NORWOOD FINANCIAL CORP
NORWOOD FINANCIAL CORP
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2016
W A Y N E B A N K . C O M
A N N U A L R E P O R T
S u m m a r y o f S e l e c t e d F i n a n c i a l D a t a
(dollars in thousands except per share data)
FOR THE YEARS ENDED DECEMBER 31,
2016
2015
2014
2013
2012
Net interest income
Provision for loan losses
Other income
Net realized gains on sales of loans and 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
Trust assets under management
$28,590
$24,521
$24,560
$24,661
$24,764
2,050
4,580
1,680
2,400
2,450
23,124
17,100
4,841
338
8,595
1,884
$1.74
$1.73
$1.25
3,969
730
7,540
1,632
$1.60
$1.60
$1.24
3,940
1,170
17,727
10,263
2,606
$2.10
$2.10
$1.20
4,734
881
16,705
11,171
2,706
$2.33
$2.33
$1.16
3,787
1,419
16,081
11,439
3,036
$2.33
$2.33
$1.10
$6,711
$5,908
$7,657
$8,465
$8,403
71.84%
77.50%
57.14%
49.79%
47.23%
0.74%
6.17%
0.80%
5.83%
1.08%
7.92%
1.23%
9.13%
1.23%
9.22%
$1,111,183
$750,505
$711,635
$711,234
$672,299
713,889
559,925
501,135
503,097
476,710
6,463
925,385
111,079
138,167
7,298
550,909
100,998
131,690
5,875
5,708
5,502
559,944
541,182
524,425
99,041
91,864
92,421
134,888
126,673
112,081
Book value per share*
$26.15
$27.39
$26.30
$25.43
$25.49
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
13.27%
14.12%
0.91%
0.64%
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%
* Per share information has been restated to reflect the 10% stock dividend declared in 2013.
2016 A N N U A L R E P O R T
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R E A C H I N G
N E W
H E I G H T S
2016
W A Y N E B A N K . C O M
A N N U A L R E P O R T
NORWOOD FINANCIAL CORP
NORWOOD FINANCIAL CORP
S u m m a r y o f S e l e c t e d F i n a n c i a l D a t a
(dollars in thousands except per share data)
FOR THE YEARS ENDED DECEMBER 31,
2016
2015
2014
2013
2012
Net interest income
Provision for loan losses
Other income
Net realized gains on sales of loans and 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
Trust assets under management
$28,590
$24,521
$24,560
$24,661
$24,764
2,050
4,580
1,680
2,400
2,450
4,841
338
3,969
730
23,124
17,100
8,595
1,884
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
$6,711
$5,908
$7,657
$8,465
$8,403
$1.74
$1.73
$1.25
$1.60
$1.60
$1.24
$2.10
$2.10
$1.20
$2.33
$2.33
$1.16
$2.33
$2.33
$1.10
71.84%
77.50%
57.14%
49.79%
47.23%
0.74%
6.17%
0.80%
5.83%
1.08%
7.92%
1.23%
9.13%
1.23%
9.22%
$1,111,183
$750,505
$711,635
$711,234
$672,299
713,889
559,925
501,135
503,097
476,710
6,463
925,385
111,079
138,167
7,298
550,909
100,998
131,690
5,875
5,708
5,502
559,944
541,182
524,425
99,041
91,864
92,421
134,888
126,673
112,081
Book value per share*
$26.15
$27.39
$26.30
$25.43
$25.49
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
13.27%
14.12%
0.91%
0.64%
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%
* Per share information has been restated to reflect the 10% stock dividend declared in 2013.
2016 A N N U A L R E P O R T
L E T T E R F R O M T H E P R E S I D E N T
The year’s most exciting news was Wayne Bank’s
acquisition of NBDC and its twelve Community
Offices in Delaware and Sullivan counties, New York.
W e are pleased to share with you this Annual Report, which recaps the Company’s achievements and
performance in 2016. As you are aware, we successfully completed the acquisition and integration of
Delaware Bancshares, Inc. and its subsidiary, NBDC Bank, in the third quarter. With this transaction, the Company
increased its size to $1.1 billion in total assets, $713.9 million in loans, and $925.4 million in total deposits as of
December 31, 2016. We earned $6,711,000 for the year, an increase of $803,000 over the $5,908,000 earned in 2015.
This resulted in an earnings per share of $1.73 in 2016 compared to $1.60 in 2015. The increases over the prior year
were after the one-time expenses of $1,806,000 related to the acquisition. We also benefited from the aggressive
action we took in 2015 to address non-performing loans. Credit quality
metrics improved in 2016 with a significantly lower level of non-performing
loans and reduced charge-offs. The Company also increased the dividend in
2016 which marks the 25th consecutive year of increases. I encourage you to
read the Financial Statements and Management’s Discussion and Analysis
for a full report on our performance.
In 2016, Wayne Bank’s mission of Helping the Community Grow by
serving local businesses and their employees celebrated 145 years of success.
Wayne Bank’s primary goal as a community bank is to directly fund local
businesses with money that comes from the local economy and, as a result,
is reinvested back into it. Supporting our local businesses is essential to the
continued growth and prosperity of the community we call home. We offer
most everything the larger banks do, but in small town Community Offices
with local people who genuinely care about helping local businesses grow and
thrive. Wayne Bank is committed to offering a complete line of products and
services that deliver comprehensive solutions for the challenges our customers
face in today’s changing world.
LEWIS J. CRITELLI
PRESIDENT AND CEO
Supporting our local businesses is essential
to the continued growth and prosperity
of the community we call home.
NORWOOD FINANCIAL CORP
NORWOOD FINANCIAL CORP
Wayne Bank continues to excel at serving local municipalities, school districts, and
governmental authorities by providing both the local and financial expertise for the
unique needs of these organizations. Another sector that saw enviable growth in 2016
was indirect lending though automobile, marine, and recreational vehicle dealers. The
Bank’s dealer center has continued to build strong relationships and offer competitive
financing to the businesses in our area.
The year’s most exciting news was Wayne Bank’s acquisition of NBDC and its
twelve Community Offices in Delaware and Sullivan counties, New York. The new
offices have been a great fit geographically, demographically, and culturally, giving
Wayne Bank twenty-six Community Offices across two states and six counties. The
acquisition significantly increased the Bank’s deposit and loan accounts. Deposit
accounts now total nearly 57,000, an increase of 56%, and loan accounts of 10,600, a
47% growth. Another exciting result of the acquisition occurred when the Company
began its branding initiative for the new offices. This gave the Bank the perfect
opportunity to invigorate its look and improve visibility by changing the color of its
logo to a refreshing blue color, creating a visually impressive impact with the installation
of blue Wayne Bank signs at the New York Community Offices.
In addition to enjoying an enhanced loan and deposit rate structure, New York
customers can now take advantage of numerous new technology improvements. These
include a branded consumer mobile app updated to offer instant balance functionality,
a branded business mobile app with mobile deposit capture, tablet apps, remote
deposit capture for business customers, enhanced debit card services including Card
Valet, Apple Pay, Visa Checkout, and 23,000 surcharge-free MoneyPass compatible
ATM locations.
26
O F F I C E S
s ta t e s
2
6
c o u n t i e s
> $1
b i l l i o n
IN ASSETS
Wayne Bank’s information technology department
is always working to counter evolving security
threats, prevent fraud, and protect customer data.
d i r e c t o r y o f o f f i c e r s
NORWOOD FINANCIAL CORP
WILLIAM W. DAVIS, JR. ...............................................CHAIRMAN OF THE BOARD
DR. ANDREW A. FORTE...................................VICE CHAIRMAN OF THE BOARD
LEWIS J. CRITELLI ..........................PRESIDENT & CHIEF EXECUTIVE OFFICER
WILLIAM S. LANCE ..................................................EXECUTIVE VICE PRESIDENT,
MICHELE BAILEY ............................................... COMMUNITY OFFICE MANAGER
JODI BAIR .............................................................. COMMUNITY OFFICE MANAGER
KAREN BEISSEL .................................................. COMMUNITY OFFICE MANAGER
ROSIE DEMORIZI-ORTIZ ................................ COMMUNITY OFFICE MANAGER
APRIL EPPS ........................................................... COMMUNITY OFFICE MANAGER
CHIEF FINANCIAL OFFICER & SECRETARY
CRAIG D. GRIMM ................................................ COMMUNITY OFFICE MANAGER
JAMES F. BURKE ........................................................EXECUTIVE VICE PRESIDENT
JILL A. HESSLING ............................................... COMMUNITY OFFICE MANAGER
JOHN F. CARMODY ..................................................EXECUTIVE VICE PRESIDENT
TERESA HYNES .................................................. COMMUNITY OFFICE MANAGER
ROBERT J. MANCUSO ..............................................EXECUTIVE VICE PRESIDENT
VONNIE A. LEWIS .............................................. COMMUNITY OFFICE MANAGER
JOHN H. SANDERS ............................................................SENIOR VICE PRESIDENT
GERALDINE MOORE ......................................... COMMUNITY OFFICE MANAGER
WAYNE BANK
SANDRA C. MRUCZKEWYCZ ........................ COMMUNITY OFFICE MANAGER
MADELINE PORTUGAL ................................... COMMUNITY OFFICE MANAGER
WILLIAM W. DAVIS, JR. ...............................................CHAIRMAN OF THE BOARD
DEBRA RENWICK .............................................. COMMUNITY OFFICE MANAGER
DR. ANDREW A. FORTE...................................VICE CHAIRMAN OF THE BOARD
ELAINE REUTHE ................................................ COMMUNITY OFFICE MANAGER
LEWIS J. CRITELLI ..........................PRESIDENT & CHIEF EXECUTIVE OFFICER
WILLIAM S. LANCE ..................................................EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER & SECRETARY
JAMES F. BURKE ........................................................EXECUTIVE VICE PRESIDENT,
CHIEF LENDING OFFICER
JOHN F. CARMODY ..................................................EXECUTIVE VICE PRESIDENT,
DENISE ROLLISON ............................................ COMMUNITY OFFICE MANAGER
CHRISTINE ROUTLEDGE ............................... COMMUNITY OFFICE MANAGER
JESSICA SANTIAGO ........................................... COMMUNITY OFFICE MANAGER
DIANA SUNNEKALB ......................................... COMMUNITY OFFICE MANAGER
MATTHEW M. SWARTZ ................................... COMMUNITY OFFICE MANAGER
CHIEF CREDIT OFFICER
TANYIA VANNATTA ......................................... COMMUNITY OFFICE MANAGER
ROBERT J. MANCUSO ..............................................EXECUTIVE VICE PRESIDENT,
BEVERLY J. WALLACE ........................................ COMMUNITY OFFICE MANAGER
JOHN H. SANDERS ........................................................... SENIOR VICE PRESIDENT,
CHIEF INFORMATION OFFICER
RETAIL LENDING MANAGER
DIANE M. WYLAM............................................................ SENIOR VICE PRESIDENT,
LAURIE J. BISHOP ...................... ASSISTANT COMMUNITY OFFICE MANAGER
WENDY L. DAVIS ....................... ASSISTANT COMMUNITY OFFICE MANAGER
TIMOTHY GUTLIPH ................ ASSISTANT COMMUNITY OFFICE MANAGER
SENIOR TRUST OFFICER
DENISE R. KERN ........................ ASSISTANT COMMUNITY OFFICE MANAGER
THOMAS A. BYRNE...........................................................SENIOR VICE PRESIDENT
ERIN MASON .............................. ASSISTANT COMMUNITY OFFICE MANAGER
JOSEPH A. CASTROGIOVANNI.....................................SENIOR VICE PRESIDENT
KIMBERLY MICHALEK ............ ASSISTANT COMMUNITY OFFICE MANAGER
KENNETH C. DOOLITTLE .............................................SENIOR VICE PRESIDENT
DIANE L. RICHTER ................... ASSISTANT COMMUNITY OFFICE MANAGER
RYAN J. FRENCH ................................................................SENIOR VICE PRESIDENT
CHERYL WILKERSON .............. ASSISTANT COMMUNITY OFFICE MANAGER
JOANN FULLER ..................................................................SENIOR VICE PRESIDENT
NANCY A. HART ............................................................... SENIOR VICE PRESIDENT,
CONTROLLER & ASSISTANT SECRETARY
DAWNETTE HOTALING.................................................SENIOR VICE PRESIDENT
LINDA D. MADER...............................................................SENIOR VICE PRESIDENT
VINCENT O’BELL ..............................................................SENIOR VICE PRESIDENT
JOHN VELEBER ..................................................................SENIOR VICE PRESIDENT
BARBARA A. RIDD ....................... VICE PRESIDENT & ASSISTANT SECRETARY
ROBERT J. BEHRENS, JR. .................................................................. VICE PRESIDENT
PILAR CUEVA ...................................................................................... VICE PRESIDENT
KAREN R. GASPER ............................................................................ VICE PRESIDENT
AMANDA HALL ................................................................................. VICE PRESIDENT
JOHN E. KOCZWARA ....................................................................... VICE PRESIDENT
JULIETTE P. MCKERRELL ............................................................... VICE PRESIDENT
MARY ALICE PETZINGER .............................................................. VICE PRESIDENT
HEIDI PICKETT ................................................................................. VICE PRESIDENT
MARK W. RANZAN ........................................................................... VICE PRESIDENT
RICHARD A. SIARNIAK ................................................................... VICE PRESIDENT
KARA R. SUCHY ................................................................................. VICE PRESIDENT
ELI T. TOMLINSON ........................................................................... VICE PRESIDENT
DOUGLAS W. ATHERTON ......................................ASSISTANT VICE PRESIDENT
DEREK BELLINGER ..................................................ASSISTANT VICE PRESIDENT
STEVEN R. DANIELS ................................................ASSISTANT VICE PRESIDENT
JULIE R. KUEN ............................................................ASSISTANT VICE PRESIDENT
GERALD J. ARNESE .......................................................CONSUMER LOAN OFFICER
KRISTINE MALTI ..................................................................DEPOSIT OPERATIONS/
ELECTRONIC BANKING OFFICER
MARIANNE MCCONEGHY .................................. TRUST OPERATIONS OFFICER
LINDA A. MESKEY ............................................................................ CREDIT ANALYST
AMANDA R. MILLER .......COMMERCIAL LOAN DOCUMENTATION OFFICER
KATHRYN A. SERNIAK ................................................MORTGAGE LOAN OFFICER
GARY STEICH ........................................................RESOURCE RECOVERY OFFICER
DOREEN A. SWINGLE ............RESIDENTIAL MORTGAGE LENDING OFFICER
BONNIE TAYLOR .........................................................ASSISTANT TRUST OFFICER
NORWOOD INVESTMENT CORP
LEWIS J. CRITELLI ..........................PRESIDENT & CHIEF EXECUTIVE OFFICER
WILLIAM S. LANCE .................................................................................... TREASURER
SCOTT C. RICKARD ....................... SENIOR INVESTMENT REPRESENTATIVE,
INVEST FINANCIAL CORP
MONROE COUNTY ASSOCIATE BOARD
MICHAEL J. BAXTER
SARA CRAMER
DR. ANDREW A. FORTE
RALPH A. MATERGIA, ESQ.
JAMES H. OTT
MARVIN PAPILLON
RAY PRICE
RON SARAJIAN
NEW YORK ADVISORY BOARD
BONNIE LOCKETT ...................................................ASSISTANT VICE PRESIDENT
EILEEN MERSHON ...................................................ASSISTANT VICE PRESIDENT
MICHAEL P. DEGROAT
LEONARD A. GOVERN
PATRICK P. GALLOWAY
MEG HUNGERFORD
FRANK J. SISLO ...........................................................ASSISTANT VICE PRESIDENT
DOUGLAS A. SLUITER
JOEL SMITH
2016 A N N U A L R E P O R T
1
R E A C H I N G N E W H E I G H T S
2
2016 A N N U A L R E P O R T
L E T T E R F R O M T H E P R E S I D E N T
The year’s most exciting news was Wayne Bank’s
acquisition of NBDC and its twelve Community
Offices in Delaware and Sullivan counties, New York.
W e are pleased to share with you this Annual Report, which recaps the Company’s achievements and
performance in 2016. As you are aware, we successfully completed the acquisition and integration of
Delaware Bancshares, Inc. and its subsidiary, NBDC Bank, in the third quarter. With this transaction, the Company
increased its size to $1.1 billion in total assets, $713.9 million in loans, and $925.4 million in total deposits as of
December 31, 2016. We earned $6,711,000 for the year, an increase of $803,000 over the $5,908,000 earned in 2015.
This resulted in an earnings per share of $1.73 in 2016 compared to $1.60 in 2015. The increases over the prior year
were after the one-time expenses of $1,806,000 related to the acquisition. We also benefited from the aggressive
action we took in 2015 to address non-performing loans. Credit quality
metrics improved in 2016 with a significantly lower level of non-performing
loans and reduced charge-offs. The Company also increased the dividend in
2016 which marks the 25th consecutive year of increases. I encourage you to
read the Financial Statements and Management’s Discussion and Analysis
for a full report on our performance.
In 2016, Wayne Bank’s mission of Helping the Community Grow by
serving local businesses and their employees celebrated 145 years of success.
Wayne Bank’s primary goal as a community bank is to directly fund local
businesses with money that comes from the local economy and, as a result,
is reinvested back into it. Supporting our local businesses is essential to the
continued growth and prosperity of the community we call home. We offer
most everything the larger banks do, but in small town Community Offices
with local people who genuinely care about helping local businesses grow and
thrive. Wayne Bank is committed to offering a complete line of products and
services that deliver comprehensive solutions for the challenges our customers
face in today’s changing world.
LEWIS J. CRITELLI
PRESIDENT AND CEO
Supporting our local businesses is essential
to the continued growth and prosperity
of the community we call home.
NORWOOD FINANCIAL CORP
NORWOOD FINANCIAL CORP
Wayne Bank continues to excel at serving local municipalities, school districts, and
governmental authorities by providing both the local and financial expertise for the
unique needs of these organizations. Another sector that saw enviable growth in 2016
was indirect lending though automobile, marine, and recreational vehicle dealers. The
Bank’s dealer center has continued to build strong relationships and offer competitive
financing to the businesses in our area.
