mall Road
Stroudsburg, PA 18360
Tannersville
2951 Route 611, Suite 101
Tannersville, PA 18372
Clarks Summit
651 Northern Boulevard
Clarks Summit, PA 18411
Lords Valley
637 Route 739
Lords Valley, PA 18428
Central Scranton
216 Adams Avenue
Scranton, PA 18503
Effort
2226 Barney Lane
Effort, PA 18330
2015 CONSOLIDATED FINANCIAL REPORT
Management’s Discussion & Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Management’s Report On Internal Control Over Financial Reporting . . . . . . . . 27
Reports Of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . 28
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Consolidated Statements Of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Consolidated Statements Of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . 32
Consolidated Statements Of Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Consolidated Statements Of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Notes To Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Investor Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
MANAGEMENT’S DISCUSSION AND ANALYSIS
INTRODUCTION
This Management’s Discussion and Analysis and related financial data are presented to assist in the
understanding and evaluation of the financial condition and results of operations for Norwood Financial Corp
(the Company) and its subsidiary Wayne Bank (the Bank) as of December 31, 2015 and 2014 and for the years
ended December 31, 2015, 2014, and 2013. This section should be read in conjunction with the consolidated
financial statements and related footnotes.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 contains safe harbor provisions regarding forward-looking
statements. When used in this discussion, the words believes, anticipates, contemplates, expects, and similar
expressions are intended to identify forward-looking statements. Such statements are subject to certain risks
and uncertainties, which could cause actual results to differ materially from those projected. Those risks and
uncertainties include changes in Federal and State laws, changes in interest rates, the ability to control costs and
expenses, demand for real estate, cybersecurity, changes in the regulatory environment and general economic
conditions. The Company undertakes no obligation to publicly release the results of any revisions to those
forward-looking statements which may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
CRITICAL ACCOUNTING POLICIES
Note 2 to the Company’s consolidated financial statements (incorporated by reference in Item 8 of the Form
10-K) lists significant accounting policies used in the development and presentation of its financial statements.
This discussion and analysis, the significant accounting policies, and other financial statement disclosures
identify and address key variables and other qualitative and quantitative factors that are necessary for an
understanding and evaluation of the Company and its results of operations.
Material estimates that are particularly susceptible to significant change in the near term relate to the
determination of the allowance for loan losses, the valuation of deferred tax assets, the determination of
other-than-temporary impairment on securities, the determination of goodwill impairment and the fair value
of financial instruments. Please refer to the discussion of the allowance for loan losses calculation under
“Non-performing Assets and Allowance for Loan Losses” in the “Financial Condition” section.
The deferred income taxes reflect temporary differences in the recognition of the revenue and expenses for tax
reporting and financial statement purposes, principally because certain items are recognized in different periods
for financial reporting and tax return purposes. Although realization is not assured, the Company believes it is
more likely than not that all deferred tax assets will be realized.
In estimating other-than-temporary impairment losses on securities, the Company considers 1) the length of
time and extent to which the fair value has been less than cost and 2) the financial condition of the issuer.
The Company does not have the intent to sell these securities and it is more likely than not that it will not sell the
securities before recovery of their cost basis. The Company believes that any unrealized losses at December 31,
2015 and 2014 represent temporary impairment of the securities.
8
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORTNORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
The fair value of financial instruments is based upon quoted market prices, when available. For those instances
where a quoted price is not available, fair values are based upon observable market based parameters as well as
unobservable parameters. Any such valuation is applied consistently over time.
In connection with the acquisition of North Penn Bancorp, Inc. in 2011, we recorded goodwill in the amount of
$9.7 million, representing the excess of amounts paid over the fair value of the net assets of the institution
acquired at the date of acquisition. Goodwill is tested and deemed impaired when the carrying value of goodwill
exceeds its implied fair value.
RESULTS OF OPERATIONS – SUMMARY
Net income for the Company for the year ended December 31, 2015 was $5,908,000 which was $1,749,000
lower than the $7,657,000 earned in 2014. Basic and diluted earnings per share were $1.60 in 2015 compared to
$2.10 per share in 2014. The return on average assets (ROA) for the year ended December 31, 2015 was 0.80%
and the return on average equity (ROE) was 5.83% compared to an ROA of 1.08% and an ROE of 7.92% in the
prior year. The reduction in earnings from the prior year was the result of increased provision for loan losses
and a decrease in net gains recognized on the sale of loans and securities which was partially offset by a decrease
in expenses related to foreclosed properties.
Net interest income (fully taxable equivalent, or fte) totaled $25,882,000 which was an increase of $64,000
from the 2014 total. Average loans outstanding increased $29.0 million in 2015 but a 21 basis point decrease in
the yield earned limited the increase in fte interest income to $288,000. The reduced yield was due to loan
production at current market rates. Total average securities decreased $4.9 million in 2015 which contributed to
a $178,000 decrease in fte interest income. Average interest-bearing deposits with banks were $3.5 million
higher in 2015 and interest income in this area increased $9,000. Growth of the funding base led to a $50,000
increase in interest expense. A 2 basis point reduction in the cost of interest-bearing deposits lead to reduced
interest expense on deposits of $42,000 despite a $19.1 million increase in average total deposits. The cost of
borrowed funds increased $92,000 compared to the prior year due primarily to a $5.8 million increase in average
long-term borrowings. The resulting fte net interest margin decreased 15 basis points to 3.75% in 2015 as a 16
basis point reduction in the yield earned was only partially offset by a 1 basis point decrease in the cost of funds.
Loans receivable increased $58.8 million from the prior year-end due primarily to a $28.6 million increase in
commercial loans which includes a $21.3 million increase in municipal financing. Commercial real estate loans
also increased $17.2 million in 2015. Residential mortgage loans and construction loans increased $3.4 million,
net, after the sale of $4.3 million of fixed-rate residential mortgage loans for the purpose of interest rate risk
management. Consumer loans increased $9.5 million in 2015 due primarily to a $9.2 million increase in indirect
auto and marine financing. Total non-performing loans increased from $5.6 million and 1.12% of total loans at
the end of 2014 to $7.1 million, or 1.27% of total loans on December 31, 2015. Net charge-offs totaled
$3,157,000 in 2015 which was an increase from the $1,513,000 recorded in 2014. Based on the level of
charge-offs and non-performing loans, the Company determined that it would be appropriate to allocate
$4,580,000 to the allowance for loan losses to reserve for potential future losses which resulted in an increase
in the ratio of the allowance for loan losses to total loans outstanding to 1.30% compared to 1.17% on
December 31, 2014.
9
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
Other income for the year ended December 31, 2015 totaled $4,699,000 compared to $5,110,000 in the prior
year, a decrease of $411,000. Gains on the sale of loans and investment securities decreased $572,000 in the
aggregate, while all other items of other income increased $161,000, net.
Other expenses were $17,100,000 in 2015 compared to $17,727,000 for the similar period in 2014, a decrease
of $627,000. Salaries and benefits costs decreased $81,000 in 2015 due primarily to reduced incentive
compensation. Occupancy and equipment costs decreased $35,000. Foreclosed real estate costs decreased
$644,000 from the prior period. All other operating expenses increased $133,000, net. Income tax expense for
the year totaled $1,632,000 which was a decrease of $974,000 from the prior year. The effective tax rate in 2015
was 21.6% compared to 25.4% in 2014 due primarily to a higher proportion of tax-exempt income.
The following table sets forth changes in net income (in thousands):
Net income 2014
Net interest income
Provision for loan losses
Net gains on sales of loans and securities
Other income
Salaries and employee benefits
Occupancy, furniture and equipment
Foreclosed real estate owned
Other expenses
Income tax expense
Net income for 2015
$
7,657
(39)
(2,900)
(572)
161
81
35
644
(133)
974
$ 5,908
Net income for the Company for the year ended December 31, 2014 was $7,657,000 which was $808,000 lower
than the $8,465,000 earned in 2013. Basic and diluted earnings per share were $2.10 in 2014 compared to $2.33
per share in 2013. The return on average assets (ROA) for the year ended December 31, 2014 was 1.08% and the
return on average equity (ROE) was 7.92% compared to an ROA of 1.23% and an ROE of 9.13% in the prior year.
The reduction in earnings from the prior year was the result of increased expenses related to foreclosed
properties and a reduced level of proceeds from bank-owned life insurance policies which was partially offset by
an increase in gains from the sale of loans and securities and a lower provision for loan losses.
Net interest income (fully taxable equivalent) totaled $25,818,000 which was a decrease of $39,000 from the
2013 total. Average loans outstanding increased $17.9 million in 2014 but a 30 basis point decrease in the yield
earned resulted in a $618,000 reduction in interest income. The reduced yield was due to loan production at
current market rates. Total average securities grew $5.2 million in 2014 which contributed to a $208,000
increase in interest income. Average interest-bearing deposits with banks were $7.2 million lower in 2014 and
interest income in this area decreased $19,000. The mix of the funding base led to a reduction in interest
expense as a 9 basis point reduction in the cost of interest-bearing deposits lead to reduced interest expense on
deposits of $385,000 in spite of $1.8 million increase in average deposits. The cost of borrowed funds also
decreased $5,000 compared to the prior year due to a reduced cost of long-term borrowings. As a result of the
change in the mix and benefits derived from the downward repricing of deposits and borrowed funds, total
interest expense was reduced by $390,000. The resulting net interest margin decreased 10 basis points to 3.90%
in 2014 as a 17 basis point reduction in the yield earned was only partially offset by an 8 basis point decrease in
the cost of funds.
10
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORTNORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
Loans receivable decreased $2.0 million from the prior year-end due primarily to an $11.2 million reduction in
commercial real estate loans which was the result of several significant payoffs received in 2014 and the transfer
of nonperforming loans to foreclosed real estate. Other commercial loans increased $6.8 million in 2014 due to
growth in municipal financing, while consumer installment loans increased $4.4 million. Residential mortgage
loans and construction loans decreased $2.0 million, but this decrease includes the sale of $4.3 million of fixed-
rate residential mortgage loans for the purpose of interest rate risk management. Total non-performing loans
were reduced from $9.5 million and 1.90% of total loans at the end of 2013 to $5.6 million, or 1.12% of total
loans on December 31, 2014. Net charge-offs totaled $1,513,000 in 2014 which was a reduction from the
$2,194,000 recorded in 2013. Based on the level of charge-offs and non-performing loans, the Company
determined that it would be appropriate to allocate $1.7 million to the allowance for loan losses to reserve for
potential future losses which resulted in an increase in the ratio of the allowance for loan losses to total loans
outstanding to 1.17% compared to 1.13% on December 31, 2013.
Other income for the year ended December 31, 2014 totaled $5,110,000 compared to $5,615,000 in the prior
year, a decrease of $505,000. Gains on the sale of loans and investment securities increased $309,000 in the
aggregate but earnings and proceeds received on bank-owned life insurance policies decreased $701,000 while
all other items of other income decreased $113,000, net. During 2013, the Company recorded a non-recurring
gain of $770,000 from proceeds on a bank-owned life insurance policy.
Other expenses were $17,727,000 in 2014 compared to $16,705,000 for the similar period in 2013, an increase
of $1,022,000. Salaries and benefits costs rose $169,000, or 2.0%, in 2014 due to merit increases. Occupancy and
equipment costs decreased $19,000. Foreclosed real estate costs increased $988,000 over the prior period as
several properties were acquired through foreclosure resulting in real estate taxes, write-downs or losses on
sales as well as regular maintenance. All other operating expenses decreased $116,000, net. Income tax expense
for the year totaled $2,606,000 which was a decrease of $100,000 from the prior year. The effective tax rate in
2014 was 25.4% compared to 24.2% in 2013 due primarily to the increase in earnings and proceeds received on
bank owned life insurance policies in 2013.
The following table sets forth changes in net income (in thousands):
Net income 2013
Net interest income
Provision for loan losses
Net gains on sales of loans and securities
Earnings and proceeds on bank owned life insurance
Other income
Salaries and employee benefits
Occupancy, furniture and equipment
Foreclosed real estate owned
Other expenses
Income tax expense
Net income for 2014
11
$
8,465
(101)
720
309
(701)
(113)
(169)
19
(988)
116
100
$
7,657
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
FINANCIAL CONDITION
TOTAL ASSETS
Total assets as of December 31, 2015, were $750.5 million compared to $711.6 million as of year-end 2014, an
increase of $38.9 million. Loans outstanding increased $58.8 million and total securities decreased $17.5 million.
LOANS RECEIVABLE
As of December 31, 2015, loans receivable totaled $559.9 million compared to $501.1 million as of year-end
2014, an increase of $58.8 million. Commercial loans grew $45.8 million, while retail loans increased $13.0
million during the year.
Residential real estate loans, which includes home equity lending, totaled $161.8 million as of December 31,
2015, compared to $158.1 million as of year-end 2014, an increase of $3.7 million. The Company does not
originate any non-traditional mortgage products such as interest-only loans or option adjustable rate mortgages
and has no sub-prime mortgage exposure. The Company evaluates sales of its long-term, fixed-rate residential
loan production for interest rate risk management, with $4.3 million of long-term, fixed-rate loans sold into the
secondary market during 2015. In the current low interest rate environment, the Company expects to continue
selling mortgage loans in 2016. The Company’s home equity loan portfolio, which is included in residential real
estate loans, increased $529,000 in 2015.
Commercial loans consist principally of loans made to small businesses within the Company’s market and are
usually secured by real estate or other assets of the borrower. Commercial real estate loans totaled $279.1 million
as of December 31, 2015, increasing from $262.0 million as of December 31, 2014. The terms for commercial
real estate loans are typically 15 to 20 years, with adjustable rates based on a spread to the prime rate or fixed
for the initial three to five year period then adjusting to a spread to the prime rate. The majority of the Company’s
commercial real estate portfolio is owner occupied and includes the personal guarantees of the principals.
Commercial loans consisting principally of lines of credit and term loans secured by equipment or other assets
increased $28.6 million to $71.1 million as of December 31, 2015 due to growth in municipal financing.
The Company’s indirect lending portfolio (included in consumer loans to individuals) increased $9.2 million to
$23.5 million as of December 31, 2015.
ALLOWANCE FOR LOAN LOSSES AND NON-PERFORMING ASSETS
4
1
The allowance for loan losses totaled $7,298,000 as of December 31, 2015 and represented 1.30% of total
loans receivable compared to $5,875,000 and 1.17% of total loans as of year-end 2014. Net charge-offs for 2015
totaled $3,157,000 and represented 0.60% of average loans compared to $1,513,000 and 0.30% of average loans
in 2014.
Non-performing assets consist of non-performing loans and real estate owned as a result of foreclosure, which
is held for sale. Loans are placed on non-accrual status when management believes that a borrower’s financial
condition is such that collection of interest is doubtful. Commercial and real estate related loans are generally
placed on non-accrual when interest is 90 days delinquent. When loans are placed on non-accrual, accrued
interest is reversed from current earnings.
12
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORTNORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT As of December 31, 2015, non-performing loans totaled $7,132,000 and represented 1.27% of total loans
compared to $5,600,000 or 1.12% as of December 31, 2014. The increase in the level of non-performing loans is
due primarily to one credit in the amount of $5.0 million that was transferred to nonaccrual status during the
year based upon the borrower’s inability to meet the original terms of the credit. Based on the level of non-
performing loans, actual charge-offs, a soft real estate market and a slow economy, the Company added
$4,580,000 to the allowance for loan losses for the year ended December 31, 2015 compared to $1,680,000
in 2014.
Foreclosed real estate owned totaled $2,847,000 as of December 31, 2015 and $3,726,000 as of December 31,
2014. The decrease is due primarily to the sale of two commercial properties with a carrying value of $3.0
million as of December 31, 2014 which was partially offset by the addition of two commercial properties with
a carrying value of $2.2 million as of December 31, 2015. During 2015, ten properties with a carrying value of
$4,456,000 were disposed of through sales. The Company recorded a net loss of $154,000 from the sale of
the properties.
The Company’s loan review process assesses the adequacy of the allowance for loan losses on a quarterly basis.
The process includes a review of the risks inherent in the loan portfolio. It includes an analysis of impaired loans
and a historical review of losses. Other factors considered in the analysis include: concentrations of credit in
specific industries in the commercial portfolio; the local and regional economic condition; trends in
delinquencies, internal risk rating classifications, large dollar loans of over $2 million and growth in the portfolio.
For loans acquired, including those that are not deemed impaired at acquisition, credit discounts representing
the principal losses expected over the life of the loan are a component of the initial fair value. Subsequent to the
purchase date, the methods utilized to estimate the required allowance for credit losses for these loans is similar
to originated loans; however, the Company records a provision for loan losses only when the required allowance
exceeds any remaining credit discounts.
The Company has limited exposure to higher-risk loans. The Company does not originate option ARM products,
interest only loans, sub-prime loans or loans with initial teaser rates in its residential real estate portfolio.
The Company has $9.0 million of junior lien home equity loans. For 2015, net charge-offs for this portfolio
totaled $95,000.
As of December 31, 2015, the Company considered its concentration of credit risk profile to be acceptable.
The highest concentrations are in the hospitality lodging industry and automobile dealers.
5
1
During 2015, the Company recognized a decrease in its adversely classified loans. The Company assesses a
loss factor against the classified loans, which is based on prior experience. Classified loans which are
considered impaired are measured on a loan by loan basis. The Company values such loans by either the
present value of expected cash flows, the loan’s obtainable market price or the fair value of collateral if the loan is
collateral dependent.
At December 31, 2015, the recorded investment in impaired loans, not requiring an allowance for loan losses
was $2,855,000 (net of charge-offs against the allowance for loan losses of $1,971,000) and those impaired loans
requiring an allowance totaled $6,373,000. The recorded investment in impaired loans not requiring an
allowance for loan losses was $8,632,000 (net of $158,000) and $2,973,000 for impaired loans requiring an
allowance for loan losses as of December 31, 2014.
13
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT As a result of its analysis, after applying these factors, management considers the allowance as of December 31,
2015, adequate. However, there can be no assurance that the allowance for loan losses will be adequate to cover
significant losses, that might be incurred in the future.
The following table sets forth information with respect to the Company’s allowance for loan losses at the
dates indicated:
Allowance balance at beginning of period
Charge-offs:
Commercial
Real Estate
Consumer
Total
Recoveries:
Commercial
Real Estate
Consumer
Total
Provision expense
Allowance balance at end of period
Allowance for loan losses as a percent
of total loans outstanding
Net loans charged off as a percent of
average loans outstanding
Allowance coverage of non-performing loans
2015
$
5,875
-
(3,107)
(91)
(3,198)
-
20
21
41
4,580
7,298
$
$
1.30%
0.60%
1.0x
2014
Year-ended December 31,
2013
(dollars in thousands)
2012
2011
$
5,708
$
5,502
$
5,458
$
5,616
-
(1,466)
(80)
(1,546)
-
2
31
33
1,680
5,875
$
(4)
(2,131)
(90)
(2,225)
-
9
22
31
2,400
5,708
(24)
(2,354)
(59)
(2,437)
(2)
(1,735)
(109)
(1,846)
-
7
24
31
2,450
5,502
5
51
57
113
1,575
5,458
$
$
1.17%
1.13%
1.15%
1.19%
0.30%
1.1x
0.45%
0.6x
0.50%
0.4x
0.42%
0.7x
The following table sets forth information regarding non-performing assets.
Non-accrual loans:
Commercial
Real estate
Consumer
Total
Accruing loans which are contractually
past due 90 days or more
Total non-performing loans
Foreclosed real estate
Total non-performing assets
Non-performing loans to total loans
Non-performing loans to total assets
2015
2014
December 31,
2013
(dollars in thousands)
2012
2011
$
$
43
7,089
-
7,132
$
-
7,132
2,847
9,979
1.27%
$
0.95%
1.33%
$
-
5,596
4
5,600
-
9,547
-
9,547
$
328
12,872
-
13,200
$
404
7,411
-
7,815
-
-
-
-
5,600
3,726
9,326
9,547
1,009
10,556
13,200
852
14,052
7,815
2,910
10,725
$
$
$
1.12%
1.90%
2.77%
1.71%
0.79%
1.34%
1.96%
1.17%
Non-performing assets to total assets
1.31%
1.48%
2.09%
1.60%
14
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORTNORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
SECURITIES
The securities portfolio consists of issues of United States Government agencies, including mortgage-backed
securities, municipal obligations, and corporate debt. The Company classifies its investments into two
categories: held to maturity (HTM) and available for sale (AFS). The Company does not have trading securities.