The year’s most exciting news was Wayne Bank’s acquisition of NBDC and its
twelve Community Offices in Delaware and Sullivan counties, New York. The new
offices have been a great fit geographically, demographically, and culturally, giving
Wayne Bank twenty-six Community Offices across two states and six counties. The
acquisition significantly increased the Bank’s deposit and loan accounts. Deposit
accounts now total nearly 57,000, an increase of 56%, and loan accounts of 10,600, a
47% growth. Another exciting result of the acquisition occurred when the Company
began its branding initiative for the new offices. This gave the Bank the perfect
opportunity to invigorate its look and improve visibility by changing the color of its
logo to a refreshing blue color, creating a visually impressive impact with the installation
of blue Wayne Bank signs at the New York Community Offices.
In addition to enjoying an enhanced loan and deposit rate structure, New York
customers can now take advantage of numerous new technology improvements. These
include a branded consumer mobile app updated to offer instant balance functionality,
a branded business mobile app with mobile deposit capture, tablet apps, remote
deposit capture for business customers, enhanced debit card services including Card
Valet, Apple Pay, Visa Checkout, and 23,000 surcharge-free MoneyPass compatible
ATM locations.
26
O F F I C E S
2
s ta t e s
6
c o u n t i e s
> $1
b i l l i o n
IN ASSETS
Wayne Bank’s information technology department
is always working to counter evolving security
threats, prevent fraud, and protect customer data.
d i r e c t o r y o f o f f i c e r s
NORWOOD FINANCIAL CORP
WILLIAM W. DAVIS, JR. ...............................................CHAIRMAN OF THE BOARD
DR. ANDREW A. FORTE...................................VICE CHAIRMAN OF THE BOARD
LEWIS J. CRITELLI ..........................PRESIDENT & CHIEF EXECUTIVE OFFICER
WILLIAM S. LANCE ..................................................EXECUTIVE VICE PRESIDENT,
MICHELE BAILEY ............................................... COMMUNITY OFFICE MANAGER
JODI BAIR .............................................................. COMMUNITY OFFICE MANAGER
KAREN BEISSEL .................................................. COMMUNITY OFFICE MANAGER
ROSIE DEMORIZI-ORTIZ ................................ COMMUNITY OFFICE MANAGER
APRIL EPPS ........................................................... COMMUNITY OFFICE MANAGER
CHIEF FINANCIAL OFFICER & SECRETARY
CRAIG D. GRIMM ................................................ COMMUNITY OFFICE MANAGER
JAMES F. BURKE ........................................................EXECUTIVE VICE PRESIDENT
JILL A. HESSLING ............................................... COMMUNITY OFFICE MANAGER
JOHN F. CARMODY ..................................................EXECUTIVE VICE PRESIDENT
TERESA HYNES .................................................. COMMUNITY OFFICE MANAGER
ROBERT J. MANCUSO ..............................................EXECUTIVE VICE PRESIDENT
VONNIE A. LEWIS .............................................. COMMUNITY OFFICE MANAGER
JOHN H. SANDERS ............................................................SENIOR VICE PRESIDENT
GERALDINE MOORE ......................................... COMMUNITY OFFICE MANAGER
WAYNE BANK
SANDRA C. MRUCZKEWYCZ ........................ COMMUNITY OFFICE MANAGER
MADELINE PORTUGAL ................................... COMMUNITY OFFICE MANAGER
WILLIAM W. DAVIS, JR. ...............................................CHAIRMAN OF THE BOARD
DEBRA RENWICK .............................................. COMMUNITY OFFICE MANAGER
DR. ANDREW A. FORTE...................................VICE CHAIRMAN OF THE BOARD
ELAINE REUTHE ................................................ COMMUNITY OFFICE MANAGER
LEWIS J. CRITELLI ..........................PRESIDENT & CHIEF EXECUTIVE OFFICER
WILLIAM S. LANCE ..................................................EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER & SECRETARY
JAMES F. BURKE ........................................................EXECUTIVE VICE PRESIDENT,
CHIEF LENDING OFFICER
JOHN F. CARMODY ..................................................EXECUTIVE VICE PRESIDENT,
DENISE ROLLISON ............................................ COMMUNITY OFFICE MANAGER
CHRISTINE ROUTLEDGE ............................... COMMUNITY OFFICE MANAGER
JESSICA SANTIAGO ........................................... COMMUNITY OFFICE MANAGER
DIANA SUNNEKALB ......................................... COMMUNITY OFFICE MANAGER
MATTHEW M. SWARTZ ................................... COMMUNITY OFFICE MANAGER
CHIEF CREDIT OFFICER
TANYIA VANNATTA ......................................... COMMUNITY OFFICE MANAGER
ROBERT J. MANCUSO ..............................................EXECUTIVE VICE PRESIDENT,
BEVERLY J. WALLACE ........................................ COMMUNITY OFFICE MANAGER
JOHN H. SANDERS ........................................................... SENIOR VICE PRESIDENT,
CHIEF INFORMATION OFFICER
RETAIL LENDING MANAGER
DIANE M. WYLAM............................................................ SENIOR VICE PRESIDENT,
LAURIE J. BISHOP ...................... ASSISTANT COMMUNITY OFFICE MANAGER
WENDY L. DAVIS ....................... ASSISTANT COMMUNITY OFFICE MANAGER
TIMOTHY GUTLIPH ................ ASSISTANT COMMUNITY OFFICE MANAGER
SENIOR TRUST OFFICER
DENISE R. KERN ........................ ASSISTANT COMMUNITY OFFICE MANAGER
THOMAS A. BYRNE...........................................................SENIOR VICE PRESIDENT
ERIN MASON .............................. ASSISTANT COMMUNITY OFFICE MANAGER
JOSEPH A. CASTROGIOVANNI.....................................SENIOR VICE PRESIDENT
KIMBERLY MICHALEK ............ ASSISTANT COMMUNITY OFFICE MANAGER
KENNETH C. DOOLITTLE .............................................SENIOR VICE PRESIDENT
DIANE L. RICHTER ................... ASSISTANT COMMUNITY OFFICE MANAGER
RYAN J. FRENCH ................................................................SENIOR VICE PRESIDENT
CHERYL WILKERSON .............. ASSISTANT COMMUNITY OFFICE MANAGER
JOANN FULLER ..................................................................SENIOR VICE PRESIDENT
NANCY A. HART ............................................................... SENIOR VICE PRESIDENT,
CONTROLLER & ASSISTANT SECRETARY
DAWNETTE HOTALING.................................................SENIOR VICE PRESIDENT
LINDA D. MADER...............................................................SENIOR VICE PRESIDENT
VINCENT O’BELL ..............................................................SENIOR VICE PRESIDENT
JOHN VELEBER ..................................................................SENIOR VICE PRESIDENT
BARBARA A. RIDD ....................... VICE PRESIDENT & ASSISTANT SECRETARY
ROBERT J. BEHRENS, JR. .................................................................. VICE PRESIDENT
PILAR CUEVA ...................................................................................... VICE PRESIDENT
KAREN R. GASPER ............................................................................ VICE PRESIDENT
AMANDA HALL ................................................................................. VICE PRESIDENT
JOHN E. KOCZWARA ....................................................................... VICE PRESIDENT
JULIETTE P. MCKERRELL ............................................................... VICE PRESIDENT
MARY ALICE PETZINGER .............................................................. VICE PRESIDENT
HEIDI PICKETT ................................................................................. VICE PRESIDENT
MARK W. RANZAN ........................................................................... VICE PRESIDENT
RICHARD A. SIARNIAK ................................................................... VICE PRESIDENT
KARA R. SUCHY ................................................................................. VICE PRESIDENT
ELI T. TOMLINSON ........................................................................... VICE PRESIDENT
DOUGLAS W. ATHERTON ......................................ASSISTANT VICE PRESIDENT
DEREK BELLINGER ..................................................ASSISTANT VICE PRESIDENT
STEVEN R. DANIELS ................................................ASSISTANT VICE PRESIDENT
JULIE R. KUEN ............................................................ASSISTANT VICE PRESIDENT
GERALD J. ARNESE .......................................................CONSUMER LOAN OFFICER
KRISTINE MALTI ..................................................................DEPOSIT OPERATIONS/
ELECTRONIC BANKING OFFICER
MARIANNE MCCONEGHY .................................. TRUST OPERATIONS OFFICER
LINDA A. MESKEY ............................................................................ CREDIT ANALYST
AMANDA R. MILLER .......COMMERCIAL LOAN DOCUMENTATION OFFICER
KATHRYN A. SERNIAK ................................................MORTGAGE LOAN OFFICER
GARY STEICH ........................................................RESOURCE RECOVERY OFFICER
DOREEN A. SWINGLE ............RESIDENTIAL MORTGAGE LENDING OFFICER
BONNIE TAYLOR .........................................................ASSISTANT TRUST OFFICER
NORWOOD INVESTMENT CORP
LEWIS J. CRITELLI ..........................PRESIDENT & CHIEF EXECUTIVE OFFICER
WILLIAM S. LANCE .................................................................................... TREASURER
SCOTT C. RICKARD ....................... SENIOR INVESTMENT REPRESENTATIVE,
INVEST FINANCIAL CORP
MONROE COUNTY ASSOCIATE BOARD
MICHAEL J. BAXTER
SARA CRAMER
DR. ANDREW A. FORTE
RALPH A. MATERGIA, ESQ.
JAMES H. OTT
MARVIN PAPILLON
RAY PRICE
RON SARAJIAN
NEW YORK ADVISORY BOARD
BONNIE LOCKETT ...................................................ASSISTANT VICE PRESIDENT
EILEEN MERSHON ...................................................ASSISTANT VICE PRESIDENT
MICHAEL P. DEGROAT
LEONARD A. GOVERN
PATRICK P. GALLOWAY
MEG HUNGERFORD
FRANK J. SISLO ...........................................................ASSISTANT VICE PRESIDENT
DOUGLAS A. SLUITER
JOEL SMITH
2016 A N N U A L R E P O R T
1
R E A C H I N G N E W H E I G H T S
2
2016 A N N U A L R E P O R T
Community involvement has been a hallmark of the bank, with 2016 being a banner year. The Bank sponsored
hundreds of organizations and Bank employees actively participated in over one hundred different community
events. We began with 20th Anniversary parties for our Lakewood and Shohola community offices, and later
celebrated twelve grand opening events across Delaware and Sullivan County New York. You may have seen us
cruising at the Equinunk Historical Society’s 17th Annual Car Show, running in or handing out bananas at the
Scranton Half Marathon, throwing paper airplanes on First Friday, playing trivia with the artisans and customers
at ScrantonMade’s Holiday Market, canoeing down the Lackawaxen River with the Honesdale Jaycees, jammin’
at Waymart’s Waystock and the Dorflinger Wildflower Music Festival, eating bagels at the Monticello Bagel Fest,
participating in Community Days from Andes to Effort, or accompanying Santa in offices from Marshalls Creek and
Lakewood to Honesdale and Walton.
Community involvement has been a hallmark of the bank.
In addition to the satisfaction of being a part of so
many valuable and rewarding community events, the
Bank also garnished some recognition with the Wayne
Pike Building Industry Association’s Golden Hammer
Award for Social Media, the United Way Platinum
Hand Award, the 2016 Happenings Magazine Happie
Award for “Best Bank”, The Institute for Extraordinary
Banking™ Banky® Award, and a 2016 Pocono Record
Reader’s Choice Award.
for
The Bank’s growth provided many opportunities for
employee advancement and over the past year numerous
employees were promoted
their outstanding
contributions. JoAnn Fuller was promoted to Senior
Vice President and Deposit & Loan Operations
Manager, Juliette McKerrell to Vice President and
Sullivan County Commercial Loan Officer, Kara Suchy
to Vice President and Director of Internal Audit,
Steven Daniels to Assistant Vice President and Wayne
County Commercial Loan Officer, Madeline Portugal to
Community Office Manager in Shohola, and Marianne
McConeghy to Trust Operations Officer.
TRIO OF AWARDS
From the left, are Lewis J. Critelli, President and Chief
Executive Officer; Eli Tomlinson, Information Technology
Manager; and Robert J. Mancuso, Executive Vice President
and Chief Information Officer, with the awards.
NORWOOD FINANCIAL CORP
Additionally, Wayne Bank hired several experienced bankers that will be tasked with expanding customer
relationships including John Veleber, Senior Vice President and Delaware County Commercial Loan Officer; Vincent
O’Bell, Senior Vice President and Commercial Loan Officer; Derek Bellinger, Assistant Vice President and Pike County
Commercial Loan Officer; and Eileen Mershon, Assistant Vice President and Sullivan County Regional Community
Office Manager.
Wayne Bank is extremely proud of the long-term dedication of its employees. Congratulations to Laurie Bishop,
Assistant Office Manager of the Hawley Community Office, for forty years of service! John Carmody, Executive Vice
President and Chief Credit Officer, and Jill Hessling, Community Office Manager of the Main Office in Honesdale,
both achieved twenty years of service! Adding employees who celebrated fifteen, ten, and five year anniversaries, the
group represents 195 years of Community Banking experience.
In a year filled with positive momentum, the Company did face the heartbreaking loss
of two Wayne County institutions. Wayne Bank and the entire community mourned
the loss of John E. Marshall, Wayne Bank’s Chairman of the Board, a stalwart member
of the community. Serving for thirty-three years as a board member, Mr. Marshall
saw the bank grow from two offices to a $1.1 billion organization with twenty-seven
offices across two states. The community also lost Kelley J. Lalley, Wayne Bank
Vice President and Commercial Loan Officer. Mr. Lalley was beloved in Honesdale
for his character and tireless community involvement. In Lackawanna County, we
lost long-time customer favorite, Jolane Granza, a teller from the Clarks Summit
Community Office.
The Board also appointed William W. Davis, Jr. as Chairman of the Board and
Dr. Andrew Forte as Vice-Chairman. The Company is very fortunate to have their
guidance and leadership as we continue to build shareholder value, serve our customers
JOHN E. MARSHALL
1937-2016
and help the community grow.
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.
Lewis J. Critelli
President & CEO
2016 A N N U A L R E P O R T
3
R E A C H I N G N E W H E I G H T S
4
Community involvement has been a hallmark of the bank, with 2016 being a banner year. The Bank sponsored
hundreds of organizations and Bank employees actively participated in over one hundred different community
events. We began with 20th Anniversary parties for our Lakewood and Shohola community offices, and later
celebrated twelve grand opening events across Delaware and Sullivan County New York. You may have seen us
cruising at the Equinunk Historical Society’s 17th Annual Car Show, running in or handing out bananas at the
Scranton Half Marathon, throwing paper airplanes on First Friday, playing trivia with the artisans and customers
at ScrantonMade’s Holiday Market, canoeing down the Lackawaxen River with the Honesdale Jaycees, jammin’
at Waymart’s Waystock and the Dorflinger Wildflower Music Festival, eating bagels at the Monticello Bagel Fest,
participating in Community Days from Andes to Effort, or accompanying Santa in offices from Marshalls Creek and
Lakewood to Honesdale and Walton.
Community involvement has been a hallmark of the bank.
In addition to the satisfaction of being a part of so
many valuable and rewarding community events, the
Bank also garnished some recognition with the Wayne
Pike Building Industry Association’s Golden Hammer
Award for Social Media, the United Way Platinum
Hand Award, the 2016 Happenings Magazine Happie
Award for “Best Bank”, The Institute for Extraordinary
Banking™ Banky® Award, and a 2016 Pocono Record
Reader’s Choice Award.
The Bank’s growth provided many opportunities for
employee advancement and over the past year numerous
employees were promoted
for
their outstanding
contributions. JoAnn Fuller was promoted to Senior
Vice President and Deposit & Loan Operations
Manager, Juliette McKerrell to Vice President and
Sullivan County Commercial Loan Officer, Kara Suchy
to Vice President and Director of Internal Audit,
Steven Daniels to Assistant Vice President and Wayne
From the left, are Lewis J. Critelli, President and Chief
County Commercial Loan Officer, Madeline Portugal to
Executive Officer; Eli Tomlinson, Information Technology
Community Office Manager in Shohola, and Marianne
Manager; and Robert J. Mancuso, Executive Vice President
McConeghy to Trust Operations Officer.
and Chief Information Officer, with the awards.
TRIO OF AWARDS
NORWOOD FINANCIAL CORP
Additionally, Wayne Bank hired several experienced bankers that will be tasked with expanding customer
relationships including John Veleber, Senior Vice President and Delaware County Commercial Loan Officer; Vincent
O’Bell, Senior Vice President and Commercial Loan Officer; Derek Bellinger, Assistant Vice President and Pike County
Commercial Loan Officer; and Eileen Mershon, Assistant Vice President and Sullivan County Regional Community
Office Manager.
Wayne Bank is extremely proud of the long-term dedication of its employees. Congratulations to Laurie Bishop,
Assistant Office Manager of the Hawley Community Office, for forty years of service! John Carmody, Executive Vice
President and Chief Credit Officer, and Jill Hessling, Community Office Manager of the Main Office in Honesdale,
both achieved twenty years of service! Adding employees who celebrated fifteen, ten, and five year anniversaries, the
group represents 195 years of Community Banking experience.
In a year filled with positive momentum, the Company did face the heartbreaking loss
of two Wayne County institutions. Wayne Bank and the entire community mourned
the loss of John E. Marshall, Wayne Bank’s Chairman of the Board, a stalwart member
of the community. Serving for thirty-three years as a board member, Mr. Marshall
saw the bank grow from two offices to a $1.1 billion organization with twenty-seven
offices across two states. The community also lost Kelley J. Lalley, Wayne Bank
Vice President and Commercial Loan Officer. Mr. Lalley was beloved in Honesdale
for his character and tireless community involvement. In Lackawanna County, we
lost long-time customer favorite, Jolane Granza, a teller from the Clarks Summit
Community Office.
The Board also appointed William W. Davis, Jr. as Chairman of the Board and
Dr. Andrew Forte as Vice-Chairman. The Company is very fortunate to have their
guidance and leadership as we continue to build shareholder value, serve our customers
and help the community grow.
JOHN E. MARSHALL
1937-2016
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.
Lewis J. Critelli
President & CEO
2016 A N N U A L R E P O R T
3
R E A C H I N G N E W H E I G H T S
4
NORWOOD FINANCIAL CORP
2 6 C O M M U N I T Y
O F F I C E
2 0 1 6 B O A R D O F D I R E C T O R S
L O C A T I O N S
WILLIAM W. DAVIS, JR.