Securities classified as HTM are those in which the Company has the ability and the intent to hold the security
until contractual maturity. As of December 31, 2015, there were no securities carried in the HTM portfolio.
Securities classified as AFS are eligible to be sold due to liquidity needs or interest rate risk management.
These securities are adjusted to and carried at their fair value with any unrealized gains or losses recorded net of
deferred income taxes, as an adjustment to capital and reported in the equity section of the Consolidated Balance
Sheet as other comprehensive income. As of December 31, 2015, $138.9 million of securities were so classified
and carried at their fair value, with unrealized gains, net of tax, of $488,000 included in accumulated other
comprehensive income as a component of stockholders’ equity.
As of December 31, 2015, the average life of the portfolio was 5.5 years. The Company has maintained a
relatively short average life in the portfolio in order to generate cash flow to support loan growth and maintain
liquidity levels. During 2015, a portion of cash flow generated from the portfolio through principal reductions,
calls and security sales was utilized to fund loan growth. Purchases for the year totaled $50.6 million, while
maturities and cash flow totaled $22.8 million and proceeds from sales were $45.0 million. The purchases were
funded principally by cash flow generated from the portfolio and excess overnight liquidity.
The carrying value of the securities portfolio at December 31 is as follows:
2015
2014
(dollars in thousands)
U.S. Government agencies
States and political subdivisions
Corporate obligations
Mortgage-backed securities –
government sponsored entities
Equity securities – financial services
Total
Carrying
Value
$
9,169
60,755
4,974
63,569
384
$ 138,851
% of portfolio
6.6%
43.8%
3.5%
45.8%
0.3%
100.0%
Carrying
Value
$
$
28,975
54,332
6,486
66,204
398
156,395
% of portfolio
18.5%
34.7%
4.2%
42.3%
0.3%
100.0%
The portfolio had no adjustable-rate instruments as of December 31, 2015 and 2014. The portfolio contained
no private label mortgage backed securities, collateralized debt obligations (CDOs), trust preferred securities, and
no off-balance sheet derivatives were in use. The U.S. Government agency portfolio consists of both callable and
non-callable notes with an average maturity of 3.9 years. As of December 31, 2015, the portfolio did not contain
any step-up bonds. The mortgage backed securities includes pass-through bonds and collateralized mortgage
obligations (CMO’s) with Fannie Mae, Freddie Mac and Government National Mortgage Association (GNMA)
The Company evaluates the securities in its portfolio for other-than-temporary-impairment (OTTI) as fair
value declines below cost. In estimating OTTI management considers (1) the length of time and the extent of the
decline in fair value and (2) the financial condition and near-term prospects of the issuer. As of December 31,
2015, the Company held 76 investment securities in a loss position which had a combined unrealized loss of $1.2
million. Management believes that these losses are principally due to changes in interest rates and represent
temporary impairment as the Company does not have the intent to sell these securities and it is more likely than
not that it will not have to sell the securities before recovery of their cost basis. The Company also holds a small
15
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
portfolio of equity securities of other financial institutions. As of December 31, 2015, none of these equity
securities were in an unrealized loss position. No impairment charges have been recognized in 2015, 2014
and 2013.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company uses fair value measurements to record fair value adjustments to certain financial instruments
and determine fair value disclosures (see Note 14 of Notes to the Consolidated Financial Statements).
Approximately $138.9 million, which represents 18.5% of total assets at December 31, 2015, consisted of
financial instruments recorded at fair value on a recurring basis. This amount consists entirely of the Company’s
available for sale securities portfolio. The Company uses valuation methodologies involving market-based or
market derived information, collectively Level 1 and 2 measurements, to measure fair value. There were no
transfers into or out of Level 3 for any instruments for the years ending December 31, 2015 and 2014.
The Company utilizes a third party provider to perform valuations of the investments. Methods used to
perform the valuations include: pricing models that vary based on asset class, available trade and bid
information, actual transacted prices, and proprietary models for valuations of state and municipal obligations.
In addition, the Company has a sample of fixed-income securities valued by another independent source.
The Company does not adjust values received from its providers, unless it is evident that fair value
measurement is not consistent with the Company’s policies.
The Company also utilizes a third party provider to provide the fair value of certain loan servicing rights.
Fair value for the purpose of this measurement is defined as the amount at which the asset could be exchanged in
a current transaction between willing parties, other than in a forced liquidation. The fair value of mortgage
servicing rights as of December 31, 2015 and 2014 was $291,000 and $277,000, respectively.
DEPOSITS
The Company, through the fifteen branches of the Bank, provides a full range of deposit products to its retail
and business customers. These products include interest-bearing and non-interest bearing transaction accounts,
statement savings and money market accounts. Time deposits consist of certificates of deposit (CDs) with terms
of up to five years and include Individual Retirement Accounts. The Bank participates in the Jumbo CD ($100,000
and over) markets with local municipalities and school districts, which are typically awarded on a competitive
bid basis. The Company has no brokered deposits nor does it participate in the Certificate of Deposit Account
Registry Service (CDARS).
Total deposits as of December 31, 2015, totaled $550.9 million, decreasing $9.0 million from year-end 2014.
The decrease included a $25.1 million reduction in certificates of deposit as several local municipalities opted to
maintain more liquid funds due to the Commonwealth of Pennsylvania’s budget impasse. Non-interest bearing
demand balances increased $9.8 million in 2015, interest bearing demand balances increased $4.0 million and
savings deposits increased $2.3 million during the year.
Time deposits of $250,000 or more, which consist principally of school district funds, other public funds and
short-term deposits from large commercial customers with maturities generally less than one year, totaled
$22.0 million as of December 31, 2015, compared to $42.0 million at year-end 2014. These deposits are subject
to competitive bid and the Company bases its bid on current interest rates, loan demand, investment portfolio
structure and the relative cost of other funding sources.
16
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORTNORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT As of December 31, 2015, non-interest bearing demand deposits totaled $107.8 million compared to $98.1
million at year-end 2014. Cash management accounts in the form of securities sold under agreements to
repurchase included in short-term borrowings, totaled $33.6 million at year end 2015 compared to $25.7 million
as of December 31, 2014. These balances represent commercial and municipal customers’ funds invested in
overnight securities. The Company considers these accounts as a source of core funding.
MARKET RISK
Interest rate sensitivity and the repricing characteristics of assets and liabilities are managed by the Asset and
Liability Management Committee (ALCO). The principal objective of the ALCO is to maximize net interest income
within acceptable levels of risk, which are established by policy. Interest rate risk is monitored and managed by
using financial modeling techniques to measure the impact of changes in interest rates.
Net interest income, which is the primary source of the Company’s earnings, is impacted by changes in interest
rates and the relationship of different interest rates. To manage the impact of the rate changes, the balance sheet
should be structured so that repricing opportunities exist for both assets and liabilities at approximately the
same time intervals. The Company uses net interest simulation to assist in interest rate risk management.
The process includes simulating various interest rate environments and their impact on net interest income.
As of December 31, 2015, the level of net interest income at risk in a ± 200 basis points increase was within the
Company’s policy limit of a decline less than 8% of net interest income.
Imbalances in repricing opportunities at a given point in time reflect interest-sensitivity gaps measured as the
difference between rate-sensitive assets and rate-sensitive liabilities. These are static gap measurements that do
not take into account any future activity, and as such are principally used as early indicators of potential interest
rate exposures over specific intervals.
At December 31, 2015, the Bank had a positive 90-day interest sensitivity gap of $38.8 million or 5.2% of total
assets. A positive gap indicates that the balance sheet has a higher level of rate-sensitive assets (RSA) than rate-
sensitive liabilities (RSL) at the specific time interval. This would indicate that in an increasing rate environment,
the yield on interest-earning assets would increase faster than the cost of interest-bearing liabilities in the 90 day
time frame. The level of RSA and RSL for an interval is managed by ALCO strategies, including adjusting the
average life of the investment portfolio through purchases and sales, pricing of deposit liabilities to attract long or
short term time deposits, utilizing borrowings to fund loan growth, loan pricing to encourage variable rate
products and evaluation of loan sales of long term fixed rate mortgages.
The Company analyzes and measures the time periods in which RSA and RSL will mature or reprice in
accordance with their contractual terms and assumptions. Management believes that the assumptions used are
reasonable. The interest rate sensitivity of assets and liabilities could vary substantially if differing assumptions
were used or if actual experience differs from the assumptions used in the analysis. For example, although certain
assets and liabilities may have similar maturities or periods to repricing, they may react in differing degrees to
changes in market interest rates. The interest rates on certain types of assets and liabilities may fluctuate in
advance of changes in market interest rates, while interest rates on other types may lag behind changes in market
rates. Interest rates may change at different rates changing the shape of the yield curve. The level of rates on the
investment securities may also be affected by the spread relationship between different investments. Further, in
the event of a significant change in interest rates, prepayment and early withdrawal levels would likely deviate
significantly from those assumed. Finally, the ability of borrowers to service their adjustable-rate debt may
decrease in the event of an interest rate increase. It should be noted that the operating results of the Company
are not subject to foreign currency exchange or commodity price risk.
17
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
The following table displays interest-sensitivity as of December 31, 2015 (in thousands):
3 Months
or Less
3-12
Months
1-3 Years
Over
3 Years
Total
Federal funds sold and
interest-bearing deposits
Securities
Loans Receivable
Total Rate Sensitive Assets (RSA)
Non-maturity interest-bearing deposits
Time Deposits
Borrowings
Total Rate Sensitive Liabilities (RSL)
Interest sensitivity gap
Cumulative gap
RSA/RSL-cumulative
As of December 31, 2014
Interest sensitivity gap
Cumulative gap
RSA/RSL-cumulative
$
266
3,983
129,418
$ 133,667
$
-
9,088
128,652
$ 137,740
39,252
26,352
29,246
94,850
$
44,131
63,715
18,280
$ 126,126
38,817
38,817
140.9%
$
11,614
50,431
122.8%
$
$
$
$
$
-
23,672
153,528
177,200
117,198
78,289
38,827
234,314
$
-
102,108
148,327
$ 250,435
$
266
138,851
559,925
$ 699,042
$
$
45,767
28,391
8,008
82,166
$ 246,348
196,747
94,361
$ 537,456
(57,114)
(6,683)
98.5%
$ 168,269
161,586
$ 161,586
130.1%
64,389
64,389
194.2%
$
(9,788)
54,601
$
125.6%
(40,674)
13,927
103.2%
$ 138,122
152,049
$ 152,049
129.8%
$
$
$
$
Certain interest-bearing deposits with no stated maturity dates are included in the interest-sensitivity table
above. The balances allocated to the respective time periods represent an estimate of the total outstanding
balance that has the potential to migrate either through withdrawal or transfer to time deposits, thereby
impacting the interest-sensitivity position of the Company. The estimates were derived from industry-wide
statistical information and do not represent historic results.
LIQUIDITY
Liquidity is the ability to fund customers’ borrowing needs and their deposit withdrawal requests while
supporting asset growth. The Company’s primary sources of liquidity include deposit generation, asset
maturities, cash flow from payments on loans and securities and access to borrowing from the Federal Home
Loan Bank and other correspondent banks.
As of December 31, 2015, the Company had cash and cash equivalents of $10.0 million in the form of cash, due
from banks, balances with the Federal Reserve Bank, and short-term deposits with other institutions. In addition,
the Company had total securities available for sale of $138.9 million, which could be used for liquidity needs.
This totals $148.9 million and represents 19.8% of total assets compared to $168.8 million and 23.7% of total
assets as of December 31, 2014. The Company also monitors other liquidity measures, all of which were within
the Company’s policy guidelines as of December 31, 2015. Based upon these measures, the Company believes its
liquidity position is adequate.
The Company maintains established lines of credit with the Federal Home Loan Bank of Pittsburgh (FHLB), the
Atlantic Community Bankers Bank (ACBB) and other correspondent banks, which support liquidity needs.
The total available under all the lines was $321.5 million, with $19.7 million outstanding at December 31, 2015
18
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORTNORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
and $0 outstanding at December 31, 2014. The maximum borrowing capacity from FHLB was $281.5 million.
As of December 31, 2015, the Company had $41.1 million in term borrowings from the FHLB, compared to $22.2
million at December 31, 2014.
OFF-BALANCE SHEET ARRANGEMENTS
The Company’s financial statements do not reflect various commitments that are made in the normal course of
business, which may involve some liquidity risk. These commitments consist mainly of unfunded loans and
letters of credit made under the same standards as on-balance sheet instruments. Unused commitments, as of
December 31, 2015 totaled $73.7 million. They consisted of $19.7 million of commitments for residential and
commercial real estate, construction and land developments loans, $18.5 million in unused home equity lines of
credit, $5.4 million in performance and standby letters of credit and $30.1 million in other unused commitments,
principally commercial lines of credit. Because these instruments have fixed maturity dates and many of them
will expire without being drawn upon, they do not represent any significant liquidity risk.
Management believes that any amounts actually drawn upon can be funded in the normal course of operations.
The Company has no investment in or financial relationship with any unconsolidated entities that are reasonably
likely to have a material effect on liquidity or the availability of capital resources.
The following table represents the aggregate of on and off-balance sheet contractual obligations to make future
payments (in thousands):
CONTRACTUAL OBLIGATIONS
Time deposits
Long-term debt
Operating leases
RESULTS OF OPERATIONS
NET INTEREST INCOME
Total
$ 196,747
41,126
3,666
$ 241,539
Less than 1 year
December 31, 2015
1-3 years
$
$
90,197
-
352
90,549
$
78,295
21,701
726
$ 100,722
4-5 years
$
28,255
14,033
744
43,032
$
Over 5 years
-
$
5,392
1,844
7,236
$
Net interest income is the most significant source of revenue for the Company and represented 83.9% of total
revenue for the year ended December 31, 2015. Net interest income (fte) totaled $25,882,000 for the year ended
December 31, 2015 compared to $25,818,000 for 2014, an increase of $64,000. The resulting fte net interest
spread and net interest margin were 3.61% and 3.75%, respectively, in 2015 compared to 3.76% and 3.90%,
respectively, in 2014.
Interest income (fte) for the year ended December 31, 2015 totaled $29,140,000 compared to $29,026,000 in
2014. The fte yield on average earning assets was 4.23%, decreasing 16 basis points from the 4.39% reported
last year. The continued low interest rate environment impacted the yield earned as new loan production was
added at historically low rates. This impacted loan yields which earned 4.61% in 2015 compared to 4.82% in the
prior year. The reduced yield was partially offset by a $29.0 million increase in average loans outstanding,
resulting in a $288,000 increase in loan income. The yield on securities decreased 2 basis points in 2015, and
combined with a $4.8 million decrease in the average balance, resulted in a $178,000 decrease in interest income.
19
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
Interest expense was $3,258,000 in 2015 which resulted in an average cost of interest-bearing liabilities of
0.62% compared to total interest expense of $3,208,000 in 2014 with an average cost of 0.63%. The continued
low rate environment also impacted rates paid on deposits as the Company reduced rates paid on time deposits
to market levels. Total interest-bearing deposits cost 0.52% in 2015 which was 2 basis points lower than the
0.54% cost in the prior year due primarily to a 14 basis point reduction in time deposits as certificates repriced
to current market rates upon maturity and new growth was added at the reduced levels. Long term borrowings
also repriced downward in 2015 reflecting a the impact from low cost borrowings originated in recent years.
Net interest income represented 82.8% of total revenue for the year ended December 31, 2014. Net interest
income (fte) totaled $25,818,000 for the year ended December 31, 2014 compared to $25,857,000 for 2013, a
decrease of $39,000. The resulting fte net interest spread and net interest margin were 3.76% and 3.90%,
respectively, in 2014 compared to 3.85% and 4.00%, respectively, in 2013.
Interest income (fte) for the year ended December 31, 2014 totaled $29,026,000 compared to $29,455,000 in
2013. The fte yield on average earning assets was 4.39%, decreasing 17 basis points from the 4.56% reported
last year. The continued low interest rate environment impacted the yield earned as new loan production was
added at historically low rates. This impacted loan yields which earned 4.82% in 2014 compared to 5.12% in the
prior year. The reduced yield was partially offset by a $17.9 million increase in average loans outstanding,
resulting in a $618,000 decrease in loan income. The yield on securities improved 3 basis points in 2014, and
combined with a $5.2 million increase in the average balance, added $208,000 of interest income.
Interest expense was $3,208,000 in 2014 which resulted in an average cost of interest-bearing liabilities of
0.63% compared to total interest expense of $3,598,000 in 2013 with an average cost of 0.71%. The continued
low rate environment also impacted rates paid on deposits as the Company reduced rates paid on money market
and time accounts to market levels. Total interest-bearing deposits cost 0.54% in 2014 which was 9 basis points
lower than the 0.63% cost in the prior year due primarily to a 12 basis point reduction in time deposits as
certificates repriced to current market rates upon maturity and new growth was added at the reduced levels.
Long term borrowings also repriced downward in 2014 reflecting a full year effect of low cost borrowings
originated in 2013.
OTHER INCOME
0
2
Other income totaled $4,699,000 for the year ended December 31, 2015 compared to $5,110,000 in 2014, a
decrease of $411,000. Gains from the sales of loans and securities decreased $572,000 from the prior year, while
all other items of other income increased $161,000, net.
Other income totaled $5,110,000 for the year ended December 31, 2014 compared to $5,615,000 in 2013, a
decrease of $505,000. Gains from the sales of loans and securities increased $309,000 from the prior year but
earnings and proceeds received on bank-owned life insurance policies decreased $701,000 while all other items
of other income decreased $113,000, net. During 2013, the Company recorded a non-recurring gain of $770,000
from proceeds on a bank-owned life insurance policy.
20
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORTNORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
Other Income (dollars in thousands)
For the year-ended December 31
Service charges on deposit accounts
ATM Fees
NSF Fees
Safe deposit box rental
Loan related service fees
Debit card
Fiduciary activities
Commissions on mutual funds & annuities
Gain on sales of mortgage loans and servicing rights
Earnings on and proceeds from bank-owned life insurance
Other income
$
$
2015
168
220
850
62
451
660
439
143
104
664
312
4,073
626
Net realized gains on sales of securities
$
4,699
2014
2013
176
206
932
63
370
620
437
94
132
685
225
3,940
1,170
$
187
196
905
63
484
635
379
187
112
1,386
200
4,734
881
Total
OTHER EXPENSES
$
5,110
$
5,615
Other expenses totaled $17,100,000 for the year ended December 31, 2015 compared to $17,727,000 in the
prior year. The $627,000 decrease in costs includes a $644,000 decrease in expenses related to foreclosed real
estate owned. Salaries and benefits costs decreased $81,000 in 2015 while occupancy and equipment costs
decreased $35,000. All other operating expenses increased $133,000, net. The Company’s efficiency ratio, which
measures total other expenses as a percentage of net interest income (fte) plus other income, was 55.9% in 2015
compared to 57.3% in 2014.
Other expenses totaled $17,727,000 for the year ended December 31, 2014 compared to $16,705,000 in the
prior year. The $1,022,000 increase in costs includes a $988,000 increase in expenses related to foreclosed real
estate owned, including properties acquired through foreclosure in 2014. Salaries and benefits costs increased
$169,000, or 2.0%, in 2014 while occupancy and equipment costs decreased $19,000. All other operating
expenses decreased $116,000, net. The Company’s efficiency ratio, which measures total other expenses as a
percentage of net interest income (fte) plus other income, was 57.3% in 2014 due to the increased costs of
foreclosed real estate owned compared to 53.1% in 2013.
INCOME TAXES
Income tax expense for the year ended December 31, 2015 totaled $1,632,000 which resulted in an effective
tax rate of 21.6% compared to $2,606,000 and 25.4% for 2014. The decrease in the effective rate reflects a
higher proportion of tax-exempt income.
Income tax expense for the year ended December 31, 2014 totaled $2,606,000 which resulted in an effective
tax rate of 25.4% compared to $2,706,000 and 24.2% for 2013. The increase in the effective rate reflects a
decrease in tax-exempt income received from earnings and proceeds on bank-owned life insurance policies.
21
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
CAPITAL AND DIVIDENDS
Total stockholders’ equity as of December 31, 2015, was $101.0 million, compared to $99.0 million as of
year-end 2014. The increase was due primarily to a $1.3 million increase from earnings retention after cash
dividends declared of $4.6 million. As of December 31, 2015 the Company had a leverage capital ratio of
12.40%, common equity Tier 1 and Tier 1 risk-based capital ratio of 15.86% and total risk-based capital ratio of
17.09% compared to, 12.58%, 17.33% and 18.49%, respectively, at December 31, 2014.
The Company’s stock is traded on the Nasdaq Global Market under the symbol, NWFL. As of December 31,
2015, there were approximately 2,200 shareholders based on transfer agent mailings.
The following table sets forth the price range and cash dividends declared per share regarding common stock
for the period indicated:
Year 2015
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year 2014
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$
Closing Price Range
High
30.00
30.90
30.64
29.30
Low
27.69
27.88
28.01
27.69
$
$
29.88
29.69
29.46
29.45
$
27.25
27.55
27.55
27.70
$
$
Cash dividends
Declared per share
0.31
0.31
0.31
0.31
0.30
0.30
0.30
0.30
The book value of the common stock was $27.39 per share as of December 31, 2015 compared to $26.30 as of
December 31, 2014. As of year-end 2015, the stock price was $28.75 per share, compared to $29.05 as of
December 31, 2014.
NON-GAAP FINANCIAL MEASURES
This annual report contains or references tax-equivalent interest income and net interest income, which are
non-GAAP financial measures. Tax-equivalent interest income and net interest income are derived from GAAP
interest income and net interest income using an assumed tax rate of 34%. We believe the presentation of
interest income and net interest income on a tax-equivalent basis ensures comparability of interest income and
net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice.
Tax-equivalent net interest income is reconciled to GAAP net interest income on page 25. Although the Company
believes that these non-GAAP financial measures enhance investors’ understanding of our business and
performance, these non-GAAP financial measures should not be considered an alternative to GAAP measures.
22
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORTNORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
STOCK PERFORMANCE GRAPH
Set forth below is a stock performance graph comparing the cumulative total shareholder return on the
Common Stock with (a) the cumulative total stockholder return on stocks included in the Nasdaq Stock Market
index and (b) the cumulative total stockholder return on stocks included in the Nasdaq Bank index, as prepared
by Zack’s Investment Research, Inc. using data from the Center for Research in Securities Prices (CRSP) at the
University of Chicago. All three investment comparisons assume the investment of $100 at the market close on
December 31, 2010 and the reinvestment of dividends paid. The graph provides comparison at December 31,
2010 and each fiscal year through December 31, 2015.
Comparison of 5 Year Cumulative Total Return
Assumes Initial Investment of $100
December 2015
250.00
200.00
150.00
100.00
50.00
0.00
2010
2011
2012
2013
2014
2015
Norwood Financial Corp.
NASDAQ Stock Market (US Companies)
NASDAQ Banks Index
There can be no assurance that the Company’s future stock performance will be the same or similar to the
historical performance shown in the above graph. The Company neither makes nor endorses any predictions as
to stock performance.
Legend
CRSP Total Returns Index for:
Norwood Financial Corp
CRSP Nasdaq U.S. Index
Nasdaq Bank Index
12/31/10
12/31/11
12/31/12 12/31/13 12/31/14
12/31/15
$100.00
$103.26
$116.61
$120.69
$135.86
$140.25
100.00
100.51
118.87
165.68
191.04
100.00
89.43
107.00
153.14
160.92
205.76
175.27
Symbol
♦
■
▲
Notes:
A. Data complete through last fiscal year.
B. Corporate Performance Graph with peer group only performance (excludes only company).
C. Peer group indices use beginning of period market capitalization weighting.
D. Prepared by Zacks Investment Research, Inc. Used with permission. All rights reserved. Copyright 1980-2016
E. Index Data: Calculated (or Derived) based from CRSP NASDAQ Stock Market (US Companies) and CRSP NASDAQ Banks Index, Center for
Research in Security Prices (CRSP®), Graduate School of Business, The University of Chicago. Copyright 2016. Used with permission.
All rights reserved.
23
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP
SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
(Dollars in thousands, except per share amounts)
2015
Interest income
Interest expense
Net interest income
Provision for loan losses
Other income
Net realized gains on sales of securities
Other expense
Income (loss) before income taxes
Income tax expense (benefit)
NET INCOME
Basic earnings per share
Diluted earnings per share
2014
Interest income
Interest expense
Net interest income
Provision for loan losses
Other income
Net realized gains on sales of securities
Other expense
Income before income taxes
Income tax expense
NET INCOME
Basic earnings per share
Diluted earnings per share
December 31 September 30
June 30
March 31
$
6,936
$
6,872
$
6,882
$ 7,088
824
6,112
2,820
1,098
118
4,674
(166)
(294)
819
6,053
720
1,008
63
4,070
2,334
557
833
6,049
420
999
134
4,168
2,594
631
78
6,307
1
620
968
311
4,187
2,779
738
128
$
1,777
$
1,963
$ 2,041
0.04
0.04
$
$
0.48
$
0.53
$
0.55
0.48
$
0.53
$
0.55
$
$
$
December 31 September 30
June 30
March 31
$
6,898
$
6,941
$
6,960
$
6,968
793
6,105
420
1,062
265
4,997
2,015
474
787
6,154
420
961
301
4,124
2,872
754
805
6,155
420
959
509
4,473
2,730
696
823
6,145
420
958
95
4,132
2,646
682
$
1,541
$
2,118
$
2,034
$
1,964
$
$
0.42
0.42
$
$
0.58
0.58
$
$
0.56
$
0.54
0.56
$
0.54
24
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORTNORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP CONSOLIDATED AVERAGE BALANCE SHEETS WITH
RESULTANT INTEREST AND RATES
(Tax-Equivalent Basis, dollars in thousands)
Year Ended December 31
2015
2014
2013
Avg
Rate
0.25%
-
2.06
4.68
3.08
4.61
ASSETS
Average
Balance(2)
Interest (1)
Interest-earning assets:
Interest bearing deposits
with banks
Securities held-to-maturity
Securities available for sale:
Taxable
Tax-exempt
Total securities
available for sale
Loans receivable (3)(4)
Total interest
earning assets
Non-interest earning assets:
Cash and due from banks
Allowance for loan losses
Other assets
TOTAL ASSETS
Total non-interest
earning assets
$ 6,392
-
93,294
59,659
152,953
529,989
$
16
-
1,918
2,792
4,710
24,414
689,334
29,140
4.23
8,638
(5,945)
44,794
47,487
$ 736,821
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest bearing liabilities:
Interest bearing demand
and money market
Savings
Time
Total interest
bearing deposits
Short-term borrowings
Other borrowings
Total interest
bearing liabilities
Non-interest
bearing liabilities:
Non-interest bearing
demand deposits
Other liabilities
Total non-interest
bearing liabilities
TOTAL LIABILITIES AND
Stockholders’ equity
STOCKHOLDERS’ EQUITY
$ 177,104
74,753
209,930
$
301
37
2,083
461,787
34,022
28,742
2,421
85
752
0.17
0.05
0.99
0.52
0.25
2.62
524,551
3,258
0.62
106,601
4,305
110,906
101,364
$ 736,821
Net Interest Income
(tax equivalent basis)
Tax-equivalent basis adjustment
Net Interest Income
Net interest margin
(tax equivalent basis)
3.61%
25,882
(1,361)
$ 24,521
3.75 %
Average
Balance(2)
Interest (1)
Avg
Rate
Average
Balance(2)
Interest (1)
Avg
Rate
$
2,910
57
$
7
5
0.24 %
8.77
$
10,128
174
$
26
14
100,393
57,362
157,755
500,960
2,032
2,856
4,888
24,126
2.02
4.98
3.10
4.82
93,133
59,260
152,393
483,041
1,663
3,008
4,671
24,744
0.26%
8.05
1.79
5.08
3.07
5.12
661,682
29,026
4.39
645,736
29,455
4.56
8,606
(5,832)
45,278
48,052
$ 709,734
$ 174,558
71,612
206,231
452,401
36,514
22,987
9,018
(5,751)
41,697
44,964
$ 690,700
304
35
2,124
2,463
77
668
0.17
0.05
1.03
0.54
0.21
2.91
$ 172,448
69,282
208,847
450,577
30,832
22,076
395
44
2,409
2,848
66
684
0.23
0.06
1.15
0.63
0.21
3.10
511,902
3,208
0.63
503,485
3,598
0.71
96,870
4,262
101,132
96,700
$ 709,734
90,331
4,213
94,544
92,671
$ 690,700
25,818
(1,258)
$ 24,560
3.76 %
3.90 %
25,857
(1,196)
$ 24,661
3.85%
4.00%
1. Interest and yields are presented on a tax-equivalent basis using a marginal tax rate of 34%.
2. Average balances have been calculated based on daily balances.
3. Loan balances include non-accrual loans and are net of unearned income.
4. Loan yields include the effect of amortization of purchased credit marks and deferred fees net of costs.
25
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
RATE/VOLUME ANALYSIS
The following table shows the fully taxable equivalent effect of changes in volumes and rates on interest income
and interest expense.
(dollars in thousands)
Increase/(Decrease)
2015 compared to 2014
Variance due to
2014 compared to 2013
Variance due to
Volume
Rate
Net
Volume
Rate
Net
INTEREST EARNING ASSETS:
Interest bearing deposits
Securities held to maturity
Securities available for sale:
Taxable
Tax-exempt securities
Total securities available
for sale
Loans receivable
Total interest earning assets
INTEREST BEARING LIABILITIES:
Interest-bearing demand
and money market
Savings
Time
Total interest-bearing deposits
Short-term borrowings
Other borrowings
$
8
-
$
1
-
$
9
-
(150)
109
(41)
1,372
1,339
(3)
2
39
38
(6)
162
194
36
(178)
(142)
(1,084)
(1,225)
-
-
(80)
(80)
14
(78)
(144)
(114)
(69)
(183)
288
114
(3)
2
(41)
(42)
8
84
50
Total interest bearing liabilities
$ 1,145
$ (1,081)
$
64
Net interest income
(tax-equivalent basis)
$
(17)
(10)
$
(2)
1
$
(19)
(9)
136
(95)
41
897
911
5
1
(30)
(24)
12
28
16
233
(57)
176
(1,515)
(1,340)
(96)
(10)
(255)
(361)
(1)
(44)
(406)
369
(152)
217
(618)
(429)
(91)
(9)
(285)
(385)
11
(16)
(390)
$
895
$ (934)
$
(39)
Changes in net interest income that could not be specifically identified as either a rate or volume change were
allocated proportionately to changes in volume and changes in rate.
26
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORTNORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
REPORT ON MANAGEMENT’S ASSESSMENT OF INTERNAL
CONTROL OVER FINANCIAL REPORTING
TO THE STOCKHOLDERS OF NORWOOD FINANCIAL CORP
Management of Norwood Financial Corp and its subsidiary (Norwood) is responsible for establishing and
maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Securities Exchange Act of 1934. Norwood’s internal control over financial reporting is designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of the
consolidated financial statements for external purposes in accordance with accounting principles generally
accepted in the United States of America.
Norwood’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of Norwood; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that our receipts and expenditures are being made only in accordance with authorizations of
Norwood’s management and directors; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of Norwood’s assets that could have a material effect
on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Management assessed the effectiveness of Norwood’s internal control over financial reporting as of December
Framework
31, 2015. In making this assessment, management used the criteria established in
Internal Control – Integrated
as set forth by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.
Based upon its assessment, management has concluded that, as of December 31, 2015, the Company's internal
control over financial reporting, including controls over the preparation of regulatory financial statements in
Control – Integrated Framework
accordance with all federal and state laws and regulations, is effective based on the criteria established in
Internal
.
Norwood’s independent registered certified public accounting firm has audited the effectiveness of Norwood’s
internal control over financial reporting. Their report appears on page 28.
Lewis J. Critelli
President and
Chief Executive Officer
William S. Lance
Executive Vice President and
Chief Financial Officer
27
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Norwood Financial Corp.
Honesdale, Pennsylvania
We have audited the accompanying consolidated balance sheets of Norwood Financial Corp. and subsidiaries as
of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income,
stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2015.
These consolidated financial statements are the responsibility of Norwood Financial Corp.’s management. Our
responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Norwood Financial Corp. and subsidiaries as of December 31, 2015 and
2014, and the consolidated results of their operations and their cash flows for each of the three years in the
period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), Norwood Financial Corp. and subsidiaries' internal control over financial reporting as of
December 31, 2015, based on criteria established in
Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 15,
2016, expressed an unqualified opinion on the effectiveness of Norwood Financial Corp.’s internal control over
Internal Control — Integrated Framework
issued by the
financial reporting.
Wexford, Pennsylvania
March 15, 2016
28
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORTNORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Norwood Financial Corp.
Honesdale, Pennsylvania
Internal Control — Integrated Framework
We have audited Norwood Financial Corp. and subsidiaries' internal control over financial reporting as of December 31,
issued by the Committee of Sponsoring
2015, based on criteria established in
Organizations of the Treadway Commission ("COSO") in 2013. Norwood Financial Corp.’s management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting included in the accompanying Report on Management's Assessment of Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on Norwood Financial Corp.'s internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded,
as necessary, to permit preparation of financial statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Norwood Financial Corp. maintained, in all material respects, effective internal control over financial
Internal Control — Integrated Framework
reporting as of December 31, 2015, based on criteria established in
in 2013.
issued by COSO
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated balance sheets of Norwood Financial Corp. and subsidiaries as of December 31, 2015, and the related
consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for the year then ended, and
our report dated March 15, 2016, expressed an unqualified opinion.
Wexford, Pennsylvania
March 15, 2016
29
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
CONSOLIDATED BALANCE SHEETS
ASSETS
Cash and due from banks
Interest bearing deposits with banks
Cash and cash equivalents
Securities available for sale
Loans receivable (net of allowance for loan losses 2015: $7,298; 2014: $5,875)
Regulatory stock, at cost
Premises and equipment, net
Bank owned life insurance
Accrued interest receivable
Foreclosed real estate owned
Goodwill
Other intangibles
Deferred tax asset
Other assets
Total Assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits:
Non-interest bearing demand
Interest-bearing demand
Money market deposit accounts
Savings
Time
Total Deposits
Short-term borrowings
Other borrowings
Accrued interest payable
Other liabilities
Total Liabilities
STOCKHOLDERS’ EQUITY
Common stock, $.10 par value, authorized 10,000,000 shares,
issued: 2015: 3,724,668 shares, 2014: 3,718,018 shares
Surplus
Retained earnings
Treasury stock at cost: 2015: 23,311 shares, 2014: 40,576 shares
Accumulated other comprehensive income
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
See notes to consolidated financial statements
30
December 31,
2015
2014
(In Thousands, Except Share
and Per Share Data)
$
9,744
266
10,010
138,851
552,627
3,412
6,472
18,820
2,363
2,847
9,715
285
3,669
1,434
$ 750,505
$ 107,814
52,040
119,028
75,280
196,747
550,909
53,235
41,126
957
3,280
649,507
373
35,351
65,412
(626)
488
100,998
$ 750,505
$
8,081
4,295
12,376
156,395
495,260
1,714
6,734
18,284
2,339
3,726
9,715
389
3,285
1,418
$ 711,635
$
98,064
46,441
120,603
73,004
221,832
559,944
25,695
22,200
966
3,789
612,594
372
35,206
64,078
(1,077)
462
99,041
$ 711,635
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORTNORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
CONSOLIDATED STATEMENTS OF INCOME
INTEREST INCOME
Loans receivable, including fees
Securities
Taxable
Tax exempt
Other
Total Interest Income
INTEREST EXPENSE
Deposits
Short-term borrowings
Other borrowings
Total Interest Expense
Net Interest Income
PROVISION FOR LOAN LOSSES
Net Interest Income After Provision for Loan Losses
OTHER INCOME
Service charges and fees
Income from fiduciary activities
Net realized gains on sales of securities
Net gain on sale of loans and servicing rights
Earnings and proceeds on life insurance policies
Other
Total Other Income
OTHER EXPENSES
Salaries and employee benefits
Occupancy
Furniture and equipment
Data processing related operations
Federal Deposit Insurance Corporation insurance assessment
Advertising
Professional fees
Postage and telephone
Taxes, other than income
Foreclosed real estate
Amortization of intangible asssets
Other
Total Other Expenses
Income before Income Taxes
INCOME TAX EXPENSE
Net income
EARNINGS PER SHARE
BASIC
DILUTED
See notes to consolidated financial statements
31
2015
Years Ended December 31,
2013
2014
(In Thousands, Except per Share Data)
$
24,002
1,918
1,843
16
27,779
2,421
85
752
3,258
24,521
4,580
19,941
2,440
439
626
104
665
425
4,699
8,535
1,660
422
943
411
240
730
436
711
911
105
1,996
17,100
7,540
1,632
5,908
1.60
1.60
$
23,841
$
24,576
2,032
1,888
7
1,662
1,995
26
27,768
28,259
2,463
77
668
2,848
66
684
3,208
3,598
24,560
24,661
1,680
2,400
22,880
22,261
2,350
437
1,170
132
685
336
2,412
379
881
112
1,386
445
5,110
5,615
8,616
1,676
441
929
420
224
671
414
649
1,555
121
2,011
17,727
8,447
1,598
538
891
444
208
626
435
710
567
137
2,104
16,705
10,263
11,171
2,606
7,657
2.10
2.10
2,706
8,465
2.33
2.33
$
$
$
$
$
$
$
$
$
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
NET INCOME
$
Years Ended December 31,
2014
2013
2015
5,908
$
7,657
$
8,465
Other comprehensive income (loss):
Investment securities available for sale:
Unrealized holding gains (losses)
Tax Effect
Reclassification of gains from sale of securities
Net of tax amount
Tax Effect
656
(217)
(626)
213
26
COMPREHENSIVE INCOME
$
5,934
5,820
(1,984)
(1,170)
398
3,064
$
10,721
$
(7,299)
2,481
(881)
300
(5,399)
3,066
See notes to consolidated financial statements .
32
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORTNORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years Ended December 31, 2015, 2014 and 2013
Common Stock
Shares
Amount
Surplus
Retained Treasury Stock
Shares
Earnings
Amount
(Dollars in Thousands, Except Per Share Data)
Accumulated
Other
Comprehensive
Income (Loss)
Total
BALANCE - DECEMBER 31, 2012
Net Income
Other comprehensive loss
Cash dividends declared ($1.16 per share)
Acquisition of treasury stock
Stock options exercised
Tax benefit on stock options exercised
Sale of treasury stock for ESOP
Compensation expense related to
stock options
Stock dividend declared-10%
BALANCE - DECEMBER 31, 2013
Net Income
Other comprehensive income
Cash dividends declared ($1.20 per share)
Acquisition of treasury stock
Stock options exercised
Tax benefit on stock options exercised
Sale of treasury stock for ESOP
Compensation expense related to
stock options
Restricted stock awards
BALANCE - DECEMBER 31, 2014
Net Income
Other comprehensive income
Cash dividends declared ($1.24 per share)
Acquisition of treasury stock
Stock options exercised
Tax benefit on stock options exercised
Sale of treasury stock for ESOP
Compensation expense related to
stock options
BALANCE - DECEMBER 31, 2015
Restricted stock awards
3,371,849
-
-
-
-
-
-
-
-
336,869
3,708,718
-
-
-
-
-
-
-
-
9,300
-
3,718,018
-
-
-
-
-
-
$
337
-
-
-
-
-
-
-
-
34
371
-
-
-
-
-
-
-
-
1
-
372
-
-
-
-
-
-
$
24,737
-
-
-
-
(79)
39
2
162
10,149
35,010
-
-
-
-
13
17
13
154
(1)
-
35,206
-
-
-
(9)
16
10
$
$
66,742
8,465
-
(4,216)
-
-
-
-
75,426
-
-
-
10,712
(24,127)
-
(5,426)
-
(10,193)
-
8,043
60,798
7,657
-
(4,377)
-
-
-
-
-
-
5,908
64,078
-
(4,574)
-
-
-
-
64,628
-
-
-
6,669
(25,577)
-
(5,144)
-
-
-
40,576
-
-
4,374
(16,859)
-
(5,060)
$
(2,192)
-
-
-
(319)
654
-
144
-
-
(1,713)
-
-
-
(179)
678
-
137
-
-
-
(1,077)
-
-
(127)
450
-
136
-
6,650
3,724,668
-
1
$ 373
66
62
$ 35,351
-
-
$ 65,412
-
280
23,311
$
-
(8)
(626)
$
2,797
-
(5,399)
-
-
-
-
-
-
-
(2,602)
-
3,064
-
-
-
-
-
-
-
-
462
26
-
-
-
-
-
-
-
488
$
92,421
8,465
(5,399)
(4,216)
(319)
575
39
146
162
(10)
91,864
7,657
3,064
(4,377)
(179)
691
17
150
154
-
5,908
99,041
26
(4,574)
(127)
441
16
146
66
55
$ 100,998
See notes to consolidated financial statements .