CHAIRMAN OF THE BOARD
DR. ANDREW A. FORTE
VICE CHAIRMAN
LEWIS J. CRITELLI
PRESIDENT AND CEO
DELAWARE COUNTY
ANDES, NY
FRANKLIN, NY
HAMDEN, NY
ROXBURY, NY
STAMFORD, NY
WALTON, NY
SULLIVAN COUNTY
CALLICOON, NY
LIBERTY, NY
MONTICELLO, NY
NARROWSBURG, NY
ROSCOE, NY
WURTSBORO, NY
RALPH A. MATERGIA, ESQ.
DIRECTOR
DR. KENNETH A. PHILLIPS
DIRECTOR
JOSEPH W. ADAMS
DIRECTOR
SUSAN CAMPFIELD
DIRECTOR
KEVIN M. LAMONT
DIRECTOR
RUSSELL L. RIDD, DIRECTOR EMERITUS
2016 A N N U A L R E P O R T
LACKAWANNA COUNTY
CENTRAL SCRANTON, PA
CLARKS SUMMIT, PA
MONROE COUNTY
EFFORT, PA
MARSHALLS CREEK, PA
STROUD MALL (STROUDSBURG), PA
TANNERSVILLE, PA
PIKE COUNTY
LORDS VALLEY, PA
MILFORD, PA
SHOHOLA, PA
WAYNE COUNTY
HAWLEY, PA
HONESDALE, PA
LAKEWOOD, PA
WAYMART, PA
WILLOW AVENUE (HONESDALE), PA
NORWOOD FINANCIAL CORP
2 0 1 6 B O A R D O F D I R E C T O R S
2 6 C O M M U N I T Y
O F F I C E
L O C A T I O N S
WILLIAM W. DAVIS, JR.
DR. ANDREW A. FORTE
CHAIRMAN OF THE BOARD
VICE CHAIRMAN
LEWIS J. CRITELLI
PRESIDENT AND CEO
DELAWARE COUNTY
ANDES, NY
FRANKLIN, NY
HAMDEN, NY
ROXBURY, NY
STAMFORD, NY
WALTON, NY
SULLIVAN COUNTY
CALLICOON, NY
LIBERTY, NY
MONTICELLO, NY
NARROWSBURG, NY
ROSCOE, NY
WURTSBORO, NY
RALPH A. MATERGIA, ESQ.
DIRECTOR
DR. KENNETH A. PHILLIPS
DIRECTOR
JOSEPH W. ADAMS
DIRECTOR
SUSAN CAMPFIELD
DIRECTOR
KEVIN M. LAMONT
DIRECTOR
RUSSELL L. RIDD, DIRECTOR EMERITUS
2016 A N N U A L R E P O R T
LACKAWANNA COUNTY
CENTRAL SCRANTON, PA
CLARKS SUMMIT, PA
MONROE COUNTY
EFFORT, PA
MARSHALLS CREEK, PA
STROUD MALL (STROUDSBURG), PA
TANNERSVILLE, PA
PIKE COUNTY
LORDS VALLEY, PA
MILFORD, PA
SHOHOLA, PA
WAYNE COUNTY
HAWLEY, PA
HONESDALE, PA
LAKEWOOD, PA
WAYMART, PA
WILLOW AVENUE (HONESDALE), PA
2016 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
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, 2016 and 2015, and for the years
ended December 31, 2016, 2015, and 2014. 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, risks associated with the
acquisition of Delaware Bancshares, Inc., the ability to control costs and expenses, demand for real estate,
government fiscal policies, cybersecurity 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 “Allowance
for Loan Losses and Non-performing Assets” 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,
2016 and 2015 represent temporary impairment of the securities.
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.
8
9
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
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. In connection with the acquisition of Delaware Bancshares, Inc. in 2016, we
recorded goodwill in the amount of $1.6 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 annually 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, 2016 was $6,711,000 which was $803,000
higher than the $5,908,000 earned in 2015. Basic and diluted earnings per share were $1.74 and $1.73,
respectively, in 2016 compared to $1.60 per share for basic and diluted in 2015. The return on average assets
(ROA) for the year ended December 31, 2016 was 0.74% and the return on average equity (ROE) was 6.17%
compared to an ROA of 0.80% and an ROE of 5.83% in the prior year. The improvement in earnings over the
prior year was the result of the benefits realized from the acquisition of Delaware Bancshares, Inc. (“Delaware”)
on July 31, 2016. Net interest income increased $4,069,000 and the provision for loan losses decreased
$2,530,000 in 2016 which offset increased expenses related to the acquisition, including $1,806,000 of one-time
merger costs.
Net interest income (fully taxable equivalent, or fte) totaled $30,339,000 which was an increase of $4,457,000
from the 2015 total. Average loans outstanding increased $96.9 million in 2016 which resulted in an increase in
fte interest income of $4,476,000, while an 11 basis point decrease in the yield earned impacted earnings
negatively by $672,000. The reduced yield was due to loan production at current market rates. Average loan
balances and loan yields were also impacted by the $112.1 million of loans acquired from Delaware. Total
average securities increased $55.6 million in 2016 due primarily to the Delaware acquisition which contributed
to a $1,023,000 increase in fte interest income. Average interest-bearing deposits with banks were $8.2 million
in 2016 and interest income in this area increased $26,000. Average interest-bearing deposits increased $106.5
million due to the acquisition and resulted in a $182,000 increase in interest expense. The cost of borrowed
funds increased $214,000 compared to the prior year due primarily to a $7.8 million increase in average long-
term borrowings. The resulting fte net interest margin decreased 15 basis points to 3.60% in 2016 as a 20 basis
point reduction in the yield earned was only partially offset by a 5 basis point decrease in the cost of funds.
Loans receivable increased $154.0 million from the prior year-end due primarily to the $112.1 million of loans
acquired from Delaware. Organic growth included a $22.8 million increase in commercial loans due primarily to
an $18.6 million increase in commercial real estate loans. Residential mortgage loans and construction loans
increased $5.4 million internally after the sale of $1.7 million in fixed-rate residential mortgage loans for the
purpose of interest rate risk management. Consumer loans increased $13.7 million internally in 2016 due to a
$16.5 million increase in indirect auto and marine financing. Total non-performing loans decreased from $7.1
million and 1.27% of total loans at the end of 2015 to $1.8 million, or 0.25% of total loans on December 31, 2016.
The significant decrease includes the transfer of one loan relationship with a balance of $5,015,000 on December
31, 2015 to foreclosed real estate owned in 2016. Net charge-offs totaled $2,885,000 in 2016 which was a
decrease from the $3,157,000 recorded in 2015. Based on management’s analysis, the Company determined that
it would be appropriate to allocate $2,050,000 to the allowance for loan losses in 2016 which resulted in a
decrease in the ratio of the allowance for loan losses to total loans outstanding to 0.91% compared to 1.30% on
December 31, 2015. The decrease in the ratio of the allowance for loan losses to total loans outstanding reflects
the impact of the loans acquired from Delaware with no allowance. Based on the improvement in credit quality,
the allowance for loan losses represented 336% of total non-performing loans on December 31, 2016 compared
to 102% as of December 31, 2015.
8
9
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
Other income for the year ended December 31, 2016 totaled $5,179,000 compared to $4,699,000 in the prior
year, an increase of $480,000. Gains on the sale of loans and investment securities decreased $392,000 in the
aggregate, while all other items of other income increased $872,000, net. Service charges and fees collected from
the expanded customer base contributed to this increase.
Other expenses were $23,124,000 in 2016 compared to $17,100,000 for the similar period in 2015, an increase
of $6,024,000. Salaries and benefits costs increased $2,393,000 in 2016 while occupancy and furniture and
equipment costs increased $543,000 and all other operating expenses increased $3,088,000, net, due to costs
related to the acquisition and the operation of twelve new community offices. Included in the increased expenses
are $1.8 million of one-time merger related expenses. Income tax expense for the year totaled $1,884,000 which
was an increase of $252,000 from the prior year. The effective tax rate in 2016 was 21.9% compared to 21.6%
in 2015.
The following table sets forth changes in net income (in thousands):
Net income 2015
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
Merger related
Other expenses
Income tax expense
Net income for 2016
$
5,908
4,069
2,530
(392)
872
(2,393)
(543)
231
(1,806)
(1,513)
(252)
$
6,711
Net income 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 (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.
10
11
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
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.
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 furniture 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
10
11
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
FINANCIAL CONDITION
TOTAL ASSETS
Total assets as of December 31, 2016, were $1.1 billion compared to $750.5 million as of year-end 2015, an
increase of $360.6 million. Growth related to the acquisition of Delaware Bancshares was $368.6 million.
LOANS RECEIVABLE
As of December 31, 2016, loans receivable totaled $713.9 million compared to $559.9 million as of year-end
2015, an increase of $154.0 million. Growth related to the acquisition totaled $112.1 million. Commercial loans
grew $55.5 million, while retail loans increased $98.5 million during the year.
Residential real estate loans, which include home equity lending, totaled $237.2 million as of December 31,
2016, compared to $161.8 million as of year-end 2015, an increase of $75.4 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 $1.7 million of long-term, fixed-rate loans sold into the
secondary market during 2016. In the current interest rate environment, the Company expects to continue
selling mortgage loans in 2017. The Company’s home equity loan portfolio, which is included in residential real
estate loans, increased $9.1 million in 2016.
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 $320.2 million
as of December 31, 2016, increasing from $279.1 million as of December 31, 2015. 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 $14.4 million to $85.5 million as of December 31, 2016.
The Company’s indirect lending portfolio (included in consumer loans to individuals) increased $17.9 million
to $41.5 million as of December 31, 2016.
ALLOWANCE FOR LOAN LOSSES AND NON-PERFORMING ASSETS
4
1
The allowance for loan losses totaled $6,463,000 as of December 31, 2016 and represented 0.91% of total
loans receivable compared to $7,298,000 and 1.30% of total loans as of year-end 2015. The decrease in the ratio
of the allowance for loan losses to total loans outstanding reflects the impact of the loans acquired from Delaware
with no allowance. Net charge-offs for 2016 totaled $2,885,000 and represented 0.46% of average loans
compared to $3,157,000 and 0.60% of average loans in 2015.
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
13
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
As of December 31, 2016, non-performing loans totaled $1,927,000 and represented 0.25% of total loans
compared to $7,132,000 or 1.27% as of December 31, 2015. The significant decrease in the level of non-
performing loans is due to the transfer of one loan relationship with a balance of $5.0 million on December 31,
2015 to foreclosed real estate owned in 2016. Based on management’s analysis, the Company added $2,050,000
to the allowance for loan losses for the year ended December 31, 2016 compared to $4,580,000 in 2015.
Foreclosed real estate owned totaled $5,302,000 as of December 31, 2016 and $2,847,000 as of December 31,
2015. The increase is due primarily to the transfer of one loan relationship with a carrying value of $5.0 million
as of December 31, 2015 which was partially offset by a subsequent write down of $2.4 million. During 2016,
eight properties with a carrying value of $595,000 were disposed of through sales. The Company recorded a net
gain of $61,000 from the sale of the properties.
Management 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, 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 $8.3 million of junior lien home equity loans. For 2016, net charge-offs for this
portfolio totaled $43,000.
As of December 31, 2016, the Company considered its concentration of credit risk profile to be acceptable.
The highest concentrations are in commercial rentals and the hospitality lodging industry.
During 2016, 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.
5
1
At December 31, 2016, the recorded investment in impaired loans, not requiring an allowance for loan losses
was $2,624,000 (net of charge-offs against the allowance for loan losses of $831,000). There were no loans
requiring an allowance. The recorded investment in impaired loans not requiring an allowance for loan losses
was $2,855,000 (net of charge-offs of $1,971,000) and $6,373,000 for impaired loans requiring an allowance for
loan losses as of December 31, 2015.
As a result of its analysis, after applying these factors, management considers the allowance as of December 31,
2016, 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.
12
13
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
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:
Real Estate loans
Residential
Commercial
Construction
Commercial loans
Consumer loans
Total
Recoveries:
Real Estate loans
Residential
Commercial
Construction
Commercial loans
Consumer loans
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
2016
$
7,298
(123)
(2,711)
-
(15)
(102)
(2,951)
6
15
-
-
45
66
2,050
6,463
$
0.91%
$
0.46%
3.4x
2015
Year-ended December 31,
2014
(dollars in thousands)
2013
2012
$
5,875
$
5,708
$
5,502
$
5,458
(224)
(2,883)
-
-
(91)
(3,198)
20
-
-
-
21
41
4,580
7,298
$
(270)
(1,196)
-
-
(80)
(1,546)
-
2
-
-
31
33
1,680
5,875
(603)
(1,488)
(40)
(4)
(90)
(2,225)
(541)
(1,632)
(181)
(24)
(59)
(2,437)
9
-
-
-
22
31
2,400
5,708
7
-
-
-
24
31
2,450
5,502
$
$
1.30%
1.17%
1.13%
1.15%
0.60%
1.0x
0.30%
1.1x
0.45%
0.6x
0.50%
0.4x
The following table sets forth information regarding non-performing assets.
2016
2015
December 31,
2014
(dollars in thousands)
2013
2012
Non-accrual loans:
Real Estate loans
Residential
Commercial
Construction
Commercial loans
Consumer loans
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
Non-performing assets to total assets
$
$
$
1,136
762
28
—
—
1,926
1
1,927
5,302
7,229
0.25%
$
0.17%
0.64%
14
440
6,649
—
43
—
7,132
—
7,132
2,847
9,979
$
$
1,675
3,921
—
—
4
5,600
—
5,600
3,726
9,326
$
1,704
7,843
—
—
—
9,547
$
2,846
10,026
—
328
—
13,200
—
—
9,547
1,009
10,556
13,200
852
14,052
$
$
1.27%
0.95%
1.33%
1.12%
0.79%
1.31%
1.90%
2.77%
1.34%
1.96%
1.48%
2.09%
15
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
SECURITIES
The securities portfolio consists of issues of United States Treasury securities, 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, 2016, 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, 2016, $302.6 million of
securities were so classified and carried at their fair value, with unrealized losses, net of tax, of $4,438,000
included in accumulated other comprehensive income as a component of stockholders’ equity.
As of December 31, 2016, 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 2016, the portfolio increased $163.7 million as a result of the acquisition of Delaware.
Purchases for the year totaled $101.0 million, while maturities and cash flow totaled $26.2 million and proceeds
from sales were $110.7 million. The purchases were funded principally by cash flow generated from the portfolio
and excess overnight liquidity. The sales include securities that were acquired from Delaware which were sold
immediately for a variety of factors, including non-conformance with Company policies.
The carrying value of the securities portfolio at December 31 is as follows:
2016
2015
(dollars in thousands)
U.S. Treasury securities
U.S. Government agencies
States and political subdivisions
Corporate obligations
Mortgage-backed securities –
government sponsored entities
Equity securities – financial services
Total
$
Carrying
Value
1,997
—
125,101
10,112
% of portfolio
0.7%
—%
41.4%
3.3%
164,930
424
$ 302,564
54.5%
0.1%
100.0%
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%
The portfolio had no adjustable-rate instruments as of December 31, 2016 and 2015. The portfolio contained
no private label mortgage backed securities, collateralized debt obligations (CDOs), or trust preferred securities,
and no off-balance sheet derivatives were in use. As of December 31, 2016, the portfolio did not contain any
step-up bonds. The mortgage-backed securities portfolio includes pass-through bonds and collateralized mortgage
obligations (CMO’s) with Fannie Mae, Freddie Mac and the 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,
2016, the Company held 247 investment securities in a loss position which had a combined unrealized loss of
$7.8 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
14
15
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
not that it will not have to sell the securities before recovery of their cost basis. The Company also holds a small
portfolio of equity securities of other financial institutions. As of December 31, 2016, none of these equity
securities were in an unrealized loss position. No impairment charges have been recognized in 2016, 2015
and 2014.
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 $302.6 million, which represents 27.2% of total assets at December 31, 2016, 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, 2016 and 2015.
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, 2016 and 2015 was $250,000 and $291,000, respectively.
DEPOSITS
The Company, through the community offices 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, 2016, totaled $925.4 million, increasing $374.5 million from year-end 2015.
The increase included $327.3 million of deposits which were acquired from Delaware. Organic growth included a
$17.0 million increase in non-interest bearing demand balances and a $27.5 million increase in certificates of
deposit. The large increase in certificates of deposit includes deposits of local municipalities and school districts
which were held in more liquid accounts at year-end 2015.
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 $59.0
million as of December 31, 2016, compared to $22.0 million at year-end 2015. 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
17
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
As of December 31, 2016, non-interest bearing demand deposits totaled $191.5 million compared to $107.8
million at year-end 2015. Cash management accounts in the form of securities sold under agreements to
repurchase included in short-term borrowings, totaled $32.8 million at year end 2016 compared to $33.6 million
as of December 31, 2015. 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, 2016, 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, 2016, the Bank had a positive 90-day interest sensitivity gap of $34.7 million or 3.1% 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.
16
17
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
The following table displays interest-sensitivity as of December 31, 2016 (in thousands):
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, 2015
Interest sensitivity gap
Cumulative gap
RSA/RSL-cumulative
3 Months
or Less
3-12
Months
$
2,174
7,476
158,060
$ 167,710
$
—
21,583
165,189
$ 186,772
$
65,059
48,730
19,252
$ 133,041
$
64,050
126,075
18,092
$ 208,217
$
$
$
34,669
34,669
126.1%
(21,445)
13,224
103.9%
$
38,817
38,817
140.9%
11,614
50,431
122.8%
$
$
$
$
$
$
1-3 Years
100
59,163
199,137
258,400
170,069
88,233
23,391
281,693
Over
3 Years
Total
$
—
214,342
191,503
$ 405,845
$
2,274
302,564
713,889
$1,018,727
$ 139,206
32,518
4,077
$ 175,801
$ 438,384
295,556
64,812
$ 798,752
(23,293)
(10,069)
98.4%
$ 230,044
219,975
$ 219,975
127.5%
(57,114)
(6,683)
98.5%
$ 168,269
161,586
$ 161,586
130.1%
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 a non-maturity
deposit study which was prepared by an independent third party provider in 2016. The purpose of the study was
to estimate the average lives of various deposit types and their pricing sensitivity to movements in market
interest rates.
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, 2016, the Company had cash and cash equivalents of $17.2 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 $302.6 million, which could be used for liquidity needs.
This totals $319.8 million and represents 28.8% of total assets compared to $148.9 million and 19.8% of total
assets as of December 31, 2015. The Company also monitors other liquidity measures, all of which were within
the Company’s policy guidelines as of December 31, 2016. 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 $356.8 million, with $0 outstanding at December 31, 2016 and $19.7
18
19
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
million outstanding at December 31, 2015. The maximum borrowing capacity from FHLB was $316.8 million.
As of December 31, 2016, the Company had $32.0 million in term borrowings from the FHLB, compared to $41.1
million at December 31, 2015.
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, 2016 totaled $82.6 million. They consisted of $22.2 million of commitments for residential and
commercial real estate, construction and land developments loans, $24.7 million in unused home equity lines of
credit, $5.6 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
December 31, 2016
1-3 years
Total
$ 295,557
32,001
3,470
$ 331,028
Less than 1 year
$ 174,814
14,025
381
$ 189,220
$
$
88,233
2,296
767
91,296
4-5 years
$
32,331
11,112
705
44,148
$
Over 5 years
179
$
4,568
1,617
6,364
$
Net interest income is the most significant source of revenue for the Company and represented 84.7% of total
revenue for the year ended December 31, 2016. Net interest income (fte) totaled $30,339,000 for the year ended
December 31, 2016 compared to $25,882,000 for 2015, an increase of $4,457,000. The resulting fte net interest
spread and net interest margin were 3.46% and 3.60%, respectively, in 2016 compared to 3.61% and 3.75%,
respectively, in 2015.
Interest income (fte) for the year ended December 31, 2016 totaled $33,993,000 compared to $29,140,000 in
2015. The fte yield on average earning assets was 4.03%, decreasing 20 basis points from the 4.23% reported
last year. The low interest rate environment impacted the yield earned as new loan production was added at
historically low rates. This impacted loan yields which earned 4.50% in 2016 compared to 4.61% in the prior
year. The reduced yield was offset by a $96.9 million increase in average loans outstanding due primarily to loans
acquired from Delaware, and interest income (fte) from loans increased $3.8 million. The yield on securities
decreased 33 basis points in 2016 due primarily to the lower yielding portfolio acquired from Delaware. A $55.6
million increase in average securities outstanding offset the lower yield, and interest income (fte) from the
portfolio improved $1.0 million.
18
19
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
Interest expense was $3,654,000 in 2016 which resulted in an average cost of interest-bearing liabilities of
0.57% compared to total interest expense of $3,258,000 in 2015 with an average cost of 0.62%. 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 0.46% in 2016 which was 6 basis points lower than the
0.52% cost in the prior year. Time certificates of deposit repriced to current market rates upon maturity and
new growth was added at the reduced levels. Time deposits acquired from Delaware also impacted the cost of
deposits. Long-term borrowings also repriced downward in 2016 reflecting a the impact from low-cost
borrowings originated in recent years.
Net interest income 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.
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 the impact from low-cost borrowings originated in recent years.
OTHER INCOME
0
2
Other income totaled $5,179,000 for the year ended December 31, 2016 compared to $4,699,000 in 2015, an
increase of $480,000. Gains from the sales of loans and securities decreased $392,000 from the prior year, while
all other items of other income increased $872,000, net. The increase reflects the increased fees related to the
Delaware acquisition.
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.
20
21
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 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
Earnings on and proceeds from bank-owned life insurance
Other income
$
$
2016
200
258
1,171
66
319
874
448
143
54
888
474
4,895
284
Net realized gains on sales of securities
$
5,179
2015
2014
168
220
850
62
451
660
439
143
104
664
312
4,073
626
$
176
206
932
63
370
620
437
94
132
685
225
3,940
1,170
Total
OTHER EXPENSES
$
4,699
$
5,110
Other expenses totaled $23,124,000 for the year ended December 31, 2016 compared to $17,100,000 in the
prior year. The $6,024,000 increase in costs includes $1,806,000 of one-time merger expenses plus the costs of
acquiring and operating twelve new community offices. Salaries and benefits costs increased $2,393,000 in 2016
while occupancy and equipment costs increased $543,000. All other operating expenses increased $3,088,000,
net, which includes $1,806,000 of one-time merger expenses. The Company’s efficiency ratio, which measures
total other expenses as a percentage of net interest income (fte) plus other income, was 65.1% in 2016 compared
to 55.9% in 2015. Merger costs contributed to the increased ratio.
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 (dollars in thousands)
For the year ended December 31
Salaries
Employee benefits
Occupancy
Furniture and equipment
Data processing and related operations
Federal Deposit Insurance Corporation insurance assessment
Advertising
Professional fees
Postage and telephone
Office supplies
Taxes, other than income
Foreclosed real estate
Amortization of intangible assets
Merger related
Other
Total
2016
7,054
3,874
2,077
548
1,337
412
283
836
566
379
731
680
122
1,806
2,419
23,124
$
$
2015
2014
$
$
5,752
2,783
1,660
422
943
411
240
730
436
255
711
911
105
-
1,741
17,100
$
$
5,744
2,872
1,676
441
929
420
224
671
414
278
649
1,555
121
-
1,733
17,727
20
21
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
INCOME TAXES
Income tax expense for the year ended December 31, 2016 totaled $1,884,000 which resulted in an effective
tax rate of 21.9% compared to $1,632,000 and 21.6% for 2015.
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.
CAPITAL AND DIVIDENDS
Total stockholders’ equity as of December 31, 2016, was $111.1 million, compared to $101.0 million as of year-
end 2015. The increase was due primarily to a $12.2 million increase resulting from additional common shares
issued in connection with the Delaware acquisition. As of December 31, 2016 the Company had a leverage
capital ratio of 9.16%, a Tier 1 risk-based capital ratio of 13.27%, a common equity Tier 1 risk-based capital ratio
of 13.27% and a total risk-based capital ratio of 14.12% compared to 12.40%, 15.86%, 15.86%, and 17.09%,
respectively, at December 31, 2015. The reduced ratios reflect the impact from the acquisition of Delaware.
The Company’s common stock is traded on the Nasdaq Global Market under the symbol, NWFL. As of December
31, 2016, there were approximately 2,700 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 periods indicated:
Year 2016
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year 2015
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$
Closing Price Range
High
30.90
29.00
29.75
34.50
Low
26.25
27.51
27.60
28.53
$
$
30.00
30.90
30.64
29.30
$
27.69
27.88
28.01
27.69
$
$
Cash dividends
Declared per share
0.31
0.31
0.31
0.32
0.31
0.31
0.31
0.31
The book value of the common stock was $26.15 per share as of December 31, 2016 compared to $27.39 as of
December 31, 2015. As of year-end 2016, the closing stock price was $33.14 per share, compared to $28.75 as of
December 31, 2015.
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
23
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 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, 2011 and the reinvestment of dividends paid. The graph provides comparison at December 31,
2011 and each fiscal year through December 31, 2016.
Comparison of 5 Year Cumulative Total Return
Assumes Initial Investment of $100
December 2016
300.00
250.00
200.00
150.00
100.00
50.00
0.00
2011
2012
2013
2014
2015
2016
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
12/31/11
12/31/12
12/31/13 12/31/14 12/31/15
12/31/16
$100.00
$112.93
$116.88
$131.58
$135.82
$163.54
100.00
118.26
164.83
190.07
204.70
100.00
119.64
171.23
179.93
195.98
224.75
265.31
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 1980-2017.
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 2017.
Used with permission. All rights reserved.
22
23
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP
SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
(Dollars in thousands, except per share amounts)
2016
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
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
December 31 September 30
June 30
March 31
$
9,456
$
8,528
$
7,234
$
7,026
1,005
8,451
450
1,475
15
6,568
2,923
577
958
7,570
450
1,399
-
7,679
840
228
840
6,394
700
1,018
205
4,528
2,389
511
851
6,175
450
1,003
64
4,349
2,443
567
$
2,346
$
612
$
1,878
$
1,876
$
$
0.57
0.56
$
$
0.15
$
0.51
$
0.51
0.15
$
0.51
$
0.51
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
781
6,307
620
968
311
4,187
2,779
738
128
$
1,777
$
1,963
$
2,041
0.04
0.04
$
$
0.48
0.48
$
$
0.53
$
0.55
0.53
$
0.55
$
$
$
24
25
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 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
2016
2015
2014
ASSETS
Average
Balance(2)
Interest (1)
Avg
Rate
Average
Balance(2)
Interest (1)
Avg
Rate
Average
Balance(2)
Interest (1)
Avg
Rate
$
8,182
-
$
42
-
0.51 %
.0-
123,364
85,170
2,375
3,358
208,534
626,907
5,733
28,218
1.93
3.94
2.75
4.50
843,623
33,993
4.03
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 non-interest
TOTAL ASSETS
earning assets
11,275
(6,719)
62,069
66,625
$ 910,248
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
$208,373
125,904
234,026
568,303
41,593
36,509
336
66
2,201
2,603
174
877
0.16
0.05
0.94
0.46
0.42
2.40
646,405
3,654
0.57
146,578
8,482
155,060
108,783
$ 910,248
$
6,392
-
$
16
-
0.25 %
.0-
$
2,910
57
$
7
5
0.24%
8.77
93,294
59,659
1,918
2,792
152,953
529,989
4,710
24,414
2.06
4.68
3.08
4.61
100,393
57,362
157,755
500,960
2,032
2,856
4,888
24,126
2.02
4.98
3.10
4.82
689,334
29,140
4.23
661,682
29,026
4.39
8,638
(5,945)
44,794
47,487
$ 736,821
$ 177,104
74,753
209,930
461,787
34,022
28,742
8,606
(5,832)
45,278
48,052
$ 709,734
301
37
2,083
2,421
85
752
0.17
0.05
0.99
0.52
0.25
2.62
$ 174,558
71,612
206,231
452,401
36,514
22,987
304
35
2,124
2,463
77
668
0.17
0.05
1.03
0.54
0.21
2.91
524,551
3,258
0.62
511,902
3,208
0.63
106,601
4,305
110,906
101,364
$
736,821
96,870
4,262
101,132
96,700
$
709,734
Net Interest Income
(tax equivalent basis)
Tax-equivalent basis adjustment
Net Interest Income
Net interest margin
(tax equivalent basis)
3.46%
30,339
(1,749)
$ 28,590
3.60%
3.61%
25,882
(1,361)
$ 24,521
3.76%
25,818
(1,258)
$ 24,560
3.75%
3.90%
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.
24
25
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 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)
2016 compared to 2015
Variance due to
2015 compared to 2014
Variance due to
INTEREST EARNING ASSETS:
Interest bearing deposits
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
Total interest bearing liabilities
$
Net interest income
(tax-equivalent basis)
Volume
Rate
Net
Volume
Rate
Net
$
8
$
18
$
26
609
1,122
1,731
4,476
6,215
54
29
232
315
28
199
542
(152)
(556)
457
566
(708)
(672)
(1,362)
1,023
3,804
4,853
(19)
-
(114)
(133)
61
(74)
(146)
35
29
118
182
89
125
396
5,673
$ (1,216)
$ 4,457
$
8
$
1
$
9
(150)
109
(41)
1,372
1,339
36
(178)
(142)
(1,084)
(1,225)
(3)
2
39
38
(6)
162
194
-
-
(80)
(80)
14
(78)
(144)
$ 1,145
$ (1,081)
$
(114)
(69)
(183)
288
114
(3)
2
(41)
(42)
8
84
50
64
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
27
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 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
31, 2016. In making this assessment, management used the criteria established in Internal Control – Integrated
Framework 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, 2016, the Company’s internal
control over financial reporting, including controls over the preparation of regulatory financial statements in
accordance with all federal and state laws and regulations, is effective based on the criteria established in the
Internal Control – Integrated Framework.
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 29.
26
27
Lewis J. Critelli
President and
Chief Executive Officer
William S. Lance
Executive Vice President and
Chief Financial Officer
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 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 sheet of Norwood Financial Corp. and subsidiaries as
of December 31, 2016 and 2015, 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, 2016.
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, 2016 and
2015, and the consolidated results of their operations and their cash flows for each of the three years in the
period ended December 31, 2016, 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, 2016, based on criteria established in
Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 14,
2017, expressed an unqualified opinion on the effectiveness of Norwood Financial Corp.’s internal control over
Internal Control — Integrated Framework
issued by the
financial reporting.
Cranberry Township, Pennsylvania
March 14, 2017
S.R. Snodgrass, P.C. • 2009 Mackenzie Way, Suite 340 • Cranberry Township, Pennsylvania 16066 • Phone: 724-934-0344 • Fax: 724-934-0345
28
29
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the 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
2016, 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 (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (b) 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 (c) 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, 2016, 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 sheet of Norwood Financial Corp. and subsidiaries as of December 31, 2016 and 2015, 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, 2016, and our report dated March 14, 2017, expressed an unqualified opinion.
Cranberry Township, Pennsylvania
March 14, 2017
S.R. Snodgrass, P.C. • 2009 Mackenzie Way, Suite 340 • Cranberry Township, Pennsylvania 16066 • Phone: 724-934-0344 • Fax: 724-934-0345
28
29
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 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 2016: $6,463; 2015: $7,298)
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: 2016: 4,164,723 shares, 2015: 3,724,668 shares
Surplus
Retained earnings
Treasury stock at cost: 2016: 4,509 shares, 2015: 23,311 shares
Accumulated other comprehensive income (loss)
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
See notes to consolidated financial statements
December 31,
2016
2015
(In Thousands, Except Share
and Per Share Data)
$
14,900
2,274
17,174
302,564
707,426
2,119
13,531
36,133
3,643
5,302
11,331
612
8,989
2,359
$ 1,111,183
$ 191,445
93,485
153,020
191,878
295,557
925,385
32,811
32,001
1,069
8,838
1,000,104
$
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
416
47,682
67,225
(125)
(4,119)
111,079
373
35,351
65,412
(626)
488
$ 1,111,183
100,998
$ 750,505
30
31
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 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
Earnings and proceeds on life insurance policies
Other
Total Other Income
OTHER EXPENSES
Salaries and employee benefits
Occupancy
Furniture and equipment
Data processing and related operations
Federal Deposit Insurance Corporation insurance assessment
Advertising
Professional fees
Postage and telephone
Taxes, other than income
Foreclosed real estate
Amortization of intangible assets
Merger related
Other
Total Other Expenses
Income before Income Taxes
INCOME TAX EXPENSE
Net income
EARNINGS PER SHARE
BASIC
DILUTED
See notes to consolidated financial statements
2016
Years Ended December 31,
2014
2015
(In Thousands, Except per Share Data)
$
27,611
2,375
2,216
42
32,244
2,603
130
921
3,654
28,590
2,050
26,540
2,951
449
284
54
888
553
5,179
10,928
2,077
548
1,337
412
283
836
566
731
680
122
1,806
2,798
23,124
8,595
1,884
6,711
1.74
1.73
$
$
$
$
24,002
$
23,841
1,918
1,843
16
2,032
1,888
7
27,779
27,768
2,421
85
752
2,463
77
668
3,258
3,208
24,521
24,560
4,580
1,680
19,941
22,880
2,440
439
626
104
665
425
2,350
437
1,170
132
685
336
4,699
5,110
8,535
1,660
422
943
411
240
730
436
711
911
105
-
1,996
17,100
8,616
1,676
441
929
420
224
671
414
649
1,555
121
-
2,011
17,727
7,540
10,263
1,632
5,908
1.60
1.60
2,606
7,657
2.10
2.10
$
$
$
$
$
$
30
31
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Years Ended December 31,
2016
2015
2014
NET INCOME
$
6,711
Other comprehensive income (loss):
Unrealized gain on pension liability
Tax Effect
Investment securities available for sale:
Unrealized holding gains (losses)
Tax Effect
Reclassification of gains from sale of securities
Net of tax amount
Tax Effect
$
490
(172)
(7,180)
2,440
(284)
99
(4,607)
COMPREHENSIVE INCOME
$
2,104
5,908
$
7,657
-
-
656
(217)
(626)
213
26
-
-
5,820
(1,984)
(1,170)
398
3,064
$
5,934
$
10,721
See notes to consolidated financial statements .
32
33
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years Ended December 31, 2016, 2015 and 2014
Accumulated
Other
Common Stock
Shares
Amount
Surplus
Retained Treasury Stock Comprehensive
Income (Loss)
Earnings
Amount
Shares
Total
(Dollars in Thousands, Except Per Share Data)
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
Restricted stock awards
BALANCE - DECEMBER 31, 2015
Net Income
Other comprehensive loss
Cash dividends declared
($1.25 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, 2016
Delaware Bancshares acquisition
3,708,718
-
-
$
371
-
-
$
35,010
-
-
$
60,798
7,657
-
64,628
-
-
$
(1,713)
-
-
$
(2,602)
-
3,064
$
91,864
7,657
3,064
-
-
-
-
-
-
9,300
-
-
-
-
-
-
1
-
-
13
17
13
154
(1)
(4,377)
-
-
-
-
-
6,669
(25,577)
-
(5,144)
-
-
-
-
-
(179)
678
-
137
-
-
-
-
-
-
-
-
-
3,718,018
-
-
372
-
-
35,206
-
-
64,078
5,908
-
40,576
-
-
(1,077)
-
-
462
-
26
-
-
-
-
-
-
6,650
-
-
-
-
-
-
1
-
-
(9)
16
10
66
62
(4,574)
-
-
-
-
-
4,374
(16,859)
-
(5,060)
-
-
-
280
-
(127)
450
-
136
-
(8)
-
-
-
-
-
-
-
(4,377)
(179)
691
17
150
154
-
99,041
5,908
26
(4,574)
(127)
441
16
146
66
55
-
3,724,668
-
-
373
-
-
35,351
-
6,711
65,412
-
-
23,311
-
-
(626)
-
-
488
(4,607)
6,711
100,998
(4,607)
-
-
-
-
-
-
-
-
-
-
-
-
(8)
38
21
(4,898)
-
-
-
-
-
15,538
(30,823)
-
(3,967)
-
8,450
431,605
4,164,723
-
-
43
416
71
102
12,107
$ 47,682
-
-
-
$ 67,225
$
-
450
-
4,509
$
-
(447)
851
-
110
-
(13)
-
(125)
-
-
-
-
-
(4,898)
(447)
843
38
131
-
-
-
$ (4,119)
71
89
12,150
$ 111,079
32
33
See notes to consolidated financial statements .