33
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
CONSOLIDATED STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses
Depreciation
Amortization of intangible assets
Deferred income taxes
Net amortization of securities premiums and discounts
Net realized gains on sales of securities
Earnings and proceeds on life insurance policies
Loss on sales of fixed assets and foreclosed real estate owned
Net gain on sale of mortgage loans
Mortgage loans originated for sale
Proceeds from sale of mortgage loans originated for sale
Compensation expense related to stock options
Compensation expense related to restricted stock
Decrease in accrued interest receivable and other assets
(Decrease) increase in accrued interest payable and other liabilities
Net Cash Provided by Operating Activities
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale:
Proceeds from sales
Proceeds from maturities and principal reductions on
mortgage-backed securities
Purchases
Proceeds from maturities on securities held-to-maturity
Purchase of regulatory stock
Redemption of regulatory stock
Net increase in loans
Proceeds from bank-owned life insurance
Purchase of bank-owned life insurance
Purchase of premises and equipment
Proceeds from sales of foreclosed real estate owned and fixed assets
Net Cash (Used in) Provided by Investing Activities
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in deposits
Net increase (decrease) increase in short-term borrowings
Repayments of other borrowings
Proceeds from other borrowings
Stock options exercised
Tax benefit of stock options exercised
ESOP purchase of shares from treasury stock
Purchase of treasury stock
Cash dividends paid
Net Cash Provided by (Used in) Financing Activities
Years Ended December 31,
2014
2013
2015
(In Thousands)
$
5,908
$
7,657
$
8,465
4,580
551
105
(387)
936
(626)
(665)
427
(113)
(4,297)
4,410
66
55
113
(565)
10,498
44,976
22,853
(50,565)
(4,095)
-
2,397
(65,830)
-
(290)
-
4,310
(46,244)
9,035)
27,540
(
(10,074)
29,000
441
16
146
(127)
(4,527)
33,380
1,680
572
121
(51)
860
(1,170)
(685)
920
(150)
(4,269)
4,419
154
-
238
235
2,400
594
137
140
1,057
(881)
(617)
347
(112)
(3,986)
4,053
162
-
759
173
10,531
12,691
66,263
42,348
14,859
(74,426)
175
(1,963)
3,126
(4,270)
75
-
(193)
1,045
21,142
(84,589)
-
(741)
494
(29,515)
1,089
(3,000)
(393)
508
4,691
(52,657)
18,762
(24,219)
(1,561)
-
691
17
150
(179)
(4,370)
16,757
21,217
(5,726)
7,000
575
39
146
(319)
(4,155)
Net (Decrease) Increase in Cash and Cash Equivalents
(2,366)
(10,709)
35,534
CASH AND CASH EQUIVALENTS – BEGINNING
CASH AND CASH EQUIVALENTS – ENDING
12,376
10,010
$
4,513
(4,432)
7,863
12,376
12,295
7,863
$
$
34
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORTNORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31,
2014
2013
2015
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest paid
Income taxes paid, net of refunds
Supplemental Schedule of Noncash Investing Activities
Transfers of loans to foreclosed real estate owned
and repossession of other assets
Dividends payable
(In Thousands)
$
$
$
$
3,267
2,315
3,880
1,147
$
$
$
$
3,264
2,645
$
$
3,818
2,417
4,704
1,100
$
1,012
$ 1,093
See notes to consolidated financial statements .
35
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS
Norwood Financial Corp (Company) is a one bank holding company. Wayne Bank (Bank) is a wholly-owned
subsidiary of the Company. The Bank is a state-chartered bank located in Honesdale, Pennsylvania. The Company
derives substantially all of its income from the bank related services which include interest earnings on
commercial mortgages, residential real estate mortgages, commercial and consumer loans, as well as interest
earnings on investment securities and fees from deposit services to its customers. The Company is subject to
regulation and supervision by the Federal Reserve Board while the Bank is subject to regulation and supervision
by the Federal Deposit Insurance Corporation and the Pennsylvania Department of Banking and Securities.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary,
the Bank, and the Bank’s wholly-owned subsidiaries, WCB Realty Corp., Norwood Investment Corp., Norwood
Settlement Services, LLC and WTRO Properties. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could
differ from those estimates. Material estimates that are particularly susceptible to significant change in the near
term relate to the determination of the allowance for loan losses, the valuation of deferred tax assets, the
determination of other-than-temporary impairment on securities, the determination of goodwill impairment and
the fair value of financial instruments.
Significant Group Concentrations of Credit Risk
Most of the Company’s activities are with customers located within northeastern Pennsylvania. Note 3
discusses the types of securities that the Company invests in. Note 4 discusses the types of lending that the
Company engages in. The Company does not have any significant concentrations to any one industry or customer.
Concentrations of Credit Risk
The Bank operates primarily in Wayne, Pike, Lackawanna and Monroe Counties, Pennsylvania and, accordingly,
has extended credit primarily to commercial entities and individuals in this area whose ability to honor their
contracts is influenced by the region’s economy. These customers are also the primary depositors of the Bank.
The Bank is limited in extending credit by legal lending limits to any single borrower or group of borrowers.
Securities
Securities classified as available for sale are those securities that the Company intends to hold for an indefinite
period of time but not necessarily to maturity. Any decision to sell a security classified as available for sale would
be based on various factors, including significant movement in interest rates, changes in maturity mix of the
Company’s assets and liabilities, liquidity needs, regulatory capital considerations and other similar factors.
Securities available for sale are carried at fair value. Unrealized gains and losses are reported in other
comprehensive income, net of the related deferred tax effect. Realized gains or losses, determined on the basis of
the cost of the specific securities sold, are included in earnings. Premiums and discounts are recognized in
interest income using a method which approximates the interest method over the term of the security.
36
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORTNORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Bonds, notes and debentures for which the Company has the positive intent and ability to hold to maturity are
reported at cost, adjusted for premiums and discounts that are recognized in interest income using the interest
method over the term of the security.
Management determines the appropriate classification of debt securities at the time of purchase and
re-evaluates such designation as of each Consolidated Balance Sheet date.
Declines in the fair value of held to maturity and available for sale securities below their cost that are deemed
to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary
impairment losses, management considers (1) the length of time and the extent to which the fair value has been
less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent of the Company
to not sell the securities and it is more likely than not that it will not have to sell the securities before recovery of
their cost basis.
The Company, as a member of the Federal Home Loan Bank (FHLB) system is required to maintain an
investment in capital stock of its district FHLB according to a predetermined formula. This regulatory stock has
no quoted market value and is carried at cost.
Management evaluates the regulatory stock for impairment. Management’s determination of whether these
investments are impaired is based on their assessment of the ultimate recoverability of their cost rather than by
recognizing temporary declines in value. The determination of whether a decline affects the ultimate
recoverability of their cost is influenced by criteria such as (1) the significance of the decline in net assets of the
FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted,
(2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in
relation to the operating performance of the FHLB, and (3) the impact of legislative and regulatory changes on
institutions and, accordingly, on the customer base of the FHLB. Management considers the FHLB’s regulatory
capital ratios, liquidity, and the fact that new shares of FHLB stock continue to change hands at the $100 par
value. Management believes no impairment charge is necessary related to FHLB stock as of December 31, 2015.
Loans Receivable
Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity
or payoff are stated at their outstanding unpaid principal balances, net of an allowance for loan losses and any
deferred fees. Interest income is accrued on the unpaid principal balance. Loan origination fees are deferred and
recognized as an adjustment of the yield (interest income) of the related loans. The Company is generally
amortizing these amounts over the contractual life of the loan.
The accrual of interest is generally discontinued when the contractual payment of principal or interest has
become 90 days past due or management has serious doubts about further collectability of principal or interest,
even though the loan is currently performing. A loan may remain on accrual status if it is in the process of
collection and is either guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid interest
credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against
the allowance for loan losses. Interest received on nonaccrual loans generally is either applied against principal
or reported as interest income, according to management’s judgment as to the collectability of principal.
Generally, loans are restored to accrual status when the obligation is brought current, has performed in
accordance with the contractual terms for a reasonable period of time and the ultimate collectability of the total
contractual principal and interest is no longer in doubt.
37
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Troubled Debt Restructurings
A loan is considered to be a troubled debt restructuring (TDR) loan when the Company grants a concession to
the borrower because of the borrower’s financial condition that it would not otherwise consider. Such concessions
include the reduction of interest rates, forgiveness of principal or interest, or other modifications of interest rates
that are less than the current market rate for new obligations with similar risk.
Loans Acquired
Loans acquired including loans that have evidence of deterioration of credit quality since origination and for
which it is probable, at acquisition, that the Company will be unable to collect all contractually required payments
receivable, are initially recorded at fair value (as determined by the present value of expected future cash flows)
with no valuation allowance. Loans are evaluated individually to determine if there is evidence of deterioration
of credit quality since origination. The difference between the undiscounted cash flows expected at acquisition
and the investment in the loan, or the “accretable yield,” is recognized as interest income on a level-yield method
over the life of the loan. Contractually required payments for interest and principal that exceed the undiscounted
cash flows expected at acquisition, or the “non-accretable difference,” are not recognized as a yield adjustment or
as a loss accrual or a valuation allowance. Increases in expected cash flows subsequent to the initial investment
are recognized prospectively through adjustment of the yield on the loan over its remaining estimated life.
Decreases in expected cash flows are recognized immediately as impairment. Any valuation allowances on these
impaired loans reflect only losses incurred after the acquisition.
For purchased loans acquired that are not deemed impaired at acquisition, credit discounts representing the
principal losses expected over the life of the loan are a component of the initial fair value. Loans may be
aggregated and accounted for as a pool of loans if the loans being aggregated have common risk characteristics.
Subsequent to the purchase date, the methods utilized to estimate the required allowance for credit losses for
these loans is similar to originated loans; however, the Company records a provision for loan losses only when the
required allowance exceeds any remaining credit discounts. The remaining differences between the purchase
price and the unpaid principal balance at the date of acquisition are recorded in interest income over the life of
the loans.
Mortgage Servicing Rights
Servicing assets are recognized as separate assets when rights are acquired through purchase or through the
sale of financial assets. Capitalized servicing rights are reported in other assets and are amortized into noninterest
income in proportion to, and over the period of, the estimated future net servicing income of the underlying
financial assets. Servicing assets are evaluated for impairment based upon a third party appraisal. Fair value is
determined using prices for similar assets with similar characteristics, when available, or based upon discounted
cash flows using market-based assumptions. Impairment is recognized through a valuation allowance to the extent
that fair value is less than the capitalized amount. The Company’s loan servicing assets at December 31, 2015 and
2014, respectively, were not impaired. Total servicing assets included in other assets as of December 31, 2015 and
2014, were $261,000 and $271,000, respectively.
Allowance for Loan Losses
The allowance for loan losses is established through provisions for loan losses charged against income.
Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if
any, are credited to the allowance.
38
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORTNORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be
reasonably anticipated. Management’s periodic evaluation of the adequacy of the allowance is based on the
Company’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect
the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio,
current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires
material estimates that may be susceptible to significant revision as more information becomes available.
The allowance consists of specific and general components. The specific component relates to loans that are
classified as substandard. For such loans that are also classified as impaired, an allowance is established when the
discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the
carrying value of that loan. The general component covers non-classified loans and is based on historical loss
experience adjusted for qualitative factors.
A loan is considered impaired when, based on current information and events, it is probable that the Company
will be unable to collect the scheduled payments of principal or interest when due according to the contractual
terms of the loan agreement. Factors considered by management in determining impairment include payment
status, collateral value and the probability of collecting scheduled principal and interest payments when due.
Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking
into consideration all of the circumstances surrounding the loan and the borrower, including the length of the
delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to
the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction
loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the
loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent.
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the
Company does not separately identify individual consumer and residential real estate loans for impairment
disclosures, unless such loans were acquired with impairment or are the subject of a restructuring agreement.
Premises and Equipment
Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Depreciation
Years
expense is calculated principally on the straight-line method over the respective assets estimated useful lives
as follows:
Buildings and improvements
Furniture and equipment
Transfers of Financial Assets
10 - 40
3 - 10
Transfers of financial assets, including loan and loan participation sales, are accounted for as sales, when control
over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the
assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain
it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the Company does not
maintain effective control over the transferred assets through an agreement to repurchase them before their
maturity or the ability to unilaterally cause the holder to return specific assets.
39
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Foreclosed Real Estate
Real estate properties acquired through, or in lieu of, loan foreclosure are to be sold and are initially recorded at
fair value less cost to sell at the date of foreclosure establishing a new cost basis. After foreclosure, valuations are
periodically performed by management and the real estate is carried at the lower of its carrying amount or fair
value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included
in other expenses.
Bank Owned Life Insurance
The Company invests in bank owned life insurance (BOLI) as a source of funding for employee benefit expenses.
BOLI involves the purchasing of life insurance by the Bank on a select group of employees. The Company is the
owner and beneficiary of the policies. This life insurance investment is carried at the cash surrender value of the
underlying policies. Income from the increase in cash surrender value of the policies or from death benefits
realized is included in other income on the Consolidated Statements of Income.
Goodwill
In connection with an acquisition the Company recorded goodwill in the amount of $9.7 million, representing
the excess of amounts paid over the fair value of net assets of the institutions acquired. Goodwill is tested and
deemed impaired when the carrying value of goodwill exceeds its implied fair value. The value of the goodwill
can change in the future. We expect the value of the goodwill to decrease if there is a significant decrease in the
franchise value of the Bank. If an impairment loss is determined in the future, we will reflect the loss as an
expense for the period in which the impairment is determined, leading to a reduction of our net income for that
period by the amount of the impairment loss.
No impairment was recognized for the years ended December 31, 2015, 2014 and 2013.
Intangible Assets
At December 31, 2015, the Company had intangible assets of $285,000 which is net of accumulated
amortization of $610,000. These intangible assets will continue to be amortized using the sum-of-the-years
digits method of amortization over ten years. At December 31, 2014, the Company had intangible assets of
$389,000 which is net of accumulated amortization of $506,000. Amortization expense related to intangible
assets was $105,000, $121,000 and $137,000 for the years ended December 31, 2015, 2014 and 2013.
As of December 31, 2015, the estimated future amortization expense for the core deposit intangible was:
Income Taxes
2016
2017
2018
2019
2020
2021
$
88,000
72,000
56,000
39,000
23,000
7,000
$ 285,000
Deferred income tax assets and liabilities are determined based on the differences between financial statement
carrying amounts and the tax basis of existing assets and liabilities. These differences are measured at the
enacted tax rates that will be in effect when these differences reverse. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than not that some portion of the
deferred tax assets will not be realized. As changes in tax laws or rates are enacted, deferred tax assets and
40
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORTNORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
liabilities are adjusted through the provision for income taxes. The Company and its subsidiary file a consolidated
federal income tax return. The Company recognizes interest and penalties on income taxes as a component of
income tax expense.
The Company analyzes each tax position taken in its tax returns and determines the likelihood that the position
will be realized. Only tax positions that are “more-likely-than-not” to be realized can be recognized in an entity’s
financial statements. For tax positions that do not meet this recognition threshold, an entity will record an
unrecognized tax benefit for the difference between the position taken on the tax return and the amount
recognized in the financial statements. The Company does not have any unrecognized tax benefits at December 31,
2015 or 2014 or during the years then ended. No unrecognized tax benefits are expected to arise within the next
Advertising Costs
twelve months.
Earnings per Share
Advertising costs are expensed as incurred.
Basic earnings per share represents income available to common stockholders divided by the weighted average
number of common shares outstanding during the period less any unvested restricted shares. Diluted earnings per
share reflects additional common shares that would have been outstanding if dilutive potential common shares
had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential
common shares that may be issued by the Company relate solely to outstanding stock options and are determined
Stock Option Plans
using the treasury stock method. Treasury shares are not deemed outstanding for earnings per share calculations.
The Company recognizes the value of share-based payment transactions as compensation costs in the financial
statements over the period that an employee provides service in exchange for the award. The fair value of the
share-based payments for stock options is estimated using the Black-Scholes option-pricing model. The Company
used the modified-prospective transition method to record compensation expense. Under the modified
prospective method, companies are required to record compensation cost for new and modified awards over the
related vesting period of such awards and record compensation cost prospectively for the unvested portion, at
the date of adoption, of previously issued and outstanding awards over the remaining vesting period of such
awards. No change to prior periods presented is permitted under the modified prospective method.
Restricted Stock
The Company recognizes compensation cost related to restricted stock based on the market price of the stock
at the grant date over the vesting period. The product of the number of shares granted and the grant date market
price of the Company’s common stock determines the fair value of restricted stock under the Company’s 2014
Equity Incentive Plan. The Company recognizes compensation expense for the fair value of the restricted stock
on a straight-line basis over the requisite service period for the entire award.
Cash Flow Information
For the purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from
banks, interest-bearing deposits with banks and federal funds sold.
Off-Balance Sheet Financial Instruments
In the ordinary course of business, the Company has entered into off-balance sheet financial instruments
consisting of commitments to extend credit, letters of credit and commitments to sell loans. Such financial
instruments are recorded on the balance sheets when they become receivable or payable.
41
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Trust Assets
Assets held by the Company in a fiduciary capacity for customers are not included in the financial statements
since such items are not assets of the Company. Trust income is reported on the accrual method.
Treasury Stock
Common shares repurchased are recorded as treasury stock at cost.
Comprehensive Income
Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net
income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for
sale securities, are reported as a separate component of the equity section of the balance sheet. Such items, along
with net income, are components of comprehensive income as presented in the Consolidated Statement of
Comprehensive Income.
Segment Reporting
The Company acts as an independent community financial service provider and offers traditional banking
related financial services to individual, business and government customers. Through its branch and automated
teller machine network, the Company offers a full array of commercial and retail financial services, including the
taking of time, savings and demand deposits; the making of commercial, consumer and mortgage loans; and the
providing of safe deposit services. The Company also performs personal, corporate, pension and fiduciary
services through its Trust Department.
Management does not separately allocate expenses, including the cost of funding loan demand, between the
commercial, retail, mortgage banking and trust operations of the Company. As such, discrete information is not
available and segment reporting would not be meaningful.
New Accounting Standards
In January 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) 2014-01, Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in
Qualified Affordable Housing Projects. The amendments in this Update permit reporting entities to make an
accounting policy election to account for their investments in qualified affordable housing projects using the
proportional amortization method if certain conditions are met. Under the proportional amortization method, an
entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received
and recognizes the net investment performance in the income statement as a component of income tax expense
(benefit). The amendments in this Update should be applied retrospectively to all periods presented. A reporting
entity that uses the effective yield method to account for its investments in qualified affordable housing projects
before the date of adoption may continue to apply the effective yield method for those preexisting investments.
The amendments in this Update are effective for public business entities for annual periods and interim reporting
periods within those annual periods, beginning after December 15, 2014. Early adoption is permitted.
This Update did not have a significant impact on the Company’s financial statements.