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 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 (increase) in accrued interest receivable
Increase (decrease) in accrued interest payable
Other, net
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
Acquisition, net of cash and cash equivalents acquired
Net Cash Provided by (Used in) Investing Activities
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits
Net (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 (Used in) Provided by Financing Activities
Net Increase (Decrease) in Cash and Cash Equivalents
Years Ended December 31,
2015
2014
2016
(In Thousands)
$
6,711
$
5,908
$
7,657
2,050
726
122
746
1,648
(284)
(888)
11
(54)
(1,685)
1,739
71
89
346
17
(27)
11,338
110,748
26,182
(100,982)
-
(2,883)
4,455
(43,468)
205
(2,000)
(511)
685
11,112
3,543
47,213
(21,800)
(28,981)
843
-
38
131
(447)
(4,714)
(7,717)
7,164
4,580
551
105
(387)
936
(626)
(665)
427
(113)
(4,297)
4,410
66
55
(24)
(9)
(419)
1,680
572
121
(51)
860
(1,170)
(685)
920
(150)
(4,269)
4,419
154
-
83
(57)
447
10,498
10,531
44,976
66,263
22,853
(50,565)
-
(4,095)
2,397
(65,830)
-
-
(290)
14,859
(74,426)
175
(1,963)
3,126
(4,270)
75
-
(193)
4,310
-
1,045
-
(46,244)
4,691
(9,035)
27,540
(10,074)
29,000
441
16
146
(127)
(4,527)
18,762
(24,219)
(1,561)
-
691
17
150
(179)
(4,370)
33,380
(10,709)
(2,366)
4,513
12,376
10,010
7,863
12,376
$
$
CASH AND CASH EQUIVALENTS - BEGINNING
CASH AND CASH EQUIVALENTS - ENDING
10,010
17,174
$
34
35
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31,
2015
2014
2016
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
Merger with Delaware Bancshares, Inc.
Noncash assets acquired:
Securities available-for-sale
Regulatory stock
Loans
Premises and equipment, net
Accrued interest receivable
Bank-owned life insurance
Core deposit intangible
Deferred tax assets
Other assets
Goodwill
Liabilities assumed:
Time deposits
Deposits other than time deposits
Borrowings
Accrued interest payable
Other liabilities
Net Noncash Assets Acquired
Cash Acquired
(In Thousands)
$
$
$
$
3,267
2,315
3,880
1,147
$
$
$
$
3,264
2,645
4,704
1,100
$
$
$
$
3,542
1,535
3,246
1,331
$
208,488
279
116,674
7,292
1,626
14,762
449
3,034
3,281
1,616
$
357,501
$
71,342
255,921
21,232
95
7,873
356,463
1,038
$
14,977
34
35
See notes to consolidated financial statements .
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 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 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 its markets in northeastern Pennsylvania
and the Southern Tier of New York. 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 Delaware
and Sullivan Counties, New York. Accordingly, the Bank has extended credit primarily to commercial entities
and individuals in these areas 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 related 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
36
37
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
Regulatory Stock
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, 2016.
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.
36
37
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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
Loans Acquired
modifications of interest rates that are less than the current market rate for new obligations with similar risk.
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
Mortgage Servicing Rights
the loans.
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, 2016 and 2015, respectively, were not impaired. Total servicing assets included in other assets as
of December 31, 2016 and 2015, were $232,000 and $261,000, 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
39
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 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 expense is calculated principally on the straight-line method over the respective assets estimated
useful lives as follows:
Years
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.
38
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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 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 two acquisitions the Company recorded goodwill in the amount of $11.3 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, 2016, 2015 and 2014.
Other Intangible Assets
At December 31, 2016, the Company had other intangible assets of $612,000 which is net of accumulated
amortization of $732,000. These intangible assets will continue to be amortized using the sum-of-the-years
digits method of amortization over ten years. At December 31, 2015, the Company had other intangible assets of
$285,000 which was net of accumulated amortization of $610,000. Amortization expense related to other
intangible assets was $122,000, $105,000 and $121,000 for the years ended December 31, 2016, 2015 and 2014.
As of December 31, 2016, the estimated future amortization expense for the core deposit intangible is as follows
(in thousands):
Income Taxes
2017
2018
2019
2020
2021
Thereafter
$
$
150
126
101
77
52
106
612
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
40
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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
deferred tax assets will not be realized. As changes in tax laws or rates are enacted, deferred tax assets and
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,
2016 or 2015 or during the years then ended. No unrecognized tax benefits are expected to arise within the next
twelve months.
Advertising Costs
Advertising costs are expensed as incurred.
Earnings per Share
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 using the treasury stock method. Treasury shares are not deemed outstanding for earnings per
share calculations.
Employee Benefit Plans
The Company has a defined contributory profit-sharing plan which includes provisions of a 401 (k) plan.
The Company’s contributions are expensed as the cost is incurred.
The Company has several supplemental executive retirement plans. To fund the benefits under these plans, the
Company is the owner of single premium life insurance policies on the particiapants.
The Company provides pension benefits to eligible employees. The Company’s funding policy is to contribute
the minimum required contributions annually.
Stock Option Plans
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.
40
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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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. Certain changes in assets and liabilities, such as unrealized gains and losses on available for sale
securities and defined benefit pension obligations, 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 services 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 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
42
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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 currently evaluating the impact the adoption of the
standard will have on the Company’s financial position or results of operations.
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 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 (g) 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.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The standard requires lessees to
recognize the assets and liabilities that arise from leases on the balance sheet. A lessee should recognize in the
statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset
representing its right to use the underlying asset for the lease term. A short-term lease is defined as one in which
(a) the lease term is 12 months or less and (b) there is not an option to purchase the underlying asset that the
lessee is reasonably certain to exercise. For short-term leases, lessees may elect to recognize lease payments
over the lease term on a straight-line basis. For public business entities, the amendments in this Update are
effective for fiscal years beginning after December 15, 2018, and interim periods within those years. For all other
entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and for
interim periods within fiscal years beginning after December 15, 2020. The amendments should be applied at
the beginning of the earliest period presented using a modified retrospective approach with earlier application
permitted as of the beginning of an interim or annual reporting period. The Company is currently assessing
practical expedients it may elect at adoption, but does not anticipate the amendments will have a significant
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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
impact to the financial statements. Based on the Company's preliminary analysis of its current portfolio, the
impact to the Company's balance sheet is estimated to result in less than a 1% increase in assets and liabilities.
The Company also anticipates additional disclosures to be provided at adoption.
In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718).
The amendments in this Update affect all entities that issue share-based payment awards to their employees.
The standards in this Update provide simplification for several aspects of the accounting for share-based
payment transactions, including the income tax consequences, classification of awards as with equity or
liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only to
nonpublic entities. In addition to those simplifications, the amendments eliminate the guidance in Topic 718 that
was indefinitely deferred shortly after the issuance of FASB Statement No. 123 (revised 2004), Share-Based
Payment. This should not result in a change in practice because the guidance that is being superseded was never
effective. For public business entities, the amendments in this Update are effective for annual periods beginning
after December 15, 2016, and interim periods within those annual periods. For all other entities, the amendments
are effective for annual periods beginning after December 15, 2017, and interim periods within annual periods
beginning after December 15, 2018. Early adoption is permitted for any entity in any interim or annual period.
The Company is currently evaluating the impact the adoption of the standard will have on the Company’s
financial position or results of operations.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit
Losses on Financial Instruments (“ASU 2016-13”), which changes the impairment model for most financial assets.
This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans
and other financial instruments held by financial institutions and other organizations. The underlying premise of
the Update is that financial assets measured at amortized cost should be presented at the net amount expected to
be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance
for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the
remaining life of a financial asset. The income statement will be effected for the measurement of credit losses for
newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that
have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after
December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December
15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect
adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is
adopted. The Company is currently evaluating the impact the adoption of the standard will have on the
Company’s financial position or results of operations.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain
Cash Receipts and Cash Payments (“ASU 2016-15”), which addresses eight specific cash flow issues with the
objective of reducing diversity in practice. Among these include recognizing cash payments for debt prepayment
or debt extinguishment as cash outflows for financing activities; cash proceeds received from the settlement of
insurance claims should be classified on the basis of the related insurance coverage; and cash proceeds received
from the settlement of bank-owned life insurance policies should be classified as cash inflows from investing
activities, while the cash payments for premiums on bank-owned policies may be classified as cash outflows for
investing activities, operating activities, or a combination of investing and operating activities. The amendments
in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and
44
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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years
beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019.
Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in
an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that
interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The
amendments in this Update should be applied using a retrospective transition method to each period presented.
If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those
issues would be applied prospectively as of the earliest date practicable. The Company is currently evaluating the
impact the adoption of the standard will have on the Company’s statement of cash flows.
In October 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) (“ASU 2016-18”), which
requires that a statement of cash flows explains the change during the period in the total of cash, cash
equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore,
amounts generally described as restricted cash and restricted cash equivalents should be included with cash and
cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the
statement of cash flows. The amendments in this Update are effective for public business entities for fiscal years
beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the
amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal
years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period.
If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the
beginning of the fiscal year that includes that interim period. The amendments in this Update should be applied
using a retrospective transition method to each period presented. The Company is currently evaluating the
impact the adoption of the standard will have on the Company’s statement of cash flows.
In December 2016, the FASB issued ASU 2016-19, Technical Corrections and Improvements, which represents
changes to clarify, correct errors, or make minor improvements to the Accounting Standards Codification.
The amendments make the Accounting Standards Codification easier to understand and easier to apply by
eliminating inconsistencies and providing clarifications. Most of the amendments in this Update do not require
transition guidance and are effective upon issuance of this Update. This Update is not expected to have a
significant impact on the Company’s financial statements.
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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NOTE 3 - SECURITIES
The amortized cost, gross unrealized gains and losses, and fair value of securities were as follows:
December 31, 2016
Gross
Gross
Unrealized
Unrealized
Losses
Gains
Fair
Value
Amortized
Cost
AVAILABLE FOR SALE:
U.S. Treasury securities
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)
$
2,005
$
-
$
(8) $
1,997
127,585
10,255
169,124
308,969
320
884
37
26
947
104
(3,368)
125,101
(180)
10,112
(4,220)
164,930
(7,776)
302,140
-
424
$ 309,289
$
1,051
$
(7,776) $ 302,564
Amortized
Cost
December 31, 2015
Gross
Gross
Unrealized
Unrealized
Losses
Gains
(In Thousands)
Fair
Value
$
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
46
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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 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:
December 31, 2016
Less than 12 Months
12 Months or More
Total
U.S. Treasury securities
States and political subdivisions
Corporate obligations
Mortgage-backed securities-
government sponsored entities
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
(In Thousands)
$
1,997
90,109
6,895
$
(8) $
(3,362)
(180)
-
205
-
152,614
$ 251,615
(3,912)
(7,462) $
9,967
10,172
$
$
$
-
(6)
-
$
1,997
90,314
6,895
$
(8)
(3,368)
(180)
(308)
(314)
162,581
$ 261,787
(4,220)
$ (7,776)
Less than 12 Months
Unrealized
Fair
Losses
Value
December 31, 2015
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
$
6,058
9,086
2,221
40,300
57,665
$
$
$
(71) $
(99)
(4)
2,109
1,417
-
(432)
(606) $
16,595
20,121
$
$
(37)
(13)
-
$
8,167
10,503
2,221
$
(108)
(112)
(4)
(513)
(563)
56,895
77,786
(945)
(1,169)
$
$
The Company has 235 debt securities in the less than twelve month category and 12 debt securities in the
twelve months or more category as of December 31, 2016. 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 2016. 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, 2016 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)
$
2,240
24,272
45,285
68,048
139,845
$
2,243
23,996
43,577
67,394
137,210
169,124
$ 308,969
164,930
$ 302,140
46
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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NOTE 3 - SECURITIES (CONTINUED)
Gross realized gains and gross realized losses on sales of securities available for sale were $284,000 and $0,
respectively, in 2016, compared to $626,000 and $0, respectively, in 2015, and $1,199,000 and $29,000,
respectively, in 2014. The proceeds from the sales of securities totaled $110,748,000, $44,976,000 and
$66,263,000 for the years ended December 31, 2016, 2015 and 2014, respectively.
Securities with a carrying value of $230,263,000 and $97,671,000 at December 31, 2016 and 2015,
respectively, were pledged to secure public deposits, securities sold under agreements to repurchase and for
other purposes as required or permitted by law. The increase reflects pledging requirements resulting from the
acquisition of Delaware.
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, 2016
December 31, 2015
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
$ 237,177
320,187
19,709
85,508
51,524
714,105
33.2%
44.8
2.8
12.0
7.2
100.0%
(216)
713,889
(6,463)
$ 707,426
$ 161,820
279,123
18,987
71,090
29,231
560,251
28.9%
49.8
3.4
12.7
5.2
100.0%
(326)
559,925
(7,298)
552,627
$
The following table presents the components of the purchase accounting adjustments related to the purchased
credit-impaired loans acquired:
(In Thousands)
$
July 31, 2016
2,621
(1,014)
1,607
(239)
1,368
$
Contractually required principal and interest
Non-accretable discount
Expected cash flows
Accretable discount
Estimated fair value
48
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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 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:
2015
2016
2014
(In thousands)
Balance at beginning of period
Additions
Accretion
Reclassification and other
Balance at end of period
$
$
$
-
239
(30)
(1)
208
$
8
-
(1)
(7)
$
-
$
20
-
(12)
-
8
The following table presents additional information regarding loans acquired and accounted for in accordance
December 31, 2016 December 31, 2015
with ASC 310-30 (in thousands):
$
1,821
Outstanding Balance
Carrying Amount
$
1,386
$
$
498
498
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 December 31, 2016, for loans that were acquired prior to 2016 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. For loans that were acquired in
2016 with or without specific evidence of deterioration in credit quality, there were no adjustments to the
allowance for loan losses 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.
48
49
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 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, 2016
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
$
23
$
2,601
$
-
$
-
$
-
$
2,624
(In thousands)
821
565
-
-
-
1,386
236,333
317,021
19,709
85,508
51,524
710,095
$ 237,177
$ 320,187
$
19,709
$
85,508
$
51,524
$ 714,105
December 31, 2015
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
$
28
$
8,659
$
-
$
43
$
-
$
8,730
140
358
-
-
-
498
161,652
270,106
18,987
71,047
29,231
551,023
Total Loans
$
161,820
$ 279,123
$
18,987
$
71,090
$
29,231
$ 560,251
50
51
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 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, 2016
With no related allowance recorded:
Real Estate Loans
Residential
Total:
Commercial
Subtotal
Real Estate Loans
Residential
Commercial
Total Impaired Loans
December 31, 2015
With no related allowance recorded:
Real Estate Loans
Residential
Commercial
With an allowance recorded:
Commercial, financial and agricultural
Subtotal
Real Estate Loans
Total:
Commercial
Subtotal
Real Estate Loans
Residential
Commercial
Commercial, financial and agricultural
Total Impaired Loans
Recorded
Investment
23
2,601
2,624
Unpaid
Principal
Balance
(In thousands)
28
3,427
3,455
$
23
2,601
2,624
28
3,427
3,455
$
$
$
Associated
Allowance
$
$
-
-
-
-
-
-
Recorded
Investment
Unpaid
Principal
Balance
(In thousands)
Associated
Allowance
$
$
168
2,644
43
2,855
6,373
6,373
$
$
173
4,610
43
4,826
6,446
6,446
168
9,017
43
9,228
173
11,056
43
11,272
$
$
-
-
-
-
1,613
1,613
-
1,613
-
1,613
The following information for impaired loans is presented for the years ended December 31, 2016, 2015
and 2014:
2016
2015
Average Recorded
Investment
2014
2016
2015
Interest Income
Recognized
2014
Total:
Real Estate Loans
Residential
Commercial
Commercial Loans
Total Loans
$
$
25
2,671
2,696
-
(In thousands)
$
$
$
159
8,847
9
9,015
$
$
233
7,492
-
7,725
$
-
91
91
-
$
$
4
526
2
532
$
$
5
503
-
508
50
51
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 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, 2016, troubled debt restructured
loans totaled $1.5 million and resulted in specific reserves of $0. During 2016, there were no new loan
relationships identified as troubled debt restructurings, while one loan with a balance of $5.0 million as of
December 31, 2015 was transferred to Foreclosed Real Estate Owned during 2016 as a result of foreclosure on
the property and one loan relationship with a balance of $82,000 as of December 31, 2015 was charged-off in
2016. During 2016, the Company recognized charge-offs totaling $2.6 million on loans classified as troubled
debt restructurings.
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.
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, 2016 and 2015,
foreclosed real estate owned totaled $5,302,000 and $2,847,000, respectively. As of December 31, 2016, included
within foreclosed real estate owned is $297,000 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, 2016, the Company has
initiated formal foreclosure proceedings on $421,000 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 nonperformance, 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.