In January 2014, the FASB issued ASU 2014-04, Receivables – Troubled Debt Restructurings by Creditors
(Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon
Foreclosure. The amendments in this Update clarify that an in substance repossession or foreclosure occurs, and
a creditor is considered to have received physical possession of residential real estate property collateralizing a
consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property
42
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORTNORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property
to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal
agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of
foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer
mortgage loans collateralized by residential real estate property that are in the process of foreclosure according
to local requirements of the applicable jurisdiction. The amendments in this Update are effective for public
business entities for annual periods, and interim periods within those annual periods, beginning after December
15, 2014. An entity can elect to adopt the amendments in this Update using either a modified retrospective
transition method or a prospective transition method. The Company has included the disclosures related to this
Update in Note 4.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new revenue
recognition standard). The Update’s core principle is that a company will recognize revenue to depict the transfer
of goods or services to customers in an amount that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. In addition, this update specifies the accounting for certain costs
to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition.
This Update is effective for annual reporting periods beginning after December 15, 2016, including interim
periods within that reporting period. The Company is evaluating the effect of adopting this new accounting Update.
In June 2014, the FASB issued ASU 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity
Transactions, Repurchase Financings, and Disclosures. The amendments in this Update change the accounting
for repurchase-to-maturity transactions to secured borrowing accounting. For repurchase financing
arrangements, the amendments require separate accounting for a transfer of a financial asset executed
contemporaneously with a repurchase agreement with the same counterparty, which will result in secured
borrowing accounting for the repurchase agreement. The amendments also require enhanced disclosures.
The accounting changes in this Update are effective for the first interim or annual period beginning after
December 15, 2014. An entity is required to present changes in accounting for transactions outstanding on the
effective date as a cumulative-effect adjustment to retained earnings as of the beginning of the period of
adoption. Earlier application is prohibited. The disclosure for certain transactions accounted for as a sale is
required to be presented for interim and annual periods beginning after December 15, 2014, and the disclosure
for repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions accounted
for as secured borrowings is required to be presented for annual periods beginning after December 15, 2014, and
for interim periods beginning after March 15, 2015. The disclosures are not required to be presented for
comparative periods before the effective date. The Company has included the disclosures related to this Update
in Note 7.
In June 2014, the FASB issued ASU 2014-12, Compensation – Stock Compensation(Topic 718): Accounting for
Share-Based Payments when the Terms of an Award Provide that a Performance Target Could Be Achieved After
the Requisite Service Period. The amendments require that a performance target that affects vesting and that
could be achieved after the requisite service period be treated as a performance condition. The amendments in
this Update are effective for annual periods and interim periods within those annual periods beginning after
December 15, 2015. Earlier adoption is permitted. Entities may apply the amendments in this Update either (a)
prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with
performance targets that are outstanding as of the beginning of the earliest annual period presented in the
financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the
cumulative effect of applying this Update as of the beginning of the earliest annual period presented in the
43
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
financial statements should be recognized as an adjustment to the opening retained earnings balance at that date.
Additionally, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing the
compensation cost. This Update is not expected to have a significant impact on the Company’s financial statements.
In August 2014, the FASB issued ASU 2014-14, Receivables – Troubled Debt Restructurings by Creditors
(Subtopic 310-40). The amendments in this Update require that a mortgage loan be derecognized and that a
separate other receivable be recognized upon foreclosure if the following conditions are met: (1) the loan has a
government guarantee that is not separable from the loan before foreclosure, (2) at the time of foreclosure, the
creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee,
and the creditor has the ability to recover under that claim, and (3) at the time of foreclosure, any amount of the
claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate
other receivable should be measured based on the amount of the loan balance (principal and interest) expected
to be recovered from the guarantor. The amendments in this Update are effective for public business entities for
annual periods, and interim periods within those annual periods, beginning after December 15, 2014. This Update
did not have a significant impact on the Company’s financial statements.
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern (Subtopic
205-40). The amendments in this Update provide guidance in accounting principles generally accepted in the
United States of America about management’s responsibility to evaluate whether there is substantial doubt about
an entity’s ability to continue as a going concern and to provide related footnote disclosures. The amendments in
this Update are effective for the annual period ending after December 15, 2016, and for annual periods and
interim periods thereafter. Early application is permitted. This Update is not expected to have a significant
impact on the Company’s financial statements.
In November 2014, the FASB issued ASU 2014-16, Derivatives and Hedging (Topic 815): Determining Whether
the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to
Equity (a consensus of the FASB Emerging Issues Task Force). This Update clarifies how current U.S. GAAP
should be interpreted in subjectively evaluating the economic characteristics and risks of a host contract in a
hybrid financial instrument that is issued in the form of a share. Public business entities are required to
implement the new requirements in fiscal years and interim periods within those fiscal years beginning
after December 15, 2015. This Update is not expected to have a significant impact on the Company’s
financial statements.
In November 2014, the FASB issued ASU 2014-17, Business Combinations (Topic 805): Pushdown Accounting.
The amendments in this Update apply to the separate financial statements of an acquired entity and its
subsidiaries that are a business or nonprofit activity (either public or nonpublic) upon the occurrence of an event
in which an acquirer (an individual or an entity) obtains control of the acquired entity. An acquired entity may
elect the option to apply pushdown accounting in the reporting period in which the change-in-control event
occurs. If pushdown accounting is not applied in the reporting period in which the change-in-control event
occurs, an acquired entity will have the option to elect to apply pushdown accounting in a subsequent reporting
period to the acquired entity’s most recent change-in-control event. The amendments in this Update are effective
on November 18, 2014. After the effective date, an acquired entity can make an election to apply the guidance to
future change-in-control events or to its most recent change-in-control event. This Update is not expected to have
a significant impact on the Company’s financial statements.
44
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORTNORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In January 2015, the FASB issued ASU 2015-01, Income Statement – Extraordinary and Unusual Items, as part of
its initiative to reduce complexity in accounting standards. This Update eliminates from U.S. GAAP the concept of
extraordinary items. The amendments in this Update are effective for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively.
A reporting entity may also apply the amendments retrospectively to all prior periods presented in the financial
statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year
of adoption. This Update is not expected to have a significant impact on the Company’s financial statements.
In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810). The amendments in this Update
affect reporting entities that are required to evaluate whether they should consolidate certain legal entities.
All legal entities are subject to reevaluation under the revised consolidation model. Specifically, the amendments
(1) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities
(“VIEs”) or voting interest entities; (2) eliminate the presumption that a general partner should consolidate a
limited partnership; (3) affect the consolidation analysis of reporting entities that are involved with VIEs,
particularly those that have fee arrangements and related-party relationships; and (4) provide a scope exception
from consolidation guidance for reporting entities with interests in legal entities that are required to comply with
or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act
of 1940 for registered money market funds. The amendments in this Update are effective for public business
entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015.
For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15,
2016, and for interim periods within fiscal years beginning after December 15, 2017. This Update is not expected
to have a significant impact on the Company’s financial statements.
In April 2015, the FASB issued ASU 2015-03, Interest – Imputation of Interest (Subtopic 835-30), as part of its
initiative to reduce complexity in accounting standards. To simplify presentation of debt issuance costs, the
amendments in this Update require that debt issuance costs related to a recognized debt liability be presented in
the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt
discounts. The recognition and measurement guidance for debt issuance costs are not affected by the
amendments in this Update. For public business entities, the amendments in this Update are effective for
financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those
fiscal years. For all other entities, the amendments in this Update are effective for financial statements issued for
fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December
15, 2016. An entity should apply the new guidance on a retrospective basis, wherein the balance sheet of each
individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance.
This Update is not expected to have a significant impact on the Company’s financial statements.
In May 2015, the FASB issued ASU 2015-08, Business Combinations – Pushdown Accounting – Amendment to
SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 115. This Update was issued to amend various SEC
paragraphs pursuant to the issuance of Staff Accounting Bulletin No. 115. This Update is not expected to have a
significant impact on the Company’s financial statements.
In June 2015, the FASB issued ASU 2015-10, Technical Corrections and Improvements. The amendments in this
Update represent changes to clarify the FASB Accounting Standards Codification (“Codification”), correct
unintended application of guidance, or make minor improvements to the Codification that are not expected to
45
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
have a significant effect on current accounting practice or create a significant administrative cost to most entities.
Transition guidance varies based on the amendments in this Update. The amendments in this Update that require
transition guidance are effective for all entities for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period.
All other amendments will be effective upon the issuance of this Update. This Update is not expected to have a
significant impact on the Company’s financial statements.
In August 2015, the FASB issued ASU 2015-14, Revenue from Contract with Customers (Topic 606).
The amendments in this Update defer the effective date of ASU 2014-09 for all entities by one year. Public
business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance
in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting
periods within that reporting period. All other entities should apply the guidance in ASU 2014-09 to annual
reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting
periods beginning after December 15, 2019. The Company is evaluating the effect of adopting this new
accounting Update.
In August 2015, the FASB issued ASU 2015-15, Interest – Imputation of Interest (Subtopic 835-30):
Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements
Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting. This Update
adds SEC paragraphs pursuant to the SEC Staff Announcement at the June 18, 2015 Emerging Issues Task Force
meeting about the presentation and subsequent measurement of debt issuance costs associated with line-of-
credit arrangements. This Update is not expected to have a significant impact on the Company’s financial statements.
In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805). The amendments in
this Update require that an acquirer recognizes adjustments to provisional amounts that are identified during the
measurement period in the reporting period in which the adjustment amounts are determined. The amendments
in this Update require that the acquirer record, in the same period’s financial statements, the effect on earnings of
changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional
amounts, calculated as if the accounting had been completed at the acquisition date. The amendments in this
Update require an entity to present separately on the face of the income statement or disclose in the notes the
portion of the amount recorded in current-period earnings by line item that would have been recorded in
previous reporting periods if the adjustment to the provisional amounts had been recognized as of the
acquisition date. For public business entities, the amendments in this Update are effective for fiscal years
beginning after December 15, 2015, including interim periods within those fiscal years. For all other entities, the
amendments in this Update are effective for fiscal years beginning after December 15, 2016, and interim periods
within fiscal years beginning after December 15, 2017. This Update is not expected to have a significant impact
on the Company’s financial statements.
In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of
Deferred Taxes. The amendments in this Update require that deferred tax liabilities and assets be classified as
noncurrent in a classified statement of financial position. The amendments in this Update apply to all entities that
present a classified statement of financial position. For public business entities, the amendments in this Update
are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim
periods within those annual periods. For all other entities, the amendments in this Update are effective for
financial statements issued for annual periods beginning after December 15, 2017, and interim periods within
annual periods beginning after December 15, 2018. Earlier application is permitted for all entities as of the
46
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORTNORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
beginning of an interim or annual reporting period. The amendments in this Update may be applied either
prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. This Update is
not expected to have a significant impact on the Company’s financial statements.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities. This Update applies to all entities
that hold financial assets or owe financial liabilities and is intended to provide more useful information on the
recognition, measurement, presentation, and disclosure of financial instruments. Among other things, this
Update (a) requires equity investments (except those accounted for under the equity method of accounting or
those that result in consolidation of the investee) to be measured at fair value with changes in fair value
recognized in net income; (b) simplifies the impairment assessment of equity investments without readily
determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the
requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are
not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s)
and significant assumptions used to estimate the fair value that is required to be disclosed for financial
instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit
price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires an
entity to present separately in other comprehensive income the portion of the total change in the fair value of a
liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the
liability at fair value in accordance with the fair value option for financial instruments; (g) requires separate
presentation of financial assets and financial liabilities by measurement category and form of financial asset
(that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial
statements; and (h) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax
asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. For public
business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017,
including interim periods within those fiscal years. For all other entities including not-for-profit entities and
employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments in this
Update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years
beginning after December 15, 2019. All entities that are not public business entities may adopt the amendments
in this Update earlier as of the fiscal years beginning after December 15, 2017, including interim periods within
those fiscal years. The Company is currently evaluating the impact the adoption of the standard will have on the
Company’s financial position or results of operations.
47
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
NOTE 3 - SECURITIES
The amortized cost, gross unrealized gains and losses, and fair value of securities were as follows:
December 31, 2015
Gross
Gross
Unrealized
Unrealized
Losses
Gains
Fair
Value
Amortized
Cost
AVAILABLE FOR SALE:
U.S. Government agencies
States and political subdivisions
Corporate obligations
Mortgage-backed securities-
government sponsored entities
Total debt securities
Equity securities-financial services
AVAILABLE FOR SALE:
U.S. Government agencies
States and political subdivisions
Corporate obligations
Mortgage-backed securities-government
sponsored entities
Total debt securities
Equity securities-financial services
(In Thousands)
$
9,275
$
2
$
(108) $
9,169
59,120
4,933
64,491
137,819
292
1,747
45
23
1,817
92
(112)
(4)
60,755
4,974
(945)
63,569
(1,169)
138,467
-
384
$ 138,111
$
1,909
$
(1,169) $ 138,851
Amortized
Cost
December 31, 2014
Gross
Gross
Unrealized
Unrealized
Losses
Gains
(In Thousands)
Fair
Value
$
29,289
$
42
$
(356) $
28,975
52,685
6,387
67,032
155,393
292
1,750
110
109
2,011
106
(103)
(11)
54,332
6,486
(937)
66,204
(1,407)
155,997
-
398
$ 155,685
$
2,117
$
(1,407) $
156,395
48
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORTNORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
NOTE 3 - SECURITIES (CONTINUED)
The following tables show the Company’s investments’ gross unrealized losses and fair value aggregated by
security type and length of time that individual securities have been in a continuous unrealized loss position
(in thousands):
December 31, 2015
Less than 12 Months
12 Months or More
Total
U.S. Government agencies
States and political subdivisions
Corporate obligations
Mortgage-backed securities-
government sponsored entities
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
$ 6,058
9,086
2,221
40,300
$ 57,665
$
$
(71) $
(99)
(4)
(In Thousands)
2,109
1,417
-
$
(37)
(13)
-
$
8,167
10,503
2,221
$
(108)
(112)
(4)
(432)
16,595
(606) $ 20,121
$
(513)
(563)
56,895
$ 77,786
(945)
$ (1,169)
Less than 12 Months
Unrealized
Fair
Losses
Value
December 31, 2014
12 Months or More
Unrealized
Losses
Fair
Value
(In Thousands)
Total
Fair
Value
Unrealized
Losses
U.S. Government agencies
States and political subdivisions
Corporate obligations
Mortgage-backed securities-
government sponsored entities
$
4,965
3,195
-
22,090
$ 30,250
$
$
(17) $
(20)
-
15,051
4,633
1,144
(189)
(226) $
26,050
46,878
$
$
(339)
(83)
(11)
$
20,016
7,828
1,144
$
(356)
(103)
(11)
(748)
(1,181)
48,140
77,128
(937)
(1,407)
$
$
The Company has 54 debt securities in the less than twelve month category and 22 debt securities in the
twelve months or more category as of December 31, 2015. In management’s opinion, the unrealized losses on
securities reflect changes in interest rates subsequent to the acquisition of specific securities. No other-than-
temporary-impairment charges were recorded in 2015. Management believes that all other unrealized losses
represent temporary impairment of the securities, and it is more likely than not that it will not have to sell the
securities before recovery of their cost basis.
The amortized cost and fair value of debt securities as of December 31, 2015 by contractual maturity, are
shown below. Expected maturities may differ from contractual maturities because borrowers may have the right
to prepay obligations with or without call or prepayment penalties.
Amortized
Cost
Fair
Value
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Mortgage-backed securities -
government sponsored entities
$
$
(In Thousands)
640
13,044
8,437
51,207
73,328
647
13,003
8,529
52,719
74,898
64,491
$ 137,819
63,569
$ 138,467
49
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
NOTE 3 - SECURITIES (CONTINUED)
Gross realized gains and gross realized losses on sales of securities available for sale were $626,000 and $0,
respectively, in 2015, compared to $1,199,000 and $29,000, respectively, in 2014, and $908,000 and $27,000,
respectively, in 2013. The proceeds from the sales of securities totaled $44,976,000 $66,263,000 and $42,348,000
for the years ended December 31, 2015, 2014 and 2013, respectively.
Securities with a carrying value of $97,671,000 and $102,994,000 at December 31, 2015 and 2014,
respectively, were pledged to secure public deposits, securities sold under agreements to repurchase and for
other purposes as required or permitted by law.
NOTE 4 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
Set forth below is selected data relating to the composition of the loan portfolio at December 31:
(dollars in thousands)
Types of loans
December 31, 2015
December 31, 2014
Real Estate-
Residential
Commercial
Construction
Commercial, financial and agricultural
Consumer loans to individuals
Total loans
Deferred fees, net
Total loans receivable
Allowance for loan losses
Net loans receivable
28.9%
49.8
3.4
12.7
5.2
100.0%
$ 161,820
279,123
18,987
71,090
29,231
560,251
(326)
559,925
(7,298)
$ 552,627
31.5%
52.2
3.9
8.5
3.9
100.0%
$ 158,139
261,956
19,221
42,514
19,704
501,534
(399)
501,135
(5,875)
495,260
$
Purchased loans acquired in a business combination are recorded at fair value on their purchase date without a
carryover of the related allowance for loan losses. The carrying value of purchased loans acquired with
deteriorated credit quality was $498,000 at December 31, 2015.
50
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORTNORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
NOTE 4 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Changes in the accretable yield for purchased credit-impaired loans were as follows for the twelve months
ended December 31:
2014
2015
2013
(In thousands)
Balance at beginning of period
Accretion
Reclassification and other
Balance at end of period
$
$
8
(1)
(7)
-
$
$
20
$
(12)
-
8
$
76
(56)
-
20
The following table presents additional information regarding loans acquired and accounted for in accordance
December 31, 2015 December 31, 2014
with ASC 310-30 (in thousands):
$
498
Outstanding Balance
Carrying Amount
$
498
$
$
1,057
1,049
There were no material increases or decreases in the expected cash flows of these loans since the acquisition
date. There has been no allowance for loan losses recorded for acquired loans with specific evidence of
deterioration in credit quality as of May 31, 2011. In addition, there has been no allowance for loan losses on
these loans reversed. As of December 31, 2015, for loans that were acquired with or without specific evidence of
deterioration in credit quality, adjustments to the allowance for loan losses have been accounted for through the
allowance for loan loss adequacy calculation.
The Company maintains a loan review system, which allows for a periodic review of our loan portfolio and the
early identification of potential impaired loans. The system takes into consideration, among other things,
delinquency status, size of loans, type and market value of collateral and financial condition of the borrowers.
Specific loan loss allowances are established for identified losses based on a review of such information. A loan
evaluated for impairment is considered to be impaired when, based on current information and events, it is
probable that we will be unable to collect all amounts due according to the contractual terms of the loan
agreement. All loans identified as impaired are evaluated independently. The Company does not aggregate such
loans for evaluation purposes. Impairment is measured on a loan-by-loan basis for commercial and construction
loans by the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s
obtainable market price, or the fair value of the collateral if the loan is collateral-dependent.
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the
Company does not separately identify individual consumer and residential mortgage loans for impairment
disclosures, unless such loans are part of a larger relationship that is impaired, or are classified as a troubled
debt restructuring.
51
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
NOTE 4 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
The following tables show the amount of loans in each category that were individually and collectively
evaluated for impairment at the dates indicated:
December 31, 2015
Real Estate Loans
Residential
Commercial Construction
Commercial
Loans
Consumer
Loans
Total
Individually
evaluated for
impairment
Loans acquired with
deteriorated credit quality
Collectively evaluated
for impairment
Total Loans
(In thousands)
$
28
$
8,660
$
140
358
-
-
$
42
$
-
$ 8,730
-
-
498
161,652
270,105
18,987
71,048
29,231
551,023
$ 161,820
$ 279,123
$ 18,987
$
71,090
$ 29,231
$ 560,251
December 31, 2014
Real Estate Loans
Residential
Commercial Construction
Commercial
Loans
Consumer
Loans
Total
(In thousands)
Individually
evaluated for
impairment
Loans acquired with
deteriorated credit quality
Collectively evaluated for
impairment
$
-
$
10,556
$
-
$
-
$
-
$
10,556
225
824
-
-
-
1,049
157,914
250,576
19,221
42,514
19,704
489,929
Total Loans
$
158,139
$ 261,956
$
19,221
$
42,514
$
19,704
$ 501,534
52
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORTNORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
NOTE 4 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
The following table includes the recorded investment and unpaid principal balances for impaired loans with
the associated allowance amount, if applicable.
December 31, 2015
With no related allowance recorded:
Real Estate Loans
Residential
Commercial
Commercial, financial and agriculture
Subtotal
With an allowance recorded:
Real Estate Loans
Commercial
Subtotal
Total:
Real Estate Loans
Residential
Commercial
Commercial, financial and agriculture
Total Impaired Loans
December 31, 2014
With no related allowance recorded:
Real Estate Loans
Residential
Commercial
Subtotal
With an allowance recorded:
Real Estate Loans
Commercial
Subtotal
Total:
Real Estate Loans
Residential
Commercial
Total Impaired Loans
Recorded
Investment
$
168
2,644
43
2,855
6,373
6,373
Unpaid
Principal
Balance
Associated
Allowance
$
$
(In thousands)
173
4,610
43
4,826
-
-
-
-
6,446
6,446
1,613
1,613
168
9,017
43
9,228
173
11,056
43
11,272
$
-
1,615
-
1,613
$
$
Recorded
Investment
Unpaid
Principal
Balance
(In thousands)
Associated
Allowance
$
225
8,407
8,632
$
$
233
8,566
8,799
2,973
2,973
3,837
3,837
225
11,380
11,605
233
12,403
12,636
$
$
$
-
-
-
293
293
-
293
293
The following information for impaired loans is presented for the year ended December 31, 2015 and 2014:
Total:
Real Estate Loans
Residential
Commercial
Commercial Loans
Total Loans
2015
2014
Average Recorded
Investment
2013
2015
2014
Interest Income
Recognized
2013
$
$
159
8,847
9
9,015
(In thousands)
$
$
$
233
7,492
-
7,725
$
$
252
10,328
-
10,580
$
4
526
2
532
$
$
5
503
-
508
$
$
5
236
-
241
53
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
NOTE 4 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Troubled debt restructured loans are those loans whose terms have been renegotiated to provide a reduction
or deferral of principal or interest as a result of financial difficulties experienced by the borrower, who could not
obtain comparable terms from alternate financing sources. As of December 31, 2015, troubled debt restructured
loans totaled $6.8 million and resulted in specific reserves of $1,613,000. During 2015, there were two new loan
relationships identified as troubled debt restructurings totaling $176,000 based on executed modification
agreements, while one loan with a balance of $1.7 million as of December 31, 2014 was transferred to Foreclosed
Real Estate Owned during 2015 as a result of foreclosure on the property. During 2015, the Company recognized
charge-offs totaling $1.3 million on loans classified as troubled debt restructurings. Additionally, the Company
recognized expenses of $322,000 in foreclosed real estate owned expense related to a property which was
previously classified as a troubled debt restructuring.
As of December 31, 2014, troubled debt restructured loans totaled $8.8 million and resulted in specific
reserves of $293,000. During 2014, there was one new loan relationship identified as troubled debt
restructurings totaling $4.9 million based on extended deferrals of principal payments, while two loans with a
balance of $4.7 million as of December 31, 2013 were transferred to Foreclosed Real Estate Owned during 2014
as a result of foreclosure on the properties. During 2014, the Company recognized charge-offs totaling $573,000
on loans classified as troubled debt restructurings in prior periods. No losses were recognized on loans
identified as troubled debt restructurings in 2014. Additionally, the Company recognized a writedown of
$680,000 in foreclosed real estate owned expense related to a property which was previously classified as a
troubled debt restructuring.
Foreclosed assets acquired in settlement of loans are carried at fair value less estimated costs to sell and are
included in foreclosed real estate owned on the Consolidated Balance Sheets. As of December 31, 2015 and 2014,
foreclosed real estate owned totaled $2,847,000 and $3,726,000, respectively. As of December 31, 2015, included
within foreclosed real estate owned is $267,000 of consumer residential mortgages that were foreclosed on or
received via a deed in lieu transaction prior to the period end. As of December 31, 2015, the Company has
initiated formal foreclosure proceedings on $110,000 of consumer residential mortgage loans.
Management uses an eight point internal risk rating system to monitor the credit quality of the overall loan
portfolio. The first four categories are considered not criticized, and are aggregated as “Pass” rated. The criticized
rating categories utilized by management generally follow bank regulatory definitions. The Special Mention
category includes assets that are currently protected but are potentially weak, resulting in an undue and
unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard
category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility
that some loss will be sustained if the weaknesses are not corrected. All loans greater than 90 days past due are
considered Substandard. Any portion of a loan that has been charged off is placed in the Loss category.
To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a
loan as agreed, the Company has a structured loan rating process with several layers of internal and external
oversight. Generally, consumer and residential mortgage loans are included in the Pass categories unless a
specific action, such as non performance, repossession, or death occurs to raise awareness of a possible credit
event. The Company’s Loan Review Department is responsible for the timely and accurate risk rating of the loans
on an ongoing basis. Every credit which must be approved by Loan Committee or the Board of Directors is
assigned a risk rating at time of consideration. Loan Review also annually reviews relationships of $1,000,000
and over to assign or re-affirm risk ratings. Loans in the Substandard categories that are collectively evaluated for
impairment are given separate consideration in the determination of the allowance.
54
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORTNORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT NOTE 4 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
The following table presents the classes of the loan portfolio summarized by the aggregate Pass and the
criticized categories of Special Mention, Substandard, Doubtful and Loss within the internal risk rating system as
of December 31, 2015 and December 31, 2014 (in thousands):
December 31, 2015
Commercial real estate loans
Commercial
Total
Pass
$ 267,892
71,047
$ 338,939
Special
Mention
1,837
-
1,837
$
$
$
Substandard
9,394
43
9,437
$
Doubtful
-
-
-
$
$
Loss
Total
$ 279,123
71,090
$ 350,213
-
-
-
$
$
December 31, 2014
Pass
Special
Mention
Substandard
Doubtful
Loss
Total
Commercial real estate loans
Commercial
Total
$ 246,629
42,514
$ 289,143
$
$
1,983
-
1,983
$
$
13,344
-
13,344
$
$
-
-
-
$
$
-
-
-
$ 261,956
42,514
$ 304,470
For residential real estate loans, construction loans and consumer loans, the Company evaluates credit quality
based on the performance of the individual credits. Nonperforming loans include loans that have been placed on
nonaccrual status and loans remaining in accrual status on which the contractual payment of principal and
interest has become 90 days past due. The following table presents the recorded investment in the loan classes
based on payment activity as of December 31, 2015 and December 31, 2014 (in thousands):
December 31, 2015
Residential real estate loans
Construction
Consumer loans to individuals
Total
December 31, 2014
Residential real estate loans
Construction
Consumer loans to individuals
Total
$
$ 161,380
Performing Nonperforming Total
18,987
29,231
$ 209,598
$ 161,820
18,987
29,231
$ 210,038
440
-
-
440
$
Performing Nonperforming Total
$
$
156,464
19,221
19,700
195,385
1,675
-
4
1,679
$ 158,139
19,221
19,704
$ 197,064
$
$
55
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
NOTE 4 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of
the portfolio as determined by the length of time a recorded payment is past due. The following table presents
the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as
of December 31, 2015 and December 31, 2014 (in thousands):
December 31, 2015
Real Estate loans
Residential
Commercial
Construction
Commercial loans
Consumer loans
Total
December 31, 2014
Real Estate loans
Residential
Commercial
Construction
Commercial loans
Consumer loans
Current
$ 160,683
272,125
18,959
1,043
29,179
7
$ 551,989
31-60 Days
Past Due
646
$
310
28
4
41
$ 1,029
$
61-90 Days
Past Due
$
51
39
-
-
11
101
$
Greater than
90 Days Past
Due and still
accruing
-
-
-
-
-
-
$
Current
31-60 Days
Past Due
61-90 Days
Past Due
Greater than
90 Days Past
Due and still
accruing
$
$ 156,242
252,495
19,221
42,500
19,606
$
222
5,100
-
14
94
-
440
-
-
-
440
$
$
-
-
-
-
-
-
Total
$ 490,064
$
5,430
$
$
$
$
Non-
Accrual
440
6,649
-
43
-
7,132
Total Past
Due and
Non-Accrual
1,137
$
6,998
28
47
52
8,262
$
Total
Loans
$ 161,820
279,123
18,987
71,090
29,231
$ 560,251
Non-
Accrual
Total Past
Due and
Non-Accrual
Total
Loans
1,675
3,921
-
-
4
$
1,897
9,461
-
14
98
$ 158,139
261,956
19,221
42,514
19,704
$
5,600
$
11,470
$ 501,534
Years Ended December 31,
The following table presents changes in the allowance for loan losses by class:
2015
2014
(In Thousands)
2013
Allowance at beginning of period
Charge-offs:
Real Estate loans
Residential
Commercial
Construction
Commercial loans
Consumer loans
Total
Recoveries
Real Estate loans
Residential
Commercial
Construction
Commercial loans
Consumer loans
Total
Provision for loan losses
Allowance at end of period
$
5,875
(224)
(2,883)
-
-
(91)
(3,198)
20
-
-
-
21
41
4,580
7,298
$
$
5,708
$
5,502
(270)
(1,196)
-
-
(80)
(1,546)
(603)
(1,488)
(40)
(4)
(90)
(2,225)
-
2
-
-
31
33
1,680
5,875
$
9
-
-
-
22
31
2,400
5,708
$
56
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORTNORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
NOTE 4 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
The following table presents the allowance for loan losses by the classes of the loan portfolio:
(In thousands)
Beginning balance,
December 31, 2014
Charge Offs
Recoveries
Provision for loan losses
Ending balance,
December 31, 2015
Ending balance individually
evaluated for impairment
Ending balance collectively
evaluated for impairment
(In thousands)
Beginning balance,
December 31, 2013
Charge Offs
Recoveries
Provision for loan losses
Ending balance,
December 31, 2014
Ending balance individually
evaluated for impairment
Ending balance collectively
evaluated for impairment
Residential
Real Estate
$ 1,323
(224)
20
(50)
$
Commercial
Real Estate Construction
3,890
222
$
-
(2,883)
-
-
(132)
4,499
Commercial
256
$
-
-
141
Consumer
184
$
(91)
21
122
Total
$ 5,875
(3,198)
41
4,580
$ 1,069
5,506
$
90
$
397
$
236
$ 7,298
$
-
$
1,613
$
-
$
-
$
-
$ 1,613
$ 1,069
$
3,893
$
90
$
397
$
236
$ 5,685
Residential
Real Estate
Commercial
Real Estate Construction
Commercial
Consumer
Total
$
1,441
(270)
-
152
$
$
3,025
(1,196)
2
2,059
$
898
-
-
(676)
$
184
-
-
72
160
(80)
31
73
$
5,708
(1,546)
33
1,680
$
1,323
$
3,890
$
222
$
256
$
184
$
5,875
$
-
$
293
$
-
$
-
$
-
$
293
$
1,323
$
3,597
$
222
$
256
$
184
$
5,582
The recorded investment in impaired loans, not requiring an allowance for loan losses was $2,855,000 (net of
charge-offs against the allowance for loan losses of $1,971,000) and $8,632,000 (net of charge-offs against the
allowance for loan losses of $158,000) at December 31, 2015 and 2014, respectively. The recorded investment in
impaired loans requiring an allowance for loan losses was $6,373,000 (net of a charge-off against the allowance
for loan losses of $73,000) and $2,973,000 (net of a charge-off against the allowance for loan losses of $864,000)
at December 31, 2015 and 2014, respectively. The specific reserve related to impaired loans was $1,613,000 for
2015 and $293,000 for 2014. For the years ended December 31, 2015 and 2014, the average recorded investment
in these impaired loans was $9,015,000, and $7,725,000, respectively, and the interest income recognized on
these impaired loans was $532,000 and $508,000, respectively.
During the period ended December 31, 2015, the allowance for residential real estate loans decreased from
$1,323,000 to $1,069,000. This $254,000 decrease in the required allowance was due primarily to a decrease in
the historical loss factor from 0.30% at December 31, 2014 to 0.23% on December 31, 2015. During the same
period, the required allowance for commercial real estate loans increased from $3,890,000 at December 31, 2014
57
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
NOTE 4 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
to $5,506,000 on December 31, 2015. This increase can be attributed to a $1,320,000 increase in the specific
reserve component.
Interest income that would have been recorded on loans accounted for on a non-accrual basis under the
original terms of the loans was $515,000, $451,000 and $724,000 for 2015, 2014 and 2013, respectively.
The Company’s primary business activity is with customers located in northeastern Pennsylvania. Accordingly,
the Company has extended credit primarily to commercial entities and individuals in this area whose ability to
honor their contracts is influenced by the region’s economy. The Company does not have any significant
concentrations to any one customer.
As of December 31, 2015 and 2014, the Company considered its concentration of credit risk to be
acceptable. As of December 31, 2015, the highest concentrations are in the hospitality lodging industry and
automobile dealers, with loans outstanding of $52.6 million, or 56.8% of bank capital, to the hospitality lodging
industry, and $27.5 million, or 29.7% of bank capital to the automobile dealer industry. Charge-offs on loans
within these concentrations were $643,000, $422,000 and $0 for the years ended December 31, 2015, 2014 and
2013, respectively.
Gross realized gains and gross realized losses on sales of residential mortgage loans were $113,000 and $0,
respectively, in 2015 compared to $150,000 and $0, respectively, in 2014 and $74,000 and $7,000, respectively, in
2013. The proceeds from the sales of residential mortgage loans totaled $4.4 million, $4.4 million and $4.1
million for the years ended December 31, 2015, 2014 and 2013, respectively.
NOTE 5 - PREMISES AND EQUIPMENT
Components of premises and equipment at December 31 are as follows:
Land and improvements
Buildings and improvements
Furniture and equipment
Accumulated depreciation
2015
(In Thousands)
2014
$
$
2,316
9,857
4,415
16,588
(10,116)
6,472
$
$
2,275
9,723
4,332
16,330
(9,596)
6,734
Depreciation expense totaled $551,000, $572,000 and $594,000 for the years ended December 31, 2015, 2014
and 2013, respectively.
Certain facilities are leased under various operating leases. Rental expense for these leases was $341,000,
$338,000 and $325,000, respectively, for the years ended December 31, 2015, 2014 and 2013. Future minimum
rental commitments under noncancellable leases as of December 31, 2015 were as follows (in thousands):
$
352
363
363
368
376
1,844
3,666
2016
2017
2018
2019
2020
Thereafter
$
58
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORTNORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
NOTE 6 - DEPOSITS
Aggregate time deposits in denominations of $250,000 or more were $22,041,000 and $42,009,000 at
December 31, 2015 and 2014, respectively. Included in deposit accounts are deposits of one customer
relationship totaling $10,942,000 at December 31, 2015.
At December 31, 2015, the scheduled maturities of time deposits are as follows (in thousands):
$ 90,197
54,846
23,449
20,926
7,329
$ 196,747
2016
2017
2018
2019
2020
2015
2014
(In Thousands)
$ 33,563
19,672
$ 53,235
$
$
25,695
-
25,695
NOTE 7 - BORROWINGS
Short-term borrowings at December 31 consist of the following:
Securities sold under agreements to repurchase
Federal Home Loan Bank short-term borrowings
The outstanding balances and related information of short-term borrowings are summarized as follows:
Years Ended December 31,
2015
2014
(Dollars In Thousands)
$ 34,057
Average balance during the year
Average interest rate during the year
Maximum month-end balance during the year
Weighted average interest rate at the end of the year
0.25%
$
$ 55,183
0.36%
$
36,514
0.21%
49,634
0.20%
Securities sold under agreements to repurchase generally mature within one day to one year from the
transaction date. Securities with an amortized cost and fair value of $36,797,000 and $36,316,000 at December
31, 2015 and $28,914,000 and $28,437,000 at December 31, 2014, respectively, were pledged as collateral for
these agreements. The securities underlying the agreements were under the Company’s control.
The collateral pledged for repurchase agreements that are classified as secured borrowings is summarized
as follows (in thousands):
As of December 31, 2015
Remaining Contractual Maturity of the Agreements
Overnight and
Continuous
Up to
30 days
30-90 days
Greater than
90 days
Total
Repurchase Agreements:
Obligations of U.S.
Government agencies
Total liability recognized for
repurchase agreements
$
35,515
$
139
$
277
$
385
$
$
36,316
33,563
59
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
NOTE 7 - BORROWINGS (CONTINUED)
The Company has a line of credit commitment available from the FHLB of Pittsburgh for borrowings of up to
$139,144,000 which expires in May, 2016. At December 31, 2015, there were $19,672,000 of borrowings
outstanding on this line. There were no borrowings under this line of credit at December 31, 2014. The Company
has a line of credit commitment available from Atlantic Community Bankers Bank for $7,000,000 which expires
on June 30, 2016. There were no borrowings under this line of credit at December 31, 2015 and 2014.
The Company has a line of credit commitment available from PNC Bank for $16,000,000 at December 31, 2015.
There were no borrowings under this line of credit at December 31, 2015 and December 31, 2014. The Company
also has a line of credit commitment from Zion’s Bank for $17,000,000. There were no borrowings under this
line of credit at December 31, 2015 and December 31, 2014.
Other borrowings consisted of the following at December 31, 2015 and 2014:
Notes with the FHLB:
Convertible note due July 2015 at 3.44%
Convertible note due January 2017 at 4.71%
Amortizing fixed rate borrowing due December 2017 at 1.27%
Amortizing fixed rate borrowing due January 2018 at 0.91%
Amortizing fixed rate borrowing due December 2018 at 1.42%
Amortizing fixed rate borrowing due June 2020 at 1.49%
Amortizing fixed rate borrowing due December 2020 at 1.71%
Amortizing fixed rate borrowing due March 2022 at 1.75%
2015
2014
(In Thousands)
-
10,000
8,000
1,267
2,434
9,033
5,000
5,392
41,126
$
$
7,111
10,000
-
1,866
3,223
-
-
-
22,200
$
$
The convertible note contains an option which allows the FHLB, at quarterly intervals, to change the note to an
adjustable-rate advance at three-month LIBOR plus 17 basis points. If the note is converted, the option allows the
Bank to put the funds back to the FHLB at no charge.
Contractual maturities of other borrowings at December 31, 2015 are as follows (in thousands):
2017
2018
2020
2022
$ 18,000
3,701
14,033
5,392
$ 41,126
The Bank’s maximum borrowing capacity with the FHLB was $281,493,000 of which $60,798,000 was
outstanding at December 31, 2015. Advances from the FHLB are secured by qualifying assets of the Bank.
NOTE 8 - EMPLOYEE BENEFIT PLANS
The Company has a defined contributory profit-sharing plan which includes provisions of a 401(k) plan.
The plan permits employees to make pre-tax contributions up to 15% of the employee’s compensation, not to
exceed the limits set by the Internal Revenue Service. The amount of contributions to the plan, including
matching contributions, is at the discretion of the Board of Directors. All employees over the age of 21 are eligible
to participate in the plan and receive Company contributions after one year of employment. Eligible employees
are able to contribute to the Plan at the beginning of the first quarterly period after their date of employment.
Employee contributions vest immediately, and any Company contributions are fully vested after five years. The
60
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORTNORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
NOTE 8 - EMPLOYEE BENEFIT PLANS (CONTINUED)
Company’s contributions are expensed as the cost is incurred, funded currently, and amounted to $445,000,
$445,000 and $440,000 for the years ended December 31, 2015, 2014 and 2013, respectively.
The Company has a non-qualified supplemental executive retirement plan for the benefit of certain executive
officers. At December 31, 2015 and 2014, other liabilities include $1,427,000 and $1,443,000 accrued under the
Plan. Compensation expense includes approximately $122,000, $124,000 and $126,000 relating to the
supplemental executive retirement plan for 2015, 2014 and 2013, respectively. To fund the benefits under this
plan, the Company is the owner of single premium life insurance policies on participants in the non-qualified
retirement plan. At December 31, 2015 and 2014, the cash value of these policies was $18,820,000 and
$18,284,000, respectively.