52
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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 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, 2016 and December 31, 2015 (in thousands):
December 31, 2016
Commercial real estate loans
Commercial
Total
Pass
$ 310,432
84,600
$ 395,032
Special
Mention
5,432
885
6,317
$
$
$
Substandard
4,323
23
4,346
$
Doubtful
-
-
-
$
$
Loss
-
-
-
Total
$ 320,187
85,508
$ 405,695
$
$
December 31, 2015
Pass
Special
Mention
Substandard
Doubtful
Loss
Total
Commercial real estate loans
Commercial
Total
$ 267,892
71,047
$ 338,939
$
$
1,837
-
1,837
$
$
9,394
43
9,437
$
$
-
-
-
$
$
-
-
-
$ 279,123
71,090
$ 350,213
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, 2016 and December 31, 2015 (in thousands):
December 31, 2016
Residential real estate loans
Construction
Consumer loans to individuals
Total
December 31, 2015
Residential real estate loans
Construction
Consumer loans to individuals
Total
52
53
$
Performing Nonperforming Total
$
1,137
28
-
1,165
$ 237,177
19,709
51,524
$ 308,410
$
235,829
19,681
51,524
307,034
$
Performing Nonperforming Total
$
$
161,380
18,987
29,231
209,598
$
$
440
-
-
440
$ 161,820
18,987
29,231
$ 210,038
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 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, 2016 and December 31, 2015 (in thousands):
Current
$ 234,790
318,979
19,681
85,355
51,456
$ 710,261
31-60 Days
Past Due
986
$
445
-
143
39
1,613
$
61-90 Days
Past Due
$
264
1
-
10
29
304
$
$
Greater than
90 Days Past
Due and still
accruing
1
-
-
-
-
1
$
Current
31-60 Days
Past Due
61-90 Days
Past Due
Greater than
90 Days Past
Due and still
accruing
December 31, 2016
Real Estate loans
Residential
Commercial
Construction
Commercial loans
Consumer loans
Total
December 31, 2015
Real Estate loans
Residential
Commercial
Construction
Commercial loans
Consumer loans
$
$
$ 160,683
272,125
18,959
71,043
29,179
646
310
28
4
41
$
51
39
-
-
11
-
-
-
-
-
-
Total
$ 551,989
$
1,029
$
101
$
$
$
$
Non-
Accrual
1,136
762
28
-
-
1,926
Total Past
Due and
Non-Accrual
2,387
$
1,208
28
153
68
3,844
$
Total
Loans
$ 237,177
320,187
19,709
85,508
51,524
$ 714,105
Non-
Accrual
Total Past
Due and
Non-Accrual
Total
Loans
440
6,649
-
43
-
$
1,137
6,998
28
47
52
$ 161,820
279,123
18,987
71,090
29,231
$
7,132
$
8,262
$ 560,251
54
55
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 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, 2015
Charge Offs
Recoveries
Provision for loan losses
Ending balance,
December 31, 2016
Ending balance individually
evaluated for impairment
Ending balance collectively
evaluated for impairment
(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
1,069
$
(123)
6
140
$
Commercial
Real Estate Construction
5,506
90
$
-
(2,711)
-
15
(12)
1,813
Commercial
397
$
(15)
-
(75)
Consumer
236
$
(102)
45
184
$
Total
7,298
(2,951)
66
2,050
$
1,092
$
4,623
$
78
$
307
$
363
$
6,463
$
-
$
3
$
-
$
-
$
-
$
3
$
1,092
$
4,620
$
78
$
307
$
363
$
6,460
Residential
Real Estate
Commercial
Real Estate Construction
Commercial
Consumer
Total
$
1,323
(224)
20
(50)
$
$
3,890
(2,883)
-
4,499
$
222
-
-
(132)
$
256
-
-
141
184
(91)
21
122
$
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
54
55
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NOTE 4 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
The recorded investment in impaired loans, not requiring an allowance for loan losses was $2,624,000 (net of
charge-offs against the allowance for loan losses of $831,000) and $2,855,000 (net of charge-offs against the
allowance for loan losses of $1,971,000) at December 31, 2016 and 2015, respectively. The recorded investment
in impaired loans requiring an allowance for loan losses was $0 and $6,373,000 (net of a charge-off against the
allowance for loan losses of $73,000) at December 31, 2016 and 2015, respectively. The specific reserve related
to impaired loans was $0 for 2016 and $1,613,000 for 2015. For the years ended December 31, 2016 and 2015,
the average recorded investment in these impaired loans was $2,696,000, and $9,015,000, respectively, and the
interest income recognized on these impaired loans was $91,000 and $532,000, respectively.
During the period ended December 31, 2016, the allowance for commercial real estate loans decreased from
$5,506,000 to $4,623,000. This $883,000 decrease in the required allowance was due to a $1,610,000 decrease
in the specific reserve component resulting from the transfer of an impaired loan with a specific reserve
allowance of $1,596,000 at December 31, 2015 to foreclosed real estate during 2016. This reduction was
partially offset by a $419,000 increase in the allowance for commercial real estate loans due to an increase in the
historical loss factor from 0.70% at December 31, 2015 to 0.80% on December 31, 2016.
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
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 $163,000, $515,000 and $451,000 for 2016, 2015 and 2014, respectively.
As of December 31, 2016 and 2015, the Company considered its concentration of credit risk to be acceptable.
As of December 31, 2016, the highest concentrations are in commercial rentals and the hospitality lodging
industry, with loans outstanding of $71.8 million, or 70.7% of bank capital, to commercial rentals, and $50.9
million, or 50.1% of bank capital to the hospitality and lodging industry. Charge-offs on loans within
these concentrations were $31,000, $643,000 and $422,000 for the years ended December 31, 2016, 2015
and 2014, respectively.
Gross realized gains and gross realized losses on sales of residential mortgage loans were $54,000 and $0,
respectively, in 2016 compared to $113,000 and $0, respectively, in 2015 and $150,000 and $0, respectively, in
2014. The proceeds from the sales of residential mortgage loans totaled $1.7 million, $4.4 million and $4.4
million for the years ended December 31, 2016, 2015 and 2014, respectively. As of December 31, 2016 and 2015,
the outstanding value of loans serviced for others totaled $35.5 million and $32.9 million, respectively.
56
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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
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
2016
(In Thousands)
2015
$
$
2,925
17,662
6,351
26,938
(13,407)
13,531
$
$
2,316
9,857
4,415
16,588
(10,116)
6,472
Depreciation expense totaled $726,000, $551,000 and $572,000 for the years ended December 31, 2016, 2015
and 2014, respectively.
Certain facilities are leased under various operating leases. Rental expense for these leases was $367,000,
$341,000 and $338,000, respectively, for the years ended December 31, 2016, 2015 and 2014. Future minimum
rental commitments under noncancellable leases as of December 31, 2016 were as follows (in thousands):
$
NOTE 6 - DEPOSITS
2017
2018
2019
2020
2021
Thereafter
$
Aggregate time deposits in denominations of $250,000 or more were $63,982,000 and $22,041,000 at
December 31, 2016 and 2015, respectively. Included in deposit accounts are deposits of three customer
relationships totaling $84,095,000 at December 31, 2016.
381
381
386
394
311
1,617
3,470
At December 31, 2016, the scheduled maturities of time deposits are as follows (in thousands):
2017
2018
2019
2020
2021
Thereafter
$
174,814
53,523
34,710
15,464
16,867
179
$ 295,557
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
2016
2015
(In Thousands)
$ 32,811
-
$ 32,811
$
$
33,563
19,672
53,235
56
57
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NOTE 7 - BORROWINGS (CONTINUED)
The outstanding balances and related information of short-term borrowings are summarized as follows:
Years Ended December 31,
2016
2015
(Dollars In Thousands)
$ 41,593
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
0.31%
$
$ 52,672
0.32%
$
34,057
0.25%
55,183
0.36%
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 $35,770,000 and $35,147,000 at December
31, 2016 and $36,797,000 and $36,316,000 at December 31, 2015, 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, 2016
Repurchase Agreements:
Obligations of U.S.
Government agencies
Total liability recognized for
repurchase agreements
Repurchase Agreements:
Obligations of U.S.
Government agencies
Total liability recognized for
repurchase agreements
Remaining Contractual Maturity of the Agreements
Overnight and
Continuous
Up to
30 days
30-90 days
Greater than
90 days
Total
$ 34,917
$
0
$
0
$
230
$ 35,147
As of December 31, 2015
$ 32,811
Remaining Contractual Maturity of the Agreements
Overnight and
Continuous
Up to
30 days
30-90 days
Greater than
90 days
Total
$
35,515
$
139
$
277
$
385
$
$
36,316
33,563
The Company has a line of credit commitment available from the FHLB of Pittsburgh for borrowings of up to
$146,517,000 which expires in May, 2017. There were no borrowings under this line of credit at December 31,
2016. At December 31, 2015, there were $19,672,000 of borrowings outstanding on this line. The Company has
a line of credit commitment available from Atlantic Community Bankers Bank for $7,000,000 which expires on
June 30, 2017. There were no borrowings under this line of credit at December 31, 2016 and 2015.
The Company has a line of credit commitment available from PNC Bank for $16,000,000 at December 31, 2016.
There were no borrowings under this line of credit at December 31, 2016 and December 31, 2015. The Company
also has a line of credit commitment from Zions Bank for $17,000,000. There were no borrowings under this line
of credit at December 31, 2016 and December 31, 2015.
58
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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NOTE 7 - BORROWINGS (CONTINUED)
Other borrowings consisted of the following at December 31, 2016 and 2015:
Notes with the FHLB:
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%
2016
2015
(In Thousands)
$
$
10,000
4,025
662
1,634
7,078
4,034
4,568
32,001
$
$
10,000
8,000
1,267
2,434
9,033
5,000
5,392
41,126
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 and scheduled cash flows of other borrowings at December 31, 2016 are as follows
(in thousands):
$
19,253
4,741
3,930
2,951
899
227
32,001
2017
2018
2019
2020
2021
2022
$
The Bank’s maximum borrowing capacity with the FHLB was $316,832,000 of which $32,001,000 was
outstanding at December 31, 2016. 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 Company’s contributions are expensed as the cost is incurred, funded currently, and amounted to $538,000,
$445,000 and $445,000 for the years ended December 31, 2016, 2015 and 2014, respectively.
The Company has a non-qualified supplemental executive retirement plan for the benefit of certain executive
officers. At December 31, 2016 and 2015, other liabilities include $1,410,000 and $1,427,000 accrued under the
Plan. Compensation expense includes approximately $121,000, $122,000 and $124,000 relating to the
supplemental executive retirement plan for 2016, 2015 and 2014, 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, 2016 and 2015, the cash value of these policies was $36,133,000 and
$18,820,000, respectively.
58
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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NOTE 8 - EMPLOYEE BENEFIT PLANS (CONTINUED)
As a result of its acquisition of Delaware, the Company has several Supplemental Executive Retirement Plans
(“SERPs”) intended as a long-term incentive to designated officers and key employees. These SERPs provide for
annual payments to these individuals after retirement. The Company’s expense pertaining to these plans
amounted to $38,000 in 2016. At December 31, 2016, other liabilities included $1,563,000 related to these plans.
The Company provides postretirement benefits in the form of split-dollar life arrangements to employees who
meet the eligibility requirements. The net periodic postretirement benefit expense included in salaries and
employee benefits was $26,000, $89,000 and $87,000 for the years ended December 31, 2016, 2015 and 2014,
respectively.
Through its acquisition of Delaware, the Company also has a plan that provides certain retiring executives, at
normal retirement age of 65 or early retirement at age 60, if certain criteria are met, a yearly supplemental
benefit at a fixed dollar amount. The Company expensed $15,000 under this plan in 2016. At December 31,
2016, the liability under this plan was $602,000.
Through its acquisition of Delaware, the Company also has certain director fee deferral and continuation plans.
These plans allow directors to defer current director fees and provide a benefit payment for a period of five to
fifteen years. The Company expensed $1,000 under these plans in 2016. At December 31, 2016, the liability
under these plans was $413,000.
Certain key executives have change in control agreements with the Company. These agreements provide
certain potential benefits in the event of termination of employment following a change in control.
The Company participates in the Pentegra Mulitemployer Defined Benefit Pension Plan (EIN 13-5645888 and
Plan # 333) as a result of its acquisition of North Penn. As of December 31, 2016 and 2015, the Company’s Plan
was 80.0% and 79.9% 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 $54,000 in 2016, $48,000 in 2015 and
$17,000 in 2014. During the plan years ending December 31, 2016, 2015 and 2014, the Company made
contributions of $54,000, $48,000 and $17,000, respectively.
As a result of its acquisition of Delaware, the Company is a member of the New York State Bankers Retirement
System. Substantially all full-time employees who were former employees of Delaware are covered under this
defined benefit pension plan (the “Delaware Plan”). The Company’s funding policy is to contribute the minimum
required contribution annually. Pension cost is computed using the projected unit credit actuarial cost method.
Effective December 31, 2012, the Plan was closed to new participants and accrued benefits were frozen.
60
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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NOTE 8 - EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table sets forth the projected benefit obligation and change in plan assets for the defined benefit
pension plan at December 31:
(in Thousands of Dollars)
2016
Change in projected benefit obligation:
Projected benefit obligation at beginning of year
Projected benefit obligation acquired
Service cost
Interest cost
Actuarial loss
Benefits paid
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Fair value acquired
Actual return on plan assets
Benefits paid
Fair value of assets at end of year
Funded status at end of year
$
$
-
(8,843)
(28)
(113)
662
238
(8,084)
$
$
-
6,932
12
(242)
6,702
(1,382)
The Plan paid $238,000 in benefit payments in 2016. Estimated benefit payments under the Plan are expected
to be approximately $482,000, $490,000, $480,000, $481,000 and $471,000 for the next five years. Payments are
expected to be approximately $2,263,000 in total for the five-year period ending December 31, 2026. No
contributions were made in 2016. The Company is not required to make any contributions to the Plan in 2017.
The decrease in the projected discount rate contributed approximately $117,000 to the overall increase in the
projected benefit obligation for the year ended December 31, 2016.
The accumulated benefit obligation for the defined benefit pension plan was $8,084,000 at December 31, 2016.
The following table sets forth the amounts recognized in accumulated other comprehensive income
(in thousands):
$
Transition asset
Prior service credit
Gain
Total
(in Thousands of Dollars)
Net pension cost included the following components:
Service cost benefits earned during the period
Interest cost on projected benefit obligation
Actual return on assets
Net amortization and deferral
NET PERIODIC PENSION COST
$
$
$
-
-
490
490
2016
28
113
(180)
-
(39)
The weighted average assumptions used to determine the benefit obligation at December 31 are as follows:
2016
3.90%
Discount rate
60
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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NOTE 8 - EMPLOYEE BENEFIT PLANS (CONTINUED)
The weighted average assumptions used to determine the net periodic pension cost at December 31 are
2016
3.18%
6.50%
0.00%
as follows:
Discount rate
Expected long-term return on plan assets
Rate of compensation increase
The expected long-term return on plan assets was determined based upon expected returns on individual asset
types included in the asset portfolio.
The Plan’s weighted-average asset allocations at December 31, by asset category, are as follows:
Cash equivalents
Equity securities
Fixed income securities
Other
2016
6.1%
47.9%
42.6%
3.4%
100.00%
The Plan’s overall investment strategy is to achieve a mix of approximately 97 percent of investments for long-
term growth and 3 percent for near-term benefit payments with a wide diversification of asset types, fund
strategies, and fund managers. The target allocation for pension assets is 0 to 20 percent cash equivalents, 40 to
60 percent equity securities, 40 to 60 percent fixed income securities, and 0 to 5 percent other. Cash equivalents
consist primarily of government issues and short-term investment funds. Equity securities primarily include
investments in common stock, depository receipts, preferred stock, and real estate investment trusts. Fixed
income securities include corporate bonds, government issues, mortgaged backed securities, municipals, and
other asset backed securities.
December 31, 2016
The fair value of the Plan’s assets, by asset category, is as follows:
Quoted Market
Price in
Active Markets
(Level 1)
Other
Observable
Inputs
(Level 2)
Unobservable
Inputs
(Level 3)
Total
4
4
Cash equivalents:
Foreign currencies
Short-term investment funds
Equity securities:
Common stock
Depository receipts
Commingled Pension Trust Fund
Fixed income securities:
Corporate bonds
Government issue
Mortgage-backed securities
Collateralized mortgage
obligations
Commingled Pension Trust Fund
Other
Total
(in Thousands of Dollars)
$
$
11
33
$
11
-
$
-
33
1,430
42
1,680
307
1,112
4
68
1,732
283
1,430
42
-
-
-
-
-
-
-
-
-
1,680
307
1,112
4
68
1,732
-
$
6,702
$
1,483
$
4,936
$
-
-
-
-
-
-
-
-
-
-
283
283
62
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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NOTE 8 - EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table sets forth a summary of the changes in the Level 3 assets for the year ended December 31,
2016 (in thousands of dollars).
$
-
Balance, December 31, 2015
Purchase
Unrealized gain
Balance, December 31, 2016
-
247
247
$
FASB authoritative guidance on accounting for deferred compensation and postretirement benefit aspects
of endorsement split-dollar life insurance arrangements requires the recognition of a liability and related
compensation expense for endorsement split-dollar life insurance that provides a benefit to an employee that
extends to postretirement periods. The life insurance policies purchased for the purpose of providing such
benefits do not effectively settle an entity’s obligation to the employee. Accordingly, the entity must recognize a
liability and related compensation expense during the employee’s active service period based on the future cost
of insurance to be incurred during the employee’s retirement. This expense is included in the SERP plan expense
for 2016 discussed above. If the entity has agreed to provide the employee with a death benefit, then the liability
for the future death benefit should be recognized by following the FASB authoritative guidance on employer’s
accounting for postretirement benefits other than pensions. The accumulated postretirement benefit obligation
was $405,000 at December 31, 2016.
NOTE 9 - INCOME TAXES
Years Ended December 31,
The components of the provision for federal income taxes are as follows:
2016
Current
Deferred
$
$
1,138
746
1,884
2015
(In Thousands)
2014
$
$
2,019
(387)
1,632
$
$
2,657
(51)
2,606
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:
Percentage of Income
before Income Taxes
Years Ended December 31,
Tax at statutory rates
Tax exempt interest income, net of interest expense disallowance
Nondeductible merger expenses
Incentive stock options
Earnings and proceeds on life insurance
Other
2016
35.0 %
(13.1)
2.7
0.3
(2.8)
(0.2)
21.9 %
2015
2014
34.0 %
(11.3)
-
0.3
(1.8)
0.4
21.6 %
34.0 %
(7.7)
-
0.4
(1.5)
0.2
25.4 %
62
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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NOTE 9 - INCOME TAXES (CONTINUED)
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:
2016
2015
(In Thousands)
Deferred tax assets:
Allowance for loan losses
Deferred compensation
Purchase price adjustment
Core deposit intangible
Prepaid expenses
Pension liability
Foreclosed real estate valuation allowance
AMT tax credit carryforward
Net operating loss carryforward
Net unrealized loss on securities
Other
Total Deferred Tax Assets
Deferred tax liabilities:
Premises and equipment
Deferred loan fees
Net unrealized gains on securities
Net unrealized gain on pension liability
Purchase price adjustment
Total Deferred Tax Liabilities
Net Deferred Tax Asset
$
$
2,197
1,430
-
485
267
655
19
260
2,147
2,286
310
10,056
347
192
-
171
357
1,067
$
8,989
2,481
485
884
-
-
-
305
-
-
-
182
4,337
245
172
251
-
-
668
$
3,669
The Company’s federal and state income tax returns for taxable years through 2013 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.