The Company provides post retirement benefits in the form of split-dollar life arrangements to employees who
meet the eligibility requirements.
The net periodic post retirement benefit expense included in salaries and employee benefits was $89,000 and
$87,000 for the years ended December 31, 2015 and 2014, respectively.
The Company participates in the Pentegra Mulitemployer Defined Benefit Pension Plan (EIN 13-5645888 and
Plan # 001) as a result of its acquisition of North Penn. As of December 31, 2015 and 2014, the Company’s Plan
was 79.9% and 98.9% funded, respectively, and total contributions made are not more than 5% of the total
contributions to the Plan. The Company’s expense related to the Plan was $48,000 in 2015, $17,000 in 2014 and
$22,000 in 2013. During the plan years ending December 31, 2015, 2014 and 2013, the Company made
contributions of $48,000, $17,000 and $22,000, respectively.
NOTE 9 - INCOME TAXES
The components of the provision for federal income taxes are as follows:
2015
2014
(In Thousands)
2013
Years Ended December 31,
Current
Deferred
$
$
2,019
(387)
1,632
$
$
2,657
(51)
2,606
$
$
2,566
140
2,706
Deferred income taxes reflect temporary differences in the recognition of revenue and expenses for tax
reporting and financial statement purposes, principally because certain items, such as, the allowance for loan
losses and loan fees are recognized in different periods for financial reporting and tax return purposes.
A valuation allowance has not been established for deferred tax assets. Realization of the deferred tax assets is
dependent on generating sufficient taxable income. Although realization is not assured, management believes it
is more likely than not that all of the deferred tax asset will be realized. Deferred tax assets are recorded in
other assets.
Income tax expense of the Company is less than the amounts computed by applying statutory federal income
tax rates to income before income taxes because of the following:
61
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
NOTE 9 - INCOME TAXES (CONTINUED)
Tax at statutory rates
Tax exempt interest income, net of interest expense disallowance
Incentive stock options
Earnings and proceeds on life insurance
Other
Percentage of Income
before Income Taxes
Years Ended December 31,
2015
2014
2013
%
34.0
(11.3)
0.3
(1.8)
0.4
21.6
%
34.0 %
(7.7)
0.4
(1.5)
0.2
25.4 %
34.0 %
(6.7)
0.4
(3.7)
0.2
24.2 %
The net deferred tax asset included in other assets in the accompanying Consolidated Balance Sheets includes
the following amounts of deferred tax assets and liabilities:
2015
2014
(In Thousands)
Deferred tax assets:
Allowance for loan losses
Deferred compensation
Purchase price adjustment
Other
Foreclosed real estate valuation allowance
Total Deferred Tax Assets
Deferred tax liabilities:
Premises and equipment
Deferred loan fees
Net unrealized gains on securities
Total Deferred Tax Liabilities
$
$
2,481
485
884
182
305
4,337
245
172
251
668
Net Deferred Tax Asset
$
3,669
1,997
491
999
201
280
3,968
265
170
248
683
4
4
$
3,285
The Company’s federal and state income tax returns for taxable years through 2011 have been closed for
purposes of examination by the Internal Revenue Service and the Pennsylvania Department of Revenue.
NOTE 10 - REGULATORY MATTERS AND STOCKHOLDERS’ EQUITY
The Company and Bank are subject to various regulatory capital requirements administered by the federal
banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the
Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the
Company’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting
practices. The Company’s capital amounts and classification are also subject to qualitative judgments by the
regulators about components, risk-weightings and other factors.
62
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORTNORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
NOTE 10 - REGULATORY MATTERS AND STOCKHOLDERS’ EQUITY (CONTINUED)
Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank
to maintain minimum amounts and ratios (set forth in the table below) of total, Tier 1 and Common Equity Tier 1
capital (as defined in the regulations) to risk-weighted assets, and of Tier 1 capital to average assets. Management
believes, as of December 31, 2015 and 2014, that the Company and the Bank meet all capital adequacy
requirements to which they are subject.
As of December 31, 2015, the most recent notification from the regulators has categorized the Bank as well
capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since
that notification that management believes have changed the Bank’s category.
The Bank’s actual capital amounts and ratios are presented in the table:
To Be Well Capitalized
under Prompt
For Capital Adequacy
Corrective Action
Actual
Purposes
Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
(Dollars in Thousands)
$92,777
85,638
16.25%
15.00
≥$45,672
≥34,254
≥8.00%
≥6.00
≥$57,090
≥45,672
≥10.00%
≥8.00
85,638
85,638
15.00
11.73
≥25,690
≥29,203
≥4.50
≥4.00
≥37,108
≥36,504
≥6.50
≥5.00
As of December 31, 2015:
Total capital (to risk-weighted assets)
Tier 1 capital (to risk-weighted assets)
Common Equity Tier 1 capital
(to risk-weighted assets)
Tier 1 capital (to average assets)
As of December 31, 2014:
Total capital (to risk-weighted assets)
Tier 1 capital (to risk-weighted assets)
Tier 1 capital (to average assets)
$89,613
83,738
83,738
17.59%
16.43
11.93
≥$40,767
≥20,383
≥28,069
≥8.00%
≥4.00
≥4.00
≥$50,959
≥30,575
≥35,086
≥10.00%
≥6.00
≥5.00
The Company’s ratios do not differ significantly from the Bank’s ratios presented above.
Effective January 1, 2015, the Company and the Bank became subject to new regulatory capital rules which,
among other things, impose a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted
assets), set the minimum leverage ratio for all banking organizations at a uniform 4% of total assets, increased
the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and
assigned a higher risk-weight (150%) to exposures that are more than 90 days past due or are on nonaccrual
status and to certain commercial real estate facilities that finance the acquisition, development or construction of
real property. The new rules also require unrealized gains and losses on certain “available-for-sale” securities
holdings to be included for purposes of calculating regulatory capital requirements unless a one-time opt out is
exercised, which the Company and the Bank have done. The final rule limits a banking organization’s dividends,
stock repurchases and other capital distributions, and certain discretionary bonus payments to executive officers,
if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity
Tier 1 capital to risk-weighted assets above regulatory minimum risk-based requirements. The capital
conservation buffer requirements will be phased in beginning January 1, 2016 and ending January 1, 2019, when
the full capital conservation buffer will be effective. The Company and the Bank are in compliance with their
respective new capital requirements, including the capital conservation buffer, as of December 31, 2015.
63
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
NOTE 10 - REGULATORY MATTERS AND STOCKHOLDERS’ EQUITY (CONTINUED)
The Bank is required to maintain average cash reserve balances in vault cash or with the Federal Reserve Bank.
The amount of these restricted cash reserve balances at December 31, 2015 and 2014 was approximately
$437,000 and $368,000, respectively.
Under Pennsylvania banking law, the Bank is subject to certain restrictions on the amount of dividends that it
may declare without prior regulatory approval. At December 31, 2015, $65,777,000 of retained earnings were
available for dividends without prior regulatory approval, subject to the regulatory capital requirements
discussed above. Under Federal Reserve regulations, the Bank is limited as to the amount it may lend affiliates,
including the Company, unless such loans are collateralized by specific obligations.
NOTE 11 - STOCK BASED COMPENSATION
The Company’s shareholders approved the Norwood Financial Corp 2006 Stock Option Plan at the Annual
Meeting on April 26, 2006. An aggregate of 275,000 shares of authorized but unissued Common Stock of the
Company were reserved for future issuance under the Plan. This includes up to 44,000 shares for awards to
outside directors. Under this plan, the Company granted 7,423 options to employees in 2015, 12,500 options to
employees in 2014, and 28,600 options, which included 4,000 options granted to outside directors in 2013. As of
December 31, 2015, there were 4,057 shares available for stock option awards to outside directors.
At the Annual Meeting held on April 22, 2014, the Company’s shareholders approved the Norwood Financial
Corp 2014 Equity Incentive Plan. An aggregate of 250,000 shares of authorized but unissued Common Stock of
the Company were reserved for future issuance under the Plan. This includes up to 40,000 shares for awards to
outside directors. The Plan also authorized the Company to award restricted stock to officers and outside
directors, limited to 42,000 shares of restricted stock awards for officers and 8,000 shares of restricted stock
awards for outside directors. Under this plan, the Company granted 13,727 shares in 2015 which included 7,077
options to employees, 4,250 shares of restricted stock to officers and 2,400 shares of restricted stock to directors.
In 2014, the Company granted 9,300 shares, which included 2,800 shares to outside directors. All shares granted
in 2014 were for restricted stock. The restricted shares vest over a five-year period. The product of the number
of shares granted and the grant date market price of the Company’s common stock determine the fair value of
restricted stock under the company’s restricted stock plan. Management recognizes compensation expense for
the fair value of restricted stock on a straight-line basis over the requisite service period for the entire award.
As of December 31, 2015, there were 226,973 shares available for future awards under this plan, which included
192,173 shares available for officer awards and 34,800 shares available for awards to outside directors. Included
in these totals are 31,250 shares available for restricted stock awards to officers and 2,800 shares available for
restricted stock awards to outside directors.
Total unrecognized compensation cost related to stock options was $71,000 as of December 31, 2015, $66,000
as of December 31, 2014, and $157,000 as of December 31, 2013. Salaries and employee benefits expense
includes $66,000, $154,000 and $162,000 of compensation costs related to options for the years ended December
31, 2015, 2014 and 2013, respectively. Compensation costs related to restricted stock amounted to $55,000, $0
and $0 for the years ended December 31, 2015, 2014 and 2013, respectively. The expected future compensation
expense relating to non-vested restricted stock outstanding as of December 31, 2015 and 2014 was $398,000 and
$271,000 respectively. Net income was reduced by $92,000, $146,000 and $154,000 for the years ended
December 31, 2015, 2014 and 2013, respectively.
64
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORTNORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
NOTE 11 - STOCK BASED COMPENSATION (CONTINUED)
A summary of the Company’s stock option activity and related information for the years ended
December 31 follows:
2015
Weighted
Average
Exercise
Price
2014
Weighted
Average
Exercise
Price
Options
Intrinsic
Value
Options
Intrinsic
Value
Options
Intrinsic
Value
2013
Weighted
Average
Exercise
Price
Outstanding,
beginning of year
Granted
Exercised
Forfeited
Outstanding,
end of year
Exercisable,
end of year
206,463
14,500
(16,859)
(9,583)
$ 26.74
28.55
26.19
27.02
194,521
$ 26.91
$ 362,754
180,021
$ 26.78
$ 359,854
219,540
12,500
(25,577)
-
$
26.64
29.08
27.05
-
225,670
28,600
(24,127)
(10,603)
$
26.27
27.07
23.83
28.92
206,463
$
26.74 $ 477,640
219,540
$
26.64
$ 146,970
193,963
$
26.59 $ 477,640
190,940
$
26.58
$ 146,900
Exercise prices for options outstanding as of December 31, 2015 ranged from $24.44 to $29.08 per share. The
weighted average remaining contractual life is 5.2 years.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing with
the following weighted average assumptions:
Years Ended December 31,
2014
2013
Dividend yield
Expected life
Expected volatility
Risk-free interest rate
Weighted average fair value of options granted
2015
3.77%
10 years
24.35%
2.28%
$4.89
3.57%
10 years
24.97%
2.17%
$5.30
3.49%
10 years
25.91%
3.01%
$5.72
The expected volatility is based on historical volatility. The risk-free interest rates for periods within the
contractual life of the awards are based on the U.S. Treasury yield curve in effect at the time of the grant.
The expected life is based on historical exercise experience. The dividend yield assumption is based on the
Company’s history and expectation of dividend payouts.
Proceeds from stock option exercises totaled $441,000 in 2015. Shares issued in connection with stock option
exercises are issued from available treasury shares. If no treasury shares are available, new shares are issued
from available authorized shares. During 2015, all the shares issued in connection with stock option exercises,
16,859 shares in total, were issued from available treasury shares.
65
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
NOTE 11 - STOCK BASED COMPENSATION (CONTINUED)
All share and per share data have been adjusted to give retroactive effect to the 10% stock dividend declared
in 2013.
As of December 31, 2015, outstanding stock options consist of the following:
Options
Outstanding
16,174
15,400
15,400
15,400
14,397
1,100
18,700
22,000
23,100
1,100
2,000
23,250
12,000
14,500
Total 194,521
Average
Exercise
Price
$ 27.62
28.64
28.41
25.00
25.99
24.44
25.25
24.97
27.05
27.55
28.95
26.90
29.08
28.55
Remaining
Life, Years
Options
Exercisable
0.3
1.0
2.0
3.0
4.0
4.2
5.0
6.0
7.0
7.0
7.7
8.0
9.0
10.0
16,174
15,400
15,400
15,400
14,397
1,100
18,700
22,000
23,100
1,100
2,000
23,250
12,000
-
180,021
Average
Exercise
Price
$ 27.62
28.64
28.41
25.00
25.99
24.44
25.25
24.97
27.05
27.55
28.95
26.90
29.08
0.0-
A summary of the Company’s restricted stock activity and related information for the years ended December 31,
is as follows:
2015
2014
Weighted
Average
Weighted
Average
Non-vested, beginning of year
Granted
Vested
Forfeited
Non-vested at December 31
Number
of Shares
9,300
6,650
(1,860)
(280)
13,810
Grant Date Number Grant Date
Fair Value of Shares Fair Value
$
$
29.08
28.55
29.08
29.08
28.82
- $
9,300
-
-
9,300 $
-
29.08
.0-
.0-
29.08
66
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORTNORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
NOTE 12 - EARNINGS PER SHARE
The following table sets forth the computations of basic and diluted earnings per share:
Years Ended December 31,
Numerator, net income
Denominator:
Weighted average shares outstanding
Less: Weighted average unvested restricted shares
Denominator: Basic earnings per share
Weighted average shares outstanding
Add: Dilutive effective of stock options
Denominator: Diluted earnings per share
Basic earnings per common share
Diluted earnings per common share
2015
2014
2013
(In Thousands, Except per Share Data)
$
5,908
3,682
(9)
3,673
3,682
9
3,691
$
$
1.60
1.60
$
7,657
$
8,465
3,645
-
3,645
3,627
-
3,627
3,645
12
3,657
$
$
2.10
2.10
$
$
3,627
5
3,632
2.33
2.33
Stock options which had no intrinsic value because their effect would be anti-dilutive and therefore would not
be included in the diluted EPS calculation were 14,000, 12,500, and 129,000 for the years ended December 31,
2015, 2014 and 2013, respectively. All share and per share data have been restated to give retroactive effect to
the 10% stock dividend paid in 2013.
NOTE 13 - OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to
meet the financing needs of its customers. These financial instruments include commitments to extend credit and
letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess
of the amount recognized in the balance sheets.
The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial
instrument for commitments to extend credit and letters of credit is represented by the contractual amount of
those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as
it does for on-balance sheet instruments.
December 31,
A summary of the Bank’s financial instrument commitments is as follows:
Commitments to grant loans
Unfunded commitments under lines of credit
Standby letters of credit
2015
2014
(In Thousands)
$
$
19,704
48,641
5,352
73,697
$ 23,070
45,269
5,660
$ 73,999
67
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
NOTE 13 - OFF-BALANCE SHEET FINANCIAL INSTRUMENTS (CONTINUED)
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since some of the commitments are expected to expire without being
drawn upon, the total commitment amount does not necessarily represent future cash requirements. The Bank
evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the customer and
generally consists of real estate.
Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a
customer to a third party. The majority of these standby letters of credit expire within the next twelve months.
The credit risk involved in issuing letters of credit is essentially the same as that involved in extending other loan
commitments. The Bank requires collateral supporting these letters of credit when deemed necessary.
Management believes that the proceeds obtained through a liquidation of such collateral would be sufficient to
cover the maximum potential amount of future payments required under the corresponding guarantees.
NOTE 14 - FAIR VALUES OF FINANCIAL INSTRUMENTS
Management uses its best judgment in estimating the fair value of the Company’s financial instruments;
however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial
instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could
have realized in a sale transaction on the dates indicated. The estimated fair value amounts have been measured
as of their respective year ends and have not been re-evaluated or updated for purposes of these consolidated
financial statements subsequent to those respective dates. As such, the estimated fair values of these financial
instruments subsequent to the respective reporting dates may be different than the amounts reported at each
year end.
The fair value hierarchy prioritizes the inputs to valuation methods used to measure fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1
measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the
fair value hierarchy are as follows:
Level 1:
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical,
Level 2:
unrestricted assets or liabilities.
Quoted prices in markets that are not active, or inputs that are observable either directly or
Level 3:
indirectly, for substantially the full term of the asset or liability.
Prices or valuation techniques that require inputs that are both significant to the fair value
measurement and are unobservable (i.e. supported with little or no market activity).
68
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORTNORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
NOTE 14 - FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is
significant to the fair value measurement.
For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the
fair value hierarchy used at December 31, 2015 and 2014 are as follows (in thousands):
Fair Value Measurement Reporting Date using
Description
December 31, 2015
Total
Level 1
Level 2
Level 3
Available for Sale:
U.S. Government agencies
States and political subdivisions
Corporate obligations
Mortgage-backed securities-government
sponsored entities
Equity securities-financial services
Total available for sale
December 31, 2014
Available for Sale:
U.S. Government agencies
States and political subdivisions
Corporate obligations
Mortgage-backed securities-government
sponsored entities
Equity securities-financial services
Total available for sale
$
$
$
$
9,169
60,755
4,974
63,569
384
138,851
28,975
54,332
6,486
66,204
398
156,395
$
$
$
$
-
-
-
-
384
384
-
-
-
-
398
398
$
$
$
$
9,169
60,755
4,974
63,569
-
138,467
28,975
54,332
6,486
66,204
-
155,997
$
$
$
$
-
-
-
-
-
-
-
-
-
-
-
-
For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within
the fair value hierarchy used at December 31, 2015 and 2014 are as follows (in thousands):
Description
Level 2
Total
December 31, 2015
Fair Value Measurement Reporting Date using
Level 1
Level 3
Impaired Loans
Foreclosed real estate owned
December 31, 2014
Impaired Loans
Foreclosed real estate owned
$
$
7,615
2,847
11,312
3,726
$
$
$
$
-
-
-
-
-
-
-
-
$
$
7,615
2,847
11,312
3,726
69
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
NOTE 14 - FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The following tables present additional quantitative information about assets measured at fair value on a
nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value:
December 31, 2015
(dollars in thousands)
Impaired Loans
Impaired Loans
Forclosed real estate owned
December 31, 2014
Impaired Loans
Forclosed real estate owned
$
$
11,312
3,726
Quantitative Information about Level 3 Fair Value Measurements
Fair Value
Estimate
Valuation
Techniques
Unobservable
Input
Range
(Weighted Average)
$
$
2,574
5,041
$
2,847
Appraisal of
collateral(1)
Appraisal
adjustments(2)
Present value
of future cash
flows
Loan discount rate
Probability of default
10% (10%)
4-7% (5.61%)
0%
10%
Appraisal of
collateral(1)
Liquidation
expenses(2)
Appraisal of
collateral(1)
Appraisal
adjustments(2)
Appraisal of
collateral(1)
Liquidation
expenses(2)
6-33% (23.35%)
10%
(1) Fair value is generally determined through independent appraisals of the underlying collateral, which
generally include various level 3 inputs which are not identifiable, less any associated allowance.
(2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and
estimated liquidation expenses. The range and weighted average of liquidation expenses and other
appraisal adjustments are presented as a percent of the appraisal.
The following information should not be interpreted as an estimate of the fair value of the entire Company
since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a
wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons
between the Company’s disclosures and those of other companies may not be meaningful.
The following methods and assumptions were used to estimate the fair values of the Company’s financial
Cash and cash equivalents (carried at cost):
instruments at December 31, 2015 and 2014.
The carrying amounts reported in the consolidated balance sheet for cash and short-term instruments
approximate those assets’ fair values.
Securities:
The fair value of securities available for sale (carried at fair value) and held to maturity (carried at amortized
cost) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1),
or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt
securities without relying exclusively on quoted market prices for the specific securities but rather by relying on
the securities’ relationship to other benchmark quoted prices. For certain securities which are not traded in
active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-
transferability, and such adjustments are generally based on available market evidence (Level 3). In the absence
70
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORTNORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
NOTE 14 - FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
of such evidence, management’s best estimate is used. Management’s best estimate consists of both internal
and external support on certain Level 3 investments. Internal cash flow models using a present value formula
that includes assumptions market participants would use along with indicative exit pricing obtained from
broker/dealers (where available) are used to support fair values of certain Level 3 investments, if applicable.
Loans receivable (carried at cost):
The fair values of loans are estimated using discounted cash flow analyses, using market rates at the balance
sheet date that reflect the credit and interest rate-risk inherent in the loans. Projected future cash flows are
calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal.
Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values
are based on carrying values.
Impaired loans (generally carried at fair value):
The Company measures impairment generally based on the fair value of the loan’s collateral. Fair value is
generally determined based upon independent third-party appraisals of the properties, or discounted cash flows
based upon the lowest level of input that is significant to the fair value measurements.
As of December 31, 2015, the fair value investment in impaired loans totaled $9,228,000 which included three
loans for $6,373,000 for which a valuation allowance of $1,613,000 had been provided based on the estimated
value of the collateral or the present value of estimated cash flows, and twenty loans for $2,855,000 which did
not require a valuation allowance since the estimated realizable value of the collateral exceeded the recorded
investment in the loan. As of December 31, 2015, the Company has recognized charge-offs against the allowance
for loan losses on these impaired loans in the amount of $2,044,000 over the life of the loans.
As of December 31, 2014, the fair value investment in impaired loans totaled $11,605,000 which included three
loans for $2,973,000 for which a valuation allowance of $293,000 had been provided based on the estimated
value of the collateral or the present value of estimated cash flows, and fourteen loans for $8,632,000 which did
not require a valuation allowance since the estimated realizable value of the collateral exceeded the recorded
investment in the loan. As of December 31, 2014, the Company has recognized charge-offs against the allowance
for loan losses on these impaired loans in the amount of $1,022,000 over the life of the loans.
Mortgage Servicing Rights (generally carried at cost):
The Company utilizes a third party provider to estimate the fair value of certain loan servicing rights. Fair value
for the purpose of this measurement is determined by estimating potential revenues and expenses of the various
loan pools to arrive at a net cash flow stream, and then utilize present value methodologies on the cash flow
stream at a current market yield.
Foreclosed real estate owned (carried at fair value):
Real estate properties acquired through, or in lieu of loan foreclosure are to be sold and are carried at fair value
less estimated cost to sell. Fair value is based upon independent market prices, appraised value of the collateral
or management’s estimation of the value of the collateral. These assets are included in Level 3 fair value based
upon the lowest level of input that is significant to the fair value measurement.
71
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
NOTE 14 - FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
Restricted investment in Federal Home Loan Bank stock (carried at cost):
The Company, as a member of the Federal Home Loan Bank (FHLB) system is required to maintain an
investment in capital stock of its district FHLB according to a predetermined formula. This regulatory stock has
no quoted market value and is carried at cost.
Bank owned life insurance (carried at cost):
The fair value is equal to the cash surrender value of the Bank owned life insurance.
Accrued interest receivable and payable (carried at cost):
The carrying amount of accrued interest receivable and accrued interest payable approximates its fair value.
Deposit liabilities (carried at cost except certificates of deposit which are at fair value):
The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings and
money market accounts) are, by definition, equal to the amount payable on demand at the reporting date
(i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted
cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule
of aggregated expected monthly maturities on time deposits.
Short-term borrowings (carried at cost):
The carrying amounts of short-term borrowings approximate their fair values.
Other borrowings (carried at cost):
Fair values of FHLB advances are estimated using discounted cash flow analysis, based on quoted prices for
new FHLB advances with similar credit risk characteristics, terms and remaining maturity. These prices obtained
from this active market represent a market value that is deemed to represent the transfer price if the liability
were assumed by a third party.
Off-balance sheet financial instruments (disclosed at cost):
Fair values for the Company’s off-balance sheet financial instruments (lending commitments and letters of
credit) are based on fees currently charged in the market to enter into similar agreements, taking into account,
the remaining terms of the agreements and the counterparties’ credit standing.
72
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORTNORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT NOTE 14 - FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The estimated fair values of the Bank’s financial instruments were as follows at December 31, 2015 and
December 31, 2014. (In thousands)
Fair Value Measurements at December 31, 2015
Carrying
Amount
Fair Value
Level 1
Level 2
Level 3
Financial assets:
Cash and cash equivalents
Securities
Loans receivable, net
Mortgage servicing rights
Regulatory stock
Bank owned life insurance
Financial liabilities:
Accrued interest receivable
Deposits
Short-term borrowings
Other borrowings
Accrued interest payable
Off-balance sheet financial instruments:
Commitments to extend credit
and outstanding letters of credit
Financial assets:
Cash and cash equivalents
Securities
Loans receivable, net
Mortgage servicing rights
Regulatory stock
Bank owned life insurance
Financial liabilities:
Accrued interest receivable
$ 10,010
138,851
552,627
261
3,412
18,820
2,363
$ 10,010
138,851
559,416
291
3,412
18,820
2,363
$
10,010
384
-
-
3,412
18,820
2,363
$
-
138,467
-
-
-
-
-
$
-
-
566,714
291
-
-
-
550,909
53,235
41,126
957
551,175
53,235
41,260
957
354,162
53,235
-
957
-
-
-
-
-
-
-
-
197,013
-
41,260
-
-
Fair Value Measurements at December 31, 2014
Carrying
Amount
Fair Value
Level 1
Level 2
Level 3
$
12,376
156,395
495,260
271
1,714
18,284
2,339
$
12,376
156,395
507,833
277
1,714
18,284
2,339
$
$
12,376
398
-
-
1,714
18,284
2,339
$
-
155,997
-
-
-
-
-
Deposits
Short-term borrowings
Other borrowings
Off-balance sheet financial instruments:
Accrued interest payable
559,944
25,695
22,200
966
560,243
25,695
23,228
966
338,112
25,695
-
966
Commitments to extend credit
and outstanding letters of credit
-
-
-
-
-
-
-
-
73
-
-
507,833
277
-
-
-
222,131
-
23,228
-
-
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
NOTE 15 - ACCUMULATED OTHER COMPREHENSIVE INCOME
The following tables present the changes in accumulated other comprehensive income (loss) (in thousands) by
component, net of tax, for the years ended December 31, 2015 and 2014:
Balance as of December 31, 2014
Other comprehensive loss before reclassification
Amount reclassified from accumulated other comprehensive income
Total other comprehensive loss
Balance as of December 31, 2015
Balance as of December 31, 2013
Other comprehensive loss before reclassification
Amount reclassified from accumulated other comprehensive income
Total other comprehensive loss
Balance as of December 31, 2014
(a) All amounts are net of tax. Amounts in parentheses indicate debits.
$
Unrealized gains
(losses) on
available for sale
462
securities (a)
439
(413)
26
488
$
Unrealized gains
(losses) on
available for sale
securities (a)
$
$
(2,602)
3,836
(772)
3,064
462
The following table presents significant amounts reclassified out of each component of accumulated other
comprehensive income (loss) (in thousands) for the year ended December 31, 2015:
Details about other comprehensive income
Unrealized gains on available for sale securities
Amount Reclassified
From Accumulated
Other
Comprehensive
Income (Loss) (a)
Affected Line Item in
the Consolidated
Statement of
Income
Twelve
months ended
2015
December 31,
626
(213)
413
$
$
Twelve
months ended
2014
December 31,
$
$
1,170
(398)
772
Net realized gains on sales of securities
Income tax expense
Net of tax
(a) Amounts in parentheses indicate debits to net income.
74
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORTNORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
NOTE 16 - PROPOSED ACQUISITION OF DELAWARE BANCSHARES, INC.
On March 10, 2016, Norwood Financial Corp. (“Norwood Financial”) and its wholly owned subsidiary, Wayne
Bank, and Delaware Bancshares, Inc. (“Delaware Bancshares”), and its wholly owned subsidiary, The National
Bank of Delaware County (“NBDC Bank”) entered into an Agreement and Plan of Merger (the “Merger
Agreement”) pursuant to which Delaware Bancshares will merge with and into Norwood Financial, with
Norwood Financial as the surviving corporation. Concurrent with the merger, it is expected that NBDC Bank will
merge with and into Wayne Bank.
Under the terms of the Merger Agreement, each outstanding share of Delaware Bancshares common stock will
be converted into either the right to receive $16.68 in cash or 0.6221 shares of Norwood Financial common stock
or a combination of both. Not more than 25% of the merger consideration shall be paid in cash and the
remainder will be paid in Norwood Financial common stock. In the event of a greater than 20% decline in
market value of Norwood Financial common stock, Delaware Bancshares may, in certain circumstances, be able to
terminate the Merger Agreement unless Norwood Financial increases the number of shares into which Delaware
Bancshares common stock may be converted.
The senior management of Norwood Financial and Wayne Bank will remain the same following the merger.
The directors of NBDC Bank will be invited to join a newly formed regional advisory board. Within 18 months
of the merger, Norwood Financial and Wayne Bank will invite one member of the advisory board to join
their boards.
The transaction is subject to customary closing conditions, including the receipt of regulatory approvals and
approval by the shareholders of Delaware Bancshares. The merger is currently expected to be completed in the
third quarter of 2016.
Each of the directors and executive officers of Delaware Bancshares have agreed to vote their shares in favor of
the approval of the Merger Agreement at the shareholders’ meeting to be held to vote on the proposed
transaction. If the merger is not consummated under certain circumstances, Delaware Bancshares has agreed to
pay Norwood Financial a termination fee of $615,000.
The Merger Agreement also contains usual and customary representations and warranties that Norwood
Financial and Delaware Bancshares made to each other as of specific dates. The assertions embodied in those
representations and warranties were made solely for purposes of the contract between Norwood Financial and
Delaware Bancshares, and may be subject to important qualifications and limitations agreed to by the parties in
connection with negotiating its terms. Moreover, the representations and warranties are subject to a contractual
standard of materiality that may be different from what may be viewed as material to shareholders, and the
representations and warranties may have been used to allocate risk between Norwood Financial and Delaware
Bancshares rather than establishing matters as facts.
75
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
NOTE 17 - NORWOOD FINANCIAL CORP (PARENT COMPANY ONLY) FINANCIAL INFORMATION
BALANCE SHEETS
ASSETS
Cash on deposit in bank subsidiary
Securities available for sale
Investment in bank subsidiary
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Stockholders’ equity
Total liabilities and stockholders’ equity
STATEMENTS OF INCOME
Income:
Dividends from bank subsidiary
Other interest income
Expenses
Income tax benefit
Net Income
Equity in undistributed earnings of subsidiary
Comprehensive Income
STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to
net cash provided by operating activities:
Net Cash Provided by Operating Activities
Undistributed earnings of bank subsidiary
Net gains on sales of securities
Other, net
CASH FLOWS FROM FINANCING ACTIVITIES
Stock options exercised
Tax benefit of stock options exercised
ESOP purchase of shares from treasury stock
Acquisition of treasury stock
Net Cash Used in Financing Activities
Cash dividends paid
Net Increase (Decrease) in Cash and Cash Equivalents
December 31,
2015
2014
(In Thousands)
$
2,151
384
95,895
4,113
$ 102,543
$
1,545
100,998
$ 102,543
$
1,846
398
94,268
3,900
$ 100,412
$
1,371
99,041
$ 100,412
2013
Years Ended December 31,
2015
2014
(In Thousands)
$
$
$
$
4,574
11
4,585
313
4,272
(103)
4,375
1,533
5,908
5,934
$
$
4,377
10
4,387
346
4,041
(114)
4,155
3,502
7,657
10,721
$
$
$
4,216
9
4,225
267
3,958
(88)
4,046
4,419
8,465
3,066
Years Ended December 31,
2015
2014
(In Thousands)
2013
$
5,908
$
7,657
$
8,465
(1,533)
-
(19)
4,356
441
16
146
(127)
(4,527)
(4,051)
305
(3,502)
-
177
4,332
691
17
150
(179)
(4,370)
(3,691)
641
(4,419)
-
(247)
3,799
575
39
146
(319)
(4,155)
(3,714)
85
1,205
1,846
1,120
1,205
$
$
CASH AND CASH EQUIVALENTS - BEGINNING
CASH AND CASH EQUIVALENTS - ENDING
1,846
2,151
$
76
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORTNORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
INVESTOR INFORMATION
STOCK LISTING
Norwood Financial Corp stock is traded on the Nasdaq Global Market under the symbol NWFL. The following
firms are known to make a market in the Company’s stock:
Boenning & Scattergood, Inc.
RBC Capital Markets
West Conshohocken, PA 19428
800-883-1212
Janney Montgomery Scott, LLC
Philadelphia, PA 19103
888-848-4677
Stifel Nicolaus
Scranton, PA 18503
800-638-4417
TRANSFER AGENT
St. Louis, MO 63102
314-342-2000
Computershare, P.O. Box 30170, College Station, TX 77842. Stockholders who may have questions regarding
their stock ownership should contact the Transfer Agent at 800-662-7232.
DIVIDEND CALENDAR
Dividends on Norwood Financial Corp common stock, if approved by the Board of Directors are customarily
paid on or about February 1, May 1, August 1 and November 1.
AUTOMATIC DIVIDEND REINVESTMENT PLAN
The Plan, open to all shareholders, provides the opportunity to have dividends automatically reinvested into
Norwood stock. Participants in the Plan may also elect to make cash contributions to purchase additional shares
of common stock. Please contact the transfer agent for additional information.
SEC REPORTS AND ADDITIONAL INFORMATION
A copy of the Company’s annual report on Form 10-K for its fiscal year ended December 31, 2015
including financial statements and schedules thereto, required to be filed with the Securities and
Exchange Commission is available on the Company’s website at www.waynebank.com under the
Stockholder Services tab. A copy of the report may be obtained upon written request of any stockholder,
investor or analyst by contacting William S. Lance, Executive Vice President, Chief Financial Officer and
Secretary, Norwood Financial Corp., 717 Main Street, PO Box 269, Honesdale, PA 18431, 570-253-1455.
77
NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT
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NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT N O R W O O D F I N A N C I A L C O R P
SUMMARY OF SELECTED FINANCIAL DATA
N O R W O O D F I N A N C I A L C O R P
DIRECTORY OF OFFICERS
For the years ended December 31,
2015
2014
2013
2012
2011
(dollars in thousands except per share data)
Net interest income
Provision for loan losses
$24,521
$24,560
$24,661
$24,764
$22,588
4,580
1,680
2,400
2,450
1,575
Other income
Net realized gains on sales of securities
Other expenses
Income before income taxes
Income tax expense
NET INCOME
Net income per share -Basic*
-Diluted*
Cash dividends declared*
Dividend pay-out ratio
Return on average assets
Return on average equity
BALANCES AT YEAR-END
Total assets
Loans receivable
Allowance for loan losses
Total deposits
Stockholders’ equity
3,969
730
17,100
7,540
1,632
3,940
1,170
17,727
10,263
2,606
4,734
881
16,705
11,171
2,706
3,787
1,419
16,081
11,439
3,036
3,762
973
15,813
9,935
2,579
$5,908
$7,657
$8,465
$8,403
$7,356
$1.60
$1.60
$1.24
$2.10
$2.10
$1.20
$2.33
$2.33
$1.16
$2.33
$2.33
$1.10
$2.17
$2.17
$1.06
77.50%
57.14%
49.79%
47.23%
48.95%
0.80%
5.83%
1.08%
7.92%
1.23%
9.13%
1.23%
9.22%
1.18%
9.26%
$750,505
$711,635
$711,234
$672,299
$668,814
559,925
501,135
503,097
476,710
457,907
7,298
5,875
5,708
5,502
550,909
559,944
541,182
524,425
100,998
99,041
91,864
92,421
112,081
5,458
525,767
88,061
107,696
Trust assets under management
131,690
134,888
126,673
Book value per share*
$27.39
$26.30
$25.43
$25.49
$24.37
Tier 1 Capital to risk-adjusted assets
Total Capital to risk-adjusted assets
Allowance for loan losses to total loans
Non-performing assets to total assets
15.86%
17.09%
1.30%
1.33%
17.33%
18.49%
1.17%
1.31%
16.53%
17.66%
1.13%
1.48%
16.37%
17.51%
1.15%
2.09%
15.90%
17.08%
1.19%
1.60%
* Per share information has been restated to reflect the 10% stock dividend declared in 2013.
NORWOOD FINANCIAL CORP
John E. Marshall
Chairman of the Board
William W. Davis, Jr.
Vice Chairman of the Board
Lewis J. Critelli
President & Chief Executive Officer
William S. Lance
Executive Vice President,
Chief Financial Officer & Secretary
James F. Burke
Executive Vice President
John F. Carmody
Executive Vice President
Robert J. Mancuso
Executive Vice President
John H. Sanders
Senior Vice President
WAYNE BANK
John E. Marshall
Chairman of the Board
William W. Davis, Jr.
Vice Chairman of the Board
Lewis J. Critelli
President & Chief Executive Officer
William S. Lance
Executive Vice President,
Chief Financial Officer & Secretary
James F. Burke
Executive Vice President,
John F. Carmody
Executive Vice President,
Chief Lending Officer
Chief Credit Officer
Robert J. Mancuso
Executive Vice President,
Chief Information Officer
John H. Sanders
Senior Vice President,
Retail Lending Manager
Diane M. Wylam
Senior Vice President, Senior Trust Officer
Thomas A. Byrne
Senior Vice President
Christe A. Casciano
Senior Vice President
Joseph A. Castrogiovanni Senior Vice President
Kenneth C. Doolittle
Senior Vice President
Ryan J. French
Nancy A. Hart
Senior Vice President
Senior Vice President,
Linda D. Mader
Kelley J. Lalley
Barbara A. Ridd
Controller & Assistant Secretary
Senior Vice President
Vice President & Assistant Secretary
Vice President & Assistant Secretary
Robert J. Behrens, Jr.
Vice President
Pilar Cueva
JoAnn Fuller
Karen R. Gasper
Daniel Janki
John E. Koczwara
Vice President
Vice President
Vice President
Vice President
Vice President
Mary Alice Petzinger
Vice President
Mark W. Ranzan
Vice President
Richard A. Siarniak
Vice President
Eli T. Tomlinson
Kara R. Talcott
Vice President
Assistant Vice President, Internal Auditor
Douglas W. Atherton
Assistant Vice President
Julie R. Kuen
Assistant Vice President
Juliette P. McKerrell
Assistant Vice President
Frank J. Sislo
Assistant Vice President
Steven R. Daniels
Community Office Manager
Rossie Demorizi-Ortiz
Community Office Manager
Craig D. Grimm
Jill A. Hessling
Vonnie A. Lewis
Community Office Manager
Community Office Manager
Community Office Manager
Sandra C. Mruczkewycz Community Office Manager
Matthew M. Swartz
Community Office Manager
Beverly J. Wallace
Community Office Manager
Laurie J. Bishop
Assistant Community Office Manager
Wendy L. Davis
Denise R. Kern
Assistant Community Office Manager
Assistant Community Office Manager
Diane L. Richter
Assistant Community Office Manager
Denise M. Rollison
Assistant Community Office Manager
Jessica Santiago
Assistant Community Office Manager
Cheryl Wilkerson
Assistant Community Office Manager
Gerald J. Arnese
Resource Recovery Manager
Kristine Malti
Deposit Operations Officer
Linda A. Meskey
Credit Analyst
Amanda R. Miller
Commercial Loan Documentation Officer
Kathryn A. Serniak
Mortgage Loan Officer
Doreen A. Swingle
Residential Mortgage Lending Officer
Bonnie Taylor
Assistant Trust Officer
NORWOOD INVESTMENT CORP
Lewis J. Critelli
William S. Lance
Scott C. Rickard
President & Chief Executive Officer
Treasurer
Senior Investment Representative,
INVEST Financial Corp
MONROE COUNTY ASSOCIATE BOARD
Michael J. Baxter
Sara Cramer
Dr. Andrew A. Forte
James H. Ott
Marvin Papillon
Ray Price
Ralph A. Matergia, Esq. Ron Sarajian
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ANNUAL REPORT