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, 2016 and 2015, that the Company and the Bank meet all capital
adequacy requirements to which they are subject.
64
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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NOTE 10 - REGULATORY MATTERS AND STOCKHOLDERS’ EQUITY (CONTINUED)
As of December 31, 2016, 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 Company’s actual capital amounts and ratios are presented in the table:
To Be Well Capitalized
under Prompt
As of December 31, 2016:
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, 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)
For Capital Adequacy
Corrective Action
Actual
Purposes
Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
(Dollars in Thousands)
$107,765
101,302 13.27
14.12%
≥$61,057
≥45,793
≥8.00%
≥6.00
≥$76,321
≥61,057
≥10.00%
≥8.00
101,302 13.27
9.16
101,302
≥34,344
≥44,251
≥4.50
≥4.00
≥49,609
≥55,314
≥6.50
≥5.00
$97,750 17.09%
90,681 15.86
≥$45,751
≥34,313
≥8.00%
≥6.00
≥$57,189
≥45,751
≥10.00%
≥8.00
90,681
15.86
90,681 12.40
≥25,735
≥29,252
≥4.50
≥4.00
≥37,173
≥36,565
≥6.50
≥5.00
The Bank's ratios do not differ significantly from the Company'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, 2016.
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, 2016 and 2015 was approximately
$1,099,000 and $437,000, respectively.
64
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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NOTE 10 - REGULATORY MATTERS AND STOCKHOLDERS’ EQUITY (CONTINUED)
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, 2016, $63,246,000 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.
No options were granted under this plan in 2016. As of December 31, 2016, there were 4,058 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 24,450 shares in 2016 which included 16,000
options to employees, 6,000 shares of restricted stock to officers and 2,450 shares of restricted stock to directors.
In 2015, the Company granted 13,727 shares 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 of restricted stock 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,
2016, there were 202,523 shares available for future awards under this plan, which includes 170,173 shares
available for officer awards and 32,350 shares available for awards to outside directors. Included in these totals
are 25,250 shares available for restricted stock awards to officers and 350 shares available for restricted stock
awards to outside directors.
Total unrecognized compensation cost related to stock options was $93,000 as of December 31, 2016, $71,000
as of December 31, 2015 and $66,000 as of December 31, 2014. Salaries and employee benefits expense includes
$71,000, $66,000 and $154,000 of compensation costs related to options for the years ended December 31, 2016,
2015 and 2014, respectively. Compensation costs related to restricted stock amounted to $89,000, $55,000 and
$0 for the years ended December 31, 2016, 2015 and 2014, respectively. The expected future compensation
expense relating to non-vested restricted stock outstanding as of December 31, 2016 and 2015 was $579,000 and
$398,000 respectively. Net income was reduced by $130,000, $92,000 and $146,000 for the years ended
December 31, 2016, 2015 and 2014, respectively.
66
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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 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:
2016
Weighted
Average
Exercise
Price
2015
Weighted
Average
Exercise
Price
Options
Intrinsic
Value
Options
Intrinsic
Value
Options
Intrinsic
Value
2014
Weighted
Average
Exercise
Price
Outstanding,
beginning of year
Granted
Exercised
Forfeited
Outstanding,
end of year
Exercisable,
end of year
194,521
16,000
(30,823)
(19,269)
$
26.91
33.56
27.34
27.86
160,429
$
27.37
$ 931,963
144,429
$
26.39
$ 931,963
206,463
14,500
(16,859)
(9,583)
$
26.74
28.55
26.19
27.02
219,540
12,500
(25,577)
-
$
26.64
29.08
27.05
.0 -
194,521
$
26.91 $ 362,754
206,463
$
26.74
$ 477,640
180,021
$
26.78 $ 359,854
193,963
$
26.59
$ 477,640
Exercise prices for options outstanding as of December 31, 2016 ranged from $24.44 to $33.56 per share.
The weighted average remaining contractual life is 5.6 years.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions:
Years Ended December 31,
2015
2014
Dividend yield
Expected life
Expected volatility
Risk-free interest rate
Weighted average fair value of options granted
2016
3.93%
10 years
24.84%
2.44%
$5.79
3.77%
10 years
24.35%
2.28%
$4.89
3.57%
10 years
24.97%
2.17%
$5.30
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 $843,000 in 2016. 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 2016, all the shares issued in connection with stock option exercises,
30,823 shares in total, were issued from available treasury shares.
66
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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NOTE 11 - STOCK BASED COMPENSATION (CONTINUED)
As of December 31, 2016, outstanding stock options consist of the following:
Options
Outstanding
12,650
13,200
12,650
1,100
15,229
19,800
21,450
1,100
2,000
21,250
10,000
14,000
16,000
160,429
Total
Average
Exercise
Price
$ 28.41
25.00
25.99
24.44
25.25
24.97
27.05
27.55
28.95
26.90
29.08
28.55
33.56
Remaining
Life, Years
Options
Exercisable
1.0
2.0
3.0
3.2
4.0
5.0
6.0
6.0
6.7
7.0
8.0
9.0
10.0
12,650
13,200
12,650
1,100
15,229
19,800
21,450
1,100
2,000
21,250
10,000
14,000
-
144,429
Average
Exercise
Price
$ 28.41
25.00
25.99
24.44
25.25
24.97
27.05
27.55
28.95
26.90
29.08
28.55
.0-
A summary of the Company’s restricted stock activity and related information for the years ended
December 31 is as follows:
2016
2015
Weighted
Average
Weighted
Average
Non-vested, beginning of year
Granted
Vested
Forfeited
Non-vested at December 31
NOTE 12 - EARNINGS PER SHARE
Number
of Shares
13,810
8,450
(3,120)
(450)
18,690
Grant Date Number Grant Date
Fair Value of Shares Fair Value
$
28.82
33.56
28.85
28.80
$30.96
$
9,300
6,650
(1,860)
(280)
13,810
29.08
28.55
29.08
29.08
$28.82
The following table sets forth the computations of basic and diluted earnings per share:
Years Ended December 31,
2016
2015
2014
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 effect of stock options
Denominator: Diluted earnings per share
Basic earnings per common share
Diluted earnings per common share
(In Thousands, Except per Share Data)
$
6,711
3,877
(14)
3,863
3,863
22
3,885
1.74
1.73
$
$
$
5,908
$
7,657
3,682
(9)
3,673
3,682
9
3,691
3,645
-
3,645
3,645
12
3,657
$
$
1.60
1.60
$
$
2.10
2.10
68
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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NOTE 12 - EARNINGS PER SHARE (CONTINUED)
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 16,000, 14,000, and 12,500 for the years ended December 31,
2016, 2015 and 2014, respectively based on the closing price of the Company's common stock which was $33.14,
$28.75 and $29.05 at December 31, 2016, 2015 and 2014, respectively.
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
2016
2015
(In Thousands)
$
$
22,210
54,789
5,642
82,641
$ 19,704
48,641
5,286
73,631
$
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.
68
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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NOTE 14 - FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
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
Level 2:
identical, 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).
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, 2016 and 2015 are as follows (in thousands):
Fair Value Measurement Reporting Date using
Description
December 31, 2016
Total
Level 1
Level 2
Level 3
Available for Sale:
U.S. Treasury securities
States and political subdivisions
Corporate obligations
Mortgage-backed securities-government
sponsored entities
Equity securities-financial services
Total available for sale
December 31, 2015
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
$
$
$
$
1,997
125,101
10,112
164,930
424
302,564
9,169
60,755
4,974
63,569
384
138,851
$
$
$
$
-
-
-
-
424
424
-
-
-
-
384
384
$
$
$
$
1,997
125,101
10,112
164,930
-
302,140
9,169
60,755
4,974
63,569
-
138,467
$
$
$
$
-
-
-
-
-
-
-
-
-
-
-
-
70
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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NOTE 14 - FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
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, 2016 and 2015 are as follows (in thousands):
Description
Level 2
Total
December 31, 2016
Fair Value Measurement Reporting Date using
Level 1
Level 3
Impaired Loans
Foreclosed real estate
December 31, 2015
Impaired Loans
Foreclosed real estate
$
$
2,624
5,302
7,615
2,847
$
$
$
$
-
-
-
-
-
-
-
-
$
$
2,624
5,302
7,615
2,847
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, 2016
(dollars in thousands)
Impaired Loans
Impaired Loans
Quantitative Information about Level 3 Fair Value Measurements
Fair Value
Estimate
Valuation
Techniques
Unobservable
Input
Range
(Weighted Average)
$
$
1,473
1,151
$
5,302
Appraisal of
collateral(1)
Appraisal
adjustments(2)
Present value
of future cash
flows
Loan discount rate
Probability of default
10% (10%)
4-5.25% (5.11%)
0%
10%
Forclosed real estate owned
December 31, 2015
Appraisal of
collateral(1)
Liquidation
expenses(2)
Impaired Loans
Impaired Loans
Forclosed real estate owned
$
$
$
2,574
5,041
2,847
Appraisal of
collateral(1)
Appraisal
adjustments(2)
10% (10%)
Present value
of future cash
flows
Appraisal of
collateral(1)
Loan discount rate
Probability of default
4-7% (5.61%)
0%
Liquidation
expenses(2)
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.
70
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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NOTE 14 - FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
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, 2016 and 2015.
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) 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 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, 2016, the fair value investment in impaired loans totaled $2,624,000 which included seven
loans 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, 2016, the Company has recognized charge-offs against
the allowance for loan losses on these impaired loans in the amount of $831,000 over the life of the loans.
72
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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NOTE 14 - FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
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.
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.
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.
72
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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NOTE 14 - FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
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.
The estimated fair values of the Bank’s financial instruments were as follows at December 31, 2016 and
December 31, 2015 (In thousands):
Fair Value Measurements at December 31, 2016
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
Off-balance sheet financial instruments:
Accrued interest payable
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
$
17,174
302,564
707,426
232
2,119
36,133
3,643
$
17,174
302,564
716,661
250
2,119
36,133
3,643
$
17,174
424
-
-
2,119
36,133
3,643
$
-
302,140
-
-
-
-
-
$
-
-
716,661
250
-
-
-
925,385
32,811
32,001
1,069
925,561
32,811
31,863
1,069
629,829
32,811
-
1,069
-
-
-
-
-
-
-
-
295,732
-
31,863
-
-
Fair Value Measurements at December 31, 2015
Carrying
Amount
Fair Value
Level 1
Level 2
Level 3
$
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
-
-
-
-
-
Deposits
Short-term borrowings
Other borrowings
Off-balance sheet financial instruments:
Accrued interest payable
550,909
53,235
41,126
957
551,175
53,235
41,260
957
354,162
53,235
-
957
Commitments to extend credit
and outstanding letters of credit
-
-
-
-
-
-
-
-
-
-
559,416
291
-
-
-
197,013
-
41,260
-
-
74
75
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 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, 2016 and 2015:
Balance as of December 31, 2015
Other comprehensive loss before reclassification
Amount reclassified from accumulated
other comprehensive income
Total other comprehensive loss
Balance as of December 31, 2016
Balance as of December 31, 2015
Other comprehensive loss before reclassification
Amount reclassified from accumulated other
comprehensive income
Total other comprehensive loss
Balance as of December 31, 2016
Unrealized gains
(losses) on
available for sale
488
$
securities (a)
(4,740)
$
Unrealized gain on
-
pension liability (a)
318
$
Total (a)
488
(4,422)
(185)
(4,925)
(4,437)
$
$
-
318
318
(185)
(4,607)
(4,119)
$
Unrealized gains
(losses) on
available for sale
securities (a)
462
439
$
(413)
26
488
$
(a) All amounts are net of tax. Amounts in parentheses indicate debits.
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, 2016:
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
2016
December 31,
284
(99)
185
$
$
Twelve
months ended
2015
December 31,
$
$
626
(213)
413
Net realized gains on sales of securities
Income tax expense
Net of tax
(a) Amounts in parentheses indicate debits to net income.
74
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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NOTE 16 – ACQUISITION OF DELAWARE BANCSHARES, INC.
On July 31, 2016, Norwood Financial Corp. (the “Company”) closed on its acquisition of Delaware Bancshares, Inc.
(“Delaware”) pursuant to the terms of the Agreement and Plan of Merger, dated March 10, 2016, by and among the
Company, Wayne Bank, Delaware and The National Bank of Delaware County (the “Merger Agreement”).
Pursuant to the terms of the Merger Agreement, Delaware was merged with and into the Company, with the
Company as the surviving corporation of the merger (the “Merger”). At the effective time of the Merger, each
outstanding share of the common stock of Delaware was converted into, at the election of the holder but subject
to the limitations and allocation and proration provisions set forth in the Merger Agreement, either $16.68 in
cash or 0.6221 of a share of the common stock, par value $0.10 per share (the “Common Stock”) of the Company.
In the aggregate, the merger consideration paid to Delaware shareholders consisted of approximately $3,860,000
in cash and 431,605 shares of Norwood common stock. Immediately following the Merger, The National Bank of
Delaware County (“NBDC”) was merged with and into Wayne Bank, a wholly-owned subsidiary of the Company,
with Wayne Bank as the surviving entity.
In connection with the Merger, the Company assumed the obligations of Delaware under the Indenture, dated
as of October 31, 2007, by and between Delaware, as issuer, and Wells Fargo Bank, National Association, as
trustee (the “Indenture”) and Delaware’s Junior Subordinated Debt Securities, due January 1, 2038 (the “Debt
Securities”) issued thereunder. The Debt Securities were issued by Delaware in connection with a private
placement completed on October 31, 2007 of $8.0 million of trust preferred securities issued through the
Delaware Bancshares Capital Trust I (the “Trust”). The proceeds from the initial sale of the trust preferred
securities were used by the Trust to purchase the Debt Securities. The Debt Securities bore interest at a variable
rate which reset quarterly at LIBOR plus 2.4%, and were redeemable, in whole or in part, without penalty, at the
option of the Company, beginning on January 1, 2013 and on any January 1, April 1, July 1 or October 1 thereafter.
The interest payments on the Debt Securities made by the Company were used to pay the quarterly distributions
payable by the Trust to the holders of the trust preferred securities. On October 3, 2016, the Company redeemed
the Debt Securities and the trust preferred securities in full.
The acquired assets and assumed liabilities were measured at estimated fair values. Management made
significant estimates and exercised significant judgment in accounting for the acquisition. Management
measured loan fair values based on loan file reviews, appraised collateral values, expected cash flows, and
historical loss factors of NBDC. The Company also recorded an identifiable intangible asset representing the
core deposit base of NBDC based on management’s evaluation of the cost of such deposits relative to alternative
funding sources. Management used significant estimates including the average lives of depository accounts,
future interest rate levels, and the cost of servicing various depository products. Management used market
quotations to determine the fair value of investment securities.
The business combination resulted in the acquisition of loans with and without evidence of credit quality
deterioration. NBDC loans were deemed impaired at the acquisition date if the Company did not expect to
receive all contractually required cash flows due to concerns about credit quality. Such loans were fair valued
and the difference between contractually required payments at the acquisition date and cash flows expected to be
collected was recorded as a non-accretable difference. At the acquisition date, the Company recorded $1,410,000
of purchased credit-impaired loans subject to a non-accretable difference of $260,000. The method of measuring
carrying value of purchased loans differs from loans originated by the Company (originated loans), and as such,
the Company identifies purchased loans and purchased loans with a credit quality discount and originated loans
at amortized cost.
76
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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NOTE 16 – ACQUISITION OF DELAWARE BANCSHARES, INC. (CONTINUED)
NBDC’s loans without evidence of credit deterioration were fair valued by discounting both expected principal
and interest cash flows using an observable discount rate for similar instruments that a market participant would
consider in determining fair value. Additionally, consideration was given to management’s best estimates of
default rates and payment speeds. At acquisition, NBDC’s loan portfolio without evidence of deterioration totaled
$111,307,000 and was recorded at a fair value of $109,693,000.
The following table summarizes the purchase of Delaware Bancshares, Inc. as of July 31, 2016:
(Dollars In Thousands, Except Per Share Data)
Purchase Price Consideration in Common Stock
Delaware Bancshares, Inc. common shares settled for stock
Exchange Ratio
Norwood Financial Corp. shares issued
Value assigned to Norwood Financial Corp. common share
Purchase price assigned to Delaware Bancshares, Inc. common shares
exchanged for Norwood Financial Corp.
Purchase Price Consideration – Cash for Common Stock
Delaware Bancshares, Inc. shares exchanged for cash
Purchase price paid to each Delaware Bancshares, Inc.
common shares exchanged for cash
Purchase price assigned to Delaware Bancshares, Inc.
common shares exchanged for cash
Purchase price consideration-Cash in Lieu of Fractional Shares
Total Purchase Price
Net Assets Acquired:
Delaware Bancshares, Inc. shareholders’ equity
Delaware Bancshares, Inc. goodwill and intangibles
Adjustments to reflect assets acquired at fair value:
Total tangible equity
Investments
Loans
Interest rate
General credit
Specific credit- non-amortizing
Specific credit – amortizing
Core deposit intangible
Deferred loan fees
Premises and equipment
Allowance for loan and lease losses
Deferred tax assets
Other
Adjustments to reflect liabilities acquired at fair value:
Time deposits
Goodwill resulting from merger
694,114
0.6221
431,605
28.15
$
231,385
$
16.68
$ 19,357
(7,640)
11,717
219
1,486
(1,614)
(260)
(239)
449
(296)
3,053
1,651
(1,417)
(97)
(252)
$ 12,150
$
3,860
6
$ 16,016
14,400
1,616
$
76
77
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NOTE 16 – ACQUISITION OF DELAWARE BANCSHARES, INC. (CONTINUED)
The following condensed statement reflects the values assigned to Delaware Bancshares, Inc. net assets as of
acquisition date:
(In Thousands)
Total purchase price
Net assets acquired:
Cash
Securities available for sale
Loans
Premises and equipment, net
Regulatory stock
Accrued interest receivable
Bank-owned life insurance
Core deposit intangible
Deferred tax assets
Other assets
Time deposits
Deposits other than time deposits
Borrowings
Accrued interest payable
Other liabilities
$ 16,016
$ 14,977
208,488
116,674
7,292
279
1,626
14,762
449
3,034
3,282
(71,342)
(255,921)
(21,232)
(95)
(7,873)
Goodwill resulting from Delaware Bancshares, Inc. Merger
14,400
1,616
$
The Company recorded goodwill and other intangibles associated with the purchase of Delaware Bancshares,
Inc. totaling $1,616,000. Goodwill is not amortized, but is periodically evaluated for impairment. The Company
did not recognize any impairment during the twelve months ended December 31, 2016. The carrying amount of
the goodwill at December 31, 2016 related to the Delaware acquisition was $1,616,000.
Identifiable intangibles are amortized to their estimated residual values over the expected useful lives. The core
deposit intangible recorded with the purchase of Delaware is being amortized over ten years. Such lives are also
periodically reassessed to determine if any amortization period adjustments are required. During the twelve
months ended December 31, 2016, no such adjustments were recorded. The identifiable intangible assets consist
of a core deposit intangible which is being amortized on an accelerated basis over the useful life of such assets.
The gross carrying amount of the core deposit intangible at December 31, 2016 was $449,000 with $14,000
accumulated amortization as of that date.
As of December 31, 2016, the current year and estimated future amortization expense for the core deposit
intangible is:
(In thousands)
2017
2018
2019
2020
2021
After five years
$
$
30
30
30
30
30
299
449
78
79
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NOTE 16 – ACQUISITION OF DELAWARE BANCSHARES, INC. (CONTINUED)
Results of operations for Delaware Bancshares, Inc. prior to the acquisition date are not included in the
Consolidated Statement of Income for the year ended December 31, 2016. Due to the significant amount of fair
value adjustments, historical results of Delaware Bancshares, Inc. are not relevant to the Company’s results of
operations. Therefore, no pro forma information is presented.
The following table presents financial information regarding the former Delaware Bancshares, Inc. operations
included in our Consolidated Statement of Income from the date of acquisition through December 31, 2016 under
the column “Actual from acquisition date through December 31, 2016”. In addition, the following table presents
unaudited pro forma information as if the acquisition of Delaware Bancshares, Inc. had occurred on January 1,
2016 and 2015 under the “Pro Forma” columns. The table below has been prepared for comparative purposes
only and is not necessarily indicative of the actual results that would have been attained had the acquisition
occurred as of the beginning of the periods presented, nor is it indicative of future results. Furthermore, the
unaudited pro-forma information does not reflect management’s estimate of any revenue-enhancing
opportunities nor anticipated cost savings as a result of the integration and consolidation of the acquisition.
Merger and acquisition integration costs and amortization of fair value adjustments are included in the
numbers below.
(In Thousands, Except Per Share Data)
Net interest income
Non-interest income
Net income
Pro forma earnings per share:
Basic
Diluted
Actual From
Acquisition Date
Through
2016
December 31,
3,900
893
750
$
$
$
0.18
0.18
$
$
$
Nonrecurring merger and acquisition integration costs included in the pro-forma table above are
(in thousands):
-
$
$
2016
Pro Forma
2015
Year Ended December 31,
37,199
6,487
3,588
0.87
0.87
1,602
638
810
$
$
$
33,787
7,939
6,944
1.69
1.68
$
80
-
-
Professional fees
Data Processing related
Other
-
-
78
79
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 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:
Undistributed earnings of bank subsidiary
Net Cash Provided by Operating Activities
Other, net
CASH FLOWS FROM INVESTING ACTIVITIES
Net Cash Used in Investing Activities
Outlays for business acquisitions
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of borrowings
Stock options exercised
Tax benefit of stock options exercised
ESOP purchase of shares from treasury stock
Purchase of treasury stock
Net Cash Used in Financing Activities
Cash dividends paid
Net Increase in Cash and Cash Equivalents
December 31,
2016
2015
(In Thousands)
$
3,005
397
105,138
4,539
$ 113,079
$
2,000
111,079
$ 113,079
$
2,151
384
95,895
4,113
$ 102,543
1,545
$
100,998
$ 102,543
Years Ended December 31,
2016
2015
(In Thousands)
2014
$
$
$
28,598
12
28,610
1,347
27,263
(225)
27,488
(20,777)
6,711
2,104
$
$
$
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
Years Ended December 31,
2016
2015
(In Thousands)
2014
$
6,711
$
5,908
$
7,657
20,777
(305)
27,183
(2,324)
(2,324)
(19,856)
843
38
131
(447)
(4,714)
(24,005)
854
(1,533)
(19)
4,356
(3,502)
177
4,332
-
-
-
-
-
441
16
146
(127)
(4,527)
(4,051)
305
-
691
17
150
(179)
(4,370)
(3,691)
641
1,846
2,151
1,205
1,846
$
$
CASH AND CASH EQUIVALENTS - BEGINNING
CASH AND CASH EQUIVALENTS - ENDING
2,151
3,005
$
80
81
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
NORWOOD FINANCIAL CORP - 2016 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, 2016
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.
80
81
NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT
THIS PAGE INTENTIONALLY LEFT BLANK
82
L E T T E R F R O M T H E P R E S I D E N T
The year’s most exciting news was Wayne Bank’s
acquisition of NBDC and its twelve Community
Offices in Delaware and Sullivan counties, New York.
W e are pleased to share with you this Annual Report, which recaps the Company’s achievements and
performance in 2016. As you are aware, we successfully completed the acquisition and integration of
Delaware Bancshares, Inc. and its subsidiary, NBDC Bank, in the third quarter. With this transaction, the Company
increased its size to $1.1 billion in total assets, $713.9 million in loans, and $925.4 million in total deposits as of
December 31, 2016. We earned $6,711,000 for the year, an increase of $803,000 over the $5,908,000 earned in 2015.
This resulted in an earnings per share of $1.73 in 2016 compared to $1.60 in 2015. The increases over the prior year
were after the one-time expenses of $1,806,000 related to the acquisition. We also benefited from the aggressive
action we took in 2015 to address non-performing loans. Credit quality
metrics improved in 2016 with a significantly lower level of non-performing
loans and reduced charge-offs. The Company also increased the dividend in
2016 which marks the 25th consecutive year of increases. I encourage you to
read the Financial Statements and Management’s Discussion and Analysis
for a full report on our performance.
In 2016, Wayne Bank’s mission of Helping the Community Grow by
serving local businesses and their employees celebrated 145 years of success.
Wayne Bank’s primary goal as a community bank is to directly fund local
businesses with money that comes from the local economy and, as a result,
is reinvested back into it. Supporting our local businesses is essential to the
continued growth and prosperity of the community we call home. We offer
most everything the larger banks do, but in small town Community Offices
with local people who genuinely care about helping local businesses grow and
thrive. Wayne Bank is committed to offering a complete line of products and
services that deliver comprehensive solutions for the challenges our customers
face in today’s changing world.
LEWIS J. CRITELLI
PRESIDENT AND CEO
Supporting our local businesses is essential
to the continued growth and prosperity
of the community we call home.
NORWOOD FINANCIAL CORP
NORWOOD FINANCIAL CORP
Wayne Bank continues to excel at serving local municipalities, school districts, and
governmental authorities by providing both the local and financial expertise for the
unique needs of these organizations. Another sector that saw enviable growth in 2016
was indirect lending though automobile, marine, and recreational vehicle dealers. The
Bank’s dealer center has continued to build strong relationships and offer competitive
financing to the businesses in our area.
The year’s most exciting news was Wayne Bank’s acquisition of NBDC and its
twelve Community Offices in Delaware and Sullivan counties, New York. The new
offices have been a great fit geographically, demographically, and culturally, giving
Wayne Bank twenty-six Community Offices across two states and six counties. The
acquisition significantly increased the Bank’s deposit and loan accounts. Deposit
accounts now total nearly 57,000, an increase of 56%, and loan accounts of 10,600, a
47% growth. Another exciting result of the acquisition occurred when the Company
began its branding initiative for the new offices. This gave the Bank the perfect
opportunity to invigorate its look and improve visibility by changing the color of its
logo to a refreshing blue color, creating a visually impressive impact with the installation
of blue Wayne Bank signs at the New York Community Offices.
In addition to enjoying an enhanced loan and deposit rate structure, New York
customers can now take advantage of numerous new technology improvements. These
include a branded consumer mobile app updated to offer instant balance functionality,
a branded business mobile app with mobile deposit capture, tablet apps, remote
deposit capture for business customers, enhanced debit card services including Card
Valet, Apple Pay, Visa Checkout, and 23,000 surcharge-free MoneyPass compatible
ATM locations.
26
O F F I C E S
s ta t e s
2
6
c o u n t i e s
> $1
b i l l i o n
IN ASSETS
Wayne Bank’s information technology department
is always working to counter evolving security
threats, prevent fraud, and protect customer data.
d i r e c t o r y o f o f f i c e r s
NORWOOD FINANCIAL CORP
WILLIAM W. DAVIS, JR. ...............................................CHAIRMAN OF THE BOARD
DR. ANDREW A. FORTE...................................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
WILLIAM W. DAVIS, JR. ...............................................CHAIRMAN OF THE BOARD
DR. ANDREW A. FORTE...................................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,
CHIEF LENDING OFFICER
JOHN F. CARMODY ..................................................EXECUTIVE VICE PRESIDENT,
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
JOSEPH A. CASTROGIOVANNI.....................................SENIOR VICE PRESIDENT
KENNETH C. DOOLITTLE .............................................SENIOR VICE PRESIDENT
RYAN J. FRENCH ................................................................SENIOR VICE PRESIDENT
JOANN FULLER ..................................................................SENIOR VICE PRESIDENT
NANCY A. HART ............................................................... SENIOR VICE PRESIDENT,
CONTROLLER & ASSISTANT SECRETARY
DAWNETTE HOTALING.................................................SENIOR VICE PRESIDENT
LINDA D. MADER...............................................................SENIOR VICE PRESIDENT
VINCENT O’BELL ..............................................................SENIOR VICE PRESIDENT
JOHN VELEBER ..................................................................SENIOR VICE PRESIDENT
BARBARA A. RIDD ....................... VICE PRESIDENT & ASSISTANT SECRETARY
ROBERT J. BEHRENS, JR. .................................................................. VICE PRESIDENT
PILAR CUEVA ...................................................................................... VICE PRESIDENT
KAREN R. GASPER ............................................................................ VICE PRESIDENT
AMANDA HALL ................................................................................. VICE PRESIDENT
JOHN E. KOCZWARA ....................................................................... VICE PRESIDENT
JULIETTE P. MCKERRELL ............................................................... VICE PRESIDENT
MARY ALICE PETZINGER .............................................................. VICE PRESIDENT
HEIDI PICKETT ................................................................................. VICE PRESIDENT
MARK W. RANZAN ........................................................................... VICE PRESIDENT
RICHARD A. SIARNIAK ................................................................... VICE PRESIDENT
KARA R. SUCHY ................................................................................. VICE PRESIDENT
ELI T. TOMLINSON ........................................................................... VICE PRESIDENT
DOUGLAS W. ATHERTON ......................................ASSISTANT VICE PRESIDENT
DEREK BELLINGER ..................................................ASSISTANT VICE PRESIDENT
STEVEN R. DANIELS ................................................ASSISTANT VICE PRESIDENT
JULIE R. KUEN ............................................................ASSISTANT VICE PRESIDENT
BONNIE LOCKETT ...................................................ASSISTANT VICE PRESIDENT
EILEEN MERSHON ...................................................ASSISTANT VICE PRESIDENT
FRANK J. SISLO ...........................................................ASSISTANT VICE PRESIDENT
MICHELE BAILEY ............................................... COMMUNITY OFFICE MANAGER
JODI BAIR .............................................................. COMMUNITY OFFICE MANAGER
KAREN BEISSEL .................................................. COMMUNITY OFFICE MANAGER
ROSIE DEMORIZI-ORTIZ ................................ COMMUNITY OFFICE MANAGER
APRIL EPPS ........................................................... COMMUNITY OFFICE MANAGER
CRAIG D. GRIMM ................................................ COMMUNITY OFFICE MANAGER
JILL A. HESSLING ............................................... COMMUNITY OFFICE MANAGER
TERESA HYNES .................................................. COMMUNITY OFFICE MANAGER
VONNIE A. LEWIS .............................................. COMMUNITY OFFICE MANAGER
GERALDINE MOORE ......................................... COMMUNITY OFFICE MANAGER
SANDRA C. MRUCZKEWYCZ ........................ COMMUNITY OFFICE MANAGER
MADELINE PORTUGAL ................................... COMMUNITY OFFICE MANAGER
DEBRA RENWICK .............................................. COMMUNITY OFFICE MANAGER
ELAINE REUTHE ................................................ COMMUNITY OFFICE MANAGER
DENISE ROLLISON ............................................ COMMUNITY OFFICE MANAGER
CHRISTINE ROUTLEDGE ............................... COMMUNITY OFFICE MANAGER
JESSICA SANTIAGO ........................................... COMMUNITY OFFICE MANAGER
DIANA SUNNEKALB ......................................... COMMUNITY OFFICE MANAGER
MATTHEW M. SWARTZ ................................... COMMUNITY OFFICE MANAGER
TANYIA VANNATTA ......................................... COMMUNITY OFFICE MANAGER
BEVERLY J. WALLACE ........................................ COMMUNITY OFFICE MANAGER
LAURIE J. BISHOP ...................... ASSISTANT COMMUNITY OFFICE MANAGER
WENDY L. DAVIS ....................... ASSISTANT COMMUNITY OFFICE MANAGER
TIMOTHY GUTLIPH ................ ASSISTANT COMMUNITY OFFICE MANAGER
DENISE R. KERN ........................ ASSISTANT COMMUNITY OFFICE MANAGER
ERIN MASON .............................. ASSISTANT COMMUNITY OFFICE MANAGER
KIMBERLY MICHALEK ............ ASSISTANT COMMUNITY OFFICE MANAGER
DIANE L. RICHTER ................... ASSISTANT COMMUNITY OFFICE MANAGER
CHERYL WILKERSON .............. ASSISTANT COMMUNITY OFFICE MANAGER
GERALD J. ARNESE .......................................................CONSUMER LOAN OFFICER
KRISTINE MALTI ..................................................................DEPOSIT OPERATIONS/
ELECTRONIC BANKING OFFICER
MARIANNE MCCONEGHY .................................. TRUST OPERATIONS OFFICER
LINDA A. MESKEY ............................................................................ CREDIT ANALYST
AMANDA R. MILLER .......COMMERCIAL LOAN DOCUMENTATION OFFICER
KATHRYN A. SERNIAK ................................................MORTGAGE LOAN OFFICER
GARY STEICH ........................................................RESOURCE RECOVERY OFFICER
DOREEN A. SWINGLE ............RESIDENTIAL MORTGAGE LENDING OFFICER
BONNIE TAYLOR .........................................................ASSISTANT TRUST OFFICER
NORWOOD INVESTMENT CORP
LEWIS J. CRITELLI ..........................PRESIDENT & CHIEF EXECUTIVE OFFICER
WILLIAM S. LANCE .................................................................................... TREASURER
SCOTT C. RICKARD ....................... SENIOR INVESTMENT REPRESENTATIVE,
INVEST FINANCIAL CORP
MONROE COUNTY ASSOCIATE BOARD
MICHAEL J. BAXTER
SARA CRAMER
DR. ANDREW A. FORTE
RALPH A. MATERGIA, ESQ.
JAMES H. OTT
MARVIN PAPILLON
RAY PRICE
RON SARAJIAN
NEW YORK ADVISORY BOARD
MICHAEL P. DEGROAT
LEONARD A. GOVERN
DOUGLAS A. SLUITER
PATRICK P. GALLOWAY
MEG HUNGERFORD
JOEL SMITH
2016 A N N U A L R E P O R T
1
R E A C H I N G N E W H E I G H T S
2
2016 A N N U A L R E P O R T
N
O
R
W
O
O
D
F
I
N
A
N
C
I
A
L
C
O
R
P
2
0
1
6
A
N
N
U
A
L
R
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P
O
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T
R E A C H I N G
N E W
H E I G H T S
2016
W A Y N E B A N K . C O M
A N N U A L R E P O R T
NORWOOD FINANCIAL CORP
NORWOOD FINANCIAL CORP
S u m m a r y o f S e l e c t e d F i n a n c i a l D a t a
(dollars in thousands except per share data)
FOR THE YEARS ENDED DECEMBER 31,
2016
2015
2014
2013
2012
Net interest income
Provision for loan losses
Other income
Net realized gains on sales of loans and 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
Trust assets under management
$28,590
$24,521
$24,560
$24,661
$24,764
2,050
4,580
1,680
2,400
2,450
23,124
17,100
4,841
338
8,595
1,884
$1.74
$1.73
$1.25
3,969
730
7,540
1,632
$1.60
$1.60
$1.24
3,940
1,170
17,727
10,263
2,606
$2.10
$2.10
$1.20
4,734
881
16,705
11,171
2,706
$2.33
$2.33
$1.16
3,787
1,419
16,081
11,439
3,036
$2.33
$2.33
$1.10
$6,711
$5,908
$7,657
$8,465
$8,403
71.84%
77.50%
57.14%
49.79%
47.23%
0.74%
6.17%
0.80%
5.83%
1.08%
7.92%
1.23%
9.13%
1.23%
9.22%
$1,111,183
$750,505
$711,635
$711,234
$672,299
713,889
559,925
501,135
503,097
476,710
6,463
925,385
111,079
138,167
7,298
550,909
100,998
131,690
5,875
5,708
5,502
559,944
541,182
524,425
99,041
91,864
92,421
134,888
126,673
112,081
Book value per share*
$26.15
$27.39
$26.30
$25.43
$25.49
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
13.27%
14.12%
0.91%
0.64%
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%
* Per share information has been restated to reflect the 10% stock dividend declared in 2013.
2016 A N N U A L R E P O R